FOR THE PAST two decades there has been a tradition in American politics that federal taxes should never exceed 19 percent of the gross national product. There is no particular economic rationale for 19 percent, but there is a substantial political history behind it.
In 1968, President Johnson imposed a surtax to pay for the Vietnam War; taxes went over 20 percent of GNP, and the Democrats lost the election. The surtax was hardly the leading reason, but President Nixon saw the point and hastily proposed a tax cut. In 1980, President Carter let inflation push taxes over 20 percent, and you know what happened. Mr. Reagan is at present the most conspicuous advocate of the 19 percent rule, but his opinion is widely held in both parties.
As for spending, it has risen since the 1960s to 24 percent of GNP, and that's why there is now that $200 billion deficit. Most of the increase in federal spending since 1965 has been in the two biggest social programs -- Social Security and Medicare. To say that they are big is no attack on them; they are both indispensable to the country. But they -- and not the far smaller programs directed to poor people alone -- are the major explanation for the growth of federal spending. Defense is still slightly lower, in relation to the size of the economy, than it was in 1965.
Social Security and most of Medicare are financed by their own earmarked payroll tax, which has risen along with Social Security benefits. But as it has risen, a succession of presidents and Congresses has let other taxes decline to keep the total at the magic 19 percent of GNP. The real erosion has been in the corporate income tax, the excise taxes, and the estate and gift taxes.
If Congress set the Social Security payroll tax aside and returned all other federal taxes to the same share of GNP that they took 20 years ago, revenues this year would be $110 billion higher, the deficit would be under $100 billion -- Mr. Reagan's target for the end of his term -- and no further budget cuts would be required. The moral of the story is that the growth of large and essential social programs such as Social Security and Medicare cannot be accommodated within federal revenues fixed rigidly at the levels of the mid-1960s.