Federal Taxes At Lowest Rate Since 1950
Bruce Bartlett, former adviser to President Reagan, runs some numbers on taxes in the United States and finds a result that is counter-intuitive given the state of debate:
Historically, the term “tax rate” has meant the average or effective tax rate — that is, taxes as a share of income. The broadest measure of the tax rate is total federal revenues divided by the gross domestic product.
By this measure, federal taxes are at their lowest level in more than 60 years. The Congressional Budget Officeestimated that federal taxes would consume just 14.8 percent of G.D.P. this year. The last year in which revenues were lower was 1950, according to the Office of Management and Budget.
The postwar annual average is about 18.5 percent of G.D.P. Revenues averaged 18.2 percent of G.D.P. during Ronald Reagan‘s administration; the lowest percentage during that administration was 17.3 percent of G.D.P. in 1984.
In short, by the broadest measure of the tax rate, the current level is unusually low and has been for some time. Revenues were 14.9 percent of G.D.P. in both 2009 and 2010.
So what, then, of the Republican arguments that the way to stimulate the economy and create jobs is to further lower tax rates? Bartlett isn’t convinced because, he says, the argument completely ignores the fact that the statutory tax rate has very little to do with what actually gets paid in taxes:
The economic importance of statutory tax rates is blown far out of proportion by Republicans looking for ways to make taxes look high when they are quite low. And they almost never note that the statutory tax rate applies only to the last dollar earned or that the effective tax rate is substantially lower even for the richest taxpayers and largest corporations because of tax exclusions, deductions, credits and the 15 percent top rate on dividends and capital gains.
The many adjustments to income permitted by the tax code, plus alternative tax rates on the largest sources of income of the wealthy, explain why the average federal income tax rate on the 400 richest people in America was 18.11 percent in 2008, according to the Internal Revenue Service, down from 26.38 percent when these data were first calculated in 1992. Among the top 400, 7.5 percent had an average tax rate of less than 10 percent, 25 percent paid between 10 and 15 percent, and 28 percent paid between 15 and 20 percent.
The truth of the matter is that federal taxes in the United States are very low. There is no reason to believe that reducing them further will do anything to raise growth or reduce unemployment.
Of course, there is one alternative. Reforming the tax code to make it simplier would have the benefit of both making compliance less complicated, and likely less expensive, and increasing revenue thanks to the elimination of exclusions, deductions, and tax dodges that serve no economic benefit (and which may not even say taxpayers any money once you take the costs of compliance and preparation into account). Of course, any talk of reform that might increase revenue is verboten in the GOP. Which means we’ll just sit here doing nothing, again.