Wednesday, May 12, 2010

Tax Rate Madness

I blogged earlier about a personal record for our low effective tax rate this year - turns out USAToday is now reporting a similar story for America at large:

Tax bills in 2009 at lowest level since 1950 -
"Amid complaints about high taxes and calls for a smaller government, Americans paid their lowest level of taxes last year since Harry Truman's presidency, a USA TODAY analysis of federal data found."
Federal, state and local taxes — including income, property, sales and other taxes — consumed 9.2% of all personal income in 2009, the lowest rate since 1950, the Bureau of Economic Analysis reports. That rate is far below the historic average of 12% for the last half-century. The overall tax burden hit bottom in December at 8.8.% of income before rising slightly in the first three months of 2010.

Unfortunately, USAToday left a big chunk of math out of their story by omitting the cumulative effect of payroll and consumption taxes. Also, I think it is clear that our world-beating corporate tax rates combined with techniques such as the AMT undermine this sort of celebratory (but cursory) analysis. What we've got is fundamentally a tax policy problem - a cumulative rate (>60% marginal) that is too high, combined with a tax base that is far too narrow. This is a similar problem with NC's tax structure - a policy one of my professors advocates reforming in a recent law review article.

Other articles have previously pointed out that 47% of US households did not pay any income tax this year. Do you realize what is alarming about that - once we get past 51%, its very unlikely that our democracy will vote to change things back to the way they once were.

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