Government Tax Bite Set for Double-Digit Gain in 2013

Wednesday, 09 Jan 2013 07:42 AM

By Michael Carr

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Talk of deficit reduction is masking the reality of the growth of government spending. In 2012, government bureaucrats at the federal, state and local levels spent $6.2 trillion. In 2013, that spending is expected to grow by $100 billion.

Government spending has exploded in the past four years. Prior to World War I, government spending varied from 6 percent to 9.5 percent of the economy. After the war, spending never fell back to pre-war levels.

Even at the height of the Great Depression, when government programs were building roads and infrastructure to combat unemployment, spending averaged about 20 percent of gross domestic product. The current level of spending is obviously unprecedented in peacetime.

Economic output of the United States totaled about $15.8 trillion in 2012, which means government at all levels consumed 40 percent of output and taxes need to rise by an additional 10 percent just to pay for the government we already have.

Taxes taken by federal, state and local governments only covered about $5.1 trillion of that spending. This year, tax revenue is expected to increase about 10 percent and reach $5.6 trillion, leaving an expected shortfall of about $700 billion.

Higher taxes are the only possible solution, since cuts to any government program seem to be impossible. Taxes could consume more than half of the economic output within the next decade just to pay for planned government expansion.

Economic growth is expected to rise by about 2 percent in 2013. Since taxes are going up faster than the economy is growing, it is likely growth will remain slow because taxes shift dollars from investments in the private sector to the government.

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