Who Knows How Much Government Costs?

When taxpayers have a light tax burden, they are more likely to want a bigger government.

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Uncle sam opens up his wallet, but there is nothing inside.

Last week on the Thomas Jefferson Street blog, I discussed the counterintuitive (and unintended) consequences that insulating people from the true cost of government can have. Most Republicans view low taxes as creating an upper bound on the growth of government, figuring that without added revenue, there's a limit to the number of new programs and benefits that can be offered. Yet history shows us that this isn't always the case.

In reality, low taxes lead voters to demand more government, since their relatively light tax burdens create the impression that government services are inexpensive to provide. Debt allows us to enjoy a larger government than we've actually paid for. Like with any other product, people consume more when prices appear to be low.

[See a collection of political cartoons on the fiscal cliff.]

What I didn't mention last week is that borrowing is not the only way to shield people from feeling the "pain" of paying for big government. A revenue code that asks a small subset of the population to shoulder a disproportionately large part of the overall tax burden can also distort people's impressions of how much government services cost. That's because asking some people (e.g., the wealthiest members of society) to pay in more than the value of the benefits they enjoy allows others to pay in less.

This is the case with our current tax code.

[See a collection of political cartoons on the budget and deficit.]

According to the Congressional Budget Office, in 2009 the richest 4 percent of Americans made about 26 percent of the money in this country but paid almost 64 percent of the income taxes. Whether that's a feature or a bug is in the eye of the beholder; if the citizens who benefit from the arrangement are those most in need of government assistance, it may be a tradeoff society is happy and willing to make.

Still, we need to recognize that our progressive tax scheme means few Americans fully understand how much our behemoth of a government costs. Knowing that, we shouldn't be surprised if people desire more in the way of services than the country can actually afford.

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