NY Times: Taxes Lower for Americans Now Compared to 1980s

Today’s New York Times confirms what we’ve been saying all along: Americans pay less in taxes — local, state and federal — as a percentage of their income today than they did during the 1980s when Reagan produced a dramatic cut in taxes and then raised them 11 times.

From the story:

But in fact, most Americans in 2010 paid far less in total taxes — federal, state and local — than they would have paid 30 years ago. According to an analysis by The New York Times, the combination of all income taxes, sales taxes and property taxes took a smaller share of their income than it took from households with the same inflation-adjusted income in 1980.

Households earning more than $200,000 benefited from the largest percentage declines in total taxation as a share of income. Middle-income households benefited, too. More than 85 percent of households with earnings above $25,000 paid less in total taxes than comparable households in 1980.

Lower-income households, however, saved little or nothing. Many pay no federal income taxes, but they do pay a range of other levies, like federal payroll taxes, state sales taxes and local property taxes. Only about half of taxpaying households with incomes below $25,000 paid less in 2010.

The uneven decline is a result of two trends. Congress cut federal taxation at every income level over the last 30 years. State and local taxes, meanwhile, increased for most Americans. Those taxes generally take a larger share of income from those who make less, so the increases offset more and more of the federal savings at lower levels of income. 


The trend can be seen by comparing three examples:

¶A household making $350,000 in 2010, roughly the cutoff for the top 1 percent, on average paid 42.1 percent of its income in taxes, compared with 49 percent for a household with the same inflation-adjusted income in 1980 — a savings of about $24,100.

¶A household making $52,000 in 2010, roughly the median income, on average paid 27.7 percent of its income in taxes, compared with 30.5 percent in 1980, saving $1,500.

¶A household making $22,000 in 2010 — roughly the federal poverty line for a family of four — on average paid 19.4 percent in taxes, compared with 20.2 percent, saving $200. 

The Times doesn’t mince words and says federal spending needs to be reined in.

  3 comments for “NY Times: Taxes Lower for Americans Now Compared to 1980s

  1. December 1, 2012 at 6:41 pm

    1)Full List of Obamacare Tax Hikes: Listed by Size of Tax Hike
    Complied by Americans for Tax Reform
    WASHINGTON, DC — Obamacare contains 20 new or higher taxes on American families and small businesses. Arranged by their respective sizes according to CBO scores, below is the total list of all $500 billion-plus in tax hikes (over the next ten years) in Obamacare, their effective dates, and where to find them in the bill.

    2) Hyperinflation Special Report 2012

  2. Junior
    December 2, 2012 at 9:20 pm

    Posted comment to NY times article:
    The choice of 1980 as a baseline is crucial. In 1980 your adjusted gross income, which this study used, was net of tax shelter losses. The 1986 tax reform eliminated that treatment, boosting the adjusted gross income of anyone who formerly used a tax shelter. Many if not most affluent and rich taxpayers used tax shelters in 1980. Hardly anybody actually paid the top rates.
    In other words, many of today’s $200k income taxpayer would have been $50k income taxpayers in 1980 due to sheltering. These people pay much, much more due to tax reform. That was its main motivation.
    No study which spans 1986 and which fails to account for the abolition of tax shelters (primarily rental property) can yield valid comparisons. As I said, many if not most affluent and rich taxpayers used tax shelters in 1980. Hardly anybody actually paid the top rates.
    High-income people reduced their adjusted gross income using tax shelters so heavily that Congress finally purged them in 1986 despite the normal political incentives to hand out tax breaks. That’s how widespread it was.
    Pretending that today’s adjusted gross incomes would have appeared, inflation-adjusted, on 1980 tax returns is either careless or dishonest analysis.

    The article’s analysis has a second major flaw. It ignores the massive shift of small businesses from C corporations to S corporations and sole proprietorships as a result of lower personal income tax rates.
    If we were to return to 180’s rates and rules, small business would rush to change to C corporations, removing retained earnings from personal tax returns. Taxpayers would also resume their tax sheltering activity, subtracting depreciation on their rental real estate when computing their adjusted gross income.
    In 1980 very few people paid the top rate. Now they do. Because the top rate is much lower. Duh.
    Transporting taxpayers’ current adjusted gross income to 1980 without accounting for these behavioral and structural changes is obviously incorrect. A tax system is more than just rates.

  3. MikeM128
    December 3, 2012 at 10:56 am

    How come we never see the NY Times write about spending being the highest in history. Guess they don’t care about our out of control debt due to unlimited spending.

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