What is our current tax level? (good background info.)

http://www.newsbatch.com/budtax.htm ^ | Updated February 12, 2003

[big bad easter bunny]

 

Updated February 12, 2003 What is our present tax level? Because our government responsibility is divided between the federal government, the states, and local government; taxes are collected by all of these branches. The income tax is the principal tax collected by the federal government. As measured by the Gross Domestic Product, the federal tax level has ranged between 17% and 20% during recent decades.  (Click to see chart)  Although states vary significantly, the sales tax is the most common state tax.  (Click to see chart)  Local governments assess a real property tax. How much tax is necessary? Obviously, the federal tax level must bear a direct relationship to the federal budget. The Federal Budget is presently $2.1 trillion   which represents about 19.5 percent of the gross domestic product of $10.9 trillion. Contrary to common perceptions, the cost of the federal government when compared to the GDP has steadily decreased from a peace time high of 23.5 percent in 1983. What has changed is the nature of the expenditures.   Defense expenditures have gone down while Social Security, Medicare and interest expenses have gone up. One reason for the increase in Social Security portion of the budget is that there are far more retirees entitled to Social Security benefits now then there were in the 60s. Interest payments were 6% to 8% of the budget from the '60s through the '70s. This percentage began to steadily increase as a result of the growing deficit to a high of 15.4% in 1996. When the state and local government sector of the economy is added, the total government portion of the GDP is closer to 30%. This rate of government spending is approximately equivalent to Japan and far less than Canada and other European countries.   Unlike many states, the federal government is under no mandate to balance the budget on a yearly basis. As a result, the federal government has borrowed money which has led to the creation of a substantial national debt. The booming economy of the '90s generated enough new tax collection that there had been recently a budget surplus. In response to this surplus, Congress accepted much of President Bush's proposal for tax relief and passed a major tax reduction package in 2001. Now there is no longer a budget surplus and the budget deficit is growing faster than projected.    How should the tax burden be split? The income tax is a progressive tax which means that individuals with larger incomes bear a larger tax burden. The degree to which the tax is progressive has fluctuated significantly in the past two decades and more of the tax burden has shifted to the middle class. From the mid-1960s until 1982 the tax rate ranged from about 15% for the lowest brackets to about 70% for the highest. Because of significant inflation during this period, many in the middle class entered the higher tax brackets even though politicians boasted that there were no tax "increases". In 1982, Congress passed President Reagan's plan to cut the highest rate on personal income tax from 70% to 50%. The Tax Reform Act of 1986 dramatically lowered the maximum tax rates from 50% to 28%. This was increased to 31% in 1991, and additional rates of 36% and 39.6% for the wealthiest individuals were approved in the Omnibus Budget Reconciliation Act of 1993. Under President George W. Bush's tax proposal the maximum tax bracket would be reduced to 33%. The ultimate tax package agreed to by Congress has reduced the maximum rate to 35%. Because the Social Security tax is not progressive, and because there are lower marginal rates for certain types of income, the actual effective tax share for middle income wage earners is far greater than that of lower and upper income earners. What is the concern about the alternative minimum tax? To make sure that everyone paid at least a minimum of taxes Congress enacted the individual alternative minimum tax (AMT) in 1969. Historically, the AMT has only affected taxpayers at the highest income levels. However, because the AMT is not indexed by inflation, that is about to change. Preliminary estimates indicate that by 2010, when the effects of both inflation and the 2001 tax cut are taken into account, at least one third of all taxpayers will be affected and the overall liability of these taxpayers will be significantly increased. Ironically, the tax cuts contained in the new legislation will increase the number of taxpayers affected by the AMT.   