The Fact of My Ignorance

Some Historical Perspective for Anti-Tax Tea-Party Protesters

Hey look, a timely article for a change!  Finally I’m addressing a phenomenon before it happens and not days/weeks after it has passed.  Anyway, you may or may not have heard about the “tea-party” anti-tax movement that’s developing around the country.  This tea-party movement consists of people gathering in various cities on April 15th holding protests about the “terrible taxes burdening americans”, and what they see as America’s coming descent into socialism.  Here’s a quote from one of the two fawning FoxNews articles that were up about it today.  From one of the organizers of the tea party protests:

“People are getting killed — they’re getting hammered with taxes and it’s not the way this country is supposed to be run. … We want to fight back,”

Are people really getting hammered with taxes?  I don’t challenge their right to gather and protest taxes or whatever they want, but they may want to check a few facts first.  And to make it convenient for them, I’ve gathered the pertinent graphs and information after the jump.  I should also note before I begin that not all tea-party participants are claiming taxes are too high and that some are doing this for other reasons (to protest the stimulus, just to express their anger that McCain lost etc), I’m not addressing those concerns here.  But these tea-parties are being billed as “anti-tax protests” so this is a significant part of what they’re organizing for and this article will address that issue.  Anyway, as best as I can deduce, here’s some relevant historical perspective…

Taxes on the Average Family

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First up is this graph showing data compiled from the treasury department.  It only runs up to 2006 but I’m fairly certain the tax rates haven’t changed since then.  It clearly shows that the median-income family of four’s average effective income tax rate is currently at its lowest level since at least 1955.  And Obama’s budget will lower that substantially as described in this AP article.

Also, in this analysis from the Center on Budget and Policy Priorities from 2001 we read, “…this analysis’ update of the CBO data on overall federal tax burdens finds that when households’ total federal tax burdens are considered — including their payroll, excise, and other taxes, along with the income taxes they pay — most categories of households will face a lower average tax burden in 2001 than in any year from 1979 to the present. (1979 is the first year these CBO data cover.) For example, the middle fifth of taxpayers will pay an average of approximately 16.3 percent of income in total federal taxes in 2001, the lowest percentage during the 22 year period examined.”  And once again, for all but the highest earners, these tax rates, already at historic lows, are only going to fall further under Obama’s budget.

Taxes on Corporations

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What about our poor businesses and corporations?  I mean during the election the (misleading) statistic that America’s corporate tax rates are higher than any other industrialized country was thrown around left and right!  And some members of congress have continued to call for them to be lowered further.  As we can clearly see from the accompanying graph, corporate tax rates are also at near record lows.  Whether or not they need to be lowered further from here is a topic for another article.  But the fact that they’re already lower than they’ve been in 50 years should be enough to make tea-party organizers think twice.

It’s been surprisingly difficult for me to find information on what specifically  Obama’s proposed budget would do to corporate tax rates but it seems that it includes a mixture of focused tax breaks and closure of current tax loopholes and there is some uncertainty about how it will end up affecting the average corporation.  But any change in the average rate will be a matter of a few percent and won’t substantially change our position on the graph.

Taxes on the Rich

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Here we go!  Everyone knows Obama’s budget raises taxes on the rich right?  Its part of his socialistic plan for wealth redistribution!  Well this graph shows the top marginal personal income tax rate since 1913 according to the IRS.  And as you can see, the rich have had it relatively easy for the last several years.  The current marginal income tax rate for the rich lies at about 35% and Obama’s budget would move it to a little over 38%, which would be about equal with the 1997 levels on that graph.  And keep in mind we’re talking about the marginal rate.  So it’s only the income the wealthy receive that is above and beyond $250,000 that would be taxed at a higher rate.  Anything they make up to $250,000 would actually be taxed at a lower rate than it was before.  So their overall tax burden will increase by something less than 3%.  And these tax increases aren’t set to kick in until after 2011.

Wealth Redistribution

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A couple more charts and then I promise I’m done.  While we’re on the topic of wealth distribution and tax stratification, lets look at some of that data.  So when pundits and partisans throw around the word socialism in reference to Obama’s tax policies (they also use the term in reference to his spending policies but that’s another discussion) they’re talking about his lowering of the tax burden on the poor and his raising of the tax burden on the rich.  As we’ve already shown, the rich are getting a pretty paltry tax increase and even so, as this graph shows, our tax policies are flatter than they have been in decades.  The tax rates for nearly all households have been dropping since the 60s, but the rates of the richest have been dropping the fastest.

