While it is true that the U.S. government and the states compete in a global market and must keep the costs of their goods and services as low as possible in order to compete profitably, the question is what our federal and state tax rates should be as a percentage of GDP, compared with the other developed countries, in order to assure such profit.
This question is important because we need to raise revenue to reduce the federal and state deficits while not stifling the economy by excessive taxes in the present and precluding economic growth in the future. But if any increase in taxes is now the third rail of politics, as it seems to be, then cutting costs becomes only one way to do it, including the reining in of health care costs and adjustments to Social Security. Severe cuts in discretionary spending, we know, will not solve the problem. But despite the importance of this question, we have heard little debate about the sufficient or necessary tax rate as a percentage of GDP to enable us to compete profitably.