Chart of the day: U.S. taxes

By Felix Salmon
December 6, 2010
striking chart today:

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Stephen Culp has another striking chart today:


This chart should be ingrained in the mind of anybody who cares about fiscal policy. The main things to note:

  • Federal taxes are the lowest in 60 years, which gives you a pretty good idea of why America’s long-term debt ratios are a big problem. If the taxes reverted to somewhere near their historical mean, the problem would be solved at a stroke.
  • Income taxes, in particular, both personal and corporate, are low and falling. That trend is not sustainable.
  • Employment taxes, by contrast—the regressive bit of the fiscal structure—are bearing a large and increasing share of the brunt. Any time that somebody starts complaining about how the poor don’t pay income tax, point them to this chart. Income taxes are just one part of the pie, and everybody with a job pays employment taxes.
  • There aren’t any wealth taxes, but the closest thing we’ve got—estate and gift taxes—have shrunk to zero, after contributing a non-negligible amount to the public fisc in earlier decades.

If you were structuring a tax code from scratch, it would look nothing like this. But the problem is that tax hikes seem to be politically impossible no matter which party is in power. And since any revamp of the tax code would involve tax hikes somewhere, I fear we’re fiscally doomed.


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“Lowest in 60 years relative to GDP” is how it should be stated. Profits down (C) in the 2000-2010 decade, Government spending (G) up, you are by definition going to show a decline in the taxes as a share of GDP. While this is fixed, on the surface by a restructuring of the tax code, the real problem is Government (G) spending.

Posted by quantacide | Report as abusive

“And since any revamp of the tax code would involve tax hikes somewhere, I fear we’re fiscally doomed.”


And the amazing thing is that the present tax-cut extension and unemployment compromise involves the Republicans and Democrats both giving away stuff from the public coffers!

Meanwhile Asia runs huge surpluses and and promptly burns their capital by buying treasuries. The Chinese and Japanese need to realize that the destruction of their capital occurs at the moment of U.S. treasury purchase and not later. That is capital that can never be extracted because once they sell the game is over. Interest rates will shoot up. They look at the bond market and are reassured, not appreciating that they *are* the bond market.

Posted by DanHess | Report as abusive

Excellent chant!

Posted by BeautifulBible | Report as abusive

Excellent chart and comments.

Posted by BeautifulBible | Report as abusive

Excellent chart and comments.

Posted by BeautifulBible | Report as abusive

Lower tax literally bankrupted USA and Americans.

Lower tax does not help when politicians and banks literally defrauding Americans and America.

Posted by BeautifulBible | Report as abusive

Has anyone got any international comparisons? Personally, I’d love to see what the same chart looked like for the UK.

Posted by Gaw | Report as abusive

As for corporate taxes being so low, it seems to me that the whole problem is not that the tax rate is too low, which at 30-something percent it is not. Instead, companies are doing what tax-avoidance expert Buffett has taught by words and example his whole life:
Reinvest inflow, move money around and grow the enterprise but keep postponing cash income until the end of days.

So here we are. The only solution left is consumption taxes and inflation; they are inevitable.

As for consumption taxes, look to the states for this, since it just means upping the numbers on taxes they already have. Sales taxes, taxes on alcohol and cigs, property taxes and so forth. The Fed will have less to help the states and the states can’t print, so that is where the hard decisions must be made.

Huge financial decisions are to be made and with states like California facing a very different political climate than states like Texas and Virginia, expect the divide among the states to blow wide open with government size and tax levels ending up dramatically different for different states.

A huge experiment is underway and the different states will be competing in a way not seen before, for businesses, for residents and notably for wealthy residents. I for one have no idea how this ends.

Posted by DanHess | Report as abusive

“Any time that somebody starts complaining about how the poor don’t pay income tax, point them to this chart”

Well as somebody that frequently points out that the poor pay no income taxes I guess I’m obligated to offer a rebutal.

All Employment taxes are less than zero sum revenue streams for the federal goverment. Social security has indeed produced past surpluses (all of which have been spent rather than truely saved) but ask any actuary and they will tell you that on average recipients pay less into the system than they will receive in benifits.

Obviously not true for the workers who die before getting their first check… but for every one of those there is someone who works for 30 years and then collects 30 years of benefits drawing many times what they paid in.

The same is true for medicare. Rather than being a source of revenue they are both underfunded in the long run promising a level of benefits that cannot be met by the current fundign formula. Both social insurance systems are upfront about this fact.

A person who pays employment taxes but not income taxes is a person who provides for their goverment retirement benifit, goverment medical benifit, and goverment unemployment benifit.

That person however does not contribute to any other goverment program beyond those through which they directly stand to gain.

I’ll side with Warren Buffet… raise the income tax, bring back the inheratance tax… and then use that revenue to balance the budget.

