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Come with me, on a short journey through the history of taxation. No, really!
Our first stop is Bethlehem. “And it came to pass in those days, that there went out a decree from Caesar Augustus, that all the world should be taxed. … And all went to be taxed, every one into his own city. And Joseph also went up from Galilee, out of the city of Nazareth, into Judaea, unto the city of David, which is called Bethlehem; (because he was of the house and lineage of David:) To be taxed with Mary his espoused wife, being great with child.” (KJV: Luke 2: 1, 3, 4, 5) So, the parents of the Christ-child were just returning to Bethlehem because the emperor in far-away Rome wanted to tax his subjects based on their home-town.
Or perhaps we remember the story of Robin Hood, of 13th century English lore. He “robbed from the rich and gave to the poor.” In particular, he and his Merry Men stole from King John and the Sheriff of Nottingham and their men. Why did he rob them? Was it merely to redistribute the wealth of the idle rich to the needy poor? No, the legend is clear: the king and his cronies taxed the poor to pay for their wars and for their grand and gilded way of life. Robin Hood was outraged by the injustice of it all and he “robbed from the rich …” to restore their rightful wealth (such as it was for peasants) back to the poor.
Then there is, of course, “taxation without representation,” the battle cry of the American Revolution. British colonists living on the American continent eventually revolted over imperial “taxation without representation.” Americans rebelled against the imposition of taxes levied to pay for the crown’s wars, in America and elsewhere, and our fore-fathers would have none of it. The Boston Massacre. The Boston Tea Party. The Shot Heard Around the World. The Revolutionary War / The War of Independence. The Second Continental Congress. Common Sense. The Declaration of Independence. Valley Forge. Yorktown. The Articles of Confederation. And, finally, the making of the U.S. Constitution. And all because Americans would not allow a king and his ministers to tax them for the empire’s benefit without their consent.
So, there is taxation and there is taxation. Most of human history is the story of powerful governments, typically monarchies, oppressing their own subjects, taxation being a powerful mechanism of oppression. In modern times, in democracies, beginning with our nation, taxation is the way that we pay for the public services that we want (think: defense, police, fire-fighting, libraries, schools, national parks). As we are a government of the people, when we tax the people we tax ourselves, and we only assess taxes to pay for what we have elected to purchase (and the interest on our own national credit card balance). If this is oppression, it is a people oppressing itself.
Think about that! In a democracy, in a nation where the people rule themselves – a very recent phenomenon in world history – we elect representatives who make decisions on our behalf and they buy public goods and services on our behalf! But many Americans don’t see the necessary connection between what we as a nation want to buy (government services) and how we as a nation must pay for it (with taxes).
The Measure of the Beast
The federal government’s Fiscal Year (how an accountant defines a year, from the day that he opens his books for the year until the day that he closes them) is October 1st to September 30th. The federal Budget for the most recently completed Fiscal Year 2022 – ended September 30th 2022 – was $5.852 trillion. Federal taxes assessed for Fiscal Year 2022 were $4.437 trillion. The discrepancy ($5.852 trillion – $4.437 trillion) was $1,415 trillion, that year's federal Deficit. With a GDP of $24.256 trillion and a national population of 332 million, the per capita income was about $73,000 (this calculated figure is 10% higher than what you will find online; I do not know why), the per capita tax bill was $13,364 and the per capita deficit was $4,288. But the real measure of the Beast is the fraction of the GDP that goes to pay taxes and that measure is 18.29%. Keep this figure in mind for the rest of this essay.
Note: per capita figures, which are average figures, are way higher than the “average” American experience because large numbers distort “averages” (e.g., the average net worth of a roomful of 999 zero-net-worth homeless individuals and one Bill Gates is $50,000,000).
As of the moment of this writing, October 29th, 2022 at 9:45pm GMT, the National Debt of the United States of America stands at $31.245 trillion, which is $94,111 per person (332 million persons). Our average household (2.54 persons) portion of our public Debt ($239,000) is nearly 2/3 of the market value of the median (typical) American home. If this factoid does not disturb you, then this essay is not for you.
I won’t sit here pounding my computer keyboard and suggest to you that there is no inefficiency in federal government spending, no waste in federal government spending and no outright corruption (where some private individuals or corporations make out like bandits, because they are bandits) in federal government spending. But we are not as inefficient, not as wasteful and not as corrupt as many other nations. Which does not justify any of it! We do need better controls. Do I hear: regulation? And we need mandatory prison sentences for our thieves. But neither waste nor corruption justifies putting an end to government spending and government taxation. Or to eliminating an agency of the Executive branch. If you think that an entire agency of the federal government should be abolished, you need to make an argument that begins with understanding what the agency was chartered to perform in the first place.
At the moment (October 2022), here is how the federal government allocates its tax revenues. <still 2016>
Government
Service
|
% of
Tax Revenues
|
Social
Security
|
24%
|
Medicare,
Medicaid, CHIP, subsidies
|
25%
|
Defense
& internal security
|
16%
|
Other
safety net
|
10%
|
Interest
on debt
|
6%
|
Fed
retirees & vets
|
8%
|
Transportation
infra
|
2%
|
Education
|
3%
|
Science
& research
|
2%
|
Other
|
4%
|
If you (dear reader) believe that we could do without one or more of these categories of federal tax expenditure, consider that you live in a democracy and that you alone don’t have the final say how we spend our tax money. This allocation is how those 537 men and women who represent us in Washington, DC have decided to allocate our tax dollars. If you have a problem with this allocation, you are a citizen, make a noise with your own Congressman and Senators.
What is the Damage, Really?
