Tag Archives: value added tax

Federal Revenues: Recent History

The past 35 years or so have seen a persistent history with regard to federal tax revenues. Republicans, who have dominated the federal government for most of that time, have cut the taxes that fall more heavily on businesses and the wealthy, the personal and corporate income tax. And then following a fiscal disaster and soaring deficits, Democrats increased those same taxes. In the end the personal income tax ended up, as a percent of GDP, about where it was – at 8.1% of GDP in FY 2014 compared with 7.9% of GDP in FY 1978. While the corporate income tax ended up lower, at 1.9% of GDP compared with 2.6%. This is true even though profits account for a higher share of GDP today than they did in 1978, and work earnings at the top account for a much higher share of total earnings, factors that should have increased personal and corporate income tax revenues as a percent of GDP even with the exact same rules.

Payroll taxes, meanwhile, were substantially increased by the Republicans and never reduced, save for a special exemption in the Great Recession. These taxes fall exclusively on work income in the United States, and more heavily on the working and middle classes. The wealthy pay less, as a percent of their income, the retired do not pay at all and, with regard to international trade, work done in the United States is subject to the tax whereas goods imported from abroad are tax-free. The payroll tax burden increased from 5.3% of GDP in FY 1978 to 6.5% in FY 2001. Before falling to 5.9% in FY 2014, after the share of Americans working and average work income plunged in the Great Recession. Other federal revenues, such as excise taxes, estate taxes, and customs duties totaled 1.7% of GDP in FY 1978 and 1.6% of GDP in FY 2014, although the composition of this category has changed. These trends are discussed in more detail below.

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Taxes & Generational Equity: Federal Taxes in 2014

It has been one of my recurring themes that just two kinds of people have been getting richer in this country: the top executives who sit on each others’ boards and vote each other a rising share of private sector income, and unionized public employees (or at least older generations thereof in certain places) who benefitted from political deals to retroactively increase their already relatively rich retirement benefits. Everyone else has been getting poorer, working its way up the income and educational ladder since the mid-1970s. There are, in other words, the bonus rich and the years in retirement rich, the executive/financial class, the political/union class, and the serfs.

https://larrylittlefield.wordpress.com/2014/07/01/the-executivefinancial-class-the-politicalunion-class-and-the-serfs/

In general the executive/financial class has ruled the federal government, and the political/union class has ruled state and local governments in some places (including New York), over the past 30 or so years. This power is reflected in the tax code. At the federal level, however, these two classes have one thing in common. Relatively little of their income is in wages and salaries, which the federal government taxes twice. More of it is in the form of untaxed employer-provided benefits, pensions and other retirement income, and investment income taxed at a lower rate. For the serfs work earnings — wage income or self-employment income — is often all they get. The common view is that while state and local taxes are generally “regressive,” falling harder on those who earn and have less, federal taxes are “progressive,” falling harder on those who have and earn more. Based on the progressive federal income tax. That view, however, becomes less true once generational equity and the payroll tax are taken into account.

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