USA Today created a stir last week with a headline that raised eyebrows across the blogosphere: “Tax bills in 2009 at lowest level since 1950,” the paper trumpeted.
“Amid complaints about high taxes and calls for smaller government, Americans paid their lowest level of taxes last year since Harry Truman’s presidency,” the paper reported.
“Federal, state and local taxes — including income, property, sales and other taxes — consumed 9.2 percent of all personal income in 2009, the lowest rate since 1950, the Bureau of Economic Analysis reports.”
That was “far below” the historic average of 12 percent for the last half-century, according to USA today.
“The idea that taxes are high right now is pretty much nuts,” said an economist at a liberal think tank, a quote which probably drew a “nuts-to-you” response from millions of working Americans.
While it would be nice to think we are all paying less tax to our federal government, the reality is quite different.
In 2010, about half of all Americans — 47 percent — will pay no federal income tax at all. Their incomes were below certain thresholds which gave them enough credits, deductions and exemptions to eliminate their tax obligations.
Those credits have grown to the point that a family of four making as much as $50,000 per year will owe no federal income tax for 2009, according to the Tax Policy Center, a conservative think tank.
So, when the people who pay no federal income tax are combined with the people who do, the “average rate” touted by USA Today quickly slips.
But that’s only half of the true picture.
All working Americans, whether they pay federal income tax or not — are subject to payroll taxes, and those rates would probably wipe the jaunty smile off old Harry Truman’s face. Those taxes include Social Security, Medicare and unemployment compensation.
For most workers, these payroll deductions now exceed their federal income tax obligation.
In 1937, the Social Security tax rate was 2 percent of all wages. By 1966 it had grown to 7.7 percent.
That year, Medicare was introduced with a .7 percent tax.
Today, the Social Security tax is 12.4 percent (half paid by the employee and half by the employer) and the Medicare tax is 2.9 percent on the first $106,800 earned.
Now, here’s the truly eye-opening part — it’s not nearly enough.
The federal government will run a $1.6 trillion deficit this year. Social Security expenditures will exceed collections for the first time in 2010, and Medicare already relies on general fund support.
So, the actual situation is not only different than the rosy report from USA Today, it would be far worse if we were actually paying for our current levels of spending.
And that, when you think about it, is truly “nuts.”