Posted by y2kurtus | Report as abusive

Hi Felix,
A couple points about the chart. First, employment taxes are not bearing a larger share of the burden as a percentage of GDP, in fact they are below the twenty year average. They have increased as a percentage of revenues in the last few years as the recession has reduced income, both personal and corporate. Secondly, recent changes to the tax code (even though you see them as less regressive) have the effect of increasing the volatility of personal tax receipts as they become more reliant on the top earners. Currently, a married couple with two children pay basically no income taxes on the first $45,000 in income. In regards to tax revenues, it essentially makes no difference whether that person is employed or not but it does make a difference if an investment banker makes $500,000 or $545,000. But those are the people with the greatest ability to shield income from taxes. I believe you would actually collect a lot more taxes on the high income if they kept rates low and eliminated the myriad of deductions available to them. Similarly, in regards to wealth taxes, in a time where people can pick and choose where to live (and die) I do not know if you will ever again collect a significant amount of money from that source but I think you would get more if you kept the rate low and eliminated all of the shelters available to those of great wealth now.

Posted by JohnOmeara | Report as abusive

Wow, look how skinny that corporate tax line has become over time. It’s good to not be in America right now.

Posted by Mike.Gayner | Report as abusive

Hi Felix,

Long time listener, first time caller. Very interesting graphic. I agree with John Omeara above: you could arguably actually lower taxes further while increasing the tax take at the same time – if you cleaned up the tax code’s codified corporate socialism system of exemptions.

As an example, I’m pretty sure my home country of New Zealand has lower tax rates than here, but still has a proportionately higher tax take.

Posted by Globalmitch | Report as abusive

Globalmitch, you are correct. I’m a tax accountant in New Zealand and we have much lower tax rates than the USA, yet a higher tax as a percentage of GDP. Our tax system is also much simpler and fairer.

I was surprised to find that the USA has no corporate imputation system, meaning corporate profits passed to shareholders are taxed twice, which is a significant reason corporate profits stay locked up in US companies. In other words, because USA has no imputation system it is beneficial (from a tax perspective) for both the corporation, and its shareholders, if the profits are kept within the company rather than distributed.

By the way, a higher tax take as a percentage of GDP ought to be seen as generally enviable. Open Wikipedia and look up the article showing a list of countries by their tax take as a percentage of GDP. Sort the list by the percentage. Now note that all of the countries that have a high tax are generally considered very enviable (Denmark, Sweeden, France, Germany etc) while countries with a low tax take (adjusting for outliers) tend to be much less enviable (Kenya, Jordan, Colombia, USA etc).

Posted by Mike.Gayner | Report as abusive

A while back you asked if it was necessary to know university level mathematics to understand finance/economics and most people answered no – including me. It is however important to be able to do sub-GCSE basic level arithmetic.

According to your chart, federal taxes as a percentage of GDP peak somewhere above 20%, to be certain lets say they are 21% and right now the the tax rate as a percentage of GDP is a bit below 15, lets say 14%. US GDP is around 15 trillion so that difference in tax is about a trillion. The ***deficit*** in 2010 is estimated at nearly 1.2 trillion. If you add a positive number to another positive number, then you are aware you get a larger positive number, right?

Posted by Danny_Black | Report as abusive

DanHess, on the other hand their holdings give them alot of ability to get themselves bailed out when they make risky bets. Who do you think were the biggest holders of Frannie debt just before the government bailed them out….

Posted by Danny_Black | Report as abusive

Danny_Black, I’m confused…

If tax rates were to rise from 14% to 21%, that would increase revenues by approximately $1 trillion.

Why wouldn’t increasing revenues decrease the deficit?

Posted by TFF | Report as abusive

All from ONE chart at ncome-taxes.html
- The top 10% pay about 70% of the income taxes,
- the top 1% pay about as much as the bottom 95%
- and the bottom half pay about zero (3%) in federal taxes.

So the idea that the rich don’t pay enough taxes is silly. It’s one of the problems with liberalism – they lie.

Posted by Alz2 | Report as abusive

One good chart deserves another: 0th_century_chart.html

And, using one paragraph from this article as a building block, we can see the other side of the coin:

“Federal spending is the highest in 60 years, which gives you a pretty good idea of why America’s long-term debt ratios are a big problem. If the spending reverted to somewhere near their historical mean, the problem would be solved at a stroke.”

His conclusion can be used the same way:

If you were structuring a budget from scratch, it would look nothing like this. But the problem is that spending cuts seem to be politically impossible no matter which party is in power. And since any revamp of the budget would involve cuts somewhere, I fear we’re fiscally doomed.

Posted by gp38dash2 | Report as abusive

You are, of course, going to follow up this chart with a second one that comprehensively reflects the changes in State and Local taxes, especially including sales taxes, that have changed since 1950. And that data is going to include things like registration and usage fees, especially gasoline, telecommunications and sin taxes on things like liquor and cigarettes. I understand that is going to vary widely from state to state, so two, perhaps, should be instructive: say New York and California?

Posted by ARJTurgot2 | Report as abusive

The issue is, and will always be, government expansion beyond its intended limited state. All arguments about tax rates and changing methods for collecting taxes are red herrings.

