Taxes: How low can you go?

May 24, 2012

Are your taxes too high? When Gallup asked that question in April, tax month in the United States, 46 percent said they were. An additional 47 percent said their taxes were “about right.” Just 3 percent said their taxes were too low.

This campaign season reflects that result. Mitt Romney, the Republican candidate, is offering a 20 percent tax cut for everyone. Given the mood of the conservatives in the United States today, that may not surprise you. But even President Barack Obama, who is routinely described as a socialist by his opponents, is peddling a plan under which 99 percent of Americans would pay less than they did under the last Democrat in the White House, Bill Clinton.

This bipartisan agreement that the overwhelming majority of Americans should pay lower taxes than they did in the 1990s is remarkable for many reasons. For one thing, we are constantly hearing – and it is true – that U.S. politics is more polarized than ever. But unless you are a member of the 1 percent, on this core issue there is a lot more consensus than you might think. Political strategists on both sides, it turns out, know how to read poll data.

But the really surprising thing about the no-more-tax consensus is how much of an outlier it makes the United States compared both with the rest of the world and with itself in recent history. When it comes to foreign policy or to global economic dominance, American exceptionalism may indeed be in jeopardy. But when it comes to taxes, the United States is quite different from most other Western industrialized economies.

According to the International Monetary Fund, in 2011, among the world’s 30 leading Western economies (plus Japan), only in New Zealand and in Japan was government revenue a lower share of gross domestic product than in the United States. Countries like Australia, Estonia, Ireland and Switzerland, which tend to favor low taxes and a small state, have government revenue that accounts for more of GDP than it does in the United States.

The Internal Revenue Service is also relatively restrained compared with recent U.S. history. In 1945, at the close of World War Two, federal tax receipts were 20.4 percent of GDP (expenditures, by the way, were 41.9 percent, putting the federal budget deficit at 21.5 percent, compared with 8.7 percent in 2011). In 1952, the year the Republican Dwight Eisenhower was elected president, federal government revenue was 19 percent of GDP. In 1988, the last year of Ronald Reagan’s transformational conservative presidency, the federal tax take was 18.2 percent of GDP.

Compare those figures with that of today, when a Democrat is in the White House, nearly half of Americans think their taxes are too high, and both parties are promising to keep taxes low for all, or, in the case of the Democrats, 99 percent of Americans. In 2011, government revenue was 15.4 percent of GDP, lower than it was at any time during the Eisenhower or Reagan eras. Like anorexics, who think they are grossly fat when they are very thin, the American body politic is suffering from a national version of body dysmorphia, with nearly half the country believing taxes are high, when they are comparatively and historically low.

Thomas E. Mann , the Brookings Institution scholar and co-author of an influential new book on the polarization of U.S. politics, traces American thinking about taxes to the success of conservatives, particularly of the anti-tax crusader Grover G. Norquist, in steering the national conversation.

“This is more of an elite phenomenon,” Mann said. “It’s ideological. It’s tribal now because of the Grover Norquist taxpayer pledge. It’s as if Republicans, even if they think in more pragmatic terms, are not allowed to even consider raising taxes and certainly should be pushing at all times to cut taxes further … It’s become Scripture.”

“One can’t talk rationally or on any evidence-based discussion of tax policy,” he said. “It’s assumed cutting taxes always does good.”

Mann wishes the country could have a more “rational” and “evidence-based” discussion about taxes. But perhaps the problem is the opposite. The Democrats may have lost the debate about taxes in the United States not because the country gave up on reason but because the left gave up on politics.

Conservative arguments for low taxes are sometimes couched in technocratic terms – the supply-side view that low taxes will mean higher growth for everyone – but the right has never been shy about talking about tax policy in terms of values as well. Low taxes are part of the bigger fight for personal freedom and a small state. The left, by contrast, has been more reluctant to make the case for higher taxes as the worthwhile price of better public services and a stronger social safety net.

But the IMF’s international comparison suggests that taxes really are as much the domain of the politician and the moral philosopher as they are of the economist and the accountant. Some economically successful countries that believe in a strong state levy high taxes, like Germany or Sweden. Some economically successful countries believe in a smaller state and levy lower taxes, like Australia, and, yes, the United States. Meanwhile, in economically stagnant Japan, government revenue is an even lower share of GDP than it is in the United States, while in struggling Spain it is higher, although still lower than in Canada or Germany.

