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Tuesday, November 20, 2012

Tax Facts

 

I took a look at the history of taxes in the USA. A few interesting (to me) factoids. The data comes from the Tax Policy Center (Link); the graphs are mine.

 

I’ve never been convinced that comparisons of the Depression, to today’s economic conditions, are valid. It was a different economy back then, with a much smaller government. Consider the following that plots taxation as a percent of GDP during the 1930s and 2008-12.

 

 

It took a world war to end the Depression, and that period was marked with very low taxes. People argue that taxes are too low today, maybe, but they are already 6Xs what they were the last time the SHTF.

 

 

I think the “modern economy” started around 1950. By then, the distortions from the Depression and WWII were unwinding. In addition, Social Security taxation became a meaningful percent of total individual taxation. The following charts look at the components of taxation from 1950 – 2012; the information is presented by President, the tax rates are the average for the respective tenure:

 

 

 

 

Some observations looking at this:

 

- I’ve read the arguments that tax rates in the 50’s were very high and the economy did just fine. Not true at all.

 

- The Clinton years are also pointed to as a period where income tax rates were high, and the economy did very well. This is appears to be correct. Marginal tax rates were higher; this contributed to the increase in total tax revenues. In addition, the capital gains that were generated in the late stages of the DotCom boom supported revenues. The bump in income taxes in 2000 was attributable to a hot stock market.

 

 

 

- The Obama years are marked with low tax receipts as a percent of GDP. The reasons for the drop include:  (1) The recession and the drop in payrolls. (2) Losses from investments (houses and stocks) (3) The 2% reduction in Payroll taxes.

 

Corporate tax rates are at historically low levels today. The persistent argument from corporate America is that tax rates are a too high, and must be lowered if America is to compete in the global economy. There is some truth to this argument. The statutory corporate rate is 35%, but very few companies pay this rate.

 

 

 

 Federal excise taxes, as a percent of the economy, are  at historical low levels today. This is, primarily, the gas tax.

 

 

 

I don’t “like” any taxes, but some tax revenue is necessary. I particularly hate all income taxes. I favor taxes on consumption, not wages. If the excise taxes the government collects were doubled to equal 1% of GDP (still historically low), it would generate $1T+ over the next ten-years. Much more than either of the Bush tax cuts that are now up for discussion.

After looking at these charts I conclude:

 

- Social Security taxes impose a very heavy burden on the economy.

- Income tax revenues are low today because of the economy, not the marginal tax rates. Consider the fall off during the past four years versus the Bush era. Marginal tax rates were the same, but tax revenue, as a percent of the economy, fell. It’s the economy, not the tax rates that are the problem. D.C. is focused on the wrong issue.

- It’s well past time that a redo of corporate taxation is made. The system is busted. The end result should be a much lower marginal tax rate to insure competitiveness, but also a minimum tax rate that also insures some fairness, and higher net tax receipts.

- Excise taxes have to go up. Sorry.

 

 

 

Comments

  1. Money And Inflation 1930’S

    To provide an estimate of inflation we have given a guide to the value of $100 US Dollars for the first year in the decade to the equivalent in today’s money
    If you have $100 Converted from 1930 to 2005 it would be equivalent to $1204.42 today “If You Had 1 billion dollars then it would now be worth 12 billion dollars.”
    In 1930 average new house cost $7,145.00 and by 1939 was $3,800.00 More House Prices
    In 1930 the average income per year was $1,970.00 and by 1939 was $1,730.00
    In 1930 a gallon of gas was 10 cents and by 1939 was 10 cents
    In 1930 the average cost of new car was $640.00 and by 1939 was $700.00 More Cars and Car Prices

    http://www.thepeoplehistory.com/1930s.html

  2. They’re all STILL counting government spending as part of GDP. When will they get over this?

  3. Great post. Let’s not forget all the extra and higher costs and taxes we have now. The actual multiple is probably closer to 8x or 10x. For some brackets 100x wouldn’t surprise me. Inflation-adjusted.

    Any advocate of higher taxes, for any income level, is a theif and violator of human rights.

  4. backwardsevolution says:

    There’s a good graph in this article showing the average tax rates for the highest-income taxpayers going back to 1945 – for the 0.1 and 0.01%. In 1945 they were around 55 to 60%; now they’re down around 25%.

