USA Today, 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.
Some conservative political movements such as the "Tea Party" have criticized federal spending as being out of control. While spending is up, taxes have fallen to exceptionally low levels
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.
"The idea that taxes are high right now is pretty much nuts," says Michael Ettlinger, head of economic policy at the liberal Center for American Progress. The real problem is spending, counters Adam Brandon of FreedomWorks, which organizes Tea Party groups. "The money we borrow is going to be paid back through taxation in the future," he says.
Of course, this analysis is incomplete because it excludes social security taxes. Peter Pappas responds to USA Today in Truth, Taxes and the American Way. (Hat Tip: Ann Murphy.)
9 responses to “USA Today: 2009 Tax Bills Are Lowest in 60 years”
USA Today got the details wrong. They used “Current Personal Taxes” as the numerator, which only includes local, state, and federal income taxes. It does not include the other revenue sources mentioned in the article: property taxes, sales taxes, consumption taxes, etc. A few more details: http://etedeschi.com/blog/?p=313
Correlating Bush tax rates with Obama deficits is just plain stupid. People aren’t worried about the current rates. They’re worried about what rates will have to be to cover the debt driven up by current spending. It’s just another attempt to try to say that Tea Party protesters don’t know what they’re talking about, when the press is too dishonest or too stupid to state facts correctly. The headline, which is often all that people read, tells a misleading tale and wants people to make wrong assumptions.
Also, property taxes are down because of lower home home prices and county assessments, brought on by the housing crisis and foreclosures, as a result of federal pressures on banks to allow any idiot off the street to buy a house that he can’t afford. Losing a third of your home’s value to reduce your property taxes by one-third isn’t exactly a trade that taxpayers wanted. Call that a hidden tax and factor in that.
Sales taxes are down because people lost their jobs, not because rates declined or consumers simply decided to spend less. Do they really think that is acceptable reporting?
And, naturally, income taxes are down when people are out of work and underemployed.
This drives me crazy. It’s no wonder that newspapers are losing subscribers when they publish garbage like that.
Give me a break.
>>They’re worried about what rates will have to be to cover the debt driven up by current spending.
Why worry? I always thought the real way to increase revenue was to lower taxes. 🙂
Spending is paid for by a combination of current and future taxes. The relative proportions of current vs. future taxes are much, much less important than the total spending level. Projected future spending levels are even more frightening.
As James Carville would say, “It’s the spending, stupid”.
In a perfect world, lower tax bills would mean that tax clients actually used the tax plans that are provided to them to reduce their tax liability. Sadly our vast knowledge of the tax code is not the reason for their lower tax liability. Our clients have lower tax liabilities because of their reduced earnings from wages, stock, dividends, rents and K-1 income.
I’m skipping my credit card and mortgage payments this month, so my expenses are down!
A USA Today article is making a big splash: “Tax bills in 2009 at lowest level since 1950” And it’s…
I’m skipping my credit card and mortgage payments this month, so my expenses are down!
A USA Today article is making a big splash: “Tax bills in 2009 at lowest level since 1950” And it’s…
I’m skipping my credit card and mortgage payments this month, so my expenses are down!
A USA Today article is making a big splash: “Tax bills in 2009 at lowest level since 1950” And it’s…
I’m skipping my credit card and mortgage payments this month, so my expenses are down!
A USA Today article is making a big splash: “Tax bills in 2009 at lowest level since 1950” And it’s…
I’m skipping my credit card and mortgage payments this month, so my expenses are down!
A USA Today article is making a big splash: “Tax bills in 2009 at lowest level since 1950” And it’s…
I’m skipping my credit card and mortgage payments this month, so my expenses are down!
A USA Today article is making a big splash: “Tax bills in 2009 at lowest level since 1950” And it’s…
I’m skipping my credit card and mortgage payments this month, so my expenses are down!
A USA Today article is making a big splash: “Tax bills in 2009 at lowest level since 1950” And it’s…
I’m skipping my credit card and mortgage payments this month, so my expenses are down!
A USA Today article is making a big splash: “Tax bills in 2009 at lowest level since 1950” And it’s…
I’m skipping my credit card and mortgage payments this month, so my expenses are down!
A USA Today article is making a big splash: “Tax bills in 2009 at lowest level since 1950” And it’s…
Here are the issues I have with the article:
Issue #1:
The first problem with the article is the misplaced importance of Tax Rates, as opposed to Tax Revenue. Regardless of whether tax rates go up or go down, the deficit is a result of Tax Revenue falling short of government spending.
