Americans, taxes and Wagner's Law
David Leonhardt, New York Times columnist and reporter
TEXT OF INTERVIEW
Kai Ryssdal: My accountant called the other day. Said the balance due on my Form 1040 come April 15th wasn't going to be as bad as I thought. But then he said we should do some planning for next year because taxes are surely going to go up. The Bush tax cuts are scheduled to expire. And besides, have you seen how much the government's spending lately?
That, as it happens, was the subject of David Leonhardt's column in The New York Times today. The curious connection between what taxpayers want, and how much they're prepared to spend. He says the relationship hasn't always been as dysfunctional as it is today. A phenomenon known as Wagner's Law.
David Leonhardt: The idea is that voters as they get richer, as a society gets richer, and their basic needs are met, they tend to want things that government provides. They want a military to protect them. They want good schools for their kids. And so they vote for these things, and in order to pay for them, they also vote to tax themselves.
Ryssdal: And that holds in societies except for ours it seems the past couple of years. Our tax rates are actually going down and yet, we want the same stuff and more of it.
Leonhardt: It certainly held in the United States for a long time. Taxes made up about 2 percent of GDP at the beginning of the 20th century. And by the end of the 20th century, they were at 21 or 22 percent of GDP. You could imagine a society deciding to repeal Wagner's law as it were, and deciding you know what we want to do this all in the private sector. We don't want this stuff done by the government. And that might be fine. The problem is what we're doing, which is we're voting for these services and yet, we're not voting for the taxes to pay for them. And that, much more than the wars in Iraq and Afghanistan, much more than the stimulus, is the reason we're facing this tremendous long-term budget deficit.
Ryssdal: There are people out there, though, who say and have said on the record, you know I would gladly be taxed more heavily if it worked. If more kids graduated from school. If malnutrition went away. But it never winds up translating into political decision making.
Leonhardt: One of the interesting things is when President Obama was Senator Obama, and he was running for office, he persuaded voters that in fact he would do more to cut their taxes than his Republican opponent John McCain. And politically it worked. He succeeded. The polling showed he persuaded people of that. But it now has a huge political problem, which is he's made this pledge not to raise taxes on people making less than $250,000. So we have one party saying we won't raise your taxes if you make less than $250,000, and we have another party saying we won't raise your taxes no matter what. And we have neither party making proposals on big spending cuts, and that's how we've ended up where we've ended up.
Ryssdal: The moral of the story, I guess, from your piece was that there's no one solution, right? You can't just fix everything by raising taxes because that would clobber the economy and the tax rate here would be close to 50 percent. And you can't do it just by cutting social services because that's not what modern American society is.
Leonhardt: That's right. Paul Ryan, a Republican congressman, admirably has released a very detailed plan for getting rid of the budget deficit without raising taxes. It involves getting rid of Medicare for everybody who is now under the age of 55. And I don't think that's actually a society most voters want. And so what we're going to need to do is some mix of things. I think we do need to raise taxes on the rich. They've gotten the biggest pre-tax income gains, and the biggest tax cuts over the last generation. I think we do need to introduce ideally something like a consumption tax on everybody, including the middle class, which would encourage people to save more. And I think we need to look at spending cuts. I think one of the reasons why this health care bill is actually important is because while it's far from ideal on health care spending, it includes some of the early ways to cut health care spending. That's why it tends to get a good score from the deficit analysts. And health care really is the number one budget item over the long term.
Ryssdal: When, though, David, when do we do all this because clearly in the middle of or just coming out of a horrible recession is not the time anybody is going to take on these tough challenges.
Leonhardt: I think it's probably going to take a little bit different moment in the political cycle. You can come up with a number of different scenarios. One involves the Republicans get control of one of the houses of Congress and become more willing to negotiate. The other is you have a president in the second term, whether it's President Obama or whether it's the next president who is willing to do some things that are politically unpopular. But absent a crisis I don't see it happening at any time in the next couple of years.
Ryssdal: David Leonhardt. He's an economics columnist for the New York Times. David, thanks a lot.
Leonhardt: Thank you, Kai.