In fact they’ve been dropping so fast that when you take all sources of taxation into account our tax policies are already flat and bordering on regressive!

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When you count sales taxes (which are regressive) and all other kind of specialty taxes (most of which are also regressive), the bottom 20% of income earners in this country pay a larger percentage of their income in the form of taxes than anyone but the highest 20% of earners.  and even then its only 1% less!  So when we are starting with what we see here in this graph, a slight decrease in the tax rates of most and a slight increase in the rates of the rich will not result in a substantially imbalanced tax burden by any means.

So what backbreaking taxes are these tea-parties protesting exactly?  Taxes are at historic lows (some would say they’re irresponsibly low) for almost everybody and for 95% of America they’re set to go down further.  Corporate taxes are also near all time lows and our country’s tax burden is spread fairly evenly amongst all income groups.  The only group facing any kind of tax increases at all are individuals with an income of $250,000 and even then its not until 2011, its less than 3%, and their rate will still be much lower than its been for most of this century.  And furthermore that income bracket voted predominantly for Obama in the last election, knowing full well that increasing their income taxes was one of his campaign promises.  So if these tea parties are being organized to protest increasing taxes we can only assume they’re doing it on behalf of the rich, which seems odd in its own right, but even more so when you realize that most of the wealthy don’t actually want the help.

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Tags: anti-tax, Deficit, Income Tax, Poor, Protest, Rich, Sales Tax, tax protests, Taxes, Tea Parties, tea party, teabagging

This entry was posted on Thursday, April 9th, 2009 at 6:23 pmand is filed under Current Events, Political Principles, Politics. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

15 Responses to “Some Historical Perspective for Anti-Tax Tea-Party Protesters”

• Some Guy Says:
  April 10th, 2009 at 2:13 am

  Taxation is very high right now; you just don’t see it because they’re taxing us by debasing the currency, as tyrants have done since the first kings seized a monopoly on coinage.

  Since the Federal Reserve was created, the dollar has been debased over 90%. That robbery has just been greatly accelerated by the Bush/Paulson/Obama/Geithner program.

  Reply
• Ryan Says:
  April 10th, 2009 at 2:24 am

  I certainly understand the dangers of a devalued currency.  And I can see how someone could construe that as “robbery” of a kind.  But how does that mask a higher tax rate exactly?  I really want to know.

  Reply
• Ryan Says:
  April 11th, 2009 at 12:47 am

  Are you just referring to the idea that inflation causes us to essentially lose a percentage of our money every year?  If so then we’re still doing alot better than we were in the past.  As this graph shows:

  http://www.econedlink.org/lessons/images_lessons/685_figure21.gif

  It looks pretty similar to the tax rate graphs.  Inflation used to be much, much higher.  In fact, the warnings for this recession have all been about deflation rather than inflation, and it turns out the warnings may have been correct.  This table has detailed inflation rate information for the last 10 years (scroll down on that page):

  http://inflationdata.com/inflation/Inflation_Rate/HistoricalInflation.aspx?dsInflation_currentPage=0

  We can see that the inflation rate has been falling consistently for the last several months and the rate for February was 0.24%.  So if you want to add 0.24% onto the current income tax burden for a median family (6% giving us 6.24%) then add 13% percent to the tax rates in 1980 (12% giving us 25%) we’d have a more accurate depiction of overall “money loss” for the average person and it would only strengthen my argument.

  Unless I’m missing something (and I very well may be) it might be an even better time to be a taxpayer than I had previously thought.

  Reply
• PatriotGames Says:
  April 10th, 2009 at 2:19 am

  Seriously irresponsible.  You can’t be asking for both tax decreases and a decrease in the national debt.  Hello?!  Our stupidly demanding tax cuts is what is causing the national debt!

  Reply
• sobe Says:
  April 10th, 2009 at 6:15 am

  Republicons are just sticking with their failed economic policies.

