Chart Of The Day: Truth About Taxes Edition

This chart from a Felix Salmon column in December is worth considering:

Salmon explains:

This chart should be ingrained in the mind of anybody who cares about fiscal policy. The main things to note:

  • Federal taxes are the lowest in 60 years, which gives you a pretty good idea of why America’s long-term debt ratios are a big problem. If the taxes reverted to somewhere near their historical mean, the problem would be solved at a stroke.
  • Income taxes, in particular, both personal and corporate, are low and falling. That trend is not sustainable.
  • Employment taxes, by contrast—the regressive bit of the fiscal structure—are bearing a large and increasing share of the brunt. Any time that somebody starts complaining about how the poor don’t pay income tax, point them to this chart. Income taxes are just one part of the pie, and everybody with a job pays employment taxes.

One thing to note is that the share of estate taxes above reflects a period when the estate tax was zero. That ended on December 31, 2010.

 

FILED UNDER: Deficit and Debt, Taxes, US Politics, , ,
Doug Mataconis
About Doug Mataconis
Doug Mataconis held a B.A. in Political Science from Rutgers University and J.D. from George Mason University School of Law. He joined the staff of OTB in May 2010 and contributed a staggering 16,483 posts before his retirement in January 2020. He passed far too young in July 2021.

Comments

  1. jwest says:

    Doug,

    On the subject of taxes, if you don’t delineate between tax rates and tax revenue the article will move beyond nonsensical to deliberately misleading.

  2. legion says:

    Another important thing to note – things the federal gov’t used to do but stopped are now being shouldered by states, which means that even as federal taxes have gone down, state & local taxes have gone up _except_ for corporations, who have just been getting a holiday in comparison to all the people who actually, you know, have to buy things. This makes our current overall tax structure far more regressive than it actually appears, and is another reason why the economy in general still sucks & will continue to do so.

  3. Michael says:

    On the subject of taxes, if you don’t delineate between tax rates and tax revenue the article will move beyond nonsensical to deliberately misleading.

    And which, exactly, do you think this graph is showing?

  4. Falze says:

    Perhaps if we didn’t have nearly half the population paying no federal income tax the chart might look different. Perhaps if we didn’t have a tax code that encouraged businesses to keep incomes offshore the chart might look different. Perhaps if we clamped down on economic growth (reduce the denominator) the chart might look different.

    Oddly, the Democrats are only in favor of the last option.

  5. hey norm says:

    the chart is interesting. it does show that taxes are too low to be sustainable.
    per bruce bartlett and jon chait – only once in history has the US gone 10 years without a recession…the bush 41/clinton expansion…and that followed two successive increases in the top tax rate. then as now the so-called conservatives predicted these increases would destroy economic growth. they were completely wrong then. gee – maybe they are wrong again?
    it is important to keep in mind that those two revenue increases were also accompanied by spending cuts. the democrats are on board with a frothy mix of revenue increases and spending cuts. the so-called conservatives refuse to even consider revenue increases. they are only interested in cutting historically low taxes even more despite the fact that it will only add to the debt. therefore and ipso facto – they are fiscal fakes.

  6. Michael says:

    Perhaps if we didn’t have nearly half the population paying no federal income tax the chart might look different.

    The amount paid as income tax as percent of GDP hasn’t changed all that much over time. Did you notice that? In the mean time, the amount paid in employment taxes (SS and Medicare) that everybody pays has grown from a small fraction of income taxes paid to at least equal to income taxes. This means that the “nearly half” of the population is paying more in taxes out of their paychecks than they used to.

    Notice also that corporate tax revenues, which used to be a very significant part of total federal revenues, are now almost non-existent. In fact, the fall in corporate tax revenue seems to be mostly replaced by the rise in employment tax revenue. So no, it’s not odd at all that Democrats want to reverse that shift. What’s odd is that Republicans want to further it.

  7. Mad Maths says:

    Sigh… Again with the funny maths…
    Numbers curtesy of bea.gov; in 2010 the GDP wa 14.7 trillion, and the Federal tax revenue was 4 trillion. That works out to 27% not roughly 14%. Something doesn’t add up here.

