Tax hatred has a long pedigree

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Returning a bit to the topic of supply-side economics, there seems to be a general feeling among my progressive/liberal friends that the main reason America has such a hard time raising taxes to cover the new spending programs they want is that Republicans have been ceaselessly demonizing taxes for the last thirty years, while spreading vicious lies about supply-side economics that have instilled a new and pernicious tax hatred among American voters. This is basically the narrative of The Big Con: we used to have this terrific economy with low inequality and a growing government share of national income, with everyone except a few rich malcontents happy, then this giant Republican conspiracy to make us all hate taxes came along and lured us off the Yellow Brick Road and onto the Road to Perdition.

This seems an odd belief to hold in a nation that was basically founded in a tax revolt. A modestly comprehensive perusal of pre-1970 literature reveals that Americans seem to have hated taxes all along. And why wouldn't they? Taxes don't need any special conspiracy to make you hate them, at least if you are among the majority of people who would rather have more money in your pocket than less.

I think a better explanation for the shift in public sentiment about government spending that took place in the 1970's would point out two things: first, that the government in the late 1960's and early 1970's was doing a really spectacularly bad job of running the economy. Richard Nixon was probably the worst economic disaster as president since Andrew Jackson, and Lyndon Johnson and Gerald Ford weren't any particular prizes either. The economic history of the 1970's sowed very well justified fears about state intervention in the economy, and it's probably no coincidence that we're getting more support for government programs only as the memories of 40 years ago begin to fade.

But perhaps even more importantly, it's not clear that 1980-2007 are the anomalies in American public sentiment about taxes. On the contrary, I think I can make a better case that 1945-1970 was the oddity. While incomes were growing rapidly, and inflation wasn't, the American public was willing to accept a higher tax burden because even after taxes, they felt a lot richer. As soon as productivity growth slowed (and therefore growth in real incomes), people started to feel the pinch of a growing tax burden, particularly since inflation was pushing them into tax brackets originally meant for "the rich".

Supply side nonsense is nonsense, and I think it's a pretty good explanation of the budget deficits of the early 1980s. But I don't think it's a very good explanation of the generalized tendency of the American public to demand low spending and even lower taxes. As you'll see if you look at the historical data, America has run deficits most years since 1940, and really sizeable ones since the mid-1970s. The only reason the Bush deficits so dominate our current debt is that inflation has eroded the value of the earlier debts, not that he's unusually profligate.

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Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

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