The U.S. Tax Bite: 1975 v. 2006

Via Greg Mankiw comes a chart provided by David Cay Johnston entitled Increasing Cost of Government. A couple of things strike me about this graph. The first is that the U.S. “tax share” as Greg calls it is #17 out of the 20 nations listed. The second is the statement that the share of GDP has increased in most nations, which includes the U.S. according to this 1975 v. 2006 comparison.

Point in time comparisons can be misleading especially when the measurement of taxes does not included deferred tax liabilities, which is why I have graphed both spending and taxes as a share of GDP for the period from 1967 to 2006 using information provided by table 3.1 from this source. The year 1975 was an odd one to pick for the comparison point. Taxes as a share of GDP may have been less than 27% as compared to 29.8% in 2006, but government spending as a share of GDP was 31% in 1975 as compared to 31.3% in 2006. You see, we had a recession back then followed by Ford’s tax cut designed to offset this recession.

To be fair, government spending as a share of GDP had spiked and then retreated for the next four years. Who knew Jimmy Carter was a small government Republican? President Carter’s term of office was followed by 12 years of Republican leadership where Ronald Reagan and George H. W. Bush promised to keep our taxes low. But it seems government spending as a share of GDP grew over this period. They were followed by big spending Bill Clinton – or so some would have you believe. But our graph shows spending as a share of GDP fell to 29.4% by 2000. Since then – spending as a share of GDP has increased. While George W. Bush would tell you that he cut our taxes, Milton Friedman might rebut with simply “to spend is to tax”.