Thinking About Tax Policy, Part 2: Taxes Today Are Low

April 11, 2012 at 11:52 am

Yesterday’s post in this series explained why the nation’s unsustainable budget deficits must be in the forefront of any tax reform discussions.  That means we’ll need to raise enough additional revenue to contribute to a balanced deficit-reduction plan.

Fortunately, taxes are low right now, both historically and compared to other countries:

  • Across the board, federal taxes are far lower than they were before the early 1980s, Congressional Budget Office (CBO) data show.  For example, people in the middle 20 percent of the population paid 14.3 percent of their incomes in federal taxes in 2007 (the most recent year available), down from 18.6 percent in 1979.  For the top 1 percent of households, the average federal tax rate fell from 37 percent to 29.5 percent over this period.
  • As the chart shows, the United States is a low-tax country.  Total U.S. tax revenue (including both the federal government and the states) is below all of the other wealthy “G-7” countries as a share of the economy.  And it’s far below the average for members of the Organisation for Economic Co-operation and Development (OECD), which includes many less affluent countries (which tend to have lower taxes).

The U.S. Is a Low Tax Country

Moreover, higher taxes are not an inherent barrier to economic growth. CBO has found that tax increases used to reduce budget deficits can improve long-term economic growth and job creation.  Claims that reasonable revenue increases will sink the economy largely reflect politics and ideology, not solid analysis — as the experience of the 1990s shows.

In short, the United States needs to raise more revenue and has room to do it.

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More About Chuck Marr

Chuck Marr

Chuck Marr is the Director of Federal Tax Policy at the Center on Budget and Policy Priorities.

Full bio | Blog Archive | Research archive at CBPP.org

2 Comments Add Yours ↓

Comments are listed in reverse chronological order.

  1. 1

    There’s no debating that U.S. tax policy is a disaster.

    Too many taxpayers do not participate in any meaningful way. Our federal income tax system is more income-progressive than some socialists countries. We have a much higher corporate tax rate than our competitors, incentivizing businesses to keep revenues overseas and to fund off-shore facilities. The size of the federal tax code exceeds the combined works of William Shakespeare and includes even more arcane language and complex plots.

    Instead of real reform, the President and Congress engage in distractions like the “Buffett Rule.”

  2. Zlati Petroff #
    2

    Would it be possible to construct a similar chart that also includes the costs of tax compliance and avoidance?

    I am sure it would be very difficult, but what I am trying to get at is a measure of total tax code burden, which surely should include both taxes paid and the costs that firms and individuals face in complying with the tax code optimally.

    I cannot hypothesize what such a measure would show since I don’t know how complex the tax codes of the various countries are, but it would just be an interesting number from which to draw more complete conclusions regarding the true costs of taxation.



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