In recognition of Tax Day, we've collected our top ten charts related to federal taxes. Together, they provide useful context for the coming debates about how to reduce soaring budget deficits and reform the tax code.
Our first chart, below, reminds us what taxes pay for: three-fifths of federal spending goes for national defense, Social Security, and major health programs like Medicare and Medicaid; the rest goes for safety net programs, interest on the debt, and a wide variety of other areas.
Our second chart, below, shows that the United States (including both the federal government and the states) collects less in taxes as a share of the economy than nearly any other developed country.
The next three charts show some of the factors that have made the United States a low-tax country. They include the downward trend in taxes on middle-income families, the steep drop in federal taxes at the top of the income scale, and the decline in corporate income tax revenue as a share of the economy.
As our third chart, below, shows, federal taxes on middle-income Americans are near historic lows, according to data from the Urban-Brookings Tax Policy Center (TPC):
As our fourth chart, below, shows, the share of their income that the country's highest-income 400 taxpayers pay in federal income taxes has also fallen considerably since 1992, according to IRS data. Over that same time, the incomes of those taxpayers has skyrocketed. While the Great Recession (like the 2001 recession) caused a sharp drop in incomes at the top, the most recent data show that incomes at the top have since begun to rebound.
As our fifth chart, below, shows, corporate tax revenues are at historic lows as a share of the economy.
Although the top U.S. statutory corporate tax rate is high by international standards, the average tax rate -- that is, the share of profits that companies actually pay in U.S. taxes -- is substantially lower because of the many deductions, credits, and other write-offs that corporations can take. U.S. corporate tax revenues are low compared to other developed countries as a share of the economy.
The next two charts highlight critical facts to keep in mind when evaluating tax proposals.
As our sixth chart, below, shows, the nation is on an unsustainable fiscal track if we continue current policies. Higher tax revenues are an essential part of a balanced deficit-reduction package.
As our seventh chart, below, shows, the top 1 percent of taxpayers have enjoyed enormous gains in after-tax incomes in recent decades, dwarfing the gains among other income groups. (For more on the growth in income inequality, see our slideshow series.)
The sharp growth in income inequality suggests that higher-income taxpayers can and should contribute more in taxes to help reduce deficits.
As our eighth chart, below, shows, the 2001 and 2003 tax cuts benefit millionaires much more than middle-income households -- a sign of how heavily they are weighted toward the top of the income scale. A good start to raising revenues for deficit reduction would be to allow the tax cuts aimed exclusively at people earning over $250,000 to expire on schedule at the end of 2012.
As our ninth chart, below, shows, policymakers can also can reduce deficits -- and make the tax code more equitable and economically efficient at the same time -- by reforming tax expenditures (tax credits, deductions, and other preferences). Tax expenditures are expensive, costing $1.1 trillion in 2011 (more than Medicare or Medicaid), and in many cases they provide the biggest benefits to the people who least need them.
As our tenth and final chart, below, shows, one of the most top-heavy tax expenditures is the preferential tax rates for investment income, which are much lower than the rates for wage income. Since the large bulk of investment income goes to upper-income households, these preferential rates are the major reason why the tax code violates the "Buffett Rule" -- in other words, why many middle-income Americans pay more of their income in taxes than some millionaires.
Middle-income people who receive most of their income from their paychecks (as middle-class people generally do) pay 14.9 percent of their income in federal income and payroll taxes, according to TPC. This is higher than the rate for people with incomes over $1 million who receive more than a third of their income from investments (that is, capital gains and qualified dividends).
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This post originally appeared on the Center on Budget and Policy Priorities' Off the Charts Blog.
Follow Chuck Marr on Twitter: www.twitter.com/@centeronbudget
Lanny Davis: Obama and Romney on Buffett Rule - Both Right ... and Wrong
End corporate welfare
Means test every gov't benefit to individuals; charge/pay on sliding scale; reduce fraud by requiring federal and/or state photo/security ID to receive any federal and/or state benefit.
Have a DEDICATED TAX--property tax (real estate and personal--if it's titled or deeded and/or if it is insured--if no tax paid no insurance company needs to pay the insured if lost or stolen) for everything that is in the US, its territories and waters-- that requires that those that OWN this country to pay to secure and defend it. AND Congress CANNOT spend more than is collected and cannot spend any collect for anything other than security and/or defense--fed, state, local, direct or via state grants.
http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=205
You can whine all you want about tax revenues but the fact is, we haven't raised more than 25% in any single year since 1950. That's right -- even when the top rate was over 90% we still couldn't top 25%. Yet our government continues to spend roughly 30% of GDP per annum. That's called a spending problem, not a revenue problem.
http://online.wsj.com/article/SB10001424052748703514904575602943209741952.html
You can't escape it. The fact is, our government spending must be reigned in, period.
You first chart is federal taxes, his chart is all taxes.
The right move would be to end the wars and transition defense spending into public infratructure and alternative energy activities, move to phase 2 of the Health care initiative with cost controls, close corporate tax loop holes, end corporate welfare, remove the Bush tax cuts across the board, disable the traditional tax shelters and incentivize investment in growth/job creating opportunities like alternative energy/transportation, small business and domestic manufacturing.
Unfortunately, this would unfortunately require a functional government with an eye to the future rather than the next midterm election.
??????
Accurate as it goes, I suppose, but, many people will assert that the "current policy" is Obama's doing. It is not.
Here's what Republicans do when they get a chance to spend on debt:
http://jimcgreevy.com/gvdc/Natl_Debt_Chart.html
And, just what is causing our current debt.
http://tpmdc.talkingpointsmemo.com/2011/05/chart-bush-policies-dominant-cause-of-debt.php
and the underlying causes
http://rationalrevolution.net/articles/history_of_the_separation_of_chu.htm
http://people.stern.nyu.edu/nroubini/SUPPLY.HTM
but Congress seems to be 'bought and paid for' by those w/the money to do so.
I also suspect the defense budget has sub-categories that are worth considering in finer detail, such as education support and research.
What I really want to do is then compare my favorite ratios to the various taxes on my own pay-check. I would not mind paying more tax if I feel the people spending it on my behalf are making wise choices. But I feel skeptical!
http://www.orangecountytaxrelief.com/mission-viejo-ca-tax-attorney-cpa-ea-for-tax-relief-resolution-from-irs-debt-problem/