  Reply
• December Says:
  June 1st, 2009 at 1:03 pm

  Here’s another perspective on taxes that you may not have thought of. Money equals times. Taxes equal your time spent away from your family working for the government. How fair is it to say that because someone makes more than you think they should that you should have the right to say that they have to spend more of their limited time working for the government. They will receive the least from those efforts because they “need” it less than those with less money. Do you think that it’s fair that people used to pay 90% of the money they worked for to the government? Is it fair that they had to spend 90% of their time working for the government instead of working for their family? Remember in the Book Of Mormon when it talked about 20% taxes being grievous? The Boston Tea Party was in response to non representation in tax matters and they were only taxed 15%. Why shouldn’t people be upset when the majority of people (who don’t pay Federal Income taxes anyway) can vote to make their taxes higher, to increase the amount of time they HAVE to work to fund the government? If you want to pay more, go ahead.
  You mention corporate taxes. Did you know that the only country with higher corporate taxes in Japan?
  Where are jobs being created? Over 80% of new jobs in the US are being created in states w/o income taxes. Ireland slashed its corporate tax rate and there job market is thriving while most of Europe is slumping.
  Speaking of Europe. England pays 61% taxes. Would you be okay paying 61% of your income to the government? If so, send them a check and let the rest of us keep our money and use our time to support our own family.

  Reply
• Ryan Says:
  June 1st, 2009 at 10:18 pm

  First off, I want to thank you for your comment. I had always envisioned this site as a place where people with differing perspectives could discuss these issues so I’m glad you’re willing to post your disagreements. My response here turned out to be pretty long but you covered a lot of ground in your comment and I have a hard time explaining my positions succinctly.

  First I probably need to explain the “highest income bracket tax rate” graph a little further. The rich never paid 90% of their income in taxes.  That was the highest marginal tax rate.  Meaning they paid 90% of their income over a certain amount in taxes to the government.  For example, their income above 1.5 million was taxed at a rate of 90% (that’s just a guess).  And secondly, as I tried to point out in the article, there are more sources of taxation than income taxes alone.  If we had a flat income tax rate, the poor would pay a higher percentage of their overall income in taxes each year, primarily because of sales tax.  Since the poor need to spend a larger portion of their income just to make ends meet (for example 1,000 per year of groceries is a larger percentage of a poor person’s yearly income than a rich persons) the poor end up paying a much larger percentage of their income to sales taxes.  So income taxes need to be higher for the rich to at least some degree just to balance out sales taxes and make sure the rich aren’t actually paying a smaller overall percentage.  And as the last graph in my article indicated, when all sources of taxation are taken into account, the poor actually pay more in taxes than everyone but the top 20% of Americans, and even then its pretty close.

  There are several other factors in play here too.  For example the rich are much more likely to get their income through capital gains (because of investments in real estate, stocks, companies, etc) which are taxed at a paltry 15%! Which is lower than the income tax on middle class Americans, so the tax on the traditional income of the rich should be higher to even out their rate.  Plus the rich can afford tax havens and fancy tax accountants while the poor cannot.  When you put all these things together, you can see why Warren Buffet (richest man in America) switched to the democratic party when he realized that he paid less in taxes each year than his secretary. He only paid 17.7% that year on his 46 million in income.  While his secretary paid 30% on her 60,000.   http://www.timesonline.co.uk/tol/money/tax/article1996735.ece so the idea that the rich are somehow paying so much more than the poor in our country seems to be a myth.

  But even if the rich did pay more in taxes than the poor (and they don’t) I think there is some very sound reasoning behind the idea of a progressive tax rate in general.  And as an aside the venerable Adam Smith, father of capitalism, agreed with me on that point: “It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion.”  http://www.adamsmith.org/smith/won-b5-c2-article-1-ss3.htm

  I think trying to make sure everyone pays an equal percent is kind of missing the point, its about equalizing the tax burden.  For example take someone whose making 24,000 per year verses someone whose making 2.4 million.  Say that poor person pays 10% of their income in taxes each year ($2,400) and the rich person pays 20% (480,000).  Who is going to feel the crunch from that more severely?  If you’re making 24,000 every dollar counts and losing 2,400 means less clothes for your kids at Christmas and more canned beans at dinner.  If you are making 2.4 milion per year, however, while 480,000 is a lot of money that still leaves you with an income of over 1.9 million dollars, and the difference in your lifestyle is negligible.  So the question is, is it fair that the poor have to sacrifice food and clothing to pay their taxes and support this country while the rich just see it as a blip on their income reports?  And keep in mind that the example above assumed that the rich paid literally twice as much as the poor in taxes, when in reality they pay 1% more if that.

