Friday, July 22, 2011

Tax Axiom

Deficits = Spending – Current Taxes

Spending varies, but Current Taxes are virtually constant over time at 18% of GDP come hell or high water.

Source: White House OMB

That leaves only two variables in the deficit equation: Spending and GDP. The only way to lower deficits is to grow GDP and cut spending. Period. Tax hikes will do nothing but cause turbulence. That much is axiomatic.


  1. It is ridiculous to point to a cap of 18% when all you are doing is pointing to an average. Given all the data points we have, yes, 18% is the average at the moment, but you are turning causality on its head. If taxes were raised right now, the average would change. If we lowered taxes, the average would change. My average net worth might be $50 today, but if I won the lottery tomorrow my average net worth would change. Averages are statistically relevant for certain scenarios, but the existence of an average does not indicate a cap, concrete limit, or any other sort of point which you extrapolate.

  2. @Anon, Thanks for your comment though I'm not sure I get your point. Yes, 18% is an average, but it is an average over 65 years with a tight standard deviation, and short predictable periods. 18% is a practical matter, not a theoretical one. Economics is human behavior and volumes have been written about resistance to high levels of taxation. Although remarkable things can be achieved at the point of a gun, like slavery which was essentially similar to a 100% flat tax on a select group, it appears unsustainable and is certainly immoral.