Congress has not responded to calls for the AMT to be "indexed" as ordinary marginal tax rates are. Instead, under the 1991 tax act, the AMT exemption was temporarily increased by $4,000 for joint returns ($2,000 for unmarried individuals) effective for tax years between 2001 and 2004. In tax year 2005, the AMT exemption amount reverts back to its previous levels. Certain tax credits were also permitted to be be applied against AMT liability. Congress recently agreed to phase out the estate tax. What has been the federal estate tax and who has it affected? The estate tax has been a permanent part of the federal taxation system since 1916. The current estate tax consists of the traditional estate tax, plus two additional components designed to close "loopholes": a gift tax and a generation-skipping transfer (GST) tax. The gift tax requires that all taxable gifts made during life by the deceased be included when calculating the value of the estate. The GST tax captures wealth transfers that "skip" a generation, such as a trust that a grandmother leaves to her grandchildren. The value of all three types of wealth transfers are aggregated and taxed together at rates effectively ranging from 37 to 60 percent on net taxable estates. Because many exemptions and deductions, only a very small percentage of taxpayers are affected by the estate tax and gift tax.    In 1997, the estates of fewer than 43,000 people — fewer than 1.9 percent of the 2.3 million people who died that year — had to pay any estate tax. The Joint Committee on Taxation projects that the percentage of people who die whose estates will be subject to estate tax will remain at about two percent for the foreseeable future. What are the arguments in favor of and against the repeal of the estate tax? Repeal of the estate tax was a significant part of President Bush's present tax cut proposal. This proposal was opposed by most Democrats and a growing number of concerned wealthy Americans who are particularly concerned about the affect of the repeal on charitable giving. The proponents of the repeal contend: The existence of the estate tax this century has reduced the stock of capital in the economy by approximately $497 billion, or 3.2 percent. The incentives in the estate tax result in the inefficient allocation of resources, discouraging saving and investment and lowering the after-tax return on investments. The estate tax is extremely punitive, with marginal tax rates ranging from 37 percent to nearly 80 percent in some instances. The estate tax is a leading cause of dissolution for thousands of family-run businesses. Estate tax planning further diverts resources available for investment and employment. The estate tax obstructs environmental conservation. The need to pay large estate tax bills often forces families to develop environmentally sensitive land. The estate tax violates the basic principles of a good tax system: it is complicated, unfair and inefficient. The opponents of the repeal maintain: the estate tax helps reduce concentrations of wealth and power there would be a significant loss of revenue if the estate tax is repealed repealing the estate tax would reduce charitable bequests. They believe that the estate tax has encouraged families with estates in excess of $20,000.00 to bestow an average of 40% of the estate to charity and that this percentage would be significantly reduced if the estate tax was repealed. farms and small businesses can be protected without repealing the estate tax How do other countries handle taxes? With the exception of Japan (which is at approximately the same level as the United States), the tax level and the corresponding cost of government is much higher in most other industrialized countries.   The income tax is more significant in the United States than other countries and raises 50% of all government revenue. In most other major countries, a large amount of revenue is raised by a "Value Added Tax" which is similar to a sales tax but is assessed at the time goods are manufactured and when they are distributed and sold. Most industrialized countries also have estate taxes but this tax accounts for a very small part of the overall revenue. Although there has been concern about the national debt, the size of the United States public debt compares favorably with many other industrialized countries. How do Democrats and Republicans stand on tax issues? There is a wide difference between the two parties. Republicans favor lower taxes and low marginal rates for the wealthy. Republicans overwhelmingly supported the recent tax package passed by Congress whereas it was opposed by most Democrats.  Republicans unanimously opposed the 1993 legislation which raised the maximum tax rate. In a recent vote, which generally followed party lines, the Senate refused to make the repeal of the estate tax permanent.

