Tuesday, May 11, 2010

American Tax Receipts Lowest in 60 Years

. Tuesday, May 11, 2010

As a percentage of income, that is. How many Americans would have guessed this was true?

Federal, state and local taxes — including income, property, sales and other taxes — consumed 9.2% of all personal income in 2009, the lowest rate since 1950, the Bureau of Economic Analysis reports. That rate is far below the historic average of 12% for the last half-century. The overall tax burden hit bottom in December at 8.8.% of income before rising slightly in the first three months of 2010.

I actually don't find it all that surprising. Here's one list of contributing factors:

Three big reasons: The stimulus was in fact a major tax cutter, and increasingly progressive tax rates means that as we've fallen in income, we've fallen into lower tax rates. What's more, we're consuming less, so spending less on taxes.

I don't think these are the best explanations. The stimulus plan did include tax cuts, but they weren't especially large and if the fiscal multiplier is above one then they could have increased tax revenue (because one person's spending is another person's income, which increases income taxes plus sales and other taxes accrued along the way).

Tax rates are not "increasingly progressive" relative to the previous 60 years. In fact, the opposite is true. However the tax structure is still somewhat progressive, and this recession is especially nasty (graph taken from DeLong):

I'm not sure we're consuming less, relative to income. Here's a graph of net national saving from Bloomberg, showing that savings are the lowest since the Great Depression:

I think the best explanation is the simplest: tax receipts have fallen as a percentage of income because this recession has been so severe, and originated in the real estate sector. As house prices have dropped and foreclosures have risen, property tax receipts have fallen. The other explanations may be contributing factors, but are not unique to this recession.


Emmanuel said...

Young Kindred, putting the US savings chart here is misleading since it is of federal government, household, and business savings combined.

Household and business savings are actually positive--not by much, but still positive. Their savings would tend to depress government savings as revenues decrease when private sector economic activity dwindles. I have a disaggregated chart which shows things more clearly.

Also: state finances do not necessarily feed into federal finances. Otherwise, there would be no separate muni bond markets, state budgets, etc. The government savings figure in the chart is at the federal and not at the state level. For instance, some stimulus money fed into states, but their finances are noticeably worsening because that spigot is nearing its end.

So yes, things are actually worse for America once you include state finances in the picture (adding another layer of debt).

Kindred Winecoff said...

Young Emmanuel -

I included net national savings on purpose, because it presents the most comprehensive picture of what's going on in the U.S. economy.

It's mostly irrelevant. Are we consuming less than we were before the recession? Of course. A lot less. But are we consuming less (as a % of national income) than we were in 1960? No. Not even close. The savings chart I represented demonstrates that, and so would a chart separating out private savings.

That was my point.

Emmanuel said...

If you believe these are correct...

1. The federal government doesn't collect sales taxes; states do.
2. The federal government doesn't collect property taxes and other housing-related revenues; states do.
3. There is no definitive revenue-sharing agreement between the federal government and states.

...then it follows that:

To use federal revenues as a proxy for state revenues is misleading.

Be careful, man! Otherwise, I've got plenty of Carl Spackler awards to give out. You'd be in good company, but it's company I'd prefer to avoid nonetheless.

Kindred Winecoff said...

Why do you think I'm using federal revenues as a proxy for state revenues? I'm doing no such thing.

American Tax Receipts Lowest in 60 Years
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