Stephen Culp has another striking chart today:
This chart should be ingrained in the mind of anybody who cares about fiscal policy. The main things to note:
If you were structuring a tax code from scratch, it would look nothing like this. But the problem is that tax hikes seem to be politically impossible no matter which party is in power. And since any revamp of the tax code would involve tax hikes somewhere, I fear we’re fiscally doomed.
“Lowest in 60 years relative to GDP” is how it should be stated. Profits down (C) in the 2000-2010 decade, Government spending (G) up, you are by definition going to show a decline in the taxes as a share of GDP. While this is fixed, on the surface by a restructuring of the tax code, the real problem is Government (G) spending.
“And since any revamp of the tax code would involve tax hikes somewhere, I fear we're fiscally doomed.”
Indeed!
And the amazing thing is that the present tax-cut extension and unemployment compromise involves the Republicans and Democrats both giving away stuff from the public coffers!
Meanwhile Asia runs huge surpluses and and promptly burns their capital by buying treasuries. The Chinese and Japanese need to realize that the destruction of their capital occurs at the moment of U.S. treasury purchase and not later. That is capital that can never be extracted because once they sell the game is over. Interest rates will shoot up. They look at the bond market and are reassured, not appreciating that they *are* the bond market.
Excellent chant!
Excellent chart and comments.
Excellent chart and comments.
Lower tax literally bankrupted USA and Americans.
Lower tax does not help when politicians and banks literally defrauding Americans and America.
Has anyone got any international comparisons? Personally, I’d love to see what the same chart looked like for the UK.
As for corporate taxes being so low, it seems to me that the whole problem is not that the tax rate is too low, which at 30-something percent it is not. Instead, companies are doing what tax-avoidance expert Buffett has taught by words and example his whole life: Reinvest inflow, move money around and grow the enterprise but keep postponing cash income until the end of days.
So here we are. The only solution left is consumption taxes and inflation; they are inevitable.
As for consumption taxes, look to the states for this, since it just means upping the numbers on taxes they already have. Sales taxes, taxes on alcohol and cigs, property taxes and so forth. The Fed will have less to help the states and the states can’t print, so that is where the hard decisions must be made.
Huge financial decisions are to be made and with states like California facing a very different political climate than states like Texas and Virginia, expect the divide among the states to blow wide open with government size and tax levels ending up dramatically different for different states.
A huge experiment is underway and the different states will be competing in a way not seen before, for businesses, for residents and notably for wealthy residents. I for one have no idea how this ends.
“Any time that somebody starts complaining about how the poor don't pay income tax, point them to this chart”
Well as somebody that frequently points out that the poor pay no income taxes I guess I’m obligated to offer a rebutal.
All Employment taxes are less than zero sum revenue streams for the federal goverment. Social security has indeed produced past surpluses (all of which have been spent rather than truely saved) but ask any actuary and they will tell you that on average recipients pay less into the system than they will receive in benifits.
Obviously not true for the workers who die before getting their first check… but for every one of those there is someone who works for 30 years and then collects 30 years of benefits drawing many times what they paid in.
The same is true for medicare. Rather than being a source of revenue they are both underfunded in the long run promising a level of benefits that cannot be met by the current fundign formula. Both social insurance systems are upfront about this fact.
A person who pays employment taxes but not income taxes is a person who provides for their goverment retirement benifit, goverment medical benifit, and goverment unemployment benifit.
That person however does not contribute to any other goverment program beyond those through which they directly stand to gain.
I’ll side with Warren Buffet… raise the income tax, bring back the inheratance tax… and then use that revenue to balance the budget.
Hi Felix, A couple points about the chart. First, employment taxes are not bearing a larger share of the burden as a percentage of GDP, in fact they are below the twenty year average. They have increased as a percentage of revenues in the last few years as the recession has reduced income, both personal and corporate. Secondly, recent changes to the tax code (even though you see them as less regressive) have the effect of increasing the volatility of personal tax receipts as they become more reliant on the top earners. Currently, a married couple with two children pay basically no income taxes on the first $45,000 in income. In regards to tax revenues, it essentially makes no difference whether that person is employed or not but it does make a difference if an investment banker makes $500,000 or $545,000. But those are the people with the greatest ability to shield income from taxes. I believe you would actually collect a lot more taxes on the high income if they kept rates low and eliminated the myriad of deductions available to them. Similarly, in regards to wealth taxes, in a time where people can pick and choose where to live (and die) I do not know if you will ever again collect a significant amount of money from that source but I think you would get more if you kept the rate low and eliminated all of the shelters available to those of great wealth now.
Wow, look how skinny that corporate tax line has become over time. It’s good to not be in America right now.
Hi Felix,
Long time listener, first time caller. Very interesting graphic. I agree with John Omeara above: you could arguably actually lower taxes further while increasing the tax take at the same time – if you cleaned up the tax code’s codified corporate socialism system of exemptions.
As an example, I’m pretty sure my home country of New Zealand has lower tax rates than here, but still has a proportionately higher tax take.
Globalmitch, you are correct. I’m a tax accountant in New Zealand and we have much lower tax rates than the USA, yet a higher tax as a percentage of GDP. Our tax system is also much simpler and fairer.
I was surprised to find that the USA has no corporate imputation system, meaning corporate profits passed to shareholders are taxed twice, which is a significant reason corporate profits stay locked up in US companies. In other words, because USA has no imputation system it is beneficial (from a tax perspective) for both the corporation, and its shareholders, if the profits are kept within the company rather than distributed.
By the way, a higher tax take as a percentage of GDP ought to be seen as generally enviable. Open Wikipedia and look up the article showing a list of countries by their tax take as a percentage of GDP. Sort the list by the percentage. Now note that all of the countries that have a high tax are generally considered very enviable (Denmark, Sweeden, France, Germany etc) while countries with a low tax take (adjusting for outliers) tend to be much less enviable (Kenya, Jordan, Colombia, USA etc).
FYI: Wikipedia article mentioned
http://en.wikipedia.org/wiki/List_of_cou ntries_by_tax_revenue_as_percentage_of_G DP
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