    “A new study by the non-partisan Congressional Research Service (CRS) using data from the past 65 years found that there is no correlation (PDF) between top tax rates and economic growth. But it doesn’t stop there. The study also found that there is a correlation between the reduction in top tax rates and the increasing concentration of wealth toward the top of the income distribution. The report, Taxes and the Economy: An Economic Analysis of the Top Tax Rates Since 1945, is also clear that this is not only about tax rates on regular income, and points out (PDF) that “changes in capital gains and dividends were the largest contributor to the increase in income inequality since the mid-1990’s.”

    This has to be just about the last nail in the tax-cutting, supply-side coffin. CRS is a bunch of smart people at the Library of Congress whose mission is “providing comprehensive and reliable legislative research and analysis that are timely, objective, authoritative, and confidential, thereby contributing to an informed national legislature.” And while the study has earned volumes of media coverage, it’s worth noting that even the Wall Street Journal report didn’t quibble with the study’s finding that “tax cuts for the rich don’t seem to be associated with economic growth…. [but] can be linked to a different outcome: income inequality.”

    No trickle down from tax cuts for the wealthy, it seems.

    http://www.ctj.org/taxjusticedigest/archive/2012/09/its_official_cutting_top_tax_r.php

    • I was referring to what really matters – dollars not rates. It’s an unconscionable violation of human rights to tax workers, savers and investors and job creators exponentially higher than leeches and the lazy, but that’s how it is now.

      • Dear Facts:

        Additional facts are that there are many more leeches and lazies than job creators, and that how politicians count.

        One might wonder why “one man one vote” is sacred when there is no “one man, one job created” ever considered.

  5. Jim,MtnView,Ca,USA says:

    It took WWII to end the Depression.
    Perhaps. But it is notable that FDRs policies are regarded as having extended the Great Depression by years….maybe we didn’t need a world war. Maybe a change in government policies would have done just as well.
    http://newsroom.ucla.edu/portal/ucla/FDR-s-Policies-Prolonged-Depression-5409.aspx

    • Only when FDR temporarily abandoned stimulus.

    • Jim:
      “Maybe we didn’t need WWII”? I was there and can assure you that we really didn’t need it – it was a war based upon Germany and England contesting for supremacy in Europe. Who won? Nobody, really!

      • Hitler and Stalin had the “Pact of Steel” treaty between Germany and Russia.. In 1939 Hitler invaded Poland from the West, and Stalin invaded Poland from the East. Why did we side with Stalin and go against Hitler? We fought for the Communist based New World Order..We had to provoke the Japanese.Cut off their oil, steel etc. When it was over we brought the Nazis here.(Operation Paperclip). Now we have a puppet POTUS controlled by the NAZI bred New World Order Elitist.BE VERY AFRAID>>>>>>>>>>>>>>>>>>>>>>

  6. “I think the “modern economy” started around 1950.”

    1971

  7. But What Do I Know? says:

    Or maybe, just maybe, GDP isn’t as high as they say it is. . .

  8. Now it’s time to look at how much revenue could be raised by customs duties. Let’s compare average duty rates over time and discuss how the country was built when rates were high but is now being destroyed by cheap, duty-free imports. Let’s also discuss how, unlike the income tax, customs duties do not involve government intrusion into our private affairs.

  9. The difference in the taxes can be attributed to the growth of the “military industrial complex” that Eisenhour warned about. It is defence spending that is the waste.
    And why do you always put Social Security in with income taxes. We get the social security back….
    gh

    • Some of us are getting Social “Security” tax money back. But most of us will never see a cent. It is simply a tax; there is no ownership in SS funds, whatsoever!

  10. when you buy into the tax debate..you have lost any desire to remember that SPENDING is the problem not tax revenue…the past 30 years the CONgress has abused SPENDING..now they could tax 100% and never have enough revenue…by the way since they just have the fed print dollars out of thin air…why have any income taxes ….since CONgress does not care about the debt that they have created..just print to pay it off……….do you see that the debate is just another way to control the citizens…..IMHO

    • As Dan notes, spending is the issue. During the 40+ years that the deems controlled Congress before 1994, the real economy grew threefold while the federal government grew ninefold. The huge acceleration began with Johnson’s Great Society. “We will spend our way out of poverty.” Yeah, that worked. Destroy the family, make government the daddy and economic provider.

