Any conversation about taxes being too low or high has to be compared to historical levels of taxation. For example: in 2011, federal taxes consumed around 15% of GPD (gross domestic product), that number is far less than the post-World War 2 average of 18.5%. That might lead one to conclude taxes are far too low right now.
My conclusion is that taxes are too low for some thanks to our nightmare of a tax code, but too high for others. Special interest groups have been very successful with getting congress to add loopholes, deductions, and credits: all to the highest bidders. This has led to major distortions in who pays what in taxes. Many large corporations have not paid taxes for multiple fiscal years in a row, while others are less than 5%.
The New York Times has a special report and infographic on personal taxes, state and federal, and how they have changed since the 1980. Spoiler: they’re lower for nearly everyone, but the poor have seen less in declines.
…in fact, most Americans in 2010 paid far less in total taxes — federal, state and local — than they would have paid 30 years ago. According to an analysis by The New York Times, the combination of all income taxes, sales taxes and property taxes took a smaller share of their income than it took from households with the same inflation-adjusted income in 1980.
Households earning more than $200,000 benefited from the largest percentage declines in total taxation as a share of income. Middle-income households benefited, too. More than 85 percent of households with earnings above $25,000 paid less in total taxes than comparable households in 1980.
Lower-income households, however, saved little or nothing. Many pay no federal income taxes, but they do pay a range of other levies, like federal payroll taxes, state sales taxes and local property taxes. Only about half of taxpaying households with incomes below $25,000 paid less in 2010.
They provide three examples to show how the rich have seen greater declines than other tax brackets.
¶A household making $350,000 in 2010, roughly the cutoff for the top 1 percent, on average paid 42.1 percent of its income in taxes, compared with 49 percent for a household with the same inflation-adjusted income in 1980 — a savings of about $24,100.
¶A household making $52,000 in 2010, roughly the median income, on average paid 27.7 percent of its income in taxes, compared with 30.5 percent in 1980, saving $1,500.
¶A household making $22,000 in 2010 — roughly the federal poverty line for a family of four — on average paid 19.4 percent in taxes, compared with 20.2 percent, saving $200.
It is my position that the tax code should be made simpler. For personal taxes we should eliminate as many deductions as politically possible and restructure the marginal tax rates to compensate for the tax increases. I also believe that income, savings, and investments should be encouraged by the tax code, while consumption should be taxed more to disincentivize it.
For corporate taxes my opinions are far less controversial. Eliminating all corporate deductions and lowering the rate from 35% (the highest in the world) to 25% has broad bipartisan support, from Paul Ryan to Bill Clinton.
What are your thoughts on taxes? How do we ensure fairness while funding the crucial functions of government? Do you like the idea of moving our tax structure to consumption instead of income? Let me know.