I did a lot of head-scratching yesterday when I saw this story because it just seems prima facie wrong:
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…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.
As it turns out, it seems wrong because it is wrong.
Needless to say, Democrats have already seized on this story and will try to peddle it everywhere they can this summer. But before you accept the dubious assertions it contains, don’t miss this critical line, buried at the very end of the USA TODAY piece:
The BEA classifies Social Security taxes as insurance payments and excludes them from the tax calculation.
Oh. In other words, the numbers backing this story do not even count the second-largest federal tax — the tax that’s probably burning the biggest hole in your pay-stub, unless you have a very large income.
If you go back to BEA’s website and include their number for payroll taxes, then federal, state and local governments are actually collecting 17.2 percent of national income. If that still seems far too low, that’s beacause it is. BEA’s analysis does not include state sales taxes, either. A helpful fellow at BEA explained that they are not included in the BEA's number, creating a discrepancy of about $400 billion between BEA’s reported amount in state tax revenues (for 2008, it was a bit over $300 billion) and the amount reported by the U.S. Census:
State tax collections totaled $715.2 billion in fiscal year 2009, down 8.6 percent from the $782.1 billion collected in fiscal year 2008.
If you use the comprehensive and larger number for state revenues, you’ve now reached the point where taxes consume closer to 21 percent of personal income -- although that number would probably be higher if you included other taxes that consumers and wage-earners pay, such as corporate taxes.
Still, you get the picture: USA TODAY’s story, and the Democrats’ talking point, is off by a factor of two or three. Why is it so wrong? Probably because the story appears to have been concocted in a pillow-talk conversation between a reporter and someone at the left-wing Center for American Progress.
The other important point: much of today’s government spending is being paid for by future tax increases, i.e. through borrowing:
In other words, in addition to collecting about a quarter of GDP in taxes, governments in the US at all levels tacked on another 10.7% of GDP in future costs. Add that up and governments in the US spent over a third of national income in 2009. A far cry from the 9.2% that the USA Today article inadvertently implies.
Another thing to keep in mind: To the extent that a downward trend exists in taxation of personal income, you can probably attribute much of it to the extended, tax-free (up to $2,400) unemployment benefits of the stimulus package, which Congress seems determined to extend without limit. These serve to increase the denominator and reduce the numerator in the equation at the same time. They create an appearance of lower taxation without actually cutting taxes for those who are earning wages at jobs.