Leaving the tax debate to the technocrats is tempting, but Norquist has a point. The level of taxes, and therefore the size of the state, is chiefly a political choice, and it is one the left in the United States is too scared to address head on.


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All tax analysis whether from the right or the left assume and share a common understanding of economics. Although all recognize the difference between consumer products and services and producer products and services, these radically different economic flows are lumped together in nearly all data collected, for example a country’s GDP. All taxes are equally lumped together as though taxes on consumer has the same effect as taxes on producer goods and services. They don’t but there is no data to prove this. This insight is similar to Einstein’s theory prior to it being proven empirically.

The whole modern grasp of the economy fails to appreciate the different impacts these two flows have on the economy as a whole, and more critically, the relation the two flows have relative to one another within the economic structure as a whole.

As Thomas Kuhn argued in his classic work of 1962, scientist tend to think within a commonly accepted horizon of understanding. Our problem is that this horizon is inadequate; in fact, misleading. A powerful argument, but still incomplete, was presented by Catholic priest, philosopher, cognitional theorist, and methodologist, Bernard J. Lonergan. But like those not in the club, little or no attention has been given to his thought.

Posted by Metaxy | Report as abusive

Using taxes as a proxy for the “size of the state” is not accurate unless you include taxes yet to be paid (i.e., deficit spending), imperialistic activity (e.g., occupying other countries), incarceration of people for victimless crimes (i.e., non-crimes), and excessive and expensive regulation which is probably equal to taxes in the overall negative impact on society. Finally, to a large extent this article implies that we should be happy that we’re being raped by a smaller instrument then most people think we’re being raped by. I would prefer not to be raped at all! I absolutely do not consent to the fiscal pedophilia that our politicians (Rs and Ds) continue to support.

Posted by Bosko | Report as abusive

It’s unfortunate that this piece wasn’t very accurate. It ignores basic economics and very kindly thumbs its nose at some of the most important fundamental arguments against taxes without mentioning that the Euro is failing because of extreme taxation and spending (France has a 75% tax on their wealthy, it’s no wonder they’re leaving in droves). It’s easy to think more taxes is good when government propaganda tells you it is on television, internet, public education, and etc. We have to remember that government is an institution which seeks to control its constituents; it seeks to feed itself on your money at all cost. When it can’t, it proceeds to throw a tantrum at those who would rather put individuality, fiscal responsibility, and liberty above the state, calling them selfish and generating lies about about capitalists seeking the destruction of the common good. It amazes me the arrogance of those that unknowingly fail to see history objectively, repeat those mistakes a generation later, and then have the audacity to wonder why their ‘new’ ideas predictably fail. Give me liberty or give me death.

Posted by starved4reason | Report as abusive

“Like anorexics, who think they are grossly fat when they are very thin, the American body politic is suffering from a national version of body dysmorphia, with nearly half the country believing taxes are high, when they are comparatively and historically low.”

Cleverly put. But to put things into context one has to consider that for the last 50 years real wages in America have steadily fallen. So for a great many Americans (perhaps the half that are complaining) their disdain for higher taxes is quite logical, sensible, and justifiable.

Posted by GLK | Report as abusive

America’s taxation problem isn’t merely what percentage is collected, but what percentage is re-distributed and to whom. Our revenues would be just fine to meet our State needs if we had stricter enforcement policies regarding welfare aid collection and foreign aid distribution. I have no problem paying my fair share in taxes but would like to entrust our government to do right by redistributing those taxes back to the States with the proper methodologies. Putting foreign aid over State security is not using the collection and distribution system the way it was intended by our forefathers when taxation orginated.

Posted by QuidProQuo | Report as abusive

What do we pay the military for? Protection of the citizens. Why isn’t that reason also valid for paying for social security and medical care for the indigent? They are American citizens and they need protection.

Why is it okay to ‘help’ Americans by shooting cruise missiles at Iraqis but not okay to actually provide unemployment benefits? I see a completely different form of moral hazard–that of the hypocrite who loves America but doesn’t really like most Americans.

Posted by Banj0man | Report as abusive

The military protects us from those things we cannot protect ourselves from.

