Friday, November 30, 2012

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. 

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