Paul L. Caron

Friday, February 24, 2012

Johnston: You’re Paying a Lower Tax Rate Than You Think

Reuters, You’re Not Paying the Tax Rate You Think You Are, by David Cay Johnston:

If you make more than about $33,500 a year, your federal income tax burden is probably lighter than you think. The portion of your income that you pay in taxes is your “effective tax rate.” But when politicians and pundits talk about effective tax rates, the data they typically use relies on an incomplete measure for income. Use an incomplete measure for income and your tax rate calculation comes out high.

In a new analysis the Tax Policy Center, a nonpartisan Washington research organization, used a wider measure of income to calculate effective tax rates. The rates are much lower using this broader measure of income. ...

The incomplete measure is called “adjusted gross income,” or AGI. This is the number on the last line of the front page of the standard tax return. To get a fuller picture, the Tax Policy Center used what it called “cash income” to calculate effective tax rates. This included municipal bond interest, government benefits and many of the other items that are excluded from AGI. Use this fuller measure of income and the share of income that goes to taxes falls. ...

For most of us – those in the middle class and above – our effective tax rate is lower than politicians say. So smile a bit today. The cost of civilization is not as high as you’ve been told.

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"The cost of civilization" is 6% of GDP. At least that's what it was when Justice Holmes made his famous statement. The other 24% is mostly rent-seeking, and it's bipartisan. Civilization has never required 30% of GDP to be spent by the government.

Posted by: AMTbuff | Feb 25, 2012 12:21:14 PM