Social security and medicare are supposed to be trust fund programs in which employees and employers contribute during the employees’ working life time and then withdrawn during retirement.

Entitlement/social programs are welfare given to people who do no take responsibility for their lives. These freeloaders want someone else to pay for their wants, same as thieves.

The only help these people need is a strong dose of discipline and forced maturity, but definitely no economic benefits.

Censorship is evil.

Posted by ALLSOLUTIONS | Report as abusive

You can state it a hundred times and the brain-washed, unwashed lemmings of Faux News will never hear you. You can’t contradict their ideologies with “facts”. In the world of Faux News, “facts” follow the Palin Rule: “If you don’t know something, just make it up.”

Posted by ptiffany | Report as abusive

This article ignores a glaring fact; citizens of the United States are subject to a multitude of taxing bodies. While federal taxes have remained low, the states, counties, municipalities, and myriad special districts have been mighty busy jacking up taxes to the breaking point. To use my own example as a resident of Oak Park, Illinois, my state income taxes increased 67% in one year; my property taxes increased 75% in three years (at a time when the value of my home DECREASED by at least 25%); and now, in order to give teachers another raise in their salary and pension and also to provide foreign language instruction for third graders, the town of Oak Park has further raised property taxes another 20%. Illinois has over 700 seperate school districts(ten times the number of the larger state of Florida), all with their own seperate monolithic bureacracy and budget. Illinois is also saddled with the region’s highest gasolene taxes, food taxes, and sales taxes in general. In return for this insult, we are rewarded with the most corrupt state and local government in the nation. The total combned tax burden on the average Illinoisan approaches if not exceeds 50% of his income. I could go on but it’s too depressing to contemplate. This article is an affront.

Posted by NSV4 | Report as abusive

I find it funny that someone compared the failing of the Euro to the high taxes in France. Isn’t it France and Germany (with their high taxes) that are bailing out the other countries (Italy, Greece, etc)? Isn’t it more accurate to say that the tax rate in Greek and Italy is insufficient. More specifically, their budget woes are not held within their tax rate, but their enforced tax rate.

After all, you can only cut so much cancer back until you start cutting off tissue that you really need.

Posted by johnhrabar | Report as abusive

I am not too worried about low taxes, they have never been low.
I have paid taxes since 1958, I retired from working, and still had taxes to pay, I refused to put retired on my tax return, where it asks for your profession, I put
TAX PAYER. I have done many jobs over 50 years, but paid taxes forever.
I am however very concerned about Income taxes as high as Europe plus the VAT, or Value Added Tax.
For the sake of following Europe, In case Obama has not noticed The Euro Zone Countries are very shaky special note of the PIGS (Portugal, Italy, Greece, Spain) Ireland and its too early to add France.
The US is on the same path as California, Spain and Greece.

Posted by VincentLawrence | Report as abusive

The biggest problem in America is that too many people believe they can have their cake and eat it. Politicians should be honest and tell the public there is no free lunch. Unfortunately, they are all about being elected.

So, a huge debt is being built up which essentially guarantees future generations will be burdened to pay their parents’ and grandparents’ tax bills for years and years to come.

What a sad and selfish legacy, to steal from your own children’s futures.

Posted by LoveJoyOne | Report as abusive

I think maybe our safety net fosters income inequality or atleast helps. Imagine we all worked at a chicken plant, pulling out their feathers, cutting their heads off and all that fun stuff. Our boss treats us like dirt and pays us next to nothing, nor does he give raises, ever! But luckily the government provides section 8 housing, food stamps, a big child tax credit at the end of the year and all that good stuff. If the government suddenly took all that away, would we just lay down and die. I doubt it. continued—-

Posted by seanm | Report as abusive

continued —- I think when people are backed into a corner they usually fight. I think we would unionize our shop or atleast threaten to. I think some would seek employment elsewhere or atleast try harder to. I think some people would strike out on their own and try to start their own businesses, but i dont think people would just sit back and watch their kids starve to death. Just a thought.

Posted by seanm | Report as abusive

Internal and external security is a limit on how small taxes can go. That means if you fight wars or have a lot of people who feel left out expect high security costs.

Economic opportunity is a requirement for long term minimum taxes. Which means low or no cost education and maybe low cost business loans. Also blocks to economic dynasties like
gift and inheritance taxes.

