One answer to the question of how burdened we are by taxes is: “Ask people how they feel, and if they feel burdened, they are.” Period! To heck with the facts. That would be the Dick Clark, American Bandstand, approach, which is what we use a lot these days to make big decisions. Another answer is to look at some facts….if they can be found. You may be surprised that finding good data on tax trends is difficult. (Perhaps deliberately so).
Laborious data gathering and imputations by Picketty and Saez notwithstanding, we don’t really have the full picture. But what we do have is helpful, if not conclusive. Much to its credit, a little over two years ago, the New York Times (NYT), using data from several non partisan sources, came close to answering the question on the table. But because it was the NYT, and thus deeply mistrusted by half the population, perhaps everyone West of the Hudson, the work got lots of attention in the NYT, but not much elsewhere. And it wasn’t pithy or edgy.
Here is a paraphrase of what the NYT researchers found: The total effective tax rate for ALL income groups is about the same today as in 1980; actually a bit lower for eight of nine income groups across the spectrum; materially lower for the highest income category. (Effective tax rates” are all taxes paid, after deductions and exemptions, as a percent of income.
Yet tax rage is still widespread.
Alas, we really don’t have enough clear, complete, and trustworthy data on the subject. You really need to start a couple of decades earlier to understand a tax revolt in the U.S. that was already mature by the 1970s. But a 30+ year view isn’t bad. Here is the main table from the NYT report.
For low and middle income groups, the overall drop is small, probably less noticeable to the families than to the statisticians. It is more noticeable and consequential for the two or three highest income categories. The NYT lumps all households earning $350K or higher into one group, so we can’t tell how the effective tax rate has changed for the top 1% of earners.
There is not much help in these data for politicians who claim there’s a lot of room to raise taxes, unless, perhaps, if we could break down the rates for the highest income bracket into a lot finer detail.
The really interesting story here is the stark contrast between the widespread belief that taxes have been soaring for decades, and the ho hum truth that the effective tax rate for all income groups is about the same or less than in 1980.
It would be nice to have, good “effective tax rate” data going back to 1960. I suspect you would see a rise in rates across the board if that year was the starting point. Back then, federal payroll taxes were low; and state and local governments weren’t medicating, incarcerating, and educating nearly as much as today.
We have a clue from one source of good data going back to the Eisenhower and JFK years. In 1960, payroll taxes accounted for about 15% of total federal revenue. That was pre Medicare, and before we realized Social Security wouldn’t be able to meet its obligations forever without some tinkering (or more). By 2013, payroll taxes accounted for about 35% of federal revenue; rivaling the federal income tax (which is 45% of the pie). I’ll bet few Americans know that payroll tax revenues are not much lower than the take from the federal income tax. You can read more about it here,
Even if the best explanation for tax rage rests on a look back to 1960 (if not 1860), it’s still puzzling that Americans are (by and large) furious about taxes, even though “effective tax rates” have hardly budged in more than 30 years.
What accounts for the wide gap between fact and belief?
First, stories, like the NYT report, are buried, while daily blasts, blaring with phony charts showing taxes going through the roof, with inflammatory captions, like this one, from the fiercely partisan, pseudo think tank, Heritage Foundation (HF), ultimately reach millions on propagandist media. People who don’t know about the HF “study” or listen to radio, hear about it second and and third hand from Uncle Harry. Uncle Harry hasn’t heard about the NYT report; and if did, he wouldn’t believe it.
Meanwhile, political leaders, some beholden to the same monied interests that captured the radio “public” airways, or bullied by Howard Jarvis and Grover Norquist, have for decades been cowed into silence. Not malicious censorship; but “benign silence” about declining tax burdens (especially for higher income groups) and the related vanishing of the middle class.
In Washington State, where I had the privilege to mange a well respected research shop, all but one of six Governor’s we helped staff (five of them Democrats) discouraged the circulation of good data showing tax burdens were at historic lows (by 2010), and, that oh yes, the middle class is disappearing. “Uh, well, let’s keep it in-house, maybe post it (inconspicuously) on the website, but let’s not go out of our way to talk about it, OK?” (That’s pretty close to a quote from one of my bosses). Not censorship, but “benign” silence and neglect. They were afraid talking about the real tax situation would signal an intent to raise taxes; and that mentioning the woes of the middle class would elicit cries of class warfare. They were cowed,
It may be unfair to blame the gap between fact and belief about taxes entirely on propagandist media and pusillanimous politicians. We all know the U.S. and state tax codes are maddeningly complex; and way too hard for average people (or small businesses) to “game,” the way General Electric does with its army of 900 accountants.
So even if Uncle Harry is paying the same or less to Uncle Sam today as 30+ years ago, we are burdened by a horribly opaque and unfair tax code. For households that haven’t seen their real income (or wages) increase for a few decades, paying 30% today to Uncle Sam feels a lot more taxing than 33% in 1980. If they feel burdened, they are.