Here's a claim that America has a de facto flat tax. News to me, but perhaps Ben Bateman or others can comment.
In a study for the National Bureau of Economic Research, Boston University economists Laurence J. Kotlikoff and David Rapson have found that our all-in marginal tax rate is 40%, give or take a bit. Yes, you read that right: 40%.Most workers will pay about that much on each dollar of income when all taxes -- federal and state income taxes, sales taxes, taxes for benefit programs, etc. -- are considered.
As a consequence, a 30-year-old couple earning only $20,000 a year has a marginal tax rate of 42.5%, while a 45-year-old couple earning $500,000 pays at 43.2%. There are some exceptions: A 30-year-old couple earning $50,000 a year, for instance, pays 24.4%, and a 60-year-old couple making $150,000 a year faces a tax rate of 47.7%.
The average marginal tax rate on incomes between $20,000 and $500,000 is 40.3%, the median tax rate is 41.8%, and the standard deviation of all of those rates is 5.3 percentage points. Basically, most of us pay about 40%, plus or minus 5.3 percentage points.
There's a table with a bit more data at the bottom of the article.
C. Northcote Parkinson was of the opinion that 36% was the absolute maximum a nation could withstand:
"So far it would seem that there are successive points at which evil results successively appear. With peacetime taxation amounting to over 10% of national income, capital will begin to migrate. If its flight is prevented, whether by circumstances or by legislation, taxes can rise to 20% but against a stiffening opposition carried to the utmost lengths of determination and skill. Above 20% each tax increase will produce proportionately less. Above 30% the decline in the national influence, observable long before to the expert, becomes obvious to the world at large. At 35% there is a visible decline in freedom and stability. At 36% there is disaster, complete and final though not always immediate. Taxation beyond that point, feasible and perhaps necessary in time of war, is lethal in time of peace. Of the taxation precipice, 36% represents the brink." [from The Law And The Profits]
The slow, steady upticks in taxation of all forms -- income, property, excise, sales, and chattel -- passed 36% some time ago. Indeed, you have to have a very clever accountant to keep your tax burden below 40%. Will the U.S. survive this with its entrepreneurial, achievement-oriented culture intact? We shall see.
The 40% figure sounds about right. While the income tax is progressive, employment taxes are regressive. So are sales taxes and property taxes, as the rich typically turn their excess income into investments rather than consumption or real estate. And while it's true that the rich will divert their excess income into investment vehicles that avoid or defer income tax, they also get hit with the estate tax, which can produce staggering tax bills.
It's all a very complicated calculation. Notably missing from the article is any mention of government benefits coming back to offset the taxes. Social security theoretically offsets at least some of the employment taxes that you pay. And low-income people get big money back from the IRS through the Earned Income Tax Credit.
And with the Democrat's universal health care intiatives and repeal of tax cuts, how much worse is the tax burden going to get? 45%? 50%?
FWP: Those numbers seem somewhat arbitrary to me... I'm all for low taxes, but calling 35% a "precipice" that brings "disaster, complete and final" doesn't sound right. "Precipice" implies immediacy, so if Parkinson doesn't mean that he should pick a different word. The decline in individuality and freedom appears pretty gradual to me.
BB: The methodology is certainly important, and omitted.