Saturday, October 11, 2014

How Much Can the US Government Squeeze Out of Taxpayers?

Gary North writes that empirical evidence suggests it is around 20% of GDP. This can't be carved in stone, but I think it would take a major paradigm shift caused by some powerful external force to change the 20% tolerance level, in one direction or the other.

North writes:
The federal government can manipulate voters in a crisis situation like 9-11 or by means of the welfare state, but if you look at taxation policy in the history of the United States, the federal government never collects more than about 20% of GDP. It can spend more only by borrowing. The voters do not care about that, because they know that they are not going to pay off the loans. They know that it will not be possible for the government to collect enough taxes to pay off all the debt. The only way that the federal government can keep the process going is to borrow more money. The voters know that the government cannot get into their wallets beyond about 20% of GDP. Maybe the voters do not know this in terms of a sophisticated understanding, but they know in their guts. The federal government has never been able to extract as much as 21% of GDP in tax revenues. This is the ultimate ceiling on American government.


  1. Any analysis of what the government will attempt to collect in taxes has to also consider the dual motives (as far as the government is concerned) of taxation in the modern welfare state, such as the USA. First is revenue collection, of course. But the second motive is social policy / income redistribution. As long as the power, money and perks of the cronies at the top are not affected (and they usually are not) the second motive will always be more important to them than the first: The revenue collected vs GDP, the financial state of the economy and the citizenry are not concerns to them. It is not until revenues fall so low that they might effect the money flowing to the cronies at the top, will any attempt at saner tax policy be undertaken.

  2. What really matters is not how much government collects in taxes, it's how much crony capitalists enabled by the government extract from the market.

  3. When taxation doesn't extract enough revenue from the serfs then the government simply resorts to the stealth tax of inflation. The real problem is not so much the level of taxation, but the level of government spending.