April 15: Making Sense on Taxation (Sort of)

Let me give a little credit to Kevin Hassett for this:

What about those who do pay taxes? To analyze them more carefully, I turned to the U.S. Department of Labor’s Consumer Expenditure Survey, which contains data on household expenditures, as well as on income and taxes for a large sample of Americans. Using it as a base, I calculated the average taxes paid (including federal and state income taxes, sales taxes, property taxes and federal payroll taxes) for typical families and compared that, for context, to the other things these families spent money on. The accompanying chart contains the calculations for two scenarios – a family of four with an income of $50,000, and a family of four with an income of $150,000. The chart shows the average total taxes paid and average expenditures for two years, 1983 and 2003 (the last year for which data are available). Looking first at the average American family with a $50,000 income, a couple of things jump out. First, even though the family has a relatively low income, the amount of money it paid in taxes at all levels was strikingly high in both years. In 1983, it paid 29 percent of income in taxes. In 2003, it paid 31 percent … Looking now at the family with the $150,000 income, taxes are once again the No. 1 item in the household budget in both years. In 1983, the government’s take was 30 percent, compared with 23.7 percent spent on the next biggest item, the family’s home. In 2003, the take was 30 percent, compared with 23.5 percent going into the home … Government thus takes more from the wealthy through income taxes, but extracts more from the poor with all the other taxes.

Let me get this straight. We have a conservative saying that while a lower middle class family was paying slightly less in total taxes than an upper middle class family back in 1983, they are now paying slightly more! Kevin does do his conservative bit with this:

Government has been robbing Peter to pay Peter … Which must mean that 30 percent is something of a magic number. In fact, a recent review of polls by my colleague Karlyn Bowman found that “people think Americans should not pay more than 25 percent of their total income in taxes.” If you consider that payroll taxes that go into Social Security deliver future benefits and so may not be fully thought of as a tax, then the amount that government raises from citizens seems to be a little less than the amount they tend to think is fair.

Conservatives are about to scream at me and at Kevin as this was supposed to be rob Peter to pay Paul, but Kevin admits that much of the tax/transfer system is paying for Social Security retirement. So to protect Kevin from the lynch mobs of rightwingers, let’s back up:

Today taxes eat up about 30 percent of income, a much heavier burden. And like our ancestors, we don’t believe that our money is particularly well spent.

Heavier than what? Oh – a larger tax burden than during the eighteenth century. But as we look at spending relative to GDP – it has been running at 31% of GDP since 1975. So if taxes are only 30% of GDP or less – then we’ll see mounting government debt. Kevin may not like the fact that spending is 31% of GDP as compared to say 25% of GDP that we saw back in 1961 (never mind some Karlyn Bowman poll) but the increase mainly represent an increase in transfer payments such as Social Security benefits and government funding health care. I wonder if Karlyn Bowman has some poll that says people want those slashed.