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The Federal Tax Burden

Posted by: Michael Mandel on December 17

This chart has something for both Democrats and Republicans. It’s federal personal income taxes as a share of personal income (four quarter moving average).


If I was a Republican economist, I would point out that federal income tax revenues at the end of the 1990s rose to very high levels, in excess of 12% of personal income. That’s historically a signal for tax cuts.

If I was a Republican economist, I would also point out that tax revenues have bounced back since the Bush tax cuts. Federal personal income taxes were 9.9.% of personal income in the four quarters ending with 2007III. The average since 1960? 10%.

If I was a Democratic economist, I would point out that the Bush tax cuts drove federal income tax revenues to very low levels historically, just over 8% of personal income.

If I was a Democratic economist, I would also point out that if the economy is going into a slowdown, then we would expect tax revenues to fall, so this 10% may be the peak of the cycle.

Final note: If we average the past ten years, we get 10.1%. I think I see a pattern here.

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Reader Comments

Brandon W

December 17, 2007 01:35 PM

May I point out:

* Despite historically low revenues, the Bush Administration continued to raise spending at 7% annual clip.

* Because of the deficit spending, I'm going to wager a guess that - all else being equal - the tax rate needs to be around 14% of personal income to have a hope of paying off the national debts incurred through deficit spending anytime soon.

* Low taxes now + growing spending = higher taxes later + interest. Eventually we have to pay the piper for all this irresponsibility.

* Taxes could be much, much lower if the federal government would 1) stop invading other countries, 2) stop nation-building, 3) stop trying to regulate the economy, 4) stop trying to regulate society (war on drugs, etc.), 5) stop stealing money from people who produce to give to people that over-consume. Really, I could go on.


December 17, 2007 08:30 PM

...and if you were a financial economist maybe you'd point out that this chart just about perfectly tracks the rising or falling stock market. I guess short term and long term cap gains tax receipts have something to do with it.

Joe Cushing

December 18, 2007 10:52 AM

It would be interesting to see this chart next to a tax revenue chart.


December 19, 2007 04:26 PM

I think first you should see how income has changed over time - here's the data from the IRS for 1986 through 2005:

If anything, the overlapping portion of the chart here would suggest that the percentage would seem to track the fortunes of those tax filers in the Top 1% of adjusted gross income.


December 21, 2007 12:40 AM

Brendan W,

As usual, you start off reasonably, and then flame out in an emotional rant devoid of logic.

"the tax rate needs to be around 14% of personal income "

Why? The deficit is now just 1% of GDP, vs. an average of 2.3% over the last 30 years. That means it is actually below the average, you know.

"Stop invading other countries"

But the curve actually RISES from the March 2003 point. This is inconvenient for you. The military budget is actually smaller today than in the 80s, relative to GDP.

What about Clinton's invasions of Bosnia, Kosovo, Somalia, etc. and his bombing of Iraq twice? What about the War in Afghanistan (which leftists pretend to support)? It appears costs are a problem for you only when it conforms with your attempts to hold opinions that are fashionable, rather than logical.

Anyway, the Iraq War is just 3% of Federal expenditures. Your bias is quite shameful. Next you will blame Bush if it rains tomorrow.

Guess what - Bush like orange juice!! *gasp*. Now you will have to give that up too.

"5) stop stealing money from people who produce to give to people that over-consume. "

Yes, this is true. Of course, the Democrats are EVEN more prone to do this than Bush is. They actually will let the cap-gains tax cuts expire, which is a horrible strategy.

Brandon W

December 21, 2007 11:57 AM

You always assume that I agree with Clinton's actions. You seem to think I support them, and so you use it as a counterpoint. Your argument is always, "If Clinton can do it, so can Republicans!" That's, well, stupid. I don't agree with Clinton's invasions either. They were wrong and shouldn't have happened. I'm an independent libertarian, not a liberal or a political party suck-up... I don't give a rat's behind about the Democrats, and your attacks on them don't cause me one bit of angst. So give it up.

I don't care if government spending on the military is lower than in the 1980s (though, the numbers I have seen do NOT agree with your assessment). Either way, it's too high. THE END. We should not have US troops off of US soil; we should not be trying to nation-build. My opinion has nothing to do with what any Republican or Democrat says. Got it?

Don't even talk to me about Democrats until THEY are running the show. Right now, they control both houses of Congress and the best thing I can say for them is that they're not doing much. If/when they control the executive branch of government, I'll be right on their case just as much.

Do you get it yet? You are a Republican Party suck-up, and I think both major parties have their heads far, far, far up their backsides. It appears to me that your only way of defending your positions is by attacking me as a "liberal", a "Democrat", or a "Clinton-supporter". That's your entire tactic, and it's a dumb one because I am None of the Above.


January 4, 2008 11:44 AM

Kevin said:

"...I guess short term and long term cap gains tax receipts have something to do with it."

I'm not sure about that. Aren't capital gains counted as personal income? If so, they would show up in both the numerator (taxes paid on cap gains) and the denominator (personal income from cap gains). In other words, they should cancel each other out. There might be another stock market effect, where higher bracket taxpayers are affected more by the stock market than lower-income earners. Think Wall Street bonuses.

I think Ironman is onto something: The chart probably represents a combination of tax policy and the distribution of personal income between tax brackets. As a greater share of personal income goes to people in higher backets, more of it will be taxed...until a broad tax cut reduces tax rates across all income groups.


April 7, 2010 04:35 PM

Why are good Americans dissatisfied with their standard of living? Answer: Taxation/Big government
read on

Thank you for your interest. This blog is no longer active.



Michael Mandel, BW's award-winning chief economist, provides his unique perspective on the hot economic issues of the day. From globalization to the future of work to the ups and downs of the financial markets, Mandel-named 2006 economic journalist of the year by the World Leadership Forum-offers cutting edge analysis and commentary.

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