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The rise of the tea party five years ago may have been among the most ironic developments in modern American political history. After all, the astroturf protesters who chanted "Taxed Enough Already" on Tax Day 2009 had just received the largest two-year tax cut ever, courtesy of the same Obama stimulus package they wrongly maligned. And by the next year, total federal tax revenue as a share of the U.S. economy plummeted to 15 percent, the lowest level since the Korean War.

Now on Tax Day 2014, Americans are still not taxed enough already (TEA) by Uncle Sam. Even with the economic recovery, higher rates on income and capital gains for upper-income Americans and the end of the temporary payroll tax holiday bringing in record revenues, federal taxes are still not covering what the Treasury needs for—and what Americans say they want from—the government.

Here's why.

As Jonathan Cohn documented, data from the Organization of Economic Cooperation and Development (OECD) show that "relative to other countries, tax rates in the U.S. are relatively low, even when you throw in local and state taxes and add them to federal levies." But even leaving international comparisons aside, effective federal tax rates are lower than they've been historically. In the Washington Post, Christopher Ingraham turned to the nonpartisan Congressional Budget Office (CBO) to show that "your taxes are really low, in one chart" (above).

But Ingraham's chart actually understates how much lower the tax burden has become. If you go back to 1960, as the New York Times' David Leonhardt did two years ago, it's clear that effective tax rates have spiraled down, especially for the very, very rich.

Continue reading about undertaxed America below.

That result should come as no surprise. The top marginal tax rate topped 90 percent when John F. Kennedy took the oath office. After one year of the Reagan Revolution, it was down to 28 percent. Even more important, capital gains rates remain below historical levels, creating (as the Washington Post reported back in 2011) perhaps the single greatest factor fueling America's record income inequality:

Leaving the income gap aside, Uncle Sam's annual take from all sources isn't big enough. According to the CBO, federal revenue as a percent of GDP will hover just above 18 percent for the next decade. While that is above the historical level of 17.4 percent dating back to 1974, it's well below the 20 percent level reached during the only five times Washington balanced its budget since 1969.

The spending side of the equation is just as important. Historically, Uncle Sam has spent the equivalent of 20.5 percent of GDP each year. Over the next five years, CBO reports, that figure will be 21.0 percent. Over the next decade, outlays will hit 21.5 percent (below Ronald Reagan's 1983 peak of 23 percent), but reflecting additional spending on Medicare, Social Security and interest on the national debt. In contrast, Paul Ryan's House GOP budget would spend only 18.1 percent.

The GOP's slash-and-burn budget isn't just well below the levels of the past four decades. With the federal deficit dropping again this year, it's certainly not necessary now. Oh, and one other thing. Americans don't want to cut government spending. In survey after survey, they identify only foreign aid, less than one percent of Uncle Sam's spending, as the one area they want cut. (Recent polling suggests that people are generally comfortable with the federal government's current tax bite.)

All of which means Americans need to generate more tax revenue, not less. Luckily, Americans are still not taxed enough already.

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Comment Preferences

  •  I'm taxed enough. (2+ / 0-)
    Recommended by:
    Peace Missile, John in Cleveland

    I'm not paranoid or anything. Everyone just thinks I am.

    by Jim Riggs on Tue Apr 15, 2014 at 11:09:08 AM PDT

  •  The federal tax rate might be non-oppressive (4+ / 0-)

    but local and state taxes tend to take quite the bite out of an average person's pocket, and are highly regressive to boot.

    And even at the federal level, taxes are spent rather unwisely if not downrightly nefariously (e.g., $1.2 trillion/year on the "security state).

    Thus, the premise of this diary is not likely to resonate very much * anywheres * . . . .

  •  Gallup (3+ / 0-)
    Recommended by:
    Jon Perr, VClib, OrganicChemist

    Gallup released a new poll Monday that found 52% of Americans feel taxes are too high, with 42% saying "about right". Only 3% feel they are too low.

    Here is a link to the poll, but looking at the breakout 37% of Democrats surveyed feel taxes are too high.

    If that much of our base thinks they are too high it is tough to see how we ever raise them appreciably going forward.

    Even if we took every dollar earned by the 1% it wouldn't balance the budget, and we are going to have to dip into a middle class that wants no part of tax increases going forward as budgetary pressures from the boomers retiring and likely increasing interest payments take a bigger chunk out of the budget.

    •  The Key for Democrats... (1+ / 0-)
      Recommended by:

      The key is to tie new tax revenues to specific investments.  In the future, the top two budget challenges will be (a) managing the growth of Medicare, the biggest driver of higher spending and (b) preventing the nondefense, discretionary budget (that is, everything outside of defense, Social Security, Medicare, Medicaid, interest on national debt) from its dangerous contraction as a percentage of GDP.

