So Who Pays For the Government and How?

/ Jim Luke

I’ve always found putting things in historical perspective and looking at the long-term trend of things usually illuminates a lot of policy discussions. It’s easier to see “what’s really happening” if you look at the long-term trend.  Taxes, tax rates, and the government budget are often hot topics of policy debate.  So is the future of the intergenerational social insurance programs such as Social Security and Medicare (also here).

As Paul Krugman has often mentioned, the best way to think of the U.S. federal government budget is to think of the government as “an insurance company with an army”.  But who pays for this insurance company (Social Security, Medicare, Medicaid) and it’s accompanying army?  The distinct trend of the last few decades is that individuals are being asked to shoulder more and more of the burden and that corporations are carrying a less-and-less share. In fact, as this graph shows, the corporations are nearing becoming insignificant in their contribution to the general welfare and maintenance of our government.

The data for this graph is from Office of Management and Budget in this file.

 

2 thoughts on “So Who Pays For the Government and How?”

    • Thanks for the comment. Actually I’m quite familiar with Bill’s work and MMT in general, and I’m very much a supporter. I probably worded the title poorly. The post was intended primarily for a class discussion on corporate income taxes (and whether multi-nationals are paying “their share”). My primary intent was to provide some historical perspective on trends in how taxes are collected from different types of taxes. I didn’t mean to imply that taxes are necessary to “pay for government”. They aren’t. The government can “pay for its operations”, at least in part, by utilizing it’s sovereign authority of the currency (just spend it and create the reserves to support it). However, even with MMT, taxes are necessary. Partly to ensure a demand for the currency and partly as a macro policy to stimulate/slow growth depending on whether we’ve achieved full employment and full utilization of real resources.
      jim

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