No question: taxes are a political tinderbox. Walter Mondale’s call for a federal tax hike sent his 1984 presidential campaign crashing to defeat. In 1991, New Jerseyans overwhelmingly turned out a Democratic legislature after the biggest tax boost in state history. Ross Perot, the irascible Texas tycoon who’s fanning the flames of a presidential campaign, would like a constitutional amendment barring Congress from raising taxes without a national referendum. Yet for all the rhetoric, Americans don’t have much to complain about.
In Denmark, the world’s leading taxer, the government takes more than half the nation’s income. In Belgium, taxes equal 45 percent of output; in Australia, 31 percent. Americans, by contrast, send less than 28 percent of their national income to federal, state and local tax collectors. Among the world’s wealthy nations, only the Japanese pay less (chart). Contrary to the common wisdom, Americans’ tax burden isn’t getting much heavier: from 1980 to 1988, the International Monetary Fund calculates, the share of our gross domestic product going to taxes rose all of. 14 percent. That’s just a tad more than the $6 billion we’ll spend this year on computer games.
Why, then, are taxes such an emotional subject in America? Tradition has a lot to do with it. A deep suspicion of government predates the Boston Tea Party. George Washington needed 15,000 troops to suppress Pennsylvania farmers rebelling against liquor taxes in 1794. “No new taxes " is now a standard “conservative " campaign line, but as University of California political scientist Aaron Wildavsky points out, it used to be the “progressive " platform. Early anti-taxers thought the federal government favored the rich, Wildavsky says. “For them, very low taxes at the central-government level were a means of redressing inequality. Today, their spiritual successors believe the opposite. "
In a 1948 Gallup poll, 57 percent of Americans thought their federal income taxes were “too high “–a percentage almost unchanged in 1991. (The proportion who responded “too low " is stable, too, around two out of every 100 adults.) But today’s anti-tax sentiment is far more intense than in Harry Truman’s day. One reason is that conspicuous taxes–on income, property and retail sales-have grown in importance. Taxpayers seem to prefer indirect business levies. Individuals ultimately pay business taxes, of course, but we usually don’t notice.
The tax revolt has less to do with taxes themselves than with our on-again, off-again love affair with government. “When I first came to Congress 20 years ago, people still believed the federal government could do good things, could run programs that actually help people, " says Bill Frenzel, a former Republican representative. “Now, there’s a lot less belief in that. " With politicians in both parties making careers out of bashing the bureaucrats, who wants to pay more especially since Washington’s budget alchemy lets today’s middle class spend whatever it wants on programs like social security and Medicare and pass the tab on to their children?
Taxophobia has been fanned by an enduring myth. The supply-side economists who achieved prominence by advising Ronald Reagan sold America on the notion that lower tax rates mean faster economic growth. Every tax break has become a “growth incentive. " Even President Bush, who once derided supply-side ideas as “voodoo economics, " still calls his tax plan an “economic-growth package. "
But the purported relationship between taxes and growth doesn’t exist. “Growth rates in the ’50s and ’60s were higher than in the ’70s and ’80s, and marginal tax rates were higher, " recalls Herbert Stein, chief economic adviser in the Nixon administration. Many countries bearing higher tax burdens than the United States are growing faster-and most of them have higher top rates on personal income as well. In fact, our preference for financing government through Treasury bonds rather than taxes may be holding the economy back. “We are already, through borrowing, causing the private sector to pay more than if we had higher taxes, " says economist J. Gregory Ballentine, a ranking Reagan administration budget official. “I’ve come to the conclusion that tinkering with the tax structure is not of great benefit or harm, and I’ll take almost any way to raise revenue. "
Will America buy the Ballentine line? Not likely. You haven’t heard much about that $375 billion budget deficit in this year’s campaign speeches, and you probably won’t. Eliminating it, even with the sharpest budgetary scalpel, is going to mean higher t–. At the moment, it’s Jerry Brown’s anti-tax platform-tax all income at a flat 13 percent and put a 13 percent levy on goods and services, thereby reducing total federal revenue-that’s the talk of suburbia. Needless to say, Ballentine isn’t running for president.
Photo: Political tinderbox: California protester with the familiar signs (BRUCE DE LIS-PICTURE GROUP)
Lower Rung By international standards, the claims on U.S. taxpayers are modest. Total Tax Revenue AS A PERCENT OF GDP JAPAN 26% U.S. 28% CANADA 34% U.K. 37% GERMANY 39% FRANCE 42% NETHERLANDS 48% SWEDEN 49%