      The libs keep telling us that Clinton had those “magic” tax rates, just high enough but not too high. The fact is, the prosperity of the Clinton era was the direct result of the massive boom in new-business formation and entrepreneurship that started under Reagan and the Contract With America and its resultant welfare reform ushered in by Gingrich and company.

      Today’s tax code has never been more progressive. It is choking the real economy, stifling new capital formation, and causing a massive drag on the economy. That coupled with federal, state, and local spending as a percent of GDP approaching 40 percent is precisely why we are languishing. God help us.

  11. Two items my little voice keeps chanting: No fiat currency has ever survived.
    Derivatives, financial weapons of mass destruction.
    Think about this: Printing one thousand trillion dollars to cover derivatives [bank losses]
    VS your life savings which YOU had to work for, after tax dollars I might add.
    Yet we continue to vote them back into office.

  12. I don’t think WWII ended the depression at all. The growth of consumer credit for dishwashers, homes and the like AFTER WWII had a far greater impact. Wars can never create economic growth because they are based in destroying raw material and the fruits of labor. Also, whether FDR policies extended the depression or not is pure speculation based on one’s current political perspective. Only morons would ignore the basic fact: without FDR policies, many millions would not have had any work and would have had nothing to lose by destroying the government completely, which was a real concern of the administration. While it is nice to pontificate in the comfort of one’s home, the fact is, once there is no hope at all, mobs become very dangerous and destructive; they don’t take over and start a new and fiscally responsible system. You could argue the stock bubble of the late 1920s needed twenty years to be flushed out. You could argue, a dust bowl of epic proportions exacerbated an already fragile system.

  13. Strike the root. The underlying problem with unfair taxation can be brought back to the simple rationale of a 4 letter word called “DEBT”. The underlying problem with debt is debt-money and the creation of debt-money. As such , fiscal issues can really be best dealt with by addressing a glaring monetary problem. Buy gold , monetize it and purge fiat based debt back to the nothingness it was created from. Gold is money, debt-free and sovereign.

  14. I agree it’s the economy. Today we are trying to tax the rich and everything else below it. Oh yeah being rich is $250000 household income. Look all this taxing is to pay the bondholders there interest payment. We are on a course to destruction. Until we realize that all this borrowing is putting off the inevetable wwe are headed straight in the abyss.Interest expenditures are $10 bil a week with 40% to foreigners. So all this talk of we need to graner more tax revenue to grwo the economy is worldclass bs.

  15. GroverCleveland has it right in a nutshell. We have been hoodwinked into exchanging import duties for income tax. The associated impact of so-called “free trade” has been the unloading of American jobs onto the world labor market, with a small few benefiting immensely from this arbitrage. For all those who might rail that we have thus “gained” access to cheaper goods, I’d suggest we need those cheap goods because many Americans can no longer afford to buy “Made In America” goods and pay the associated differential that to a great extent, goes (or, more properly phrased, went) directly to American laborers – both the factory workers as well as middle management. The entire idea of “free trade” is in direct contradiction to how the founders envisioned the bulk of national revenues being raised – by customs duties. I note that the US Coast Guard, now part of the Homeland Defense establishment, began as the Revenue Cutter Service, and was a sub-element of the Department of the Treasury. It remained so until until it was transferred to the Department of Transportation – in the lifetimes of most of the readers of these words. Bottom line was that it was responsible for ensuring that smugglers didn’t succeed – and that import duties (external revenues, as contrasted to internal revenues) were paid in full on all goods brought into the nation. Incidentally, that’s why the Internal Revenue Service is called what it is – customs duties were EXTERNAL revenues – money paid by someone else, somewhere else, to our government, for the privilege of bringing their dutiable goods into the US of A.

