Tuesday, May 31, 2011
New York Times, Are Taxes in the U.S. High or Low?
, by Bruce Bartlett
Historically, the term “tax rate” has meant the average or effective tax rate — that is, taxes as a share of income. The broadest measure of the tax rate is total federal revenues divided by the gross domestic product.
By this measure, federal taxes are at their lowest level in more than 60 years. The CBO estimated that federal taxes would consume just 14.8% of GDP this year. The last year in which revenues were lower was 1950, according to the Office of Management and Budget. The postwar annual average is about 18.5% of GDP. ...
In short, by the broadest measure of the tax rate, the current level is unusually low and has been for some time. Revenues were 14.9% of GDP in both 2009 and 2010.
Yet if one listens to Republicans, one would think that taxes have never been higher, that an excessive tax burden is the most important constraint holding back economic growth and that a big tax cut is exactly what the economy needs to get growing again. ... The GOP says global competitiveness requires the U.S. to reduce its corporate tax rate. But the U.S. actually has the lowest corporate tax burden of any of the member nations of the OECD.
If taxes are low historically and in comparison with our global competitors, how are Republicans able to maintain that taxes are excessively high? They do so by ignoring the effective tax rate and concentrating solely on the statutory tax rate, which is often manipulated to make it appear that rates are much higher than they really are.
Update: For a detailed critique, see Are U.S. Corporate Taxes Low?, by Chris Edwards (Cato Institute).