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Yes, You Are Paying Lower Taxes

Folks are always surprised to learn that I have a coordial relationship with Chris Thompson, who blogs for the Friends for Fullerton’s Future web site and is a school board member in Fullerton.  We don’t agree on a lot, but we have coordial conversations that are issues-based without the venom that so often personalizes and poisons what the political blogsphere is supposed to be about.

In one of our last conversations, I mentioned that the tax burden on Americans was less today that its been in years which Chris immediately disputed and disagreed with. Since Republicans are more committed to economic collapse instead of raising a single tax on anything, raising revenue is something that’s going to be needed due to the “borrow and spend” policies they have had for years.

While researching another post, I can across this story in USAToday from last May.  From the story:  ”

Americans are paying the smallest share of their income for taxes since 1958, a reflection of tax cuts and a weak economy, a USA TODAY analysis finds. 

The total tax burden — for all federal, state and local taxes — dropped to 23.6% of income in the first quarter, according to Bureau of Economic Analysis data.

By contrast, individuals spent roughly 27% of income on taxes in the 1970s, 1980s and the 1990s — a rate that would mean $500 billion of extra taxes annually today, one-third of the estimated $1.5 trillion federal deficit this year.

The analysis comes as President Obama and Congress debate whether to cut federal spending, raise taxes or both.

The latest dip in the tax burden came from a Social Security tax cut included in a December budget deal between Democrats and Republicans. It will reduce taxes $100 billion this year.

“We have a 1950s level of taxation and a 21st-century-sized government,” says Robert Bixby, executive director of the Concord Coalition, a deficit-reduction advocacy group.”

The New York Times has this column which says revenue increases are going to have to happen whether Republicans like it or not.

“Unfortunately, this nostalgic view depends on a misunderstanding of the budget. It imagines a budget in which the United States indefinitely has the world’s highest medical costs, its largest military, an aging population and, nonetheless, taxes that are among the world’s lowest. Economists have a name for that combination: a free lunch.

Free lunchism is ultimately the problem with the no-new-taxes pledge that so many politicians have adopted. A refusal to raise taxes, no matter how principled, cannot take us back to the good old days. It would instead lead to a very different American society. For taxes to remain where they are, Washington would need to end Medicare as we know it, end Social Security as we know it, severely shrink the military — or do some combination of the above.

“We cannot repeat the past when it comes to the federal budget,” Douglas Elmendorf, director of the nonpartisan Congressional Budget Office, recently wrote. “The aging of our population and the rising cost of health care have changed the backdrop for federal budget policy in a fundamental way.”

The most important part of the recent Republican budget plan, written by Representative Paul Ryan, was that it acknowledged this reality (in its details, if not its packaging). It called for no tax increases. To make the numbers come close to adding up, the plan also called for eliminating the current Medicare and replacing it with a system in which the elderly would buy less generous private insurance plans. Such is the price of no new taxes.

Early indications are that Americans don’t like Mr. Ryan’s plan all that much. In upstate New York this spring, a Democrat won a typically Republican House district by campaigning relentlessly against the plan. National polls show huge majorities favor keeping Medicare and Social Security in something approaching their current form — much larger majorities, tellingly, than oppose an increase in the debt ceiling.

In the near term, Congressional Republicans have decided to play down the Ryan plan. Most continue to oppose new taxes, without going so far as to explain the consequences. They will have little trouble sticking to that position through the current debt ceiling fight, because the deficit does not need to be solved immediately.

Eventually, though, drawing up a credible deficit plan with neither Ryan-like cuts nor higher taxes will be impossible. And you can already see the start of a potential Republican compromise.

It revolves around raising taxes, on net, by shrinking corporate or individual loopholes. The country’s highest-ranking Republican, John Boehner, the speaker of the House, signaled his openness to such a deal last week. (Mr. Boehner abandoned the deal under pressure from Representative Eric Cantor, the No. 2 House Republican and a Tea Party ally.)

Stalwart Republican economists — like Martin Feldstein, a chairman of the Council of Economic Advisers under Ronald Reagan, and Gregory Mankiw, who held the same job under George W. Bush — also favor raising taxes by closing loopholes. So did most of the Republicans from the bipartisan Simpson-Bowles deficit commission, including Senator Tom Coburn of Oklahoma, Senator Mike Crapo of Idaho, former Senator Judd Gregg of New Hampshire and David Cote, the chief executive of Honeywell.

One obvious compromise along these lines would follow the outline sketched out by the Simpson-Bowles plan. Marginal tax rates could actually fall. But the closing of loopholes would more than make up for the loss in revenue from lower tax rates.

The truth is, closing loopholes has much stronger support among economists and columnists than it does among voters. Only 23 percent of Americans benefit from the mortgage deduction, but 93 percent support it. Other big breaks, like the exclusions for health insurance and 401(k) contributions, are popular, too. On the corporate side, Eric Toder of the Urban Institute has pointed out that the biggest breaks also tend to be popular, like the credit for research and development.

So what kind of tax increases do Americans support? The old-fashioned kind. Seventy-two percent support raising taxes on income above $250,000, according to a recent New York Times/CBS poll, and a large majority likewise favor raising Social Security taxes on the affluent.”

I look forward to my next conversation with Chris Thompson, now that we have the stats and the documentation.