Low tax America

Bruce Bartlett is one of the original supply siders. He worked in both the Reagan and first Bush Administrations as well as for Congressmen Jack Kemp and Ron Paul. He was involved in the drafting of the Kemp/Roth tax cut that in many ways started the tax cuts are the answer to whatever ails the American economy craze.

That is why his current views on taxes in America today are so important. In two must read New York Times Economix posts Bartlett lays out the facts that America is now a low tax country. As Bartlett writes in the first of the posts: … federal taxes are at their lowest level in more than 60 years. The Congressional Budget Office estimated that federal taxes would consume just 14.8 percent of G.D.P. this year. The last year in which revenues were lower was 1950, according to the Office of Management and Budget. (The postwar annual average is about 18.5 percent of G.D.P.)

He further sets the record straight on corporate taxes. Conventional wisdom, driven by messaging from the right, is that America taxes its corporations more than any other advanced economy. Turns out to be completely wrong. As Barlett writes: 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.

The second post deals with marginal tax rates. The right, when it is convenient, argue that what matters is the marginal tax rate. Bartlett demonstrates that by historical standards marginal tax rates across the income spectrum (except for the working poor) are also historically low.

Bartlett’s bottom line: 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. 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.

Of course, the same story is true here in Michigan. The right is constantly telling us (and most of us now believe) that state taxes are way too high and that is the primary reason for Michigan’s lousy economy the last decade. But as we have written previously state taxes are way below where they were in 2000 when we had a terrific economy. If state taxes today took the same proportion of personal income as they did in 2000 taxes would be higher by more than $8 billion. And with the just enacted big business tax cut they are going even lower. Just as Bartlett says for the country it is true here:  There is no reason to believe that reducing them further will do anything to raise growth or reduce unemployment.

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