      So, Democrats might propose:

      1. Raising or eliminating the income cap on payroll taxes, which could make Social Security healthy for 75 years.

      2. Raising tax rates to help fund needed investments in 21st century infrastructure and education.

      3. Temporarily imposing a “war surtax” to help offset the $4 trillion in costs Afghanistan and Iraq have (and will) run up by 2020.

      4. Raise the tax on capital gains and dividends (or even eliminate the different treatment for capital versus earned income) to increase revenue and reduce income inequality.  Increasing the estate tax and lowering the estate value would also help deal with intergenerational wealth disparities.

    •  People would be willing to pay more (1+ / 0-)
      Recommended by:
      Jon Perr

      in taxes if they could see where it was going.
        For instance, single-payer health care.

      "The oppressors most powerful weapon is the mind of the oppressed." - Stephen Biko

      by gjohnsit on Tue Apr 15, 2014 at 12:54:48 PM PDT

      [ Parent ]

      •  I'm not so sure... (0+ / 0-)

        If you are talking about income taxes, the people who this would help most don't really pay that much in income taxes and probably would continue to not have to pay much. Those that do pay a hefty income tax probably already have a pretty good health care deal. Now if you mean that those that don't pay much tax would vote to tax those that do by a greater amount, I would certainly agree with you on that.

        Are you saying that lower-earning Americans who currently pay no income taxes would be willing to pay a 5 or 10% tax for single-payer? Even though that might be in their best interest, I don't know if that would go over either.

    •  I'd close loopholes, but not raise rates any more (0+ / 0-)
    •  We are split by income and party (1+ / 0-)
      Recommended by:
      Interestingly, no one is complaining more about the taxes they pay than the rich. Gallup published a new survey on Monday showing that more than half of Americans feel as though their taxes are too high — but only barely. Forty-two percent of Americans think that they're paying about the right amount.

      There's a significant split along party lines — one that has emerged since January 20, 2009. "[T]he pattern has changed from prior to Barack Obama's presidency," Gallup writes, "when Americans across partisan groups felt similarly about whether their taxes were too high." In 2006, the percentage of Democrats and Republicans who thought their taxes were too high were equivalent. Now, Republicans and independents are both far more likely to say they're too high, at about 58 percent each.

      But 61 percent of those making over $80,000 a year in income think taxes are too high. For those making between $30,000 and $80,000, a plurality think the level of taxes is about right.

      "I am not interested in picking up crumbs of compassion thrown from the table of someone who considers himself my master. I want the full menu of rights." (From "You Said a Mouthful" by Bishop Desmond Tutu - South African bishop & activist, b.1931)

      by FiredUpInCA on Tue Apr 15, 2014 at 01:08:10 PM PDT

      [ Parent ]

  •  Who ever says "please tax me more" (2+ / 0-)
    Recommended by:
    Jon Perr, thomask

    A funny thing happened in the not-so-great state of Arizona a few years ago - there was an optional "I want to pay additional income tax" option on the tax return.  Well, maybe I'm stupid, but I actually chose to pay more that year.  (No, please don't tell anyone - it is probably considered heresy in today's world.)

    Yes, I agree that our tax rates need to rise.  It's just fact.  Either the government needs to cut back even more or taxes need to rise.  And I don't know about you, but I think the past 10 years have been painful enough for many who need government support.  We all need to accept reality.

    (But this probably isn't something that will get a lot of positive press, and if it comes up at all in campaigns this year, it will hurt anyone associated with speaking the truth.)

    Understanding is limited by perspective. Perspective is limited by experience. America is a great place to live but it limits our ability to understand.

    by CindyV on Tue Apr 15, 2014 at 11:54:23 AM PDT

    •  Completely Agree... (1+ / 0-)
      Recommended by:

      ...that suggesting that taxes go up is a non-starter, at least for now.  

      The point of this diary was just to highlight that an entire movement claiming it wants to lower taxes is doing so:

      a) At a time when tax rates and tax revenue as a percent of GDP are far from historical highs

      b) At a time when few of its members will specify what they would cut to make lower taxes possible

    •  CindyV - there is a line on the federal IRS return (0+ / 0-)

      for those who would like to pay more.

      "let's talk about that"

      by VClib on Tue Apr 15, 2014 at 08:57:36 PM PDT

      [ Parent ]

  •  Raise capital gains taxes (0+ / 0-)

    The working class largely don't pay them anyway.

    "The oppressors most powerful weapon is the mind of the oppressed." - Stephen Biko

    by gjohnsit on Tue Apr 15, 2014 at 12:52:44 PM PDT

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