Friday, December 11, 2009

Our Ballooning Government

Is the Value-Added Tax (VAT) an idea whose time has come to the United States? In the midst of an article about this interesting question in the Times, I come upon this:
Introducing such a tax would probably require an overhaul of the entire federal tax code, no small order, and something the government last did in 1986. At the time the goal was to simplify the tax system, to raise money more efficiently and with fewer headaches for taxpayers.

Since then, federal spending has ballooned, while the government’s ability to raise taxes has become increasingly inefficient.
Ballooned? I don't see any ballooning here: Yes, there is a bit of a jump at the end due to automatic stabilizers and appropriate (though not big enough) countercyclical fiscal policy, but there's clearly no upward trend in federal spending since the mid-1980s. Moreover, federal government purchases - i.e., the stuff that's in the G component of GDP - accounted for 7.5% of GDP in 2008, down from 9.8% in 1986.

Update: Actually, since the graph goes through 2008, the main countercyclical fiscal policy (i.e., the stimulus bill) isn't in there.

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