Americans Pay Less In Taxes As Share Of Income Than They Did In 1980 But They Don't Know It

The article provides a good lead into the post below which provides a thorough analysis of the data.  Nobody likes to pay taxes, but they are conflicted about what cuts they would make in government provided services.  People also have different opinions about how tax policy affects economic growth.  There is little evidence to support the common belief that tax policy in the US is correlated with economic growth, but it is widely believed anyway.  In any case, taxes paid as a share of income are less that they were in 1980.  The tax system is also less progressive.  State and local taxes are bigger share of total tax revenue than they were in the past and they are regressive.  The payroll tax is also a larger share of total tax revenue, and it is also a regressive tax, because the tax rate declines for incomes beyond the $108,000 ceiling.  The federal income tax is a progressive tax, but it has been made much less progressive since 1980.  Unfortunately, most of the public does not know the difference between a progressive and regressive tax.  They are told that those with high incomes pay a higher share of the income taxes collected by government.  That is true, but it is because they are receiving a larger share of total income.  Since their tax rates have been reduced, the income tax has been made less progressive. 

How The Tax Burden Has Shifted In US

This article ought to be required reading for every adult in America.  A large share of our income is taxed away by government, but most American's know very little about who pays the taxes, and how that has changed over time.  In fact, the situation is even worse, because many American's are misinformed about taxes.  Its hard to imagine a more important issue in any society, and it is not part of what we teach in our civic classes.  Even college graduates no little about such an important subject.  In any case, most of what everyone needs to know is contained in the graphs provided in this article.

Why Not Just Let The Bush Tax Cuts Expire?

Robert Reich asks a sensible question.  The Bush tax cuts went primarily to the wealthy, but they also provided some benefit the middle class.  Obama would like to eliminate the tax cuts for the wealthy but he wants to retain the middle class tax cuts.  If Obama were let the Bush tax cuts expire according to current law, he could simply propose new tax cuts for the middle class, and put the GOP in the position of voting against them.  Whats wrong with that strategy?

The Problem With The Payroll Tax

A commission was formed in the early 1980's, headed up by Alan Greenspan, to make Social Security stronger so that there would be funds available to provide for the baby boomers when they retired (right about now).  The solution was to raise the payroll tax.  The government has been collecting more money from the payroll tax than it pays out in benefits since that time.  That enabled Ronald Reagan to cut taxes, that primarily benefits those in high tax brackets.  The Treasury does not segregate income from the payroll tax from other taxes that it collects.  It "borrows" the surplus and puts an IOU into a Social Security trust fund, and spends the "borrowed" money just as it spends money collected from other taxes.  The problem is that we are getting to the point where the payroll tax will not provide a surplus that government  can use for other purposes.  Even worse, the Treasury will have to pay back the money that it owes to the Social Security trust fund.  That means that other taxes will have to rise, or benefits to future beneficiaries may have to be reduced. 

In a real sense, the payroll tax has been a fiction. It is very regressive tax because it taxes every dollar of wage income up to $110,000. It does not tax income over $110,000, or unearned income from capital gains or dividends.  In other words, it is a tax that takes a much greater share of income from low wage earners  than it does from the wealthy.  It has served the wealthy very well since the payroll tax, which provides about as much income to government as the income tax, is a better alternative for them than a progressive income tax.  Perhaps we would be better off to eliminate the payroll tax and fund all government spending with the more progressive income tax.

The View From The Top

This is an interesting interview about the outcome of the presidential election.  Many of Romney's staff, and most of his big contributors were certain that he would win the election.  Many of Romney's contributors had supported Obama in the 2008 election and they switched to Romney.  This raises questions about why the Romney people ignored the data which suggested that Obama would win the election.  It also raises questions about why the super-rich abandoned Obama in 2012.

In a sense, Obama is like one of the super rich.  He is very smart and has an Ivy League education.  They chose to go into business and make money.  Obama chose to be a community organizer and to go into politics to make the world a better place.  The super rich do not want to believe that they sold out and the Obama took the high road.  They believe that what is good for them is good for everyone else.  The CEO of Goldman Sachs said that Wall Street did God's work.  He meant that allocating capital, which is what Wall Street does, shapes the global economy.  He, and others like him, were disappointed by Obama when he called them "fat cats".  They want to believe that it is better to be a business person than to be a do-gooder like Obama.  The fact that they got rich in the process proves that they are correct.  The system should reward those who provide the greatest good to society and it is the.  They are Ayn Rand's character in Atlas Shrugged.  They are John Galt.

The super rich and Obama also share a common view of the global economy.  It is providing huge rewards to those who benefit from globalization and it is punishing the middle class in rich countries as wages, and standards of living converge across nations.  The super rich are not concerned about this dynamic.  They worry that Obama will try to remedy the problem by redistributing income from them to the middle class.  They know that this will increase their taxes, and they have come to enjoy living in a society without a progressive tax system.  The government should not punish the job creators by raising their taxes.

An Interview With An Economist That Sold 50 Million Textbooks

This interview (via Noah Smith) covers a wide range of topics in economics.  In Part One of the interview (there is a link in the article to Part Two), Paul Samuelson gives his views on the profession with a particular focus on the business cycle.  His textbook introduced Keynes to millions of students who took introductory economics courses.  He was also a friend and colleague of Milton Friedman who he respected, but with whom he seldom agreed.  Friedman, and many of his colleagues at the University of Chicago, were opposed to the use of fiscal policy to stimulate economies in recession.  Friedman advocated a version of monetary theory that has never worked as he had argued, and others from Chicago have developed macroeconomic theories that Samuelson criticizes.  The theories developed at the University of Chicago have one thing in common: The assume that government can do little to moderate a recession, and that government intervention in the economy will only make things worse.  Samuelson discusses the Great Depression and he argues that fiscal policy made things better.

Many of the topics covered in this interview are relevant to our current economic problems.  Samuelson's perspective, which is informed by a many years of historical experience within the profession, and with the sweep of economic history.

Tax Avoidance Is A Global Problem

Many multinational corporations in Britain paid no corporate taxes to Britain last year.  The same thing occurs in the US and other countries.  Multinational corporations have found ways to place their profits in tax havens.  Some countries, like Ireland, actually produce things.  Many companies produce products in Ireland which has a 12.5% tax rate and they can sell them to subsidiaries in Europe and high prices for resale.  The profits are taken in Ireland.  That practice inflated Ireland's economy, and contributed to its real estate boom and bust.  Other countries produce nothing, but somehow multinational corporates find legal means to take their profits in designated tax havens.

This is not an easy problem to solve as long countries compete with each other by using lower tax rates as an incentive.  It creates a real burden on ordinary people, however, who do not have the option of taking their income in tax havens.  It shifts the tax burden to them, and it creates a strong odor of unfairness.