leviathan's third

(move over "king's fifth")

since time out of mind, in kingdoms across this big blue ball we call home, systems of kings and princes and feudal lords have maintained systems of taxation. what’s interesting in among them is that there was a sort of basic natural law about how much you could take and that was “about 20%.” it’s been expressed all sorts of ways, “the royal fifth,” “el quinto real,” the muslim “khums,” the castillian take on reconquista spoils, and the portuguese “quinto do ouro” were all 20%.

there’s just something about that number where “if you take more than 20%, everyone bucks.”

this finds interesting consonance in modern america when one looks at federal takings and hauser’s law which shows that overall american federal tax receipts tend are remarkably constant irrespective of the top marginal tax rates and that they bounce off 20% like a bird hitting a window. people just do not pay bills bigger than that. they arrange their lives not to. (laughs in laffer curve)

the US saw massive tax hikes around ww2 and we’ve averaged about 17% of GDP since. (americans are notoriously feisty about taxes and so we treat 20% as a limit, not a standard.

but, if you pile on state and local, that’s another ~9% so the reality becomes more like 26% in total take.

but here’s the funny thing: we’re obviously getting taken for a great deal more than this.

here’s a wild chart that i pulled together from some disparate sets of source data.

back in the days of coolidge, all government spending in the US aggregated to something in the neighborhood of 12%. as of 2025, that has basically tripled. it’s quadrupled since 1900.

obviously, the federales were a meaningful part of that rising from 3% in 1929 to 9.2% pre ww2, spiking massively in the big war, but then never going back down. they drifted up to 22% by 1982, we got a little leverage on it through the 90’s but every crisis since seems to kick us up into a higher valence. the 2008 crisis got us up from the 17’s to 24% and we settled in at 20, covid kicked it to 30% and we’ve settled in at ~23%.

one way ratchet.

obviously, comparing this to federal receipts shows a nasty set of deficits which have been making a sawtoothed railroad tracks to hell pattern since the dot com crash when the fed began its 26 year (and counting) excursion into activism and money printer obsession.

yikes.

this gets talked about quite a lot so it’s probably not surprising anyone.

the feds are spending 5%+ of GDP every year that they are not paying for.

but, and this is less discussed, it looks like the states and localities are burning about another 5% of GDP that they don’t have either and that one gets interesting as most of them are supposed to have balanced budgets and not to be able to partake of such shenanigans on a durable basis.

and this one is going to end in tears because there is damn near no way out of that hole. states and towns cannot print money. they also, unlike the federales, are subject to far greater “vote with your feet” discipline so that when some clever boots governor starts talking about a “wealth tax” and an entire air force of private jets takes the billionaires to texas and the tax base is gutted and groovy gavin and the rail project of doom will be left to languish.

kathy nazgul and marxism mamdani are learning some similar lessons in new york

and seriously god help them if and when the real estate prices start to drop and the property tax revs evaporate.

there have been some shocking developments in some of the more poorly governed and managed cities where the potent brew of high tax, high cost, and deteriorating lifestyle and service level is causing wealth flight.

choices have consequences.

and the “well, it’s just a few rich people so who cares” argument rapidly turns into “everyone cares” the minute anyone tries to make up the tax take. the rich are paying for the system and when you start pushing them past the “royal fifth” and well into “leviathan’s third” or the truly deadly levels of double digit state income taxes and then piling sales and property taxes on top and you get wholesale wealth walkout.

the top 1% is paying a helluva lot of the tax bill and this is a “customer” both willing and able to take its business elsewhere. capital, businesses, and people have never been so mobile and it has never been easier to live where you want and work where you need.

the cites and states that have figured this out are booming and the ones that are squeezing harder are really flirting with disaster because this is one of these accelerating calamity curves where the money leaving blasts huge budget holes that raise taxes and drop service and just drive more flight. and once that really starts in earnest, it does not stop and there is no easy way back out of the hole because you lack the money to fix the problems and attract the money back.

count on the crisis in coming years where states and cities start threatening BK and demanding the feds to bail them out.

do that even once, and 40 more will follow rapidly and hopefully, not even the feds are that barking mad.

but somehting has to give.

we have a massive spending problem in this country and there is just no way to pay for leviathan’s 35% of GDP.

we can either get serious about it or it’s going to be the sinkhole of the coming decade and urban blight and city center sinkhole will become the outcome in many top metros.

this is not the movie you want to star in.