The Congressional Budget Office (CBO) just released a very thorough update of their high quality household income series, adding data through 2009. There's so much in here it will be weeks before I can work my way through all of its nooks and crannies, but so far, something's jumped out at me.
First, man, I gotta say: when it comes to federal taxation, there is just no case in the data to be made in any way, shape or form that we Americans are overtaxed. Not middle income, not high income -- not the overall average. Not relative to other countries (figure 4 here), and not relative to our historical rates back to 1979.
The top line in the first figure below shows the decline in the overall average federal tax rate for all households. The rate is relatively constant at around 22% from 1979 to the big tax cuts of the George W. Bush years (the ones we're still arguing about!), when they start to slide; the decline at the end of the series is both cyclical and policy driven, as pretax income declines in the Great Recession and Recovery Act tax cuts lowered tax liabilities.
By the end of the series, the average U.S. household was paying 17.4% of their income in federal taxes, compared to 22% in 1979. The main culprit is the income tax; all the others in the figure stay relatively constant.
The bottom slide shows a long downward trend in the effective rate paid by the top 1% starting in the mid-1990s, and particularly large cyclical effects at the end of the series for middle and low-income households. At their peak average income in 2007 ($1.9 million), had the top 1% paid taxes at their mid-90s effective rate (35%) instead of their 2007 rate (28%), their tax liability would have been $134,000 higher.
We clearly are facing hard times, and there's a lot of powerful data in here for future posts on how households across the board, including the top 1%, got whacked by the downturn (notably, however, the top 1% started climbing back in 2010-other groups have yet to do so).
But I just don't see how, based on these facts, anyone can make a case that we're overtaxed, and to be clear, this includes all federal taxes, including business taxes. I also think there's a strong, reality-based case in here for new revenues in any deal to stabilize the debt situation, starting at the top of the income scale, as I've argued before. But like I said, that's based on the facts. Based on Buddha-knows-what, people will continue to say whatever the h-e-double-hockey-sticks they want.
This post originally appeared at Jared Bernstein's On The Economy blog.
Follow Jared Bernstein on Twitter: www.twitter.com/@econjared
Yeah, well wages have not gone up to compensate either, but the price of goods and services has. The purchasing power of people has not increased with time. We need more of our money to pay for food, housing, etc than ever before.
That said, the larger problem is that few find any real value in the taxes we do pay. We have failing schools, bridges that fall down, levies that fail, roads that damage our cars, and a Congress that feels obliged to symbolically repeal the same law 33 times. If we demanded a government that promoted the general welfare as it was charged in The Constitution, we would undoubtedly still complain about taxes, but we might not be quite so angry about it.
Unfortunately, as long as people are willing to vote for politicians who run on the premise that government doesn't work, and only serves the benefit of special interests, we can continue to expect a government that doesn't work and only serves the benefit of special interests. You get what you vote for.
The problem developed nations face is, the declared tax rate as a % becomes perverted by various means, there are exemptions, refunds and loop-holes which are often added ad hoc because of political imperative and not economic rationality.
A problem with the US of A is that the perversions of the charged % rate have begun to over-run that rate, so companies like GE can pay US$0 in Federal Income Taxes and the wealthy investor class can leverage themselves to do basically the same.
So, Obama or even Romney could do whatever they liked to the headline charged % rate without having any impact on revenue.
Australia discovered this from 2007/8 till now, where from a AU$20 Billion head=start surplus budget position the federal government suffered a AU$50+ Billion revenue collapse even though the economy itself kept growing. In-fact even in the 2012/13 budget there is only a forecast surplus of only AU$1 Billion even though the economy is growing at 3+% and the introduction of two whole new taxes, the increase of government charges and spending cuts were signed off on.
This shows that business' and individuals are becoming smarter and more aggressive in persuing tax savings.
The Taxation Systems themselves need to be changed or like Europe the US of A won't be able to grow itself out of its debt position.
You don't need more proof than that to tell you we are overtaxed.
Also the country will get on great when its population cannot afford any education at all.
We're sure to remain world leaders by virtue of our magic unicorn farms!
Had you been paying attention the last few years you would have noticed that back in the early 2000's The Heritage Foundation was holding up Spain, Greece and Ireland as model countries for their tax cutting measures. I believe that article was in that leftest rag Forbes.
Nanny states that have swallowed the conservative pill are struggling to feed their citizens. No work. No security. No hope. Kick-um when their down is the conservative way. Blame the programs that fed and nourished the citizens. Not the prized tax cuts that were paying for those as well as other programs that stabilized those nations into competent members of the society of nations.
Yet they want good roads, good schools, police and fire protection, flood control, levees and disaster relief. I'm not sure where they think the money comes from to pay for all these services.
Some of the Gulf states finance their services with oil revenues but the rest of the world use taxes.