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Michael Barone: Higher tax rates won't support entitlement state

BY MICHAEL BARONE Published: December 8, 2012
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Over that period of nearly three-quarters of a century, federal receipts have never exceeded 20.9 percent of gross domestic product. That was the number for the war year 1944.

The highest number since was the 20.6 percent of GDP in 2000, the climax of the dotcom boom. In the Obama years, federal receipts have hovered at 15 percent of GDP.

That's just because tax rates are too low, Obama backers reply. Just raise the rates on high earners, and the problem will be solved.

Actually, high earners don't make enough money to close the current budget deficit. You'd need to raise taxes on middle-income earners too.

But we have had higher income tax rates in most of the years since World War II. What history and Table B-79 show is that even much higher rates — like the 91 percent marginal rate on top earners imposed from the 1940s to the 1960s — have never produced federal receipts higher than 20 percent of GDP.

You get less of it

Why is that? As the late Jack Kemp liked to say, when you tax something, you get less of it. When the government took 91 percent of what the law defined as adjusted gross income over a certain amount, not many people had adjusted gross income over that amount.

But don't European nations extract more in taxes from their citizens? Yes, but through consumption taxes like the value-added tax. But those taxes tend to be regressive, and in this country sales taxes have been the province of states and localities.

Barack Obama and the Democrats may well get higher tax rates. But it's not likely that high tax rates can ever generate enough revenue to fund unreformed entitlement programs.

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