Thursday, April 15, 2010


I am proud to report that this year's effective tax rate for our small Married Filing Jointly family was a rock-bottom PR of 3.13% We are damn close to being one of the 47% of American households that don't pay any income tax at all. (Don't forget, however, that those poor* people are still subject to the regressive spectre of sales tax - unless they use Amazon - not to mention state and FICA taxes of approximately 8% each.)

* used in this sense, "poor" refers to the pitiable nature of these folks, not their station relative to the poverty line.

As a commentary on all the time we waste arguing about taxes and making the tax code and all of the deductions and credits more complex, I offer the graphs and passage below (artfully excerpted from Wikipedia). Enjoy.

This graph shows the effective tax rate per $ of income. For tax year 2009, it is reported that President Obama recognized income (AGI) of $5.5MM and paid taxes of $1.7MM. That puts him at an effective tax rate of just under 31%. For reference, that is ten times more than me. I win.

This next graph shows the change in top marginal income tax rates over history (currently around 35%). Despite the wide variance you see in the graph, Hauser's Law accurately theorizes that regardless of the top marginal rates, tax revenues will remain unchanged.

Hauser's Law is a theory that states that in the United States, federal tax revenues will always be equal to approximately 19.5% of GDP, regardless of what the top marginal tax rate is. The theory was first suggested in 1993 by Kurt Hauser, a San Francisco investment economist, who wrote at the time, "No matter what the tax rates have been, in postwar America tax revenues have remained at about 19.5% of GDP." In a May 20, 2008 editorial in the Wall St. Journal, David Ranson published a graph showing that even though the top marginal tax rate of federal income tax had varied between a low of 28% to a high of 91% between 1950 and 2007, federal tax revenues had indeed constantly remained at about 19.5% of GDP. Critics of Hauser's Law, such as Zubin Jelveh in a Wall St. Journal editorial, point out that tax revenues have fallen as top income rates declined if you don't include Social Security revenues. Similarly, other changes in tax rates and the income threshold for paying those rates are expected to impact tax revenues and should be considered when analyzing the relationship between tax-rates and tax revenues.

All Dad had to say when I told him of my accomplishments? "Enjoy it while you can." True enough.

No comments: