« "Shared Capitalism" | Main | Pessimism »

Tuesday, May 31, 2011

"Are Taxes in the U.S. High or Low?"

I've made this point several times, e.g. here, but given the misinformation out there about effective versus statutory corporate tax rates, it's certainly worth emphasizing again:

Are Taxes in the U.S. High or Low?, by Bruce Bartlett, Economix: ...[F]ederal taxes are at their lowest level in more than 60 years..., just 14.8 percent of GDP... The last year in which revenues were lower was 1950... Revenues averaged 18.2 percent of G.D.P. during Ronald Reagan’s administration...
In short,... the current level is unusually low and has been for some time. ... 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.

Just last week, House Republicans released a new plan to reduce unemployment. Its principal provision would reduce the top statutory income tax rate on businesses and individuals to 25 percent from 35 percent. No evidence was offered ... that cutting taxes for the well-to-do and big corporations would reduce unemployment...
The G.O.P. says global competitiveness requires the United States to reduce its corporate tax rate. But the United States actually has the lowest corporate tax burden of any of the member nations of the Organization for Economic Cooperation and Development. [graph] ...
[O]ne almost never hears that total revenues are at their lowest level in two or three generations as a share of GDP or that corporate tax revenues as a share of GDP are the lowest among all major countries. One hears only that the statutory corporate tax rate in the United States is high compared with other countries, which is true but not necessarily relevant. ...
The many adjustments ... permitted by the tax code ... explain why the average federal income tax rate on the 400 richest people in America was 18.11 percent in 2008,... down from 26.38 percent when these data were first calculated in 1992. Among the top 400, 7.5 percent had an average tax rate of less than 10 percent, 25 percent paid between 10 and 15 percent, and 28 percent paid between 15 and 20 percent.
The truth of the matter is that federal taxes in the United States are very low. There is no reason to believe that reducing them further will do anything to raise growth or reduce unemployment.

Or, conversely, that raising them will do anything to reduce growth or increase unemployment.

However, with that said, I'd be hesitant to raise any taxes during the recovery. I don't think raising taxes on the wealthy would have much if any effect on economic growth or employment, but given the unemployment crisis I don't see any reason to take chances. But I also see no reason at all to keep these taxes at historically low rates once the economy is on solid footing (and if you are worried about confidence eroding due to the deficit, put the plan into place now, and have it become effective once employment or some other economic indicator crosses a pre-determined threshold).

    Posted by on Tuesday, May 31, 2011 at 10:26 AM Permalink  Comments (62)

          


    Comments

    Feed You can follow this conversation by subscribing to the comment feed for this post.