In just the past few weeks, both The Washington Post and the San Francisco Chronicle have run Page One stories on how low and reasonable the federal tax burden is today.
The headline of The Washington Post’s March 26 article proclaimed: “Federal tax level falls for most.” Then the article reassuringly said the middle class now enjoys a kind of tax holiday: “For all but the wealthiest Americans, the federal income tax burden has shrunk to the lowest level in four decades… . Most Americans will have to fork over less than 10 percent of their income to the federal government when they file federal income taxes.”
It was one of those headlines you read and then rub the eyes to make sure you’re not imagining things. Then you look at the date on the paper to make sure this isn’t some April Fools’ prank.
It turns out the story was more hoax than prank. The article partly was based on new data released by the nonpartisan Tax Foundation. That study found that in 1998 the tax burden dipped to 39 percent of average income, a slight reduction from the all-time high of 41.5 percent in 1996. Evidently, a 39 percent tax burden is cause for celebration.
In any case, the Tax Foundation report does not claim federal taxes are at bargain basement levels. It says the opposite: “Even after adjusting for inflation, recent prosperity has resulted in higher taxes. The $26,759 total tax burden that a median two-earner family paid in 1998 is the highest ever.”
This isn’t anywhere near the lowest tax burden in four decades. In 1958, taxes consumed 17.9 percent of the family budget. That is less than half the 39 percent we pay today. Moreover, the tax burden has risen for every income group except for those at the bottom of the income ladder who pay very little taxes these days.
Yes, it is true federal income taxes are down slightly from recent years. The explanation for that slight relief is that the Republican Congress passed a tax cut in 1997. But virtually every other federal, state and local tax is up. The headline “Federal tax level falls for most” was — to put it generously — false and misleading.
For most families today, income taxes are just a small slice of the tax problem. To focus exclusively on income taxes, which are falling slightly, when every other tax is soaring, is a bit like telling a victim of a mugging with a knife to his throat not to worry because his attacker doesn’t have a gun.
When I asked J.D. Foster, the president of the Tax Foundation, about The Post’s story, he said it was technically accurate with respect to federal income taxes. But then he added: “The Post simply ignored all of the data in our report that contradicted the claim that taxes are falling for families.”
At the federal level, about 2 out of every 3 American families now pay more in payroll taxes than in income taxes. The payroll tax is a killer because families pay 15 percent of their paychecks in FICA taxes on the very first dollar of income earned all the way up to $70,000. The payroll tax is really just a disguised income tax.
Economist Larry Kudlow and I have devised a tax burden measure we call the average effective federal tax burden on American workers. We take total combined federal income and payroll taxes paid and divide that number by total family income in the economy. This measure of family tax burdens provides a very different tax story than the fictions the media has been spoon-feeding us. The federal family tax burden has risen from 23 percent to 26.5 percent just since Bill Clinton has been president. And this level is not the lowest in 40 years; it is the highest.
The total of taxes collected from federal payroll and income taxes has almost tripled since the start of the Clinton era. Bill Clinton and now Al Gore talk ad nauseam about Republican tax cut schemes. Where are they?
The media also are claiming Americans don’t care much about the tax issue anymore and are not in the mood for tax cuts. But the evidence keeps rolling in that people do care a lot about trimming their tax bills - or at least not allowing them to grow larger. Last month Californians beat back a ballot measure funded by organized labor, teachers unions, and big business to roll back the famous Proposition 13 property tax relief measure. Voters rejected it despite the multimillion-dollar campaign by the pro-tax lobby and the daily cheerleading for it in the media.
Just a few months earlier, 58 percent of the voters in Washington state approved one of the most stringent anti-tax ballot measures (I-65) in the nation.
Engraved at the entrance of the Internal Revenue Service building in Washington is Oliver Wendell Holmes’ famous quote: “Taxes are the price we pay for a civilized society.” But Holmes had it wrong. Taxes are really the price we pay for tolerating a swollen, unproductive federal government.
Taxes are the fuel that drive big government. Hundreds of thousands of individuals and interest groups in and around Washington make their livelihood off the $1.95 trillion in bounty Uncle Sam collects from the rest of us this time of year. That’s why they are so fervently trying to convince us what a good deal we are getting.