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Tax burden lowest since 1950

Partly because of the recession, Americans are devoting the smallest percentage of their income to taxes in 60 years.

By Karen Datko May 11, 2010 1:27PM

We’re buckling under the burden of high taxes, people like to complain. But once again there’s proof that we’re not. Federal, state and local taxes last year sucked up the lowest percentage of personal income since Harry Truman was president, USA Today reports.

 

And we have the recession to thank.

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. … "The idea that taxes are high right now is pretty much nuts," says Michael Ettlinger, head of economic policy at the liberal Center for American Progress.

That's far below the historic average of 12% for the last 50 years. The report, as noted, covers a wide range of taxes but excludes what we contribute to Social Security.

Earlier this year, a widely read New York Times story focused on federal income tax only -- and the fact that 47% of Americans owed no federal income tax in 2009. The Times said that’s largely because of tax credits, including those contained in the Bush and Obama stimulus plans. (When you consider payroll tax for Social Security and Medicare and other federal taxes, the number of people who pay no federal tax is at most 10%.)

 

The people who have really enjoyed a reduction in taxes are the very rich, David Leonhardt wrote in the Times.

Over the last 30 years, rates have fallen more for the wealthy, and especially the very wealthy, than for any other group. At the same time, their incomes have soared (.pdf file), and the incomes of most workers have grown only moderately faster (.pdf file) than inflation.

How did the reduction in total taxes paid -- as reported by USA Today -- come about? The newspaper points to these factors:

  • The Obama economic stimulus package gave individuals a $400 tax break, or $800 per couple.
  • Tax breaks for the poor and middle class were enacted during the Clinton and Bush administrations.
  • A downturn in consumer spending during the recesssion resulted in less sales tax paid.

Are Americans really upset about the taxes they pay? For the most part, probably not. A CBS News poll about income tax found that 62% of those asked said the income tax they’ll pay this year is fair. Only 30% thought the amount will be unfair. Even among those who support the Tea Party movement -- fewer than one in five Americans -- 52% said the amount is fair.

Would people be willing to pay more? We’ve remarked that if the federal government is serious about balancing the budget and paying off debt, it will need to cut spending AND raise taxes. That’s how households deal responsibly with large debt -- you have to spend less and develop more income streams.

 

However, plenty of people don’t see it that way. A Rasmussen poll earlier this year found that 41% are OK with a deficit as long as their taxes are cut. Among conservatives, 50% “are comfortable with a budget deficit if taxes are cut,” said Rasmussen Reports.

 

How productive is that? Writes top-notch tax blogger Kay Bell:

Is it possible that we citizens of our sometimes civilized society will eventually realize that we all have to pay some taxes and give up some tax benefits for our system to continue? I hope so. But I'm not sure it will be soon enough.

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