The Corner

The Lowest Taxes Ever?

Over at Sometimes Right today, Mercatus Center’s Dan Rothschild does a good job of responding to a USA Today article claiming that taxes have never been that low. According to the article:

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.

A great deal, really. But, as Rothschild notes:

Second, readers may walk away knowing that the US government costs much more than 9.2% of national income to operate, but figure that corporations or foreigners pay the rest. In other words, “we” pay 9.2%, “they” pay the rest. It’s an iron-clad rule of public finance that corporations don’t pay taxes, people pay taxes. All tax incidence ultimately rests on a person. If you tax a corporation’s profits, for instance, the people who pay are the owners of its shares, who are (ultimately) individuals.

Third of all, it’s important to get a sense of what state and local governments collect. In 2006, state governments collected over $710 billion in taxes, around 5.4% of GDP. When you include local governments, that figure goes to $1.24 trillion, or about 9.5% of GDP. In other words, in 2006, state and federal revenues were about to the percentage of personal income collected by all levels of government in taxes in 2009. That should give you a sense of how skewed this particular figure is. All levels of government in 2009 did not cost less than state and local governments in 2006.

He concludes:

In other words, in addition to collecting about a quarter of GDP in taxes, governments in the US at all levels tacked on another 10.7% of GDP in future costs. Add that up and governments in the US spent over a third of national income in 2009. A far cry from the 9.2% that the USA Today article inadvertently implies.

Read the whole thing here.

Also worth reading: David Kirby’s piece on young people’s attitudes toward the word “libertarian,” which can be found here.

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