History shows us that there is a weak correlation overall between tax rates and tax revenues. This is because not all taxes rate changes have the same impact on GDP and tax revenue. There is a very clear correlation between tax revenue and GDP. Of course, the USA Today article doesn’t mention that.
Does this mean all tax rate cuts will have the same effect on GDP and tax revenue? No, or course not. It’s naïve to assume that all tax rate increases or decreases will affect tax revenue in a similar way. There are plenty of articles and papers on the theories of Tax Elasticity which help explain it.
Fact:
Remember Bush’s capital gain tax cut of 2003. Capital gains tax rates were reduced from 20 percent and 10 percent (depending on income) to 15 percent and 5 percent respectively. The CBO projected a 36% reduction in tax revenue (from $68 billion to $50 billion). But guess what, tax revenues from capital gains were $103 billion! They increased tax revenue more than two times what the CBO projected.
Of course, liberals will contest that the capital gains tax rate cuts only favor the rich. Really? Let’ see about that. In this case, people were relieved of some of their tax burden, so they were incented to invest more. This led to real economic growth, which increased the tax base (GDP) and produced more tax revenue. Now, doesn’t this additional tax revenue end up paying for government spending, which includes the entitlements given to the less fortunate?
Getting back to Tax Rates vs. Tax Revenue:
Now, the USA Today article does states that the average tax rate is at a 60 year low, but it fails to mention that 2009 Tax Revenue as a percentage of GDP (Gross Domestic Product) was above the 20, 40 and 60 year averages. So even though tax rates may be at a 60 year low, tax revenue is relatively high. Now why would the USA Today article leave out this information?
• Is it to arm liberals with half-truths to fight conservatives?
• Is it because the USA Today journalist didn’t want to highlight the point that some tax rate cuts can actually increase the tax base (GDP), and actually increases tax revenue? (in other words, provide more fuel for conservatives)
• Is it because the liberal government will use these low historic rates as a means to justifying a tax rate hike?
• Or is it possibly a combination of the three?
Issue #2:
That brings me to the 2nd problem with the article; it uses averages, such as average tax rate and average income, exclusively in the analysis. The article does NOT include median income, or median tax rates. Again, I do not understand why the omission occurred. Regardless of why, you still only get half of the story.
If income distribution in the US looked like a bell-shaped curve, the mean (average) and median would likely be very close together. But income distribution in the US looks nothing like a bell-shaped curve, so there is a vast difference between mean and median. Economists know this, by the way, and almost always refer to median income because using mean or average income would skew the data. Not everyone knows the difference between mean (average) and median. So if you aren’t clear on the difference between mean and median, I’m hoping the example below sheds light.
My favorite sentence from the USA Today article is as follows:
“That means a $3400 annual tax savings for a household paying the average national rate and earning the average national household income of $102,000.” The first thing that ought to jump out at you as a huge red flag (or red herring in this case) is the $102,000 average annual income.
Fact:
While I have no reason to doubt the average income in the US to be $102,000, the 2009 median income in the US was roughly $50K (I’ve researched median income from several sources and the numbers range from $46.5K to $52K). Median income simply means that 50% the households in the US earn less than $50K and 50% of the households earn more than $50K. In fact, if you look at the distribution of income across the US, less than 20% of the US population makes $102K or more. The reason economists have always chosen to use median income is to avoid the discrepancy below. What makes America sound wealthier?
1. An average income of $102K?
2. A median income of $50K?
Continuing with the mean vs. median argument, let’s consider the average tax rate of 9.2% as stated in the article. What do you suppose is the median tax rate?
Fact:
Nearly half of all American households pay no federal income tax. That mean the median tax rate is slightly above 0%, probably less than 1%, and a helluva lot less than 9.2%.
Issue #3:
Liberals are using this article to bash Tea Party members on blogs, arguing that conservatives don’t know what they are talking about. But the USA Today article accurately states that Tea Party members are concerned about spending. Yes, conservatives are worried about how we pay for all of the irresponsible spending.
Fact:
Obama targeted tax increases for the rich, and he defined rich as households earning $250K per year or more. Are we to assume that the multi-trillion dollar deficit will be recovered simply by taxing the rich. Well, only 1.3% of the households in America earn that sort of income. Wake and smell the math problem. There simply is not enough of a tax base from the 1.3% of the population deemed as rich, to recoup that level of spending.
If there was plenty of tax revenue to tap from the rich, then why do you think the Obama administration is considering a VAT?
Bottom line:
1. Taxes are not as low as many would like you to think.
2. People making less than $250K will also see their taxes go up fairly soon, maybe not as an income tax, but you WILL be taxed.