AS THE administration reluctantly approaches the necessity of raising taxes, it confronts its own earlier warnings of damage to the economy. Raising taxes kills enterprise, President Reagan and his supporters had vehemently insisted, while lowering taxes stimulates the juices of initiative and venture. Perhaps it would be helpful, in this difficult moment, to observe that there is very little in actual American experience to support that argument.
The effects of tax changes are not nearly so narrowly mathematical as economic theory likes to suggest. Those effects depend crucially on people's opinions about the taxes and what they buy. Rising tax burdens can, and usually do, accompany expansion of business and prosperity--as long as most taxpayers support the purposes on which their tax money is being spent. It's a matter of morale.
In the 1950s and 1960s, federal taxes rose only modestly. The rapid growth was in local and state taxation. Throughout those two decades, there was little sustained protest against those increases because the principal beneficiaries were local school systems. Communities knew that if they didn't build sound school systems for themselves, no one else would do it for them. There was a strong national consensus in favor of better education for the postwar generation of Americans. The total national tax load--local, state and federal--rose from 24 percent of gross national product in 1950 to 30.5 percent in 1970. But the great preponderance of that growth came from state and local taxes. Despite the substantial rise in taxation, incidentally, that was a period of remarkable economic growth for this country.
From the mid-1960s to the mid-1970s, the Social Security payroll taxes rose sharply in relation to people's incomes. But wage-earners clearly felt that the higher taxes would benefit them and their families. Again, there was little protest as the bites got bigger. The record of economic expansion in those years is skewed by war and an oil crisis, but it is hard to argue that those rising taxes damaged American prosperity. If anything, the expansion of Social Security was good for business. Again, the impact of the tax depended less on its size than on people's views of the ways it was spent.
The revolt against state and local taxation got serious in the mid-1970s, as school enrollments began to drop and the public education consensus began to fray. As for the federal tax burden, it has been increasing slowly over the past decade. From 30.5 percent of gross national product in 1970, the total tax load went to 31.8 percent in 1980, when resentment against it contributed powerfully to the election of Mr. Reagan. But while taxes had been rising slowly, tolerance of those taxes and support for them--eroded by the events of the decade-- had been falling sharply.
The challenge to the president and Congress now is not merely to raise taxes and get the budget in balance. It is to rebuild national agreement on the proper and necessary uses of public money. Highly productive economies can run with much lower levels of taxation, as in Japan, or much higher ones, as in Germany. The numbers and percentages count far less than the taxpayers' attitudes toward the uses to which their money is put.