Taxes: Are Taxes in the U.S. High or Low?

Historically, the term tax rate has meant the average or effective tax rate — that is, taxes as a share of income. The broadest measure of the tax rate is total federal revenues divided by the gross domestic product.

By this measure, federal taxes are at their lowest level in more than 60 years. The Congressional Budget Office estimated that federal taxes would consume just 14.8% of G.D.P. this year. The last year in which revenues were lower was 1950, according to the Office of Management and Budget.

Just last week, House Republicans released a new plan to reduce unemployment. Its principal provision would reduce the top statutory income tax rate on businesses and individuals to 25% from 35%. No evidence was offered for the Republican argument that cutting taxes for the well-to-do and big corporations would reduce unemployment; it was simply asserted as self-evident.

One would not know from the Republican document that corporate taxes are expected to raise just 1.3% of G.D.P. in revenue this year, about a third of what it was in the 1950s.

The G.O.P. says global competitiveness requires the United States to reduce its corporate tax rate. But the United States actually has the lowest corporate tax burden of any of the member nations of the Organization for Economic Cooperation and Development.

The many adjustments to income permitted by the tax code, plus alternative tax rates on the largest sources of income of the wealthy, explain why the average federal income tax rate on the 400 richest people in America was 18.11% in 2008, according to the Internal Revenue Service, down from 26.38% when these data were first calculated in 1992. Among the top 400, 7.5% had an average tax rate of less than 10%, 25% paid between 10 and 15%, and 28% paid between 15 and 20%.

For more, see Are Taxes in the U.S. High or Low? by Bruce Bartlett, May 31, 2011 at Economix.