This was Fred’s idea. But, he’s away on business, so I’ll give the opening presentation. I’ll take about 15-20 minutes — a little longer than usual — to talk about two topics:
- Tax Levels: How high are they? Compared to what (the past, other countries, what we get for it)? How “fair” is our tax system (i.e., who pays a lot versus not much)?
- Why are Americans so tax-phobic? I’ll outline a few of the oft-cited reasons plus some that don’t get cited much but I think should be. Hopefully, this will help give us a framework for our discussion.
This post is about #1, tax levels. I’ll do another one tomorrow on #2. I can also speak to a third topic: What philosophically justifies taxes, especially different kinds of taxes (corporate, income, sales, etc.), and charging some people higher taxes than others? I think a lot of people don’t know why they pay more or fewer taxes than their neighbors. But, that gets a little complicated, so I’ll skip it in the lecture.
A. Tax Levels:
- As this chart shows (source), federal taxes are the lowest in 60 years as a share of our economy, which is probably the best measure of our country’s ability to afford taxes (if we want to).
- Income taxes, in particular, both personal and corporate (the two darkest blue parts) , are low and falling. Employment taxes, by contrast—the regressive bit of the tax structure—are bearing a large and increasing share of the brunt.
- Also, compared to other countries in similar levels of development, we’re a low-tax country. Of the 30 countries in the club of rich nations known as the OECD, we have the 5th lowest overall (federal + state/local) taxes, and 2 of the 4 below us are Mexico and Turkey (source). Of course, for these lower taxes we get a lot fewer government services, except national defense, which we get a lot more of.
B. Tax Burden —
- You hear a lot about how the wealthy pay most of the taxes. In fact, while the top 1% pay most income taxes, when you take into account all taxes at all levels, the distribution of the burden looks like this (source):
- As you can see, what most income groups pay in taxes corresponds pretty closely to what they can afford. Therefore, our tax code is NOT very progressive. The exceptions are the poor, who pay less than their “fair” share, and top 20%, who pay slightly more. So, overall, we already almost have a “flat tax.” This is because, even though income taxes are progressive, payroll taxes as well as many state/local taxes are highly regressive. No one knows this.
- But, that’s just today’s burden, a snapshot. As this next chart shows, the tax burden for the richest Americans has actually fallen over the last 30 years. [See Update below] This at the same time that their incomes have skyrocketed (source).
C. What Does All This Buy Us?
- As I mentioned in prior posts, here is what the federal and state governments spend all of our money on (source USG, source states):
As I said in this previous post, if you want lower taxes, fine, But, these pie charts show what’s on the menu to cut that would allow us to pay permanently lower taxes without further bankrupting the country, and what isn’t.
I’m not saying that the reality I’ve described is good or bad. But that this is the way it is, and thus should inform our discussion. Taxes are fairly low, the burden is fairly evenly shared, and most government spending is on a few big-ticket items. That’s what makes our choices so hard!
Tomorrow, Part II, on why we hate taxes. Some of the reasons will reinforce liberal beliefs, but not all of them!
UPDATE: Oops. One of my charts doesn’t show what I said it shows. It shows that the wealthy have been making huge gains before taxes (“pre-tax”), but it doesn’t say what’s happened to their tax rates. This chart does, showing that the tax burden oi the wealthiest Americans has been falling – substantially.