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Why the Size of Government Matters

March 20, 2013 in Economics

By Michael D. Tanner

Michael D. Tanner

When one moves beyond all the budget numbers floating around Washington these days, much of the debate over future policy boils down to a question of the size of government. The Left often dismisses this issue as symbolism or rhetoric, but it is much more than that.

The question of big government vs. limited government is not an abstraction. How we answer that question has real consequences for real people. For example:

1. Big government is unaffordable. This year, the federal government will run a budget deficit of at least $845 billion. This does represent a decline from the deficits of recent years, but emergency appropriations or any slowdown in economic growth could easily push it back up toward $1 trillion before the end of the year. Although deficits are expected to continue declining for the next few years, eventually bottoming out at $430 billion in 2015, this is a temporary phenomenon, and by the end of the decade, we will be climbing back toward annual deficits of $1 trillion.

Moreover, our debt, already $16.7 trillion, more than 103 percent of GDP, is expected to exceed $26 trillion by the end of 2023. Throw in the unfunded liabilities of programs such as Social Security and Medicare and our real debt runs between $79 trillion and $127 trillion. In fact, the Congressional Budget Office said in 2008 that in order to pay for all currently scheduled federal spending, both the corporate-tax rate and top income-tax rate would have to be raised from their current 35 percent to 88 percent, the current 25 percent tax rate for middle-income workers to 63 percent, and the 10 percent tax bracket for low-income workers to 25 percent. It is likely, given increased spending since then, that the required tax levels would be even higher today.

Leviathan costs too much, sure, but its attack on freedom is the real problem.”

2. Big government is incompatible with economic growth. Economists debate the exact relationship between the size of government and economic growth, but few argue that government can consume an unlimited proportion of the national economy without its having a significant impact on that economy. For example, a pair of studies by Harvard’s Robert Barro found that “public consumption spending is systematically inversely related to economic growth,” and that there is a “significantly negative relation between the growth of real GDP and the growth …read more
Source: OP-EDS

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