Taxes and the Economy
Last Updated Thursday June 17, 2010 12:16 PM -0400

"If, from the more wretched parts of the old world, we look at those which are in an advanced stage of improvement, we still find the greedy hand of government thrusting itself into every corner and crevice of industry, and grasping the spoil of the multitude. Invention is continually exercised, to furnish new pretenses for revenues and taxation. It watches prosperity as its prey and permits none to escape without tribute." --Thomas Paine, Rights of Man, 1791

"A just security to property is not afforded by that government, under which unequal taxes oppress one species of property and reward another species." --James Madison Primary Author of the U.S. Constitution

The Big Deception" “I don’t think we force [taxation]. In fact, quite to the contrary. Our system of government is a voluntary tax system.” Harry Reid

"I place economy among the first and most important virtues, and public debt as the greatest of dangers to be feared. To preserve our independence, we must not let our rulers load us with perpetual debt. If we run into such debts, we must be taxed in our meat and drink, in our necessities and in our comforts, in our labor and in our amusements. If we can prevent the government from wasting the labor of the people, under the pretense of caring for them, they will be happy." Thomas Jefferson

"[T]hose who have never broken free from the mentality of tax-and-tax and spend-and-spend still think increasing taxes is the best way to solve America's problems. ... We need a tax policy that offers incentives for people to work, save, and invest -- all the things that will keep our economy growing and improve our well being. We need a basic tax reform that will permit us to bring everybody's tax rates down. ... Our country needs leadership that can see beyond the demands of the special interest groups and prepare America for a better tomorrow." --Ronald Reagan

Federal Income Taxes: Who Pays and How Much (pdf)
Americans for Tax Reform provides two tables.
 

Tax Facts 2010 – Part I Harris Sherline - Another year of tax season agony has begun, and it’s time to make my annual observations about taxation in America. Following are some random facts (in no particular order) about our income tax laws, who pays, who doesn’t, and the impacts our system of taxation has on the nation’s productivity:

• When the 16th Amendment to the Constitution established the federal income tax in 1913, the intent was to tax only the very rich. Rates began at 1% and increased to 7% for taxpayers with income in excess of $500,000. Less than 1% of the population paid any income tax at all, compared with almost 50% of taxpayers paying as much as 35% of their taxable income today.
• The federal tax code grew from 14 pages in 1913 to over 9,000 pages today, and it now requires some 66,000 pages to document all the IRS regulations and other source material.
• The Tax Foundation’s 2007 survey reported that 83 percent of Americans felt the income tax code was too complex. While the average American paid 32.4 percent of their income on taxes, they believed the total of federal, state and local taxes should not exceed 14.7 percent.
• It’s almost impossible to accurately comply with the federal tax law, no matter how honest and well-intentioned taxpayers may be. In 1998 there were 34 million civil penalties assessed by the IRS.
• Today, the top 5% of wage earners pay a little over 54% of total individual income taxes, while the top 10% pay about 60%, and the top 50% pay approximately 97%. Translation: Just half of all taxpayers pay almost 100% (96.54%) of all income taxes, while almost 50% pay no income taxes at all.
• The Internal Revenue Service (IRS) has approximately 94,000 employees (FTEs or full-time equivalents) and a total 2010 budget of $12.4 billion. ...more

I Don't Vote for Tax Hikers! - On both the federal and state level, governments are now facing the unpleasant prospect of having to pay the piper for years of irresponsible and wasteful spending. So what's the answer? If you believe many of the lawmakers that got us into this mess, the "solution" is to boost your taxes even higher. At NTU, we have a different answer: Don't Vote for Tax Hikers! We're launching a website called www.NoTaxHikers.org, where you can join your fellow citizens in pledging not to vote for politicians who seek to raise taxes. In return for signing up, we'll send you a FREE bumper sticker declaring, "I Don't Vote for Tax Hikers." You can display the sticker on your car or in your home as an eye-catching way of showing your fellow voters that you've had enough! No one should have to pay higher taxes to fix the mess politicians made.
 

