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Breaking News: Tax Revenues Plummeted
David Cay Johnston | Mar. 3, 2011 08:43 AM EST
We take you now to the official data for important news. Federal tax revenues in 2010 were much smaller than in 2000. Total individual income tax receipts fell 30 percent in real terms. Because the population kept growing, income taxes per capita plummeted.
Individual income taxes came to just $2,900 per capita in 2010, down 36 percent from more than $4,500 in 2000. Total income taxes and income taxes per capita declined even though the economy grew 16 percent overall and 6 percent per capita from 2000 through 2010.
Corporate income tax receipts fell 27 percent and declined 34 percent per capita, even though profits boomed, rising 60 percent.
Payroll taxes increased slightly overall, but slipped per capita because the nation's population grew five times faster than the number of people with any work. The average wage also declined slightly.
You read it here first. Lowered tax rates did not result in increased tax revenues as promised by politician after pundit after professional economist. And even though this harsh truth has been obvious from the official data for some time, the same politicians and pundits keep prevaricating. Some of them even say it is irrelevant that as a share of GDP, income tax revenues are at their lowest level since 1951, when Harry S. Truman was president.
No matter how many times advocates of lower tax rates said it, tax rate cuts did not pay for themselves, did not spur economic growth, did not increase jobs, and did not make America better off.
Now that the news has been broken, let's see how many political leaders start speaking facts instead of fairy tales. And let's also watch to see how many Washington reporters, news anchors, talk show guests, and syndicated columnists use the actual figures. It's called holding politicians accountable, and it used to be a mainstay of journalism, where the first rule is to check it out and the second is to cross-check until you know what is going on and can give context.
The tables accompanying this column should be easy enough to read and turn into graphics for television, newspapers, and magazines, not to mention all those blogs and digital journals.
So how soon will we see Washington journalists holding politicians accountable for what they say about taxes, tax rates, revenues, economic growth, and jobs?
Here's some advice: Don't hold your breath. Washington has become a city of ideological marketing, where those who would note that the emperors have no facts are unwelcome in their own newsrooms. It is a city where access matters most and those who ask tough questions don't get access.
Just as real Mad Men persuaded millions of men to put that greasy Brylcreem™ in their hair and convinced many more that cigarettes make you healthier, pure nonsense about tax cuts spurring growth and paying for themselves gets repeated and replayed and regurgitated as if it had some basis in reality. But Washington is the marketplace of ideas and governance, not the marketplace of products. Lies about taxes sold by people with no regard for facts are at least as dangerous to our society as cigarettes are to smokers.
Consider this nonsense from the syndicated column by Thomas Sowell, who holds the Rose and Milton Friedman chair at the Hoover Institution. Sowell at least hedged a bit when he applied the word "often," writing in December:
High tax rates on paper, that many people avoid, often does not bring in as much tax revenue as lower tax rates that more people actually pay, after it is safe to come out of tax shelters and earn higher rates of taxable income.1
But two months later, this former UCLA economics professor seems to have made up his facts, writing in his February column that "in each case, going back to the '20s, the reduced tax rates have led to increased tax revenues for the government."2
Table 1. America, We Have a Revenue Problem
Table 1.pdf
Sources: Medicare tax database, Census.gov.
On the radio and television, I hear this sort of falsehood posing as fact all the time, sometimes by people who cite Sowell. It was true in the century past, and for limited times, that tax rate cuts were followed by more economic growth and increased revenues.
But that has not been true in this century. And some tax increases have been followed by economic growth, a fact Sowell neglected to mention. Over time, as the facts have mounted, the leaders of the "tax cuts good, taxes bad" school have started moving from the unsupportable to the cleverly worded. Consider this quite typical 2003 report from Daniel J. Mitchell, then at the Heritage Foundation and now at the Cato Institute:
There is a distinct pattern throughout American history: When tax rates are reduced, the economy's growth rate improves and living standards increase. Good tax policy has a number of interesting side effects. For instance, history tells us that tax revenues grow and "rich" taxpayers pay more tax when marginal tax rates are slashed. This means lower income citizens bear a lower share of the tax burden -- a consequence that should lead class-warfare politicians to support lower tax rates.
Conversely, periods of higher tax rates are associated with sub par economic performance and stagnant tax revenues. In other words, when politicians attempt to "soak the rich," the rest of us take a bath. Examining the three major United States episodes of tax rate reductions can prove useful lessons.3
One of the best measures of who is worth listening to is whether their ideas stand the test of time. Reality has not been kind to Mitchell's views, making hash of his words in just a few years. Yet instead of recognizing reality, Mitchell has gone even further into fantasyland. Recently he mused favorably in The Philadelphia Inquirer about a federal budget of $450 billion, nearly 90 percent smaller than now. The figure he cited favorably is far less than current spending just on defense (all in, more than $1 trillion annually), Medicare and Medicaid (almost $850 billion), or Social Security (more than $725 billion).4
I agree with Mitchell that we could do a lot to cut federal spending, but what Mitchell argues for is the equivalent of cutting off the body because it offends, and imagining that the head could survive the assault and go on to think with greater clarity once all those unnecessary parts had been shed.
Mitchell's tax ideas are great if you want a government with no money to track al-Qaida's money or under which our food-borne illness rate (now 21 times that of France) would make death by salmonella rank with cancer and heart disease in the mortality statistics. In Mitchell's ideal America, we would not have a cent for scientific research, a foundation of wealth creation in the future, as the governments of China, India, Korea, and most of the rest of the civilized world understand.
In 2007 and in the 2008 presidential campaign, Sen. John McCain, R-Ariz., repeatedly stressed: "The fact is, the tax cuts have dramatically increased revenues."
No, senator, they have not. The question is how can you not know that?
But sadly, McCain's statements are just tired illustrations of a serious problem. In Washington the principles of advertising -- make it simple, make it attractive, and say it over and over again until the jingle is embedded in millions of minds -- have supplanted the rhetoric and reasoned compromises of the Framers. War is peace. French fries are healthy. Lower tax rates mean more revenue.
More at link: http://www.tax.com/taxcom/taxblog.nsf/Permalink/UBEN-8EL2Y8?OpenDocument
So we know which side of the Laffer curve we're on now for those folks who like to point to that for their low tax mantra, and it pulls the rug out of the lower taxes equals economic growth folks as well. Not theory, not ideology, but empirical data. Not that I expect that to change minds, but there it is.
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