More on Wagner’s Law

I recently linked to a David Leonhardt column that asked if Wagner’s Law no longer holds.  I suggested that it does if we modify the proposition to look at government spending, not taxes, as a percent of GDP.  If you do that, then Wagner’s Law is still valid.

Matt Yglesias asks if Wagner’s Law exhibits an upper bound of 50-60% because the Scandinavian states, the most tax friendly governments around, felt the marginal cost of tax revenue at that point was too high.  Yglesias:

Taxes can be higher than they were under George W Bush. They can be higher than they were under Bill Clinton. But they do reach a point where the impact of growth is a problem, and even tax-friendly political cultures turn around and level off even though these countries are coping with aging populations and rising health care costs.

In America, government spending as a percent of GDP is around 42%, which is much higher than our revenue as a percentage of GDP.  So it’s pretty accurate to say that we’re closer to France and Belgium than we think (though they both run deficits).  We just spend too much of our money on health care.