Are taxes at a 60-year low?

This USA Today article, which talks about the average personal tax rate being at a 60-year low, is getting a lot of attention. The conclusion is pretty fascinating:

Americans paid their lowest level of taxes last year since Harry Truman’s presidency, a USA TODAY analysis of federal data found. Federal, state and local taxes — including income, property, sales and other taxes — consumed 9.2% of all personal income in 2009, the lowest rate since 1950, the Bureau of Economic Analysis reports. That rate is far below the historic average of 12% for the last half-century. The overall tax burden hit bottom in December at 8.8.% of income before rising slightly in the first three months of 2010.

But are those numbers right?

Many commentators have been quick to jump on the findings. Kevin Drum, over at Mother Jones, points out that the USA Today analysis leaves out payroll taxes, like Social Security. Add those in and taxes go up to about 17% of personal income.

Still, the broader point of the story—that the average person is paying less in taxes—isn’t necessarily wrong. An economist at the Tax Foundation, a non-partisan research outfit, writes:

Despite these problems of data definition, the headline’s claim about 2009 being a year of historically low taxes isn’t far off… Total taxes divided by a broad income measure, NNP (which is somewhat close to personal income), had a rate of about 26.6 percent in 2009, which was the lowest since 1959.

What does all that mean? Well, maybe not as much as we’d like. After all, we’re in a recession—a time period in which you’d expect taxes to drop (incomes drop too, but since the tax code is progressive, not proportionately). Plus, the government has been rolling out all sorts of (temporary) tax breaks in an attempt to juice consumer spending.

But perhaps more importantly, none of these figures look at how personal taxes are spread out over the population. Are people paying less in tax on average because fewer people are paying taxes at all? Or is the average tax burden going down because of a proliferation of tax dodging at the upper end of the income spectrum?

There is lot to explore here, and the USA Today data point is interesting to note, but by itself it’s hardly enough to make an argument about taking policy in one direction or another.

seandougherty

Thanks for doing the job of SeanReadsTheNews.typepad.com, my business journalism review blog.

My post on your post on the article is here:
http://seanreadsthenews.typepad.com/seanreadsthenews/2010/05/time-fact-checks-usat-on-taxes.html.
deconstructiva

Thanks, Barbara. Alas, some people paid no tax last year since they were out of work all year, no temp stuff avail., and lived off savings. More jobs = more tax income. (If apprenticeships can be applied over a larger scale would that beat current “job training” schools that have no guaranteed work at the end but have guaranteed debt? but I digress.)
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I’ve always favored a Flat Tax™ if literally everyone pays with no exceptions (e.g., 10% of all gross income, no matter what: work, savings, cap. gains, lottery) …well, maybe a lower income floor limit, but no other loopholes. Perhaps if everyone kicks in their fair share, could we bring in more income and yet have lower rates for everyone? Or do your tea leaves see a VAT ahead for us? Thanks for your thoughts.
agribik

This did not surprise me when I read this story in USA Today. I had read something earlier this year that stated 47% of American’s had no tax liability. This is extremely frustrating as someone who dutifully pays their taxes every year with little protest. I feel that all of the credits available, from children to mortgage interest, to energy efficiency are slightly absurd, and hide the true cost of taxes from the public.

As a progressive minded, above average wage earner, with no children or mortgage (as I do not buy into the white picket fence, three babies, and a dog camp) I am penalized. Additional child credits are unfair, as parents are already provided standard deductions for additional household members, mortgage interest shouldn’t be deductible and therefore socialized, as owning a home is a choice, not a privilege.

I accept the fact that my alternative, and in my opinion more socially acceptable lifestyle, provides me with a greater tax burden than people who use the system more. However, I think this should be a more widely recognized fact. I would like to see the statistics on the tea partiers tax liability. They are undoubtedly more socialist than I, in their use of government subsidies (because that’s what tax credits really are), despite the fact that I support universal healthcare.

I agree with deconstructiva on the Flat Tax.
qqi239

It is simply unbelievable that serious people would discuss this junk:

Just count in 15% of payroll taxes and the picture will be pretty as grim as it feels.
http://fashionbop.wordpress.com fashionbop

low taxes? never heard of it before!!
the government should do something nicer!

Simon (Fashion Bop)

http://www.fashion-bop.com
peteg2

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peteg2

Blog says: “But perhaps more importantly, none of these figures look at how personal taxes are spread out over the population. Are people paying less in tax on average because fewer people are paying taxes at all? Or is the average tax burden going down because of a proliferation of tax dodging at the upper end of the income spectrum?”

If you’d like an answer, see: http://economix.blogs.nytimes.com/2010/04/13/taxing-the-rich-over-time/ Since 1960 federal tax rates have dropped 35 percentage points for the very highest earners, 4 percentage points for the lowest 20% and remained flat for the middle class. This does not include sales taxes or property taxes, which further shift the tax burden toward the poor and middle class. Also it does not consider unrealized capital gains, where the wealthy make most of their money, but which are completely untaxed…
peteg2

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peteg2

…A millionaire couple can pay 4% total (federal state local) taxes on its income and investment returns, while a middle class working family pays 28%. In 2006 Warren Buffett paid a tax rate of 0.13% on his income and investment returns This partly explains why the top 1% owns 40% of the nation’s wealth.

It is impractical to tax unrealized gains directly. However, a wealth tax of 1-2% would be an effective 20-25% tax on typical investment returns. It would reduce our deficits and allow cuts in taxes on work. A wealth tax would reduce investment bubbles, which generally trigger recessions. It would reduce our economic inequality, associated with a number social ills (see http://www.equalitytrust.org.uk/why).

For much more, see http://fairsharetaxes.org