    We now have a government that, over the past few decades, has allowed the entire idea of import duties to gradually disappear, as if it were some sort of a dirty family secret no one wanted to talk about. Instead, we have trumpeted “free trade” as the be-all and end-all of global business. The entire project has proven to be an unmitigated disaster to the US economy. We need a political party that has the gumption and where-with-all to stand up and call “free trade” what it has proven to be – a tool of virtual enslavement – enslaving foreigners to low wage jobs often in substandard working conditions (think China, Vietnam, etc., etc., etc…) and equally enslaving Americans to ever lower quality employment. And yes, a good paying factory job in an American high tech, “green” factory, working under OSHA and very likely organized labor in the north and a right to work law in the south (which will still reflect relatively high wages due to labor fungibility with the unionized north) is invariably a better job that some sort of “service industry” position.

    Until we as a nation stand up, withdraw from the web of “free trade” agreements we have bound ourselves to and reinstate a system of carefully calculated import duties, that will make American manufacturing competitive in this nation again, we are lost. As a side benefit, a system of well thought out import duties would work to reduce the balance of trade two ways – first, it would reduce the total volume of many imports, with the associated revenues staying here in the US. Secondly, it would bring US currency BACK INTO the US to pay the duties on those goods we’d still import. (And, yes, Virginia, the multi-national corporations would have to pay up – but they’d likely do so with funds now held outside the US, versus what they hold in the coffers here.) Thirdly, when foreign flagged multi-nationals determine it is more cost effective to manufacture for the US market inside the US, rather than in a cheap labor locale outside the US, they will invest here. That is called foreign direct investment, and it would also be a way to bring US currency now held outside the US back home. Plus create more real jobs, which would thus actually get the economy going again. It wouldn’t happen overnight. But it would and could happen a lot faster than most think possible. As a quick for instance, just how long would it take to reopen some of the many shut mills in the US south? I believe the time scale could be measured in months, versus years. How about the shoe industry that was once a mainstay of the northeast? Again, maybe inside of two years.

    As decent paying jobs return to the US, internal revenues (think: income based taxes) will rise. Add those new revenue boosts to the revenues raised by customs duties, and we’d be well on our way to fixing the budget deficit all together. But so long as we are bound in chains by so-called “free trade” agreements, we can never fix the import duty problem. (The problem is the LACK of import duties, not that they are too onerous!)

    Here’s hoping that we collectively can begin a grass roots movement that will either call on our existing political parties to fix the matter, or bring about the creation of a genuinely different third party that will being a very old solution to the problem back the national table for discussion and action.

  16. My personal view is VERY VERY few people actually have a clue as to what that income tax actually is. It’s just an excise tax. People have come to ASSUME that the Income Tax is a tax on just making money. Not true. It’s an excise tax upon certain types of activities. Of which the average American has absolutely nothing to do with. Yet most everyone continues signing W4’s and/or W9’s for no other reason then they have been told to. It’s not like the person signing a W4 form asked the person who asked them to sign it if they actually went to the law (Title 26 USC) to actually read the law to determine WHO is to use that form and under what circumstances. (Just ask somebody who asks you to sign the form where in the law it requires you to do so and you will get a blank stare. Reality is, the person most likely never read one word of the law to determine the proper usage of such form)

    As a side note, the 16th Amendment did NOT change the taxing powers of Congress but merely confirmed Income Taxation ONLY as an INDIRECT EXCISE. See US Supreme Court cases Brushaber v. Union Pacific Railroad and Stanton v. Baltic Mining.

    Here’s an excerpt from the Stanton case US Supreme court from 1916, only 3 years after the ratification of the 16th Amendment:

    Begin Quote:
    ” it manifestly disregards the fact that by the previous ruling it was settled that the provisions of the 16th Amendment conferred no new power of taxation, but simply prohibited the previous complete and plenary power of income taxation possessed by Congress from the beginning from being taken out of the category of indirect taxation to which it inherently belonged”
    End Quote:

    And the ignorance continues. The truth about the Income Tax is probably one of the MOST important truths people should learn and understand to put an end to A LOT of unconstitutional government that we experience on a daily basis today.

    The income tax is a legitimate tax, it’s just MOST people have no idea what kind of tax it is and just assume it’s a tax on anyone who makes money. NOT TRUE!! It’s far far far more limited than that.

    Dave Champion’s book: “Income Tax: Shattering the Myths” is the best book i’ve ever read on the topic. Explains in complete detail what the law actually says, why it says what is says and how the government has been able to create the false impression about what the income tax actually is. Great read and highly recommend it.