Posted by SamuelReich | Report as abusive

The issue is not only the rates paid as part of GDP, how about getting the 49% taking the government largesse to work and pay taxes instead of filing for “credits” and everything will sort itself out naturally. Then we can discuss rates on a more even keel. The current administrations continued insistence of paying for every proposed program by taxing the rich has worn thin. But widening the base of payers might offend the supporters of the party in power.

Posted by Robocop5626 | Report as abusive

Utilizing GDP in this comparison is problematic as different GDP methods can equate to different results. Whatever the method utilized, several facts should be divulged.

1. “GDP per capita is not a measurement of the standard of living in an economy; however, it is often used as such an indicator, on the rationale that all citizens would benefit from their country’s increased economic production. Similarly, GDP per capita is not a measure of personal income. GDP may increase while real incomes for the majority decline.” WP

2. “GDP does not account for variances in incomes of various demographic groups.” WP

3. “The GDP framework cannot tell us whether final goods and services that were produced during a particular period of time are a reflection of real wealth expansion, or a reflection of capital consumption.” Frank Shostak

4. Adjusted for inflation, income has not been raised for the average worker since 1979 while the Federal Government has ballooned. “Today in America there are nearly twice as many people working for the government (22.5 million) than in all of manufacturing (11.5 million).” Stephen Moore

5. “Average federal salaries exceed average private-sector pay in 83% of comparable occupations.” USA TODAY
The average federal civilian employee received a salary of $81,258 in 2009, according to this analysis, which is 61 percent higher than that year’s average private sector employee salary of $50,462. The Cato Institute found that if benefits are included, then federal employees receive over twice the compensation of private sector workers: $123,049 to $61,051.

Either way, promoting raising taxes on the average American because of the tax to GDP ratio is less than it used to be, is fuzzy math. Perhaps the real issue is not about taxes, but about the way in which an ever expanding government continues to spend our money on things like wars, bailouts, military contracts, and payouts to other countries. Taxes are not the issue. It’s fiscal responsibility.

Posted by 55usaidwhat | Report as abusive

Simply put, we pay too much in taxes, most of us anyhow, because the Government plans to default on our benefits so they can fight more wars.

In Europe, no country would propose letting citizens starve because of their sex so that a war of aggression could be fought. Look at France. Here the consensus is that there is little difference between “citizens” and “livestock”. Let them eat cake. Almost any price is too high for such an “enlightened” system.

Posted by usagadfly | Report as abusive

I like your articles Chrystia, you broach the fallacies on both sides of the fence to make your readers think. Norquist is a single purpose man and as such one-dimensional on this subject, but he is correct in describing our fiscal problem as one of spending too much, not of taxing too little.

A lot of us, Republicans included would be OK with letting the Bush tax cuts expire, and/or tweaking the Corporate and Personal Income Tax rates to raise more revenue _if_ it were to be spent wisely and not thrown wily-nily down some special interest rat hole like much of the recent TARP money.

Why have we extended the payroll tax cuts? That little bit of extra cash in worker’s pockets every payday doesn’t stimulate a thing except maybe an extra trip through the McDonald’s drive though. Yet it brings the day of reckoning for Social Security closer with every uncollected dollar.

The talking heads and supposed experts keep saying, “Oh, poor deluded simple citizen. You don’t understand, a government isn’t like an individual, nor subject to the same rules of spending. When things get tight, they have to spend more, much more, to get things rolling again, and don’t worry about deficits, inflation will pay them down later.”

Perhaps, or perhaps even with fiat currency and the ability to print trillions more on a whim, each country has intrinsic finite value and once that value has been factored X number of times at the International Pawn Shop, the game is up and there is no more value left to be squeezed.

Posted by CaptnCrunch | Report as abusive

I would suggest the author also look at the percentage of citizens actually paying taxes. see if there is a change in the percentage of tax payers shouldering the burden of the, check the correlation of the “GDP” numbers to this and see if it still seems “comparatively low”.

Posted by Byron5 | Report as abusive

Remember Folks! If the “Bush era tax-cuts’ are allowed to expire then all our rates will INCREASE! Including WE the “Middleclass” OBAMIE SWORE he would protect!!! Let’s face it he’s a “BALD-FACED-LIAR!!!”

Posted by Middleclassman | Report as abusive