Sunday, April 09, 2006

What is a fair tax rate? More Tax Foundation Study

The Tax Foundation’s annual survey, mentioned a couple of days ago, also contained this question:

Q650. What is the maximum percentage of a person's income that should go to taxes – that is, all taxes, state, federal, and local? Please enter a whole number amount only; do not enter a percent sign. If you are not sure, please give your best estimate.
'06 '05 Rate

0% 0% 100%
0% 0% 90% - 99%
0% 0% 80% - 89%
0% 0% 70% - 79%
0% 0% 60% - 69%
1% 2% 50% - 59%
1% 3% 40% - 49%
6% 7% 30% - 39%
22% 23% 20% - 29%
43% 41% 10% - 19%
24% 20% 1% - 9%
1% 3% 0%
15% 16% MEAN percentage

Source: Tax Foundation
This result is obviously a lot lower than what many folks are paying. Interestingly enough, the top rate that seems to get any support at all is under 30 percent – which is still below even the top federal rate.

The Tax Foundation reports that women actually chose lower tax rates than men. Singles generally chose higher rates than marrieds. And the group choosing the highest rates: those with post-graduate degrees, who weighed in at an average of 23 percent – about 8 percent above the mean. What explains the disparity? I would guess that this group includes many who benefit from government spending: whether directly through research grants, or indirectly through employment in the educational establishment. They realize that it takes money to feed that establishment, which would not be coming in if we spent only 15 percent.

I would venture to guess that most people have no idea about what percentage of their income goes to the government in the form of taxes. Our current system is diffused and taxes are levied on many different items without much attention from those paying them. (For example, do you know how much tax you paid to fill your gas tank? Federal taxes are 18.4 cents, and state taxes are added on top of that. In Nebraska, that is about 24 cents a gallon; 20 cents in Iowa. Thus, at current prices, we’re spending about 18 percent of the cost of this commodity in taxes; as prices go down, that percentage increases.)

At the federal level, our tax system contains so many exceptions, credits, deductions, phase-outs, and the like that you never really know how much it takes to pay your taxes until you get them prepared by April 15.

A more important question might be: if we paid only 15 percent of our income in taxes, would you accept the size of government that results?



Anonymous said...

"A more important question might be: if we paid only 15 percent of our income in taxes, would you accept the size of government that results?"

I wonder how much government would shrink if personal income taxes were reduced to only 15% across the board. With people having more money in their pocket to spend or invest wouldn't that raise corporate profits or raise stock prices resulting in more taxes coming in from these two sources? I personally think less time should be spent analyzing the tax rate and more spent on analyzing WHERE the tax money is spent by our government. Unlike now their should be a cap on how much of it can be spent internationally, thus keeping more of it in the U.S. which would in turn generate more tax revenue. What do you think?

Ed Morse said...

You are right that the effects of lower rates could generate more revenues over time. I'm not so favorably inclined to your international cap idea. Surely if security matters require international spending, we should spend accordingly. But as previously discussed in the blog, lots of people are distrustful of Congressional spending, and I take it that your suggestion reflects some of that distrust.