September 29, 2007

MEGAN MCARDLE:

This is basically the narrative of The Big Con: we used to have this terrific economy with low inequality and a growing government share of national income, with everyone except a few rich malcontents happy, then this giant Republican conspiracy to make us all hate taxes came along and lured us off the Yellow Brick Road and onto the Road to Perdition.

This seems an odd belief to hold in a nation that was basically founded in a tax revolt. A modestly comprehensive perusal of pre-1970 literature reveals that Americans seem to have hated taxes all along. And why wouldn’t they? Taxes don’t need any special conspiracy to make you hate them, at least if you are among the majority of people who would rather have more money in your pocket than less. . . .

But perhaps even more importantly, it’s not clear that 1980-2007 are the anomalies in American public sentiment about taxes. On the contrary, I think I can make a better case that 1945-1970 was the oddity. While incomes were growing rapidly, and inflation wasn’t, the American public was willing to accept a higher tax burden because even after taxes, they felt a lot richer. As soon as productivity growth slowed (and therefore growth in real incomes), people started to feel the pinch of a growing tax burden, particularly since inflation was pushing them into tax brackets originally meant for “the rich”.

What does this say about the next decade?