  8. john personna says:

    I found this interesting:

    What Really Matters for Growth (It’s Not Tax Rates)

    Even if the data shatter one of my beliefs:

    Economists have spent many years trying to figure out how to increase the rate of saving, without much success. Insofar as individuals are concerned, their saving is largely determined by the need to save for retirement, get the down payment on a house, pay for their children’s education, and have a financial cushion for unforeseen circumstances. These are all things people would have to save for even if they got no return on their savings at all. Consequently, reducing the tax rate on saving is very unlikely to raise the personal savings rate. Research on the impact of tax-favored savings accounts, such as Individual Retirement Accounts and 401(k) plans, shows that people mostly shift their saving and don’t increase the total amount. Of vastly more importance, economically, is saving and investment by businesses and governments.

    I had thought that the cumbersome nature of tax-favored accounts reduced their usage, and that a general exemption on interest and dividends would expand savings. BUT. If tax burden is a factor, then it should show some bonus even with current cumbersome systems.

    That there is/was no increase in savings is both shocking and sad.

    (catching up on general reading, off the edu topic for now)

  9. ratufa says:

    Sigh… Again with the funny maths…
    Numbers curtesy of bea.gov; in 2010 the GDP wa 14.7 trillion, and the Federal tax revenue was 4 trillion. That works out to 27% not roughly 14%. Something doesn’t add up here.

    Those numbers are wrong or mislabeled. Because, Federal spending has been under 4 trillion/year. So if Federal tax revenue is 4 trillion, the government should be running a surplus. But, it isn’t. Not. Even. Close.

  10. john personna says:

    Two more to complete the sad picture:

    America’s lost trillions with an extremely sad but important chart.

    Who’s Been Buying Treasuries? with a chart to fill the heart with fear.

  11. john personna says:

    (IIRC revenues are running about $2.5T … well, $2.2T)

  12. gVOR08 says:

    John Persona–given that a root cause of the near financial collapse was the so called “savings glut” chasing better returns than the real economy could support, I’m not at all sure increasing savings should be a goal right now.

  13. Mad Maths says:

    Those numbers are wrong or mislabeled. Because, Federal spending has been under 4 trillion/year. So if Federal tax revenue is 4 trillion, the government should be running a surplus. But, it isn’t. Not. Even. Close.

    Again curtesy of bea.gov; Federal expenditures for 2010 were 5.3 trillion dollars. If you aren’t arguing with the correct numbers, it leaves your statements wanting…

  14. Dave Schuler says:

    Just to underscore the point in john personna’s second link above we’re financing our spending with fiat currency. We don’t need to worry about owing too much to China because the Chinese have stopped buying (and have sold a lot of what they bought earlier). The Fed is buying the overwhelming preponderance of Treasuries. I don’t see any way that can end well.

  15. john personna says:

    But gVOR08 it wasn’t our savings.

    The savings glut in the developing world (strangely enough) financed too much credit among the affluent nations (again, strangely enough).

    That really was a strange twist of economic history.

  16. john personna says:

    Right Dave, and the hanging question is how much yield it will take to bring them back.

    China warns U.S. debt-default idea is “playing with fire”

    Whether he is messing with us here might be an interesting question:

    Li Daokui, an adviser to the People’s Bank of China, said a default could undermine the U.S. dollar, and Beijing needed to dissuade Washington from pursuing this course of action.

    “I think there is a risk that the U.S. debt default may happen,” Li told reporters on the sidelines of a forum in Beijing. “The result will be very serious and I really hope that they would stop playing with fire.”

  17. David M says:

    Mad Maths: actual link please? Your GDP number could be right, but your tax and spending numbers do not match any other report available, so maybe a little explanation of why those are accurate as opposed to everywhere else.

  18. john personna says:

    BTW, note that the turning point in household wealth was the Obama inauguration.

    That may be a coincidence, but the data itself don’t seem to be too well understood in “are you better off” threads.

  19. ratufa says:

    Again curtesy of bea.gov; Federal expenditures for 2010 were 5.3 trillion dollars. If you aren’t arguing with the correct numbers, it leaves your statements wanting…

    The numbers you posted appear to be combined Federal/state/local numbers (or close to it), not just those for the Federal government.

