USA Today Lies to Promote the Idea that we are Under Taxed

In a pathetic USA Today article, which cites no specific source – only saying that the information comes from the BEA – they argue that federal, state, and local taxes consumed 9.2% of personal income in 2009. This is an out and out lie, and the USA Today readers deserve an apology. The purpose of this article is to make anybody who complains about tax rates to appear uninformed and foolish, a prime goal of the MFM.

Fair warning, from this point forward, there will be math. That number comes from Table 2.1 Personal Income and its Disposition. They calculated the 9.2% tax rate by dividing the personal current taxes line by the personal income line. This ignores two huge taxes that consume a gigantic proportion of the tax paid in the US. The first is taxes paid by businesses, either during production or taxes paid on profits. The second is taxes used to make transfer payments.

Many liberals will argue that taxes such as Social Security and Medicare are not taxes but are rather insurance that is taken out of your income now to return to you in old age. I will ignore the insolvency of Social Security, except to mention that the odds that I will ever see a dime back from my Social Security payments are so slim as to be farcical. This argument ignores the fact that FDR’s own Justice Department lawyers argued before the Supreme Court that it was not in fact an insurance program (which would rightly be unconstitutional) but was instead a direct tax to be paid by the young to the old.

Statists will further argue that taxes on corporations are not the same as taxes on individuals. First, this ignores the fact that much of the taxes paid by businesses in production and on profits are paid by small businesses, which are in fact individuals. Further they seem to think that businesses are something other than entities made up of individuals. The taxes paid by businesses are shared between the business and the customers. The portion of taxes that are passed off on consumers represent a hidden tax on consumers, while the tax born by the business is felt by the employees in the form of lower wages. In all cases, the tax is felt by individuals eventually, so in the end a tax on business is a tax on individuals.

To illustrate why it is asinine to say that transfer payments should not count as a tax, consider the following example: In a country, the top 25 percent of income earners are taxed at a 90 percent rate above a certain percentage of income. That tax is then redistributed evenly to the bottom 50 percent of income earners. Under the accounting used by USA Today, this country would have 0% of personal income being paid as taxes, which is plainly false.

To calculate the true amount of taxes that are collected by our government we must turn to a different source on the BEA website: Table 3.1 Government Current Receipts and Expenditures. This table shows the true level of taxation in this country. When the true level of taxes is considered, the tax comes to 21.5% of personal income excluding income transfers. When you include income transfer taxes, that number becomes 31.1% of personal income.

While I am not a Tea-Partier myself, I am sympathetic to their cause. This level of dishonesty by the MFM cannot be tolerated.

Finally, they cite the reduction in personal tax payments as if it is due to some kind of tax cut by the Obama regime. This is plainly not the case. The reason that taxes are reduced is because the tax structure itself has a built in mechanism to reduce taxes as personal incomes are lowered. At lower incomes, the tax rate paid is lower. So when the income of the entire nation decreases, the tax paid will automatically decrease. While this is a good mechanism that prevents higher taxes from exacerbating a recession, it is certainly not something to be happy about. They are, in effect, celebrating the fact that the Great Recession has reduced the country's income. Happy days are here again!

IMPORTANT UPDATE: Upon closer inspection of the composition of personal income, it seems that transfer payments received are counted as part of income. Thus if you want to determine the tax that is taken out of actual earned and capital income (wages + profits + rental income + capital gains), the total personal income is $9,081 Billion. Therefore the overall tax rate excluding transfer payments is 28.5% and including transfer payments is 41.2%. “The idea that taxes are high right now is pretty much nuts”. Bullshit.