Tax Day Update: A Day of Wasting and Losing Billions of Dollars If you want to know what a better system would look like, take a minute to calculate your taxes on our Flat Tax Calculator. You will see how easy and quick it would be if we had an income tax that was simpler, fairer and flatter. While some in Congress are pushing for the largest tax increase in U.S. history, others are putting forth better ideas. Rep. Bob Goodlatte (R-VA) has authored a bill called Scrap the Code (H.R. 510) that would create a pathway to fundamental tax reform by throwing out the current tax code abomination. “Scrap the Code” has long been a slogan of FreedomWorks and it is great to see serious legislative proposals being crafted to make it the law of the land. Rep. Goodlatte’s bill has 97 co-sponsors already and deserves your full support.

Tax-Filing Burdens Worsen, with Little Respite in Sight, Citizen Group's Annual Study Finds - Taxpayers continue to be buried under burdensome federal income tax regulations, according to the 362,000-member National Taxpayers Union's (NTU) 10th annual study of tax law complexity trends. Taxpayers using any of the 1040 tax form series will spend an average of 26.5 hours and $207 completing their returns this year, up from 25.4 hours and $185 three years ago. "American taxpayers are spending inordinate amounts of time and money navigating the nation's twisted Tax Code," NTU Senior Counselor and study author David Keating said. "Tax complexity probably will get worse before it gets any better, unless lawmakers start quantifying burdens (or, in the rare case, savings) for proposals that affect our tax laws."

08-31 Digest (To compare U.S. tax tables since the implementation of the federal income tax in 1913, see Tax History 1913-2008. The Patriot also offers a comparison between the FairTax, Income Tax and Flat Tax. For additional constitutional context, read “To secure these rights...” on The Bill of Rights and A “Living Constitution for a Dying Republic”. For additional resources, see The Patriot’s Topical Essays and Policy Papers page and our Historic Documents page.)

Of course, if history was taught instead of global warming, “We the sheeple” might once again become “We the people…” as it is not like we weren’t warned….

"We don't have a trillion-dollar debt because we haven't taxed enough; we have a trillion-dollar debt because we spend too much." -- Ronald Reagan

"Government does not solve problems; it subsidizes them." - President Ronald Reagan

Blessed are the young for they shall inherit the national debt. - Herbert Hoover

“I practice charity regularly. I believe in sharing. But when government takes our money by force and gives it to others, that’s not sharing.” - John Stossel

“A liberal is a man who will give away everything he doesn’t own.” Frank Dane

“A government which lays taxes on the people not required by urgent public necessity and sound public policy is not a protector of liberty, but an instrument of tyranny.” Calvin Coolidge

“In an era when our media and even our education system exalt emotions, while ignoring facts and logic, perhaps we should not be surprised that so many people explain economics by ‘greed.’ Today there are adults—including educated adults—who explain multimillion-dollar corporate executives’ salaries as being due to ‘greed.’ Think about it: I could become so greedy that I wanted a fortune twice the size of Bill Gates’s—but this greed would not increase my income by one cent. If you want to explain why some people have astronomical incomes, it cannot be simply because of their own desires—whether ‘greedy’ or not—but because of what other people are willing to pay them. The real question, then, is: Why do other people choose to pay corporate executives so much?... Every time oil prices shoot up, there are cries of ‘greed’ and demands by politicians for an investigation of collusion by Big Oil. There have been more than a dozen investigations of oil companies over the years, and none of them has turned up the collusion that is supposed to be responsible for high gas prices. Now that oil prices have dropped big time, does that mean that oil companies have lost their ‘greed’? Or could it all be supply and demand—a cause and effect explanation that seems to be harder for some people to understand than emotions like ‘greed’?” Thomas Sowell

The Original Intent Behind Good Government by Nancy Salvato August 8, 2005 - "For the first time in decades, and perhaps for the first time ever, the opportunity for meaningful tax reform is upon us. President Bush has impaneled the Presidential Advisory Panel on Tax Reform and they are currently taking testimony from financial experts, groups and organizations."