    Federal-only revenues/expenditures for the past couple of years, from bea.gov

    http://www.bea.gov/national/nipaweb/TableView.asp?SelectedTable=87&ViewSeries=NO&Java=no&Request3Place=N&3Place=N&FromView=YES&Freq=Year&FirstYear=2009&LastYear=2011&3Place=N&Update=Update&JavaBox=no#Mid

    State/local revenues/expenditures for the past couple of years, from bea.gov:

    http://www.bea.gov/national/nipaweb/TableView.asp?SelectedTable=88&ViewSeries=NO&Java=no&Request3Place=N&3Place=N&FromView=YES&Freq=Year&FirstYear=2009&LastYear=2011&3Place=N&Update=Update&JavaBox=no#Mid

  20. Mad Maths says:

    Mad Maths: actual link please? Your GDP number could be right, but your tax and spending numbers do not match any other report available, so maybe a little explanation of why those are accurate as opposed to everywhere else.


    GDP


    Expenditures

  21. Mad Maths says:

    The numbers you posted appear to be combined Federal/state/local numbers (or close to it), not just those for the Federal government.

    Federal-only revenues/expenditures for the past couple of years, from bea.gov

    I think I am right, just to make sure though, check the links in my previous post. I’m pretty sure those are the Fedreal numbers.

  22. David M says:

    Ratufu posted links to the correct Federal numbers, yours may have included State/Local governments as well. (You want table 3.2 for Federal only, not 3.1)

  23. Mad Maths says:

    Ratufu posted links to the correct Federal numbers, yours may have included State/Local governments as well. (You want table 3.2 for Federal only, not 3.1)

    Of Course, I would get the table wrong, foot meet mouth. However, when arguing for or against taxes I would still assert that total tax income would be important. If Federal taxes are decreasing but State and Local taxes are increasing due to the increased burden by reduced Federal aid, then the argument is still valid. Somehow I don’t believe that if Federal taxes increase that State and Local taxes will decrease. Can we sustain a total tax rate of 28% of GDP? Or higher as the author suggests.

  24. David M says:

    Sure, a total tax rate of 28% is quite doable, in fact the first year I checked (1997) was 30%.

    Assuming state local taxes are rising as federal taxes have been decreasing means the tax code is likely getting more regressive, especially considering the increase in employment taxes.

  25. hey norm says:

    david m:
    of course it is getting more regressive. that is the desired result of supply side economics. supposedly the rising tide would lift all boats. never happened. income inequality is the greatest since just before the depression. the solution proposed by the so-called republicans? make it worse even still.

  26. Dave Schuler says:

    I think it’s worth pointing out that those two bumps on the right hand side of the graph representing increases in revenues from personal income taxes each represent bubbles. Unless your economic strategy is to create yet another bubble I don’t see any particular reason we’ll see personal income tax revenues at the bubble levels for the foreseeable future.

    That means we’ll continue to rely on FICA. Among the many reasons that’s the case is that FICA is a more broadly based tax than the personal income tax.

  27. Brian Garst says:

    “Federal taxes are the lowest in 60 years, which gives you a pretty good idea of why America’s long-term debt ratios are a big problem. If the taxes reverted to somewhere near their historical mean, the problem would be solved at a stroke.”

    This is comically untrue. While the recession has impacted tax revenues, it is hardly the primary, much less only, culprit. Historic federal revenues hardly ever exceed 18-20% of GDP, yet federal projections for spending are much higher than that. Obama is attempting now to lock in spending at 24%. So when tax revenues return to their norm (which they will do WITHOUT tax increases), how will that pay for what government is spending?

  28. Brian Garst says:

    To put the absurdity of Salmon’s claim in better perspective, here’s another chart:

    http://www.heritage.org/budgetchartbook/growth-federal-spending-revenue

    Notice how, where revenues go down, spending also goes up. Not only that, spending went up even more than revenues went down.

    One final chart:

    http://www.heritage.org/budgetchartbook/entitlements-historical-tax-levels

    I’d love to see how he thinks that problem will be “solved at a stroke”

  29. john personna says:

    Brian, isn’t this yet another attempt to paint the Great Recession as exogenous?

    Emergencies have emergency spending. One wouldn’t extrapolate, say, hurricane expenses for the year of 2005, and assume they’d be e the same in 2006, 2007, 2008.

    US Government Spending As Percent Of GDP turned in 2009, as the deepest part of the recession passed.