Nostalgia for the 50's and 60's

Some have commented that we had higher tax rates in the 1950's and 1960's.  They also suggested that this was a period when we were much better off.  There are a few problems with this view.

First if you look at the historical tables the most noteworthy difference between this period and recent times is not the proportion of GDP that was collected in taxes.  That seems to be remarkably consistent over time.  What seems remarkable is that social spending was much less.  Liberals might want to rethink their nostalgia here.

I once told a liberal that we spend more on Social Security than on national defense.  She found this bit of data to be obviously true and unremarkable.  However, this was not the case during the 50's and 60's.  In fact, the entire human resource budget was never more than the budget for national defense.  Keep in mind that we fought two major wars during this period.  While some might be surprised that I point this out to contrast this with the present, after all we have recently been fighting in Iraq and Afghanistan, the more recent conflicts were in much smaller countries.  The populations of Iraq and Afghanistan are 32 million each.  In contrast North and South Korea have populations of 24 million and 48 million respectively.  Vietnam has a population of almost 86 million.  Granted they were somewhat smaller back then, but so were we.  Compared to those earlier conflicts, more recent events were minor skirmishes and our spending on national defense reflects this.

The amount we are expecting to spend on human resources and defense in the near future, after the wars wind down, makes up about 18.5% of GDP.  15% of this is on human resources and about 3.5% on national defense.  This is about the proportion of GDP that was collected in the 90's and greater than that of any other decade.  We have shown an unwillingness to collect taxes at a greater rate over a sustained period.  Our reluctance to do so is not a recent phenomenon.  We need to consider that we also must pay interest on the debt, physical resource spending and other spending.

At one point I amused some people by stating that we didn't need to choose between cutting national defense and cutting social programs.  We could cut both.  Now I will need to revise this.  We must cut both.  Even if we were to eliminate all spending on national defense, that would not take care of the problem.  Our prospects for solving the problem by cutting only social programs are equally unrealistic.  The Democrats will never agree to cuts in social programs without increases in taxes and national defense, and there is no reason for them to do so given their ideology.  Social spending is part of what their supporters expect from them.

We need to consider what will happen in the absence of an agreement.  Most defense spending is discretionary, meaning that it requires action on the part of congress and the president to continue.  Most social spending is mandatory, meaning that it continues in the absence of such action.  If no action is taken, most defense spending stops along with the Bush tax cuts and most social spending continues.  Given that the Republicans want more defense spending and lower taxes, it seems like this would be worse for them ideologically than for the Democrats.

I'm pessimistic about the Republicans and Democrats being able to work out a solution.  Therefore, I think we are going to have to reform the system.  The most likely change is to supplement the institutions of representative democracy with a system of initiatives and referenda.  This is already the system in place in many states and some countries around the world.  It seems like the natural evolution of the process and would be supported by a large number of people.