SHOW ME THE MONEY
Why We Pay Without A Whimper
Early American history was a conservative's nirvana: It was one long tax revolt.
The British imposed taxes on everything from molasses to tea, and Americans smuggled the molasses, tossed the tea into a harbor and reached for their muskets. Thomas Jefferson's incendiary Declaration of Independence listed King George III's basest transgressions; prominent among them was that he had "sent hither swarms of Officers to harass our people and eat out their substance." The descendants of those royal minions are now, of course, nestled in thousands of cubicles in Internal Revenue Service offices across the country.
Looking at that history, it's astonishing how low the taxes were. Talk about men being men. One historian estimated the combined burden of the infamous "Navigation Acts," for example, to be 1 percent of income. The other assorted taxes added up to about the same, making the total bite a measly 2 percent.
And that set off a war.
Today taxes eat up about 30 percent of income, a much heavier burden. And like our ancestors, we don't believe that our money is particularly well spent. A Washington Post-ABC News poll taken last April found that Americans believe that 51 cents of every tax dollar is wasted. But where's the outrage? Most of us don't even own muskets, and the few of us who have revolted against the IRS are settled safely behind bars, to popular acclaim.
Which makes the U.S. tax system, ugly as it is, something of a marvel. It raises revenue without raising a ruckus. A simpler and more efficient system would undeniably serve everyone better, but the current hodgepodge is so entrenched as to have become a political third rail, and attempts to reform it almost always fail or are gradually reversed. Witness Ronald Reagan's Tax Reform Act of 1986.
Like a finch in the Galapagos Islands, the tax code has gradually evolved in a manner that maximizes its chances for survival. So a natural history of our tax system provides an interesting mirror on ourselves and reveals some surprising facts.
Perhaps the most contentious question about taxes is: Who should pay them? Progressives argue that the government should use the tax code to redistribute income from the wealthiest to others, while economic conservatives worry that high taxes will slow the economy and hurt the poor.
To a large extent, the poor have been taken off the tax rolls altogether, reflecting the unanimous view of both conflicting political camps that government should not unduly stress the down and out. With the expansion of the Earned Income Tax Credit and child tax credit, for example, many poor people have negative federal taxes, often to an extent large enough to offset other taxes paid elsewhere, such as sales taxes. In 2004, a single mother with two children and an income of $14,000 had a total tax burden that was on net a subsidy of $1,127.33. Governments mailed her more money than she paid.
What about those who do pay taxes?
To analyze them more carefully, I turned to the U.S. Department of Labor's Consumer Expenditure Survey, which contains data on household expenditures, as well as on income and taxes for a large sample of Americans. Using it as a base, I calculated the average taxes paid (including federal and state income taxes, sales taxes, property taxes and federal payroll taxes) for typical families and compared that, for context, to the other things these families spent money on.
The accompanying chart contains the calculations for two scenarios -- a family of four with an income of $50,000, and a family of four with an income of $150,000. The chart shows the average total taxes paid and average expenditures for two years, 1983 and 2003 (the last year for which data are available). Looking first at the average American family with a $50,000 income, a couple of things jump out. First, even though the family has a relatively low income, the amount of money it paid in taxes at all levels was strikingly high in both years. In 1983, it paid 29 percent of income in taxes. In 2003, it paid 31 percent.