President Trump speaking about tax reform at an event in North Dakota on Wednesday. Credit Doug Mills/The New York Times
A 19th-century economist named Adolph Wagner made a prediction that came to be known as Wagner’s Law: As societies became wealthier, their taxes would rise. They would rise because people would want more of the services that government tended to provide better than the private market, like national security, education, medical care and a guaranteed retirement.
Wagner’s Law has proven truer than not, but there are still many people who would like to pretend otherwise. Specifically, they wish we could summon a country with a strong military, good schools, health care and comfortable retirements — but falling taxes. It’s a nice fantasy.
Yesterday, Larry Summers, the economist and former Treasury secretary, gave a lunchtime presentation in Washington laying out the statistics that debunk the falling-taxes fantasy. He effectively updated Wagner’s Law for the United States in 2017.
“With the same values and preferences, and the same basic attitude about government activity versus private activity,” Summers said, “you should expect government to be larger in the future than it has been in the past.”
There are four main reasons, he argued:
• One, society is aging, which calls for greater spending on retirees. The ratio of elderly Americans — those expected to be in the last 15 years of their lives — to all other Americans will rise about 50 percent from 2010 to 2030.
• Two, inequality has soared, with living standards stagnating for the middle class and poor. Taxes push back against inequality.
• Three, labor-intensive services, like education and medical care, have become more expensive, and they also tend to be the areas where the government spends money.
• Four, American military spending has not kept up recently with the spending by our main rivals, including China, Iran and Russia. This trend shouldn’t continue forever, Summers said.
R&R - Reachout and Rebuild 