It is a mystery to liberals why conservatives are so adamant
about cutting taxes. To them, the conservative fervor for tax cuts --
anytime, anywhere -- is irrational; almost a religious belief that is
accepted on faith without any supporting evidence. In fact, tax cuts make
perfect sense even if one does not think they will have any impact on growth
The core of the conservative view can be found in the work of a
19th century economist named Adolf Wagner. He formulated a "law" regarding
the expansion of government. Basically, he argued that as the wealth of
society increases, so does the size of government. Wagner did not know why
this is the case; he was simply making an observation based on the data he
had. Of course, the 20th century experience confirms his point even better.
The United States is a perfect example of Wagner's Law. Prior to
World War I, government spending as a share of the gross national product
was less than 3 percent almost every year except during wartime. Since then,
spending as a share of national output has risen almost continuously. By the
mid-1960s, federal spending consumed 17 percent of the economy. This year it
is 19.5 percent, according to the Congressional Budget Office.
Conservatives believe that spending is the ultimate enemy, but
it is fueled by higher taxes. They cite another "law" put forward by
political scientist C. Northcote Parkinson. He argued that "expenditure
rises to meet income." In other words, government will always spend every
penny it has, and more if it can. Therefore, the only thing limiting the
size of government is the ability to take money out of its citizens'
In the 1970s, Nobel Prize-winning economist James Buchanan
formalized this relationship. He argued that the best way to limit the size
of government was to limit its ability to tax. This is a view that was
endorsed by the American people in what came to be called the "tax revolt,"
which began with Proposition 13 in California in 1978. Since then, voters
have regularly supported the tax-cutting candidate against the
tax-increasing candidate whenever they had a clear choice.
When one includes state and local governments, government at all
levels now accounts for about 31 percent of national income. In short,
almost one out of every three dollars in the U.S. economy is spent by
government. One way or another, this money must be extracted from the wages
of workers or the profits of investors, who have saved and risked their
capital to earn a return.
As high as this is, however, in Europe it is far worse.
According to the Organization for Economic Cooperation and Development,
total government spending consumes about 45 percent of the economy there. In
several countries, the figure exceeds 50 percent. Taxes are higher by the
same order of magnitude.
Why Americans have been somewhat more resistant to Wagner's Law
than Europeans is an interesting question. It may lie in our history as a
nation conceived in a tax revolt. Or it may be that Americans prize their
freedom more than Europeans do. To an American, when government takes one
third of his income, he views himself as one-third a slave; working for
master government rather than himself one out of every three days.
Another reason for Americans' resistance to taxes is that they
never really see anything for the money they send off to Washington every
year. Most non-interest, non-defense spending goes to people who pay little,
if anything, in taxes -- the poor and the elderly. What does the typical
middle class family really get from the federal government? In the view of
most, the answer is nothing.
Of course, most Americans understand that not everything the
government does can benefit them personally. But when taxes reach
confiscatory levels, they have a right to ask why. Liberals have no answer,
because to them one of the main purposes of taxation is simply to
redistribute income -- rob Peter to pay Paul. In short, for liberals
taxation is an end in itself.
Americans also know that taxes are always rising even when
Congress doesn't explicitly raise them. Even with indexing, people are still
pushed up into higher tax brackets whenever they get a pay increase. And
they have seen over and over again that whenever taxes are cut, they never
seem to pay less themselves.
Liberals would have us believe that they really don't favor tax
increases. They just oppose further tax cuts, including the extension of
expiring tax cuts. However, as the CBO points out in a new report, failure
to extend these expiring provisions will raise taxes on the American people
by almost $1 trillion over the next 10 years. Thus, if Congress does
nothing, taxes will automatically rise.