  Its also about paying a fair price for what you have received.  The government provides services that help maintain a safe society and stable economy.  It can be argued that those who have benefited most from the society facilitated by our government deserve to pay more for its maintenance.  They have received more, so they pay more.  I’ll acknowledge that the issue of whether or not the rich have actually received more from society is certainly debatable, and is a topic large enough for its own discussion, but it seems quite valid to me.

  And the statistics you cite about corporate taxes are very different from those that I’ve found.  I think there’s a lot of misunderstanding about how US taxes corporate tax rates compare to those in other countries.  Our corporations are taxed on profits only.  Meaning they make their money, pay all their expenses (including employee salaries) and are taxed only on what’s left over after all of that.  If only income taxes worked that way right?  So many corporations pay very very little in taxes as a percent of their income.  Not all countries operate that same way so “corporate tax rates” aren’t always comparable.

  And as far as the Boston Tea Party goes, my understanding is that their revolt was not about the fact that their taxes were too high, but that new taxes were being imposed on them despite the fact that they did not have a representative in the British parliament (thus their battle cry of “no taxation without representation”).  It seems to me it was really more of an issue of political philosophy than taxes.

  As for the Book of Mormon I wonder if you’re not combining two separate verses. As far as I can tell the 20% tax was put in place by King Noah (Mosiah 11:8). And of course we all know King Noah was wicked for a multitude of reasons and it is highlighted that he wasted that money on himself and his concubines but the degree of the tax burden he placed on the people isn’t really talked about that I can find. The taxes that were “grevious to be born” were those talked about in Mosiah 7:22-23 and Mosiah 19:22 wherein the Nephites were enslaved by the Lamanites and required to pay one half of their income to their captors. And really even in this, it seems to me that he’s saying that their whole situation (being enslaved, the 50% tax, etc) its what’s “grievous to be born, not the taxes exclusively. So I’m not sure the Book of Mormon gives us a lot of information on taxation.

  And finally, I’m not sure that “most voters don’t pay income taxes”.  And once again, there are several different forms of taxation so everybody (even the homeless!) does pay some taxes.  And either way, the rich tend to vote for politicians that advocate a more progressive tax rate, which would indicate that its not really an instance of higher taxes being imposed on them by the poor, so much as it is them wanting to contribute more.  I personally do feel like I’m not paying enough in taxes and I would be happy to pay more, but the government doesn’t have a mechanism for paying extra.

  Of course its all moot since Obama and congress have chosen to lower taxes for everyone.  There is only a small percentage of Americans who will see their taxes rise by less than 3% a few years in the future.  I hope that changes in the future and I, and others, are allowed to pay our share. Once again its about paying a fair price for what we receive.  Our government provides a lot, not just in roads, schools, police protection, etc, but also a foundation for a safe and stable society.  I definitely think that’s worth paying for.

  Reply
• December Says:
  June 2nd, 2009 at 9:29 am

  it still amazes me at how quickly people are to vote to take money out of other people’s hands. i know how taxes work, i worked 2 years in a tax office. i’ve seen thousands of actual returns and how much some people pay and how little others pay. have you ever seen a family open their return and see that they unexpectedly owe $15,000? And that is due to capitial gains and penalties so that they could send a child to college? How about $150,000? I have.
  no one says the system is perfect. how many pages of tax law is there? 60,000? 70,000? When the politician can pick winners and losers through deductions and write offs and credits, etc it’ll never be equal. and they do pick winners and losers.
  Despite all your arguments against many of my points, you fail to address the main point. Taxes = peoples’ time, their limited time. You are so quick to justify why you have the right to deprive people of their time, just because you think they make too much. Wait until you are working, trying to support a family, make a mortgage payment, pay tithing, actually keep up with necessary home repairs, and plan for missions/college and then we can talk about how much taxes you want to pay. It’s a little different on this side of the fence. Then we can talk about the hours you have to put into working which go to paying the governments’ bill, NOT YOURS and then you’ll see why some people are saying they are Taxed Enough Already (hence T.E.A. party) maybe you never saw that.
  You can pay your share, send them a check. THe governement NEVER turns down proferred money. It will keep that money till you ask for it back. So don’t ask for it back.
  So many people want to spend other people’s money. It’s really sad.