Posted by MGabel | Report as abusive

@Alz2: “- the top 1% pay about as much as the bottom 95%”

you were paying attention when it was discussed that the top 1% _earn_ as much as the bottom 95, right? That seems to make it equitble, doesn’t it?

oh, that’s right, corporate fascists don’t lie

Posted by FudoMyoo | Report as abusive

Mike Gayner,
You seem to use the chart you cite somewhat deceptively. The United States is found a little north of Japan and South Korea and a little south of Switzerland, Australia and Canada. Not bad company. Also, at 28%, the US is nearer to New Zealand (36%) than to Kenya (18%), so why do you GROUP the US with Kenya and dissociate it from New Zealand? Makes no sense. Moreover, New Zealand is nearer the US than it is to the Scandinavian countries which near 50%.

Also, you forgot to mention Zimbabwe as one of those enviable nations with tax receipts near 50% of GDP.

I agree with FS that the US tax structure is hopelessly disordered, but your general principle that higher receipts is better is not very useful as a measure of fiscal health, unless we are to take Zimbabwe as a paragon and Canada as a pariah.

Posted by ejsofel | Report as abusive

Alz2: Your source is suspect. The National Taxpayers Union says it’s “nonpartisan.” So how come its “testimonials” all come from the right? The list in toto and in order: Bush junior, Reagan, McCain, Armey, Paul, Murdock, Toomey, Flake.

NTU says the top one percent earned in 2008 on average $380,354 and together they accounted for 38.0 percent of the government’s personal income tax take. If we assume that’s before taxes but after deductions — that is, net taxable income — and this top one percent paid the top tax rate of 35 percent, they paid an average of $133,124 to the feds, leaving them $247,230 in spending money for the year.

To bring down the deficit, who can most afford to sacrifice a little, the poor or the family with $247,230 to spend?

Posted by Hawkishdove | Report as abusive

Everyone knows where this tripe is going. After they make everyone insane, they will start entertaining a flat tax system, probably with a VAT component. This is fine as long as a few conditions are agreed to.
1)flat tax rate, across the board is a constitutional ammendment, and can only be changed like any historic ammendment process. the flat tax is the only tax, trash the rest. no multiple tax structures on the same dollar, this includes interest,inheritance, carbon, bla bla ( 165 items), ect. This will FORCE wiser decisions on ALL LEVELS!!!!!!
2) local taxes get reduced to a VAT only, loose everything else, if you cant afford it you cant have it. Bad decisions, bad business, less money, less purchasing….. you following? the anti socialist program.

Break the cycle of looting people and sending robin hoods to DC to get it back, meanwhile we are so busy with this game we have become the clown empire of the civilized world, with historic corruption, waste and stupidity.
basically people around the world hate us and want to take advantage of us because they think we are stupid.

Posted by Jackwatch | Report as abusive

TFF, I was specifically responding to this claim:

“Federal taxes are the lowest in 60 years, which gives you a pretty good idea of why America’s long-term debt ratios are a big problem. If the taxes reverted to somewhere near their historical mean, the problem would be solved at a stroke.”

Clearly if it can’t even turn a deficit into a surplus then it is not going solve the US long-term debt…

Posted by Danny_Black | Report as abusive

Ah, I understand. I was reading it differently, since a dramatic reduction in the deficit like that *would* solve the problem, by reducing the growth in the debt to something sustainable.

Posted by TFF | Report as abusive

The Tax Foundation publishes some pretty comprehensive tables on the Income Tax. The top 1% comprise 20% of the AGI and 38% of the income tax. The third quartile (between 25% and 50%) comprise another 20% of the AGI and 11% of the income tax. The bottom 50% comprise 13% of the AGI and 3% of the income tax.

The distribution of the tax burden shifts, of course, if you include the payroll taxes. Moreover, the marginal tax rates on wage income (income and payroll taxes combined) are quite high throughout most of the income scale. Since economic incentives depend on the marginal tax rates, this is a concern even if the overall tax rate isn’t terribly high.

Posted by TFF | Report as abusive

clearly the focus here is on Employment Taxes but did I miss the part where the author explains who pays the employment taxes. The assumption is made that the poor pay these taxes, well so do everyone else…

Where is the detail of the Employment Tax data? How much of the Employment Tax revenue is derived from ‘poor’ people and how much from the rich?

And Social Security and Medicare are taxed at no more than 7.65%. How does that compare to a 35% marginal tax rate?

Lastly, I’d like to point out that there is a huge behavioral issue with a system where 50% of the country pays no FEDERAL income taxes.

Sure, the ‘poor’ pay payroll taxes for Medicare and Soc Security – they also collect what they contribute to Social Security (income cap of ~100k) and more than they contribute to Medicare (no income cap so the rich pay more yet get the same Medicare plan). So the remaining largest piece of the pie is Income Taxes which the poor do not pay.

Also, if you are self-employed, you pay 15.3% for Medicare and Social Security (twice the normal rate).

Posted by BHOlied | Report as abusive

in case you didn’t believe me about the 50% pay no Fed Income Tax: business-personal_finance

Posted by BHOlied | Report as abusive

Two things I would like to point out about the chart. First half of employment taxes are paid by a corporation and all unemployment taxes are paid by corporations. If you changed this chart to reflect this fact you would see a different chart. Second if corporations paid all the taxes who would really be paying the taxes?

Posted by ghb | Report as abusive