Sunday, November 29, 2009
Taxes and Private Sector (Angry Bear):
[I]t’s easy to cheat on GDP. GDP includes Government Spending, so an irresponsible administration can artificially goose GDP simply by borrowing a fortune (thus making the national debt explode) and spending the money. ... We can pull the government consumption and expenditures ... out of GDP ..., giving us something we can describe as the “private sector component of GDP.” Next, we can divide the amount the government collects in taxes ... at all levels – federal, state and local – by the private sector component of GDP. ... That gives us the percentage that the private sector (at all levels, from the lowliest panhandler to the most magnificent maharajah in the business world) pays in taxes in each year. If it isn’t obvious, there’s no point in including the government portion of GDP there since the government doesn’t pay taxes.
[See data here.] [S]ince Ike took office, only three administrations (JFK, LBJ and Clinton) increased the percentage of the private sector GDP that goes to taxes; they make up three out of the four administrations with the fastest increases in the annualized real private GDP. ... The annual average increase in real private GDP is about 2.4% for administrations that cut share of private sector GDP going to taxes, and 4.2% to the administrations that increased it.Go figure. Now, I dislike paying taxes as much as a Glenn Beck does, but the story line about big bad taxes choking off the private sector doesn’t add up. The “biggest government” president in our sample was LBJ with his Great Society and War on Poverty, and he’s the guy under whom the private sector grew the fastest. JFK was second on both counts. The reason is, without the government, and the taxes that fund it, there is nobody to build roads, provide a decent legal system or combat epidemics, and without things like this, the private sector grinds to a halt, the efforts of Anthony Mozillo and Paris Hilton notwithstanding.