By one measure, federal taxes lowest since 1950

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By STEPHEN OHLEMACHER
The Associated Press
Monday, February 7, 2011; 2:07 PM

Taxes too high?

Actually, as a share of the nation's economy, Uncle Sam's take this year will be the lowest since 1950, when the Korean War was just getting under way.

And for the third straight year, American families and businesses will pay less in federal taxes than they did under former President George W. Bush, thanks to a weak economy and a growing number of tax breaks for the wealthy and poor alike.

Income tax payments this year will be nearly 13 percent lower than they were in 2008, the last full year of the Bush presidency. Corporate taxes will be lower by a third, according to projections by the nonpartisan Congressional Budget Office.

The poor economy is largely to blame, with corporate profits down and unemployment up. But so is a tax code that grows each year with new deductions, credits and exemptions. The result is that families making as much as $50,000 can avoid paying federal income taxes, if they have at least two dependent children. Low-income families can actually make a profit from the income tax, and the wealthy can significantly cut their payments.

"The current state of the tax code is simply indefensible," says Sen. Kent Conrad, D-N.D., chairman of the Senate Budget Committee. "It is hemorrhaging revenue."

In the next few years, many can expect to pay more in taxes. Some increases were enacted as part of President Barack Obama's health care overhaul. And many states have raised taxes because - unlike the federal government - they have to balance their budgets each year. State tax receipts are projected to increase in all but seven states this year, according to the National Council of State Legislatures.

But in the third year of Obama's presidency, federal taxes are at historic lows. Tax receipts dropped sharply in 2009 as the economy sank into recession. They have since stabilized and are expected to grow by 3 percent this year. But federal tax revenues won't rebound to pre-recession levels until next year, according to CBO projections.

In the current budget year, federal tax receipts will be equal to 14.8 percent of the Gross Domestic Product, or GDP, the lowest level since Harry Truman was president. In Bush's last year in office, tax receipts were 17.5 percent of GDP, just below their 40-year average.

The lack of revenue, combined with big increases in spending, means the federal government will have to borrow 40 cents for every dollar it spends this year. The annual federal budget deficit is projected to reach a record $1.5 trillion.

Lawmakers from both political parties vow to tackle the nation's financial problems. Republicans in Congress promise big spending cuts, and Obama says he wants to reshape corporate taxes, closing loopholes to pay for lower overall rates. Few in Washington, however, are calling for big tax increases, at least in the short term.

"America's tax system is clearly broken," Donald Marron, a former economic adviser to Bush, told the Senate Budget Committee at a recent hearing. "It fails at its most basic task, which, lest we forget, is raising enough money to pay for the federal government."


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