Was the American Revolution worth it?

Kevin Hassett, director of economic policy studies at the American Enterprise Institute

TEXT OF STORY

Kai Ryssdal: Believe it or not, we have been talking about tax policy in this country since before there even was a country. Anybody remember taxation without representation? Two hundred and thirty-three years ago that idea helped lead to the Revolutionary War and eventually the signing of the Declaration of Independence. Commentator and economist Kevin Hassett wonders, though, whether in the long run it was worth it.


KEVIN HASSETT: The American Revolution has always seemed like such a big deal. But looking at the economic consequences, I'm not so sure.

Our founding fathers make even the most radical tax-hating conservatives of today seem like pikers. Sure the British imposed taxes, but they were tiny. One historian estimated the combined burden of the infamous "Navigation Acts" to be 1 percent of income. With other assorted taxes, the total bite that ignited revolution was a measly 2 percent.

Imagine what would have happened if King George had recognized the small financial stakes and responded to the tax revolt with more conciliatory gestures.

How would our economic lives be different if we had never gained independence?

First let's look at the governments. The government sector in the U.K. eats up about 44 percent of their GDP. Our federal, state and local governments take about a 10 percent smaller share. But the main difference is health care, which is provided by the government across the pond. If President Obama gets his public plan, we might well end up in about the same place.

What about taxes? The top personal tax rate in the U.K. is 40 percent, 5 points higher than we have today. President Obama, however, has promised to repeal the Bush tax cuts. If he does, then our top rate will be 39.6 percent -- again, practically identical to our British friends.

The Brits have a lower corporate tax than we do, 28 percent versus 39 percent, but have higher sales taxes because of their 15 percent value-added tax. The Bank of England, just like our Federal Reserve, is an independent institution presided over by an academic economist. It's not clear that even their wives would notice if Mervyn King and Ben Bernanke switched places.

The biggest remaining difference is per capita income. Americans on average earn about $10,000 more each year. Given how small the policy differences are today, that gap will likely shrink significantly in the years to come.

If it does, then economic historians will look back at the American Revolution and conclude that it had little impact on the long-run, economic well-being of Americans.

Ryssdal: Kevin Hassett is the director of Economic Policy Studies and a senior fellow at the American Enterprise Institute in Washington.

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