Taxes paid keeps rising, despite the media’s claims to the opposite

Headline: “Tax bills in 2009 at lowest level since 1950

The reality according to the very same article:

“Federal, state and local income 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.”

Notice that this is only talking about income taxes. As if income taxes are the only means of collecting taxes. In fact, look at what has been happening in Arizona. The legislature has been dropping income tax rates here, but at the same time they and the people through ballot initiatives have been raising the sales tax rate. Looking at only income taxes is looking at about a third of the total.

I decided to collect the data from http://www.usgovernmentspending.com/ and http://www.usgovernmentrevenue.com and create some simple charts.

Yes, taxes paid have declined recently and hit their lowest level as a percentage of GDP since 1959 (not 1950). However, as you can see, tax revenue is 2010 was back up to the same level as 1971 and 2011’s are expected to be the same as 1973’s. In fact, 2011’s tax revenue is expected to be just a point less than that of 2003’s. Big deal! Yet, look at that outstanding increase in taxes between 1910 and 2000.

But that only tells part of the story. As government’s share of GDP grows, the shrinking private sector has to pay for all that new government. So let’s look at taxes as a percentage of the private economy:

The decline in taxes is now much less pronounced. Taxes paid as a percentage of the private economy hovers around 50%. Looking at taxes against the private is much better because it is the private economy tax actually produces. Let’s look at it another way. If taxes were 60% of GDP but 100% of GDP, everybody in the private economy would stop working and government would get no revenue and would be forced to close down. So the private economy is the determining factor in tax revenues, not the total economy.

So the average person working in the private sector as an employer or employees pays, on average, a tax rate of 50%. This includes income taxes, sales taxes, property taxes, vehicle registration taxes, social security and Medicare taxes, corporate taxes, capital gains taxes, etc. FIFTY PERCENT!

And people have the nerve to complain that tax rates and tax revenues are falling.

Taxes need to fall much further. A decline to the 100-year average of 25% of GDP and 36% of private sector GDP would be a good start. In other words, to return to the average would mean a tax cut of $750 billion to $1300 billion. But with huge deficits, spending would have to decline by two to three trillion. But given the immense growth in government over the last 100 years, spending cuts like that would simply return us to the 100-year average.

Remember, USA today compared 2009 income tax revenue to the 50-year average. I am simply following their lead, but looking at all taxes and looking at a 100-year average.

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3 responses to “Taxes paid keeps rising, despite the media’s claims to the opposite

  1. Good work putting all that data together. It’s not surprising that revenues are down at his time with 17% of the work force either unemployed or under employed.

    • I’m not surprised either. But everything is an excuse to raise taxes for these people. Economy is good: raise taxes because the people can afford it. Economy is bad: tax collections are down so we have to raise taxes. That’s how taxes have gone from 7% to 30% of GDP and from 8% to 50% of private sector GDP.

  2. Well done with the charts and the post, Michael. After all of these years and all of the examples laid out before us, you would think our government would understand how this tax thing works. Instead, the first thing they think of is to raise taxes. And people wonder why it is so difficult to do business in America.

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