Tax burden in U.S. lowest in over 50 years

A USA Today article reports that combined federal, state, and local taxes in the U.S. came to 23.6 percent of personal income in the first quarter of 2011, the lowest level since 1958. In the 1970s through 1990s tax collections averaged 27 percent of income.

The article quotes Robert Bixby of the Concord Coalition saying, “We have a 1950s level of taxation and a 21st-century-sized government,” a pretty good description given that today’s taxes support such things as Medicare that didn’t exist in 1958.

Meanwhile, a recent report (PDF) from Citizens for Tax Justice notes that U.S. taxes aren’t as tilted as one might think toward those best able to pay. It’s true that the federal income tax (which doesn’t include Social Security and Medicare payroll taxes) imposes higher rates on higher-income people (though the tilt toward taxing the well-off is nowhere near so great today as it was under, say, President Eisenhower), but when you take into account state and local taxes and payroll taxes, a lot of the tax collections fall on middle-income persons and the poor.

Asking higher-income people to pay higher taxes has long been seen as a way of equalizing the pain. The same tax rate that would be devastating to people not making enough to pay for food, rent, and medicine for their kids would barely be noticed by Bill Gates or Warren Buffett.

In 2010, Americans in the middle 20% by income paid 25.1% in taxes. The figure for the top 1 percent was only a little higher, 30.0%. The poorest 20% still paid 16.2%.

Some news reports give a different impression by referencing not tax rates by income level but rather total share of tax collections. The richest of the rich have a higher share of wealth and income that at any point in eighty-some years (and far more than in other developed countries). High-income people pay the lion’s share of taxes not because they pay a significantly greater tax rate but because they collect such a disproportionately huge fraction of the national income.

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Tax burden in U.S. lowest in over 50 years — 3 Comments

  1. Raising a tax like sales tax is tempting, because it’s a guaranteed generator of revenue. But as noted, it hits the poor proportionately harder. Next thing we know, someone is going to propose a sales tax based on income … the more you earn, the more tax you pay on everything from Bentleys to Big Macs …

    • You’re right, and in fact, there are already a number of proposals for turning income tax into a more-or-less progressive consumption tax. There are many variations, but the basic idea is money saved or invested would be deductible from income, so you’d be taxed only on what you spent. The economic argument is that this would lead to more capital investment, which would in turn promote economic growth.

      A less-progressive alternative is the mis-named “Fair Tax” that would replace both income tax and many forms of aid to the poor with a hefty national sales tax offset by a substantial regular cash payment (called a “prebate”) made to every citizen and legal resident. The idea has some superficial appeal, but in practice it would shift a lot of tax burden from the well-off to the middle class, and there are obvious practical problems with the distribution logistics and potential for fraud in those large cash “prebates.”

      Yet another variation that’s sort of quasi-progressive is a sales tax or value-added tax that hits luxury goods harder than necessities. We have something like that here in North Carolina, where foods are taxed at lower rate than other goods and prescriptions drugs are not taxed at all. Historically the federal government used to impose a number of “excise taxes,” in effect sales taxes targeted at a narrow set of goods and services. In Europe VAT rates tend to vary a fair amount among different classes of products, with some odd resulting market distortions. (For example, at least at one time, some capabilities of U.S. and Japanese video cameras were not available in versions sold in Europe because the capabilities triggered a higher VAT rate.)

  2. I saw a poll the other day that listed various issues with the percentage of people who were concerned with that issue as a top priority.
    Taxes came in at 4%.

    The democrats should have passed a tax hike on the top 3% before the last election. The democrats were afraid to this because they falsely feared a public backlash. And they don’t understand how to frame an argument.

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