Murray N. Rothbard, “Are We Undertaxed?” — Summary

Murray N. Rothbard’s “Are We Undertaxed?” is a brief polemic against the early-1990s claim that the United States needed higher long-run taxation. Reprinted in Making Economic Sense, the essay attacks the fiscal arguments associated with Robert Solow, Benjamin Friedman, Charles Schultze, and the Galbraithian idea that America suffers from too much private affluence and too little public provision. Rothbard’s central aim is to recast the debate over taxation as a conflict between ordinary taxpayers and a governing intellectual class that presents political extraction as economic wisdom.

We who live in America are firmly convinced that we are taxed far too much, that government spending and taxation are eating out our substance to support a growing parasitic army of crooks and moochers, and that the accelerating burden of government has caused our economy to stagnate over the last two decades.

The opening establishes the essay’s populist-libertarian frame. Rothbard contrasts the taxpayer’s experience of burden, stagnation, and dependency with the calm authority of economists who claim that America is “undertaxed.” He treats this claim not as neutral science but as an ideological defense of “Leviathan” rule. The technocratic posture, in his account, enables advocates of higher taxes to portray resistance as selfishness while presenting themselves as guardians of the common good.

Rothbard then rejects comparative arguments that point to higher European tax burdens as evidence that the United States can or should tax more. For him, such comparisons beg the question: a larger public sector is not proof of better economic health. His reductio is the Soviet Union, where the state controlled all resources; the example is meant to show that the percentage of national product taken by government cannot by itself indicate prosperity, efficiency, or justice. He similarly revisits John Kenneth Galbraith’s complaint about “private affluence and public squalor,” arguing that decades of expanded public spending have not vindicated Galbraith but have exposed the public sector’s institutional failure.

The conceptual center of the essay is Rothbard’s refusal to call tax-financed government spending “saving” or “investment.” He accepts the conventional economic point that capital accumulation requires saving, but denies that coerced public spending performs the same function as voluntary private investment.

The crucial fallacy at the root of this nonsense is the idea that government spending really is saving and investing, indeed a superior form of saving and investing to the private sector.

This distinction allows Rothbard to turn the economists’ argument upside down. If higher taxes reduce private consumption and private saving, then they do not automatically prepare society for future prosperity. They transfer command over resources from individuals to politicians and bureaucrats. What advocates describe as a farsighted social sacrifice becomes, in Rothbard’s interpretation, coercive diversion toward politically chosen uses.

Unfortunately, due to higher taxes, they are already living less well, but this sacrifice will scarcely help their future state or their children's.

Rothbard’s deeper claim is that the public/private distinction is also an institutional distinction. Private saving and investment are disciplined by ownership, profit, loss, and consumer choice; government expenditure is disciplined by political incentives. Hence, he argues, the moral aura surrounding “public investment” is misplaced. Roads, schools, bureaucracies, subsidies, and programs may be called investments rhetorically, but their funding mechanism and decision structure separate them from market investment.

All government spending, far from deserving the term "investment," is in reality consumption spending by politicians and bureaucrats.

The essay’s conclusion returns to Galbraith’s image of public squalor. Rothbard concedes that many public services are shabby, but denies that the cause is underfunding. For him, the cause is public ownership and bureaucratic management. Higher taxes would reward the very institutions that produced the squalor. His alternative is deliberately provocative: privatize the public sector, or at least test privatization as a “Great Social Experiment.”

Rothbard’s significance here lies less in empirical detail than in conceptual opposition. The essay challenges the language by which taxation is redescribed as collective investment and expert-guided sacrifice. Its libertarian thesis is that fiscal policy cannot be evaluated merely by revenue levels or public intentions; one must ask who controls resources, how they are obtained, and whether political expenditure can genuinely substitute for voluntary saving, investment, and market discipline.