From its beginning in 1913 until World War II, the IRS assessed individual Americans much less than 10% of their annual income to run the government and provide all its services. See this chart. At its height – 1945, the last year of the war – it assessed taxes at nearly 20% of GDP. Since then, its history has been pretty ragged, but always between 13% and 20% of GDP. From 2000 thru 2010, this %age has dropped from 19.69% to 14.45% under President Bush’s tax cuts (without a parallel reduction in government spending). Under President Obama, it has increased to 18.02% in 2015, still significantly under 20%. While this %age increased from 16.7% to 19.7% under Bill Clinton, we experienced at the same time the only budgetary surpluses (three of them) since 1969. When the amount that the IRS takes in annually does not meet its expenditures, we have deficits and a mounting National Debt. In general, it does no good to reduce the tax assessment if it results in a deficit, as that just adds to our national indebtedness (which will be our children’s burden if not ours).
OK, so how does what we pay in taxes compare with other countries?
How do we Compare to Everyone else?
This graph shows that we (at 27.1%) are slightly closer to the high end (France, 46.2%) than to the low end (Kuwait, 1.4%) of national income tax compared to other countries. But the only countries that are “First World” countries that assess their citizens at a lower rate than we do are: Taiwan, Hong Kong, Singapore, Australia and South Korea. This graph compares OECD (Organisation for Economic Co-Operation and Development) (aka "rich") countries with each other. In this comparison, the only countries assessing its citizens at a lower rate than us are Mexico, Colombia, Chile, Ireland, Costa Rica, and Turkey (based on 2020 data). So, unless you are willing to re-locate to a Third World country, you have nothing to bitch about when it comes to our nation’s federal tax rate.
So, while we bitch and moan about our burdensome taxes at the same time that we are burdened much less than any of our peers, what else can we look at to get an accurate sense of our situation?
How (Un)Happy Are We Anyway?
One indirect way to assess a nation’s “happiness” is to examine its suicide rate (obvious, right?). These graphs show that we are more suicidal than most countries and significantly more suicidal than our First World peers (sorry, you will have to examine the charts by yourself).
Another indirect way to assess a nation’s “happiness” is to examine its average life expectancy (obvious, right?). On one graph, we have the 35th longest life expectancy out of 184 countries. But once again, if you compare us with our First World peers, we don’t live very long. This site lists 5 sources for their data and once again, Americans live pretty long compared with all the countries in the world but we live shorter lives than our First World peers.
And all of our First World peers tax their citizens more heavily than we in the USA tax our citizens.
Believe it or not, there is a “Happiness Index” (actually, there are more than one) and the World Happiness Report web site publishes its findings annually. Here we fare pretty well, as we are the 16th best performer out of 146 countries. Although, once again, some higher tax countries are judged happier than we are. The World Happiness Report’s index is made up of: GDP per capita, social support, healthy life expectancy, freedom to make life choices, generosity, perceptions of corruption and dystopia (if you want further details, look at the report yourself, it's actually pretty interesting). Here is the absolute latest copy of the report.
<here>
I can hear an objection from some smart folks out there. “Every dollar of taxes you pay is an attack on your liberty, not necessarily on your happiness.” Well, this association of taxes and liberty (an inverse association, of course) is a core principle of libertarian thinking. So, who better to represent libertarian thinking than the Cato Institute (the Human Freedom Index) and the Heritage Foundation (Index of Economic Freedom). Finally, Wikipedia has an entry on State of the World Liberty Index which is an aggregate of four separate indices including the Cato and the Heritage indices. The Cato Index ranks the USA 23rd out of 159 countries in human freedom (but Ireland, Denmark, Canada, UK, Finland, Netherlands, Luxembourg, Austria, Germany, Norway, Sweden, Belgium, Portugal – and the Czech Republic, Lithuania, Poland, and Estonia – are higher on the list than the United States). In the Heritage Index, we come out #11 out of 166, really well (but beaten by Hong Kong, Singapore, New Zealand, Switzerland, Australia, Canada, Chile, Ireland, Estonia and the UK, an interesting mix of the Usual Suspects and a few outliers.
What can we make of all this data? One conclusion is crystal clear: even among libertarians, low taxes (compared to every other country, or compared to OECD <rich> countries) do not correlate with liberty.
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| This graphic is really about national Inequality but I thought it was neat, so... |
When some Congressmen try to raise the marginal income tax rate on top wage earners, the ATR (Grover Norquist’s Americans for Tax Reform) crowd screams “murder” as though everyone who hears them shout will automatically rise up to fight the tyranny the socialists want to impose on America. “You are stirring up class warfare by trying to redistribute wealth in this country.” But, in the history of taxation, there has never ever been a tax that did NOT redistribute wealth, every penny of it! And, until very recently, that wealth was always redistributed into the portfolios of the already rich and powerful. The only question that we should ask ourselves when we consider “redistribution” is: is this redistribution going to line the pockets of the already wealthy or will it help those most in need? It takes very little imagination to see the connection between severely reduced federal income tax rates on upper incomes and the relentless increase of the total wealth of the country concentrated into the hands of a few. The history of the past 35+ years is the history of redistribution of wealth from the poor and the middle class to the super-rich. The ATR has made mindless zombies out of those Congressmen who have signed their pledge never to vote to raise taxes, no matter how low taxes have gotten. Grover Norquist doesn’t care about the exploding National Debt or about fiscal responsibility. Or about the vast majority of Americans, either! And many otherwise sane libertarians have forgotten about the Debt and fiscal responsibility too. And shameful degrees of inequality too.
Coda
Justice of the Supreme Court Oliver Wendell Holmes, Jr famously said: “Taxes are the price we pay for a civilized society.” Amen!
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