Saturday, January 2, 2010

Taxes Ceiling and Floor

As we come into 2010, the telling statistics of the decade are that the Dow is almost exactly where it was ten years ago and the decade amounted to almost zero job growth. Yet at the same time, families earn less overall and are worth less overall, at the same time they are more vulnerable to economic crisis due in no small part to lack of security in terms of health care and health care costs. This is taking place at a time when, overall, America's tax burden is about as low as it has ever been, across the board.

And amid this, Sarah Palin told Greta Van Sustren last night that America needs to learn the lessons of Ronald Reagan and the Eighties by cutting personal taxes to free up the private sector to create wealth and easing corporate taxes so they won't export jobs. Sadly, Van Sustren completely ignored the opportunity to ask the reasonable but tough questions. For example, have Palin and Van Sustren forgotten that when Reagan cut taxes the marginal rate was 89%? Have they failed to notice that taxes are at historic lows? Are they not aware that the average American corporation pays no corporate taxes and those that do average about 5%, which is far below the countries that Palin thinks are taking American jobs. Do they not know that payroll is the primary expense of any company, and that is the reason they move and offshore jobs? Do they fail to note there is no specific identifiable link between taxes and job growth? Have they no knowledge of the impact of the oil embargo and the Fed's breaking of the inflation cycle? Are they really that ignorant, or just that partisan.

As a Burkean, fiscal conservative, I sympathize with many concerns about government spending and growth. However, the one thing I cannot cop to is outright ignorance of historical facts. There is both a ceiling and a floor to revenue for the government - that is the greatest lesson for current state budget crises. Thus, while I am still too disgruntled to be a Democrat, I will remain a recovering Republican.


steven said...

Corporations pay 5% of what, Michael?

mmazenko said...

In terms of corporate income tax, they pay about 5%, as opposed to the official "corporate income tax rate" of 35% that many in the GOP are fond of saying is the reason companies move offshore. The rate may be 35% but no pays that. It's the same thing for personal income tax. The top marginal rate may be 36%, but no one is paying that.

steven said...

I'm still not sure where you're coming up with 5%. 5% of what? Does that mean, for example, that if you have three corporations, one with $40,000 net taxable income paying a 15% tax on that income, and two other corporations that have no taxable income and, therefore, pay no income tax, this averages out to a 5% tax rate between the three? How do you come up with 5%?

mmazenko said...

The GAO reports that 90% of corporations of in this country pay no "corporate income tax." That is because they are able to "account" for taxable income in a way that they show no taxable income each year. However, the ones that do pay "on average" a rate of 5% of their taxable income. Obviously, some may pay 1% and some pay 10% but the average corporation pays taxes on 5% of its taxable income.

These stats are available through reports by the GAO.