01 October 2010

The Rate of Inflation of (perceived) Tax Rates

I had an epiphany the other day. People KNOW that taxes are too high but they don't know how high they are.

I think it would be fascinating to sponsor a study asking Americans two questions:

1. What do you think is the average tax rate for the US federal government? (What portion of the GDP is collected by the federal government as taxes?)
2. What do you think the average should be?

Simply judging from conversations with a few friends, they all are convinced that taxes are too high at their current rate of (estimates vary from 33% to 50%). They think that taxes should be closer to 18% to 30%.

Last year, federal tax receipts (for everything, including personal and corporate taxes) were about 14% of GDP. In recent decades, we've been at about 18%, give or take a couple of percentage points.

The right has infected public opinion in a variety of ways, but this matter of inflation in the perceived tax rate might be their greatest success. They've seemingly convinced the average person that taxes are about double what they are.

Oh, and one last thing. If we add in state and local taxes - everything from property taxes to sales and inheritance taxes, etc. - the average tax rate in the US is 27%.

Are taxes too high? Maybe. Looking around the Western world it seems me me that we're doing pretty well (Sweden is just under 50%; the OECD average is about 36%.) But if we're going to discuss tax rates it seems to me that the discussion should start with the facts, not some intentionally distorted perception of those facts.


Anonymous said...

What do you think your "fascinating study" would tell us? Why would your friends care about their taxes as a percentage of GDP? I'm sure your friends are referring to what they know they are personally getting stuck for. Some of them might be smart enough to know that for every additional dollar they would go out and earn, they will be stuck for over 60% of that dollar depending on where they live. Do you think that might dampen their enthusiasm a bit?

GDP? GDP (Y) is a sum of Consumption (C), Investment (I), Government Spending (G) and Net Exports.

So, what part of that is equivalent to your personal taxes? How are your questions meaningful? If the Gov't decides to double spending and inflate GDP, should we have to increase our personal income tax contributions proportionally to maintain your GDP to total tax collection ratio? If the gov't doubled your tax rate, but kept your GDP "average" the same, should we just shut up and pay the increase? In a couple of seconds you could probably figure out that our personal taxes could go through the roof while your "average" remains the same, so it's probably not a great metric.

What a fascinating study. I think you should invest some of your own hard earned money and sponsor it. I'm sure you could earn your investment back by selling the results.

Ron Davison said...

Of course ... it was wildly optimistic of me to conclude that supporters of Sarah Palin would be able to understand a point as complicated as percentage of GDP.

Damon said...

For every Palin there is a Pelosi.