I sort of went off yesterday at something in the Investor’s Business Daily. IBD was saying the 33.6% tax burden was unprecedented and that the dip in the tax burden was turning around and started going back up. IBD omits the fact that this dip in the tax burden comes at the cost of large government deficits, which means the tax burden was not reduced but only deferred.
My complaint should have been with its claim that Americans have historically paid a lot in taxes. A lot should be compared to something such as tax burdens in other nations and we should also look at this over an extended period of time, which is one of the purposes of our graph. During the late 1940’s and most of the 1950’s, their measure of the tax burden had it below 25%. And this was a period when the Federal debt to GDP ratio was declining. Total Federal debt as a share of GDP is currently increasing. I guess the folks at IBD could point out that we currently have a larger government than we did under President Eisenhower, but that’s not going to change even if we continue to elect the Spend&Spend and Borrow&Borrow Republicans that Lawrence Kudlow prefers.
But the real purpose of our graph is to examine the composition of taxes over time. Kudlow likes to claim only rich people pay taxes as he seems to think the only tax anyone pays is the Federal income tax. He is not alone as focusing on the progressivity of the Federal income tax is an old rightwing trick. But notice something – the ratio of Federal income taxes has declined from around 15% to around 10% over the same period when total taxes to GDP has risen from less than 25% to more than 30%? Part of this difference comes from an increase in payroll taxes and part comes from an increase in taxes collected at the state&local (S&L) level. While some of state and local tax revenues also come from income taxes, much of it comes from other sources such as sales taxes. Memo to Larry – the working poor pay both sales taxes and payroll taxes. And the shares of those two tax sources have increased over time, while the share of Federal income taxes has declined.