Tax links

Chart of the day: U.S. taxes:

This chart should be ingrained in the mind of anybody who cares about fiscal policy. The main things to note:

Federal taxes are the lowest in 60 years, which gives you a pretty good idea of why America’s long-term debt ratios are a big problem. If the taxes reverted to somewhere near their historical mean, the problem would be solved at a stroke.

Income taxes, in particular, both personal and corporate, are low and falling. That trend is not sustainable.

Employment taxes, by contrast—the regressive bit of the fiscal structure—are bearing a large and increasing share of the brunt. Any time that somebody starts complaining about how the poor don’t pay income tax, point them to this chart. Income taxes are just one part of the pie, and everybody with a job pays employment taxes.

There aren’t any wealth taxes, but the closest thing we’ve got—estate and gift taxes—have shrunk to zero, after contributing a non-negligible amount to the public fisc in earlier decades.

If you were structuring a tax code from scratch, it would look nothing like this. But the problem is that tax hikes seem to be politically impossible no matter which party is in power. And since any revamp of the tax code would involve tax hikes somewhere, I fear we’re fiscally doomed.

In Tax Cuts, the Options Run Short:

The country, as you’ve no doubt heard, is facing a huge budget deficit. To reduce the deficit to a level economists consider sustainable, Washington needs to find about $400 billion in annual tax revenue and spending cuts by 2015. A millionaire’s tax would be a good start, producing about $30 billion a year. By comparison, Mr. Obama’s plan to freeze federal workers’ pay would save about $5 billion a year.

A millionaire’s tax would also fall on an income group that, by almost any definition, can best handle a tax increase. Since 1980, pretax income for households making at least $1 million has more than tripled, after adjusting for inflation. Pretax income for households in the dead middle of the income distribution, making roughly $50,000, has risen just 13 percent.

At the same time, the wealthy have received a much bigger tax cut over the last three decades than any other group. The total federal tax rate on households making more than $1 million — including the income tax, the payroll tax and others — was above 50 percent in 1980. In recent years, it has been about 33 percent.

Finally, a millionaire’s tax would make a distinction between the 400,000th dollar of income and the 40 millionth dollar. Today, the government taxes those dollars at the same rate, which is hard to justify in a country with a progressive tax system and high inequality. Until the 1970s, the highest tax bracket began at more than $1 million a year in today’s dollars.