by Rod D. Martin
September 20, 1997

In the book of First Samuel, God’s people Israel decide that they want a king, “to be like the other nations.” Up to that point they had had very limited, decentralized government, but as in our own day, the ancient Israelites were increasingly enchanted with what big government could give them. Having been out of Pharaoh’s Egypt four hundred years, they had forgotten that “any government big enough to give you everything you want is big enough to take from you everything you have.”

In granting their wish, we are told, God first warned the Israelites of the tyranny that would be possible if and when they someday had an evil king. Astounding to modern eyes as it may be, one of the things He listed as tyranny was a tax rate as high as ten percent.

My, my, those must have been the days.

Today, we live in an America where the average taxpayer works until July 2 just to pay the government; less than half of what he makes is his own. By contrast, medieval serfs only owed their lords a third. It was not always so: a hundred years ago, the average American faced a tax burden of around five percent. And the cost of this taxing spree is just beginning to come to light.

A study by University of Texas at Dallas economist Gerald W. Scully, completed last year, described for the first time the effect of our over-high tax rate on the U.S. gross national product since 1949. Rather than looking at the method of tax collection, as does most current debate over flat tax vs. sales tax vs. whatever, Scully examined the disincentive effects of the average tax rate, the overall amount of tax paid by each family as a share of their income. Regardless of how it was collected, the damage to the economy was, in the words of the report, “staggering.”

Scully used an econometric model which assumed the sort of government spending we’ve had in post-World War II America, but which assumed an average tax rate of 21.5% to 22.9%, and compared this to reality. This tax rate range was not merely pulled out of a hat: Scully’s model showed this to be the optimal range of taxation to support New Deal/Great Society era spending levels. Note that this tax rate is still high by historical standards, but less than half what we currently pay.

Scully’s discovery? By 40 years of taxing at more than double this rate, successive U.S. governments have succeeded in stunting the U.S. economy by more than half. Actual U.S. GNP in 1989 was $6.2 trillion; Scully shows the proper figure should have been a whopping $13.6 trillion.

Cumulative GNP loss from 1949 to 1989 was $94.2 trillion, or $750,000 in lost income over the lifetime of every American family. And most ironic of all, all that extra GNP growth would have funded all government programs during the period, and wiped out every deficit since 1949.

These numbers are enough to make you catch your breath, but even they only begin to tell the story. What would all those extra investment dollars, all that extra consumer freedom, have meant for American industry? For American jobs? For advancing technology? For cancer research? For improving education and fighting poverty? The mind can barely begin to imagine it: all these things work together, and the synergy between them is unpredictable. Yet we can look at today’s America, compare the material blessings we have and the quality of life they create to a time when we had half our present GNP — the late 1950s, when most people were still below the poverty line, life expectancy was still low, and hardly anyone had an air conditioner or a dishwasher — and an inkling begins to emerge.

Even assuming Scully’s tax rate and government spending numbers, both of which this column considers far too high, our government has stolen the equivalent of forty years of progress from us. But America’s government is truly of, by and for the people: it did nothing we didn’t ask it to do. The medical treatments we don’t have, the homeless people who would have been middle class, all these are attributable to our votes.

And it is on that note that the question must be asked: at that Biblical — and formerly American — tax rate of under 10%, how much richer would we all be? And would an America so rich need all these government programs in the first place? Scully’s study certainly points the way.