Federalist Digest 05-15 For most of American history, taxes were levied primarily on consumption, rather than income, and for good reason. In The Federalist Papers, Alexander Hamilton argued, "It is a signal advantage of taxes on articles of consumption that they contain in their own nature a security against excess." All that changed in 1913, however, when the central government started taxing income. At that time, federal taxes were equal to 3 percent of GDP and the entire tax code was two pages. Now taxes are in excess of 20 percent of GDP and the tax code is more than 46,000 pages (including 481 separate tax forms). Additionally, taxpayers will spend a cumulative 6.5 billion hours complying with that code, and due to its complexity, more than half of taxpayers will rely on "professional preparation," costing them more than $200 billion.

Patriot Post 06-16 Special Edition -- Income Redistribution Day (excerpts)

Please sign The Patriot's petition for a Balanced Budget Amendment.

The Patriot obtains research on taxation from many sources, but the best single source on taxation is The Heritage Foundation. Our colleague Dan Mitchell writes that politicians are "spending taxpayer money like drunken sailors," and "it's difficult to improve the tax code when government spending is growing three times faster than inflation." He has written a good essay on fixing the tax code.

About $8,000 on Social Security and Medicare; $4,700 on defense; $3,600 on programs for the poor; nearly $2,000 on interest payments: These are the major items on which the government will spend the $20,044 that it collects per household, on average. Is your family getting its money's worth for all that spending? See Brian Riedl's breakdown of where your taxes are being spent.

There are three other organizations which provide good data on tax issues. The National Taxpayers Union is dedicated to lower taxes, reduced spending, and the principles of rational and limited government. NTU is a primary advocate for a bipartisan Balanced Budget Amendment. Americans for Tax Reform opposes all tax increases as a matter of principle and advocates a tax system that is simpler, fairer, flatter and more visible. ATR has also sponsored the Taxpayer Protection Pledge (federal and state) since 1986. The Tax Foundation calculates Tax Freedom Day, noting that in 2006, Americans will work 77 days to afford their federal taxes and 39 more days to afford state and local taxes. That makes taxation a bigger financial burden than housing and household operation (62 days), health and medical care (52 days), food (30 days), transportation (30 days), recreation (22 days), or clothing and accessories (14 days).

"The collection of taxes which are not absolutely required, which do not beyond reasonable doubt contribute to the public welfare, is only a species of legalized larceny. The wise and correct course to follow in taxation is not to destroy those who have already secured success, but to create conditions under which everyone will have a better chance to be successful." —Calvin Coolidge

"The moment the idea is admitted into society that property is not as sacred as the laws of God, and that there is not a force of law and public justice to protect it, anarchy and tyranny commence. If 'Thou shalt not covet' and 'Thou shalt not steal' were not commandments of Heaven, they must be made inviolable precepts in every society before it can be civilized or made free." —John Adams

"Throughout most of American history, taxes were levied principally on consumption, rather than income... In the Federalist Papers, Alexander Hamilton had this to say, 'It is a signal advantage of taxes on articles of consumption that they contain in their own nature a security against excess... If duties are too high, they lessen the consumption; the collection is eluded; and the product to the Treasury is not so great as when they are confined within proper and moderate bounds.' Hamilton was thinking here about direct taxes on consumption, such as the sales taxes levied by most state governments. He was right in thinking that there is a limit to such taxes. Experience shows that general sales tax rates much above 10 percent are very hard to collect. They encourage smuggling, black markets, evasion, production for personal use, substitution for untaxed commodities and other activities that erode the tax base." Bruce Bartlett

President John F. Kennedy "Lower rates of taxation will stimulate economic activity and so raise the levels of personal and corporate income as to yield within a few years an increased -- not a reduced -- flow of revenues to the federal government. ... The present tax codes ... inhibit the mobility and formation of capital, add complexities and inequities which undermine the morale of the taxpayer, and make tax avoidance rather than market factors a prime consideration in too many economic decisions."

