Greg Mankiw comes up with an excellent Post on the non-applicable blame being placed on international competitiveness. The first clear Statement to be drawn must state that all economies–domestic and foreign–suffer from the same impact from Taxes. The Second claims the supply of Government services is either cheaper in foreign Countries, or the more likely element, such Revenues are misspent in this Country. I would be the first to assent to the fact of excess Rent-seeking within the provision of American Government services, but I expect that the funds allocation process stands as the major culprit behind both the lack of Government services and the greater inefficiency of the American system.
The American political process generates the mis-allocation of Tax revenues. Medicare was probably the last actually uniform Government Service program; a great Share of American Taxpayers were not even born at the time of its authorization, and Add-On elements and Spread requires a new funding system on which no one will agree. Other Government Services were added in ad-hoc manner with a variety of funding forms, leading to a multiplicity of budget creations without adequate Overview, and completely splintered allocation forms. There has never been a standardized Priority format created for Revenue allocation, or an Evaluation system established to rationally compare elements of Government services for the degree of effectiveness. Those who would actually desire to limit Government excess spending have no vehicle to set parameters for Government spending.
I am unlike Greg in the fact I believe that the American people are under-taxed in the lower brackets by about 4%, and the higher Tax brackets by about 8% of total Income. I do not want Anyone to think I am advocating Tax reduction, but I do want to stipulate this assessment is based upon total Taxes–Federal, State, and Local. A real Overhaul of Government will require introduction of an effective Tax system, though one without change in nominal Tax rates; just elimination of Tax loophole Politics. The whole Argument, though, becomes simply academic without a uniform Government Rating system for the effectiveness of Government expenditures. lgl