Responding to the exaggerated claims about taxes that surface around April 15th each year, the Oregon Center for Public Policy today urged Oregonians to use a critical eye on the inflated claims of anti-government activists. “Each year claims are made that taxes are too high and that they are rising even higher,” noted Jeff Thompson, economist with the OCPP. “Nothing could be further from the truth – taxes on middle income Oregonians are not very high and they are actually declining.”
Legislative Revenue Office’s Oregon Tax Incidence Model (PDF)
Recent analysis of taxes demonstrates that both the federal and the state and local tax burdens have declined in recent years.
A study by the Washington, DC-based Center on Budget and Policy Priorities released earlier this week shows that the federal tax burden of middle-income families is at the lowest point in many years. Families in the middle of the income distribution paid just 16.3 percent of their income for all federal taxes (including income, payroll, excise and other taxes) in 2001. This was the lowest level in the 22 years for which the data exist. Additionally, the typical four-person family with two dependents paid just 6.8 percent of its income in federal income taxes, the lowest rate since 1957.
A separate study, released earlier this year by the Oregon Center for Public Policy, showed that, as a share of income, state and local taxes in Oregon have also declined in recent years. According to Thompson, “For most of the last 20 years, taxes consumed a steady share of income in Oregon, a trend which changed downward in the mid-1990s.”.
Additional analysis by the Oregon Legislative Revenue Office shows that the total state and local tax burden on middle-income households is 10.8 percent.
The tax burden on middle-income families is considerably lower than suggested by anti-tax activists. “When read together, these two analyses suggest that middle-income Oregonians pay roughly 27 percent of their income for all federal, state, and local taxes,” said Thompson.
The public policy research center cautioned that studies claiming that the tax burden is higher or has been rising should be viewed critically.
One particular source used to dramatize the issue of taxes is the Washington, DC-based Tax Foundation. Tax Foundation figures, however, considerably overstate the tax burden for the typical taxpayer. For example, the Tax Foundation’s data include capital gains taxes, but not capital gains income, and count as “taxes” the rental payments that private parties make for use of government owned property.
“The chief deception,” according to Thompson, “is that the Tax Foundation tries to convince typical Americans that they share the tax burden of the very rich.” Because of progressive income taxes, the “average” tax payment is far larger than what most households face. Only those with very high incomes face the “average” tax burden as expressed by the Tax Foundation. In Oregon the typical taxpayer has an income tax burden that is about half the size of the “average” burden.
Anti-tax activists also rely on data showing total federal tax receipts as a share of Gross Domestic Product (GDP). Like the Tax Foundation’s numbers, this measure excludes capital gains income but counts capital gains taxes. For this and other reasons, Federal Reserve Board Chairman Alan Greenspan acknowledges, “you can’t use tax receipts over nominal GDP as a tax rate.”
Thompson calls claims that taxes now take a larger share of GDP than at any time in history, “hollow.” Total federal receipts, according to the Economic Report of the President, absorbed 19.6 percent of GDP in 2001, no different from levels seen in early 1980s, late 1960s, or mid-1940s.
The federal government’s share of GDP has remained about the same, cycling around 18 percent, for most of the last 55 years. “By pining away for days when taxes were lower than they are now, the anti-government activists reveal their desire for a society that we haven’t had since before World War II,” noted Thompson.
“The last time we had taxes considerably lower than current levels was the days of the Great Depression, back before the existence of the American middle class or strong military, and when masses of the elderly withered in poverty for lack of Social Security,” Thompson added.