John F. Kennedy addressing the Economic Club of New York, 14 December 1962

"I know you share my conviction that proud as we are of its progress, this nation's economy can and must do even better than it has done in the last five years. Our choice, therefore, boils down to one of doing nothing and thereby risking a widening gap between our actual and potential growth... or taking action at the federal level to raise our entire economy to a new and higher level of business activity...

"The most direct and significant kind of federal action aiding economic growth is to make possible an increase in private consumption and investment demand—to cut the fetters which hold back private spending. In the past, this could be done... by increasing federal expenditures more rapidly than necessary—but such a course would soon demoralize both the government and our economy. If government is to retain the confidence of the people, it must not spend more than can be justified on grounds of national need or spent with maximum efficiency, and I shall say more on this in a moment.

"The final and best means of strengthening demand among consumers and business is to reduce the burden on private income and the deterrents to private initiative which are imposed by our present tax system—and this administration pledged itself last summer to an across-the-board, top to bottom cut in personal and corporate income taxes...

"I am not talking about a 'quickie' or temporary tax cut. Nor am I talking about giving the economy a mere shot in the arm, to ease some temporary complaint. I am talking about the accumulated evidence of the last five years that our present tax system... exerts too heavy a drag on growth in peacetime—that it siphons out of the private economy too large a share of personal and business purchasing power—that it reduces the financial incentives for personal effort, investment and risk taking.

"[We should reduce taxes] by a sufficiently early date and a sufficiently large amount to do the job required. Early action could give us extra leverage, added results and important insurance against recession. Too large a tax cut, of course, could result in inflation and insufficient future revenues—but the greater danger is a tax cut too little or too late to be effective.

"I do not underestimate the obstacles which the Congress will face in enacting such legislation. No one will be satisfied. Everyone will have his own approach, his own bill, his own reductions. A high order of restraint and determination will be required if the possible is not to wait on the perfect.

"This nation can afford to reduce taxes... but we cannot afford to do nothing. For on the strength of our free economy rests the hope of all free nations."

Thinking through tax rates by Bruce Bartlett (3/30/2005) As people work on their tax returns, they would do well to spend a couple of minutes before they finish calculating their tax rates. This is important information that may surprise many taxpayers and could affect routine decisions they make about their investments and lifestyles. The first calculation is simply the mean or average tax rate.  This is the tax you owe on line 62 of the 1040 form divided by the income figure on line 22.  (To be more accurate, you should also add income for tax-exempt bonds on line 8b.)

Thomas Jefferson:  "Would it not be better to simplify the system of taxation rather than to spread it over such a variety of subjects and pass through so many new hands."

"The multiplication of public offices, increase of expense beyond income, growth and entailment of a public debt, are indications soliciting the employment of the pruning knife."

James Madison: "I cannot undertake to lay my finger on that article of the Constitution which granted a right to Congress of expending, on objects of benevolence, the money of their constituents...."

Benjamin Franklin: When the people find they can vote themselves money, that will herald the end of the republic."

"Every time we talk about these taxes we get around to the idea of 'from each according to his capacity and to each according to his needs'. That's socialism. It's written into the Communist Manifesto. Maybe we ought to see that every person who gets a tax return receives a copy of the Communist Manifesto with it so he can see what's happening to him."  T. Coleman Andrews

"The power to tax involves the power to destroy."  Justice John Marshall

"What is the difference between a taxidermist and a tax collector? The taxidermist takes only your skin."  Mark Twain

"The income tax has made liars out of more Americans than golf." Will Rogers

"Government's view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it."  Ronald Reagan