National Journal: Real Reaganites Raise Taxes, by Jonathan Rauch:
Conservatives and liberals have spent the past 40 years arguing about the size of government. But the size of government has not, so to speak, been arguing about them. As a share of the economy (gross domestic product), federal spending has remained curiously stable. Wars ended and began, double-digit inflation came and went, defense was cut, entitlements swelled, and outlays fluctuated as a share of GDP. Yet, as the chart shows, spending always returned to about 21%, almost as if regulated by an internal thermostat.
Over the same period, meanwhile, revenues had a comparably strong homing instinct, but the set point was lower: a little above 18%. …
For decades, everyone pretended to have a profound ideological disagreement about the size of government, but the reality was a comfortable standoff between 21% liberalism and 18% conservatism. In the end, both sides got what they most wanted: 21% spending for liberals, 18% revenues for conservatives — at the politically tolerable cost of a deficit averaging 2 to 3 % of GDP. This result was handy for politicians and acceptable to the public.
In Washington now, the obvious question is: Has Obama ended the 21% era? In January, the CBO forecast outlays at 25% in fiscal 2009. That was before enactment of the latest stimulus, which increases outlays by more than $500 billion through 2012; and the forecast didn't account for further financial bailouts. Unofficial estimates take 2009 spending to 26 % or higher. …
"I'm going to say spending is never going to go below 21% again in this country," says Maya MacGuineas, president of the nonpartisan Committee for a Responsible Federal Budget. At the Brookings Institution, Isabel Sawhill, an economist and a former Clinton administration budget official, says, "My best guess would be 24% in 2012."
How will we pay for, say, 24% government? Permanent deficits at 6% of GDP would be unsustainable, and the creaky, inefficient income tax is barely able to raise even today's inadequate revenues.
The only really workable option, [Bruce] Bartlett argues, is a value-added tax or its equivalent: a broad-based tax on consumption. "It's the only way of preserving incentives and keeping the economy alive." Because it taxes spending rather than saving or investment and is inhospitable to market-distorting loopholes, this kind of tax raises a lot of money at relatively low economic cost.
Reaganites hate the value-added tax precisely because it is such an efficient cash cow. But Reagan, Bartlett contends, would have known better. Reagan was a conservative who admired FDR, and what he conserved was FDR's welfare state. He understood that the most practical way to make government less economically burdensome was to grow the economy.
By taming inflation, restructuring the tax code, and thinning regulatory undergrowth, Reagan made the welfare state sustainable, something liberals had proved unable to do. He wooed middle-class voters away from liberalism by stabilizing the modern entitlement state, not shrinking it.
If the 21% era is over, then the challenge for conservatives today is to give up on 18% government, which the public doesn't want and which conservatives can't deliver. Instead, as Bartlett wrote recently in Politico, "Conservatives would better spend their diminished political capital figuring out how to finance the welfare state at the least cost to the economy and individual liberty." Just like Reagan.
