Tuesday, May 18, 2010

Tax Truth

Lefties everywhere, including the blog of Speaker Nancy Pelosi, are crowing about a recent USA Today story claiming that last year's tax rates were the lowest since the 1950s:
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 [NOfP note: see Table 2-1]. That rate is far below the historic average of 12% for the last half-century.
This isn't wrong, it's just misleading. Benchmarking against personal income obscures the fact that almost half of all filers pay no income tax (and 40 percent of households contribute only about 5 percent of all Federal taxes). So the USA Today figure of 9.2 percent of income more reflects income transfer, not tax burden.

As Sometimes Right's Dan Rothschild amplifies, it's also incomplete:
[T]aken out of context, the average USA Today reader might well walk away from a quick skim of the article thinking that the government only spends 9.2 percent of gross domestic product. Less than a dime on the dollar. A bargain!

Let’s parse this out a bit. . .

[I]t’s important to get a sense of what state and local governments collect. In 2006, state governments collected over $710 billion in taxes, around 5.4% of GDP. When you include local governments, that figure goes to $1.24 trillion, or about 9.5% of GDP. In other words, in 2006, state and federal revenues were about to the percentage of personal income collected by all levels of government in taxes in 2009. That should give you a sense of how skewed this particular figure is. All levels of government in 2009 did not cost less than state and local governments in 2006.

[Further], the historical tables in the President’s FY2011 budget give a good sense of what tax revenues look like. In 2009, according to table 2.1, the federal government collected $2.104 trillion in revenues. Assuming a GDP of $14 trillion, that means federal revenues were 15% of national income. Including receipts on the state and local level (see the last graf), even assuming they fell to 2006 levels, this means 2009 tax revenues at all levels of government were around $3.35 trillion, or about 24% of GDP.
An even more depressing number:

source: USGovernmentRevenue.com

This doesn't prove the Tea Party right or Bush wrong. But make no mistake--until the recession, tax receipts generally rose, even under Bush while spending increased as well. And don't read more into the USA Today piece than warranted.

(via The Corner)

1 comment:

OBloodyHell said...

> And don't read more into the USA Today piece than warranted.

Indeed, sir, but I ask you:

How do we go about getting warrants against ALL these bastards?