Tax and Budget Links Citizen's Guide to the Federal Budget (This is an excellent and understandable summary) Analysis of Bush and Gore tax cut proposals from TaxPlanet.com Analysis of Bush plan from Citizens for Tax Justice Bush Statements on Tax Reform From Issues2000.org Gore Statements on Tax Reform From Issues2000.org  Full Coverage: U.S. Budget News (Yahoo)   About.com: Federal Budget  Open Directory Project: National Budget Center on Budget and Policy Priorities Heritage Foundation: Budget Washington Post: Special Report on Budget Policy Washington Post: Special Report on Tax Policy

 

[big bad easter bunny]

I have been hearing about how big our deficit has grown, it is not because of Iraq. This points out that the liberals are not addressing where the deficits are originating from. I have read that the taxes from the IRA's that the boomers cash in will be a 10-14 trillion dollar windfall for the treasury.

No doubt Bush will grab hold of the third rail in 2004 and address the Ponzi scheme that our Social Security system is at present. Imagine if all the trillions that were paid into the fund had actually been invested, instead the money was spent and replaced with IOU's that can not be legally cashed in. It is about time Conservatives started telling it like it is!

[vannrox]

[vannrox]

[Southack]

"I have been hearing about how big our deficit has grown, it is not because of Iraq. This points out that the liberals are not addressing where the deficits are originating from."

Worth repeating.

[supercat]

How much must your employer spend to give you enough money to put $1 *NET* into a waitress' pocket? Tax rates which at first seem almost reasonable will quickly seem much more unreasonable when compounded. A serf who gave a third of his crop to the owner of the major as rent would have 2/3 available to eat without any further taxes. By contrast, even after the government taxes people's income, the government will still be able to grab more money whenever people spend it, unless it's spent outside the U.S..

Were it not for the ability of people elsewhere in the world to avoid US tax rates, they would completely shut down the economy in short order. As it is, they severely hamper the U.S.'s global competitiveness.

[Capitalist Eric]

While the tax rate of the Federal government is ~%17, and the average state tax (for the sake of discussion averages at) %6, we must take into account the multiplier effect on each dollar, to get a more representative account of how much of each dollar is needlessly squandered by the government.

As I remember, an average dollar circulates about six times, before it (in one way or another) is removed from circulation, by confiscation from the government, or invested into something of medium or long-term. So, let's assume it's only five times, instead of six.
Therefore, 17% (taxed once by the Feds) + %6 (over five times) = %17 +(%6^5) =17% +34% =%51. If you did calculate a multiplier of six, the result would be %59... ***sigh***

This doesn't take into consideration, of course, such other invisible taxes like environmental fees, licensing, EEOP costs, OSHA and all the other alphabet-agencies which are such efficient parasites on the working people of the USA...

Which means the government, in total, takes more than half of every dollar in produced goods, for its' own largesse... This tracks, unfortunately, with what several economists have quietly told me- that the govt. takes anywhere from 2/3 to 3/4 of all revenues generated, for itself, in a variety of hidden ways....

GRRRRR.......

[taxcontrol]

"The Federal Budget is presently $2.1 trillion which represents about 19.5 percent of the gross domestic product of $10.9 trillion"

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Ok, how about this.
20% sales tax - on everything, no exceptions. Goods, investments, everything. REQUIRE that every purchase identify the sales tax as above and beyond.

No income tax
No FICA
No other "pay" taxes
You earn it, you get it.

Use the extra .5% to purchase annuities and pay for benefits for the oldest SS recipents. When they die, use the annuities to pay for others.

I figure it would last about 2 years before the voters kicked the big spenders out of Congress.

[Libertarianize the GOP]

If any freeper is still following this list most articles can now be found by clicking on the keyword instead.

[gooleyman]

several economists have quietly told me- that the govt. takes anywhere from 2/3 to 3/4 of all revenues generated, for itself, in a variety of hidden ways....

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Actually, even those estimates are low, but I won't bore anyone with the details.

[Jack Black]

ping for later reading

[Jack Black]

ping for later reading

[ChefKeith]

in a variety of hidden ways....

Like FEMA ( a black hole in the fedgov that just never closes)

[Capitalist Eric]

Actually, even those estimates are low, but I won't bore anyone with the details.

When making such general statements, I prefer to be on the conservative side of estimates. Better to be realistic, than to sound like a liberal.

8^)

Be well.

[rusty millet]

Wartime spending bump

[FreedomPoster]

Index bump. Nice post.

[Glenn]

bttt- Remind me why I am pixxed off.

[gooleyman]

The link to the Citizen's Guide to the Federal Budget didn't work, but I found it in the Internet Archives (http://www.archive.org/) at the following link:

Citizen's Guide to the Federal Budget

It takes a while to load at dialup speeds (about 4 or 5 minutes) but it seems like a very good document to keep as a reference.

The internet archive is a good resource to have to track down sites that no longer exist.