David Leonhardt has a chilling piece in today’s NYT on the abandonment of Wagner’s Law (WL holds that “as a society gets richer, its tax rates tend to rise”):
Over the last couple of decades…we have repealed Wagner’s Law — or, more to the point, only partly repealed it. Taxes are no longer rising. They fell to 18 percent of G.D.P. in 2008 and, because of the recession, to a 60-year low of 15.1 percent last year.
Yet our desire for government services just keeps growing. We added a prescription drug benefit to Medicare. Farm subsidies are sacrosanct. Social Security is the third rail of politics.
This disconnect is, far and away, the main reason for our huge budget problems. Yes, the wars in Iraq and Afghanistan, the recession and the stimulus have all added to the deficit. But they are minor issues in the long run. By 2020, government spending is projected to equal 26 percent (and rising) of G.D.P., mostly because of Medicare and Social Security. Taxes are on pace to equal just 19 percent.
Leonhardt argues that “a solution that relied only on taxes would muzzle economic growth,” and “a solution that relied only on spending cuts would dismantle some bedrock parts of modern American society,” and calls for a combination of the two.
Best line (and candidate for understatement of the year) ? “[T]he federal government does have a decent amount of fat in it.”