  Reply
• Ryan Says:
  June 2nd, 2009 at 11:39 am

  Well, I didn’t address your main point in my last response because frankly I’m not sure what to say.  You seem to be saying that time is money and so because of taxes people are having to spend their time working for the government.  I agree with that observation.  I guess I just don’t know how that changes things.  Are you against all taxes?  Are you upset that people have to spend any time at all working “for the government”?  Or do you just feel like taxes are too high for what we get?  Because that’s a whole other debate.

  I also agree that the tax system is far too complex.  Of course how to reform that is a large topic that is probably better suited for a different conversation. One thing you’ve referenced a few times now that I don’t quite grasp is the idea that taxes go to pay the “government’s bills not yours”. I guess I’ve always thought of taxes as our bills for the government services we receive. For the roads we drive on, the police and firefighters that keep our cities safe, national and local parks, a public school system that allows all Americans an opportunity for education and self improvement, a monetary system that allows us to exchange goods and services and have something more than a barter-based local economy, a military that defends our borders and promotes our country’s interests, etc, etc. These are all things that we the people (through our representatives) have decided that we will pool our money to pay for. I mean that’s the whole principle behind a “representative democracy” isn’t it? Anyway, if you’d like to elaborate more on your views on this subject I’d be interested to hear them.

  As for your statement that I am “so quick to justify why you have the right to deprive people of their time, just because you think they make too much.”  That wasn’t the intent of my last post and perhaps I didn’t explain myself very clearly.  I don’t think that rich people “make too much” or that they should pay substantially more than other people in taxes.  I think that our current tax law creates a situation where the rich often pay less than everyone else.  Whether that’s happening or not is certainly debatable but if its true, surely we can all agree that that isn’t fair.  I also think that there is a strong logical and economic argument for the idea of the rich paying “something more than in [their] proportion” as Adam smith put it, because once again, I think the goal should be an equalized tax burden more than an equalized tax percentage.  So I don’t hate the rich or “think they make too much”.  If they worked hard to build their fortune then more power too them, I’m just advocating for a tax structure that is fair as best as I can deduce.  If you disagree with the arguments I posted in my first response I would be interested to hear your thoughts.

  As for the idea that I believe I have the “right to deprive other people of their time”.  I ask once again are you against all taxation?  Because as long as there is any taxation at all we will be “depriving other people of their time” and forcing them to “work for the government”.  I personally am not an anarchist (I used to be but that’s another story) so I believe that a well-structured government is best (and maybe necessary) for running a civil society.  And nearly all forms of government require some form of taxation.  So yes, I do believe that I, as a citizen of a democratic government, have some right to vote to “take away other people’s time” in the form of taxation for the common upkeep of our country.  In fact its a right granted to us in the constitution and is a right of all citizens of democracies everywhere.  Once again the argument that we don’t have that right (which you seem to imply) seems to be an argument against the very concept of taxation, not an argument that taxes should be lower.  Do you really oppose the principle of taxation?

  Anyway, thanks again for your response, I always love a good in-depth discussion about these kinds of things.  Though I hope we can keep the discussion free from contention, we are just discussing our fallible opinions after all.  Chances are we’re both wrong in some significant ways right?

  Reply
• Tax Lawyer Says:
  November 22nd, 2009 at 10:23 pm

  I’ve been interested in taxes for longer then I care to admit, both on the private side (all my working life!!) and from a legal point of view since satisfying the bar and following up on tax law. I’ve supplied a lot of advice and righted a lot of wrongs, and I must say that what you’ve put up makes perfect sense. Please uphold the good work – the more people know the better they’ll be outfitted to cope with the tax man, and that’s what it’s all about.

  Reply
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  April 9th, 2010 at 12:15 pm

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  Reply
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  Reply
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  Reply
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