U.S. Taxes Lowest Since 1950

Since THE story of the moment is the U.S. budgetary crisis I plan on exploring this story’s many angles until this issue is no longer a crisis.  Today I wanted to talk about the revenue-side of the U.S. budget deficit and total debt problem.  That’s right let’s talk about revenues, alias (those dreaded) taxes.

Right now Republicans are refusing to allow taxes to be raised to help resolve the budgetary problems of the United States.  So I went out to gather data to see if their position on taxes makes sense.

I am a big believer in primary data sources.  That is, data that is raw except for the method used in its gathering.  Put another way, I try and avoid other analyst’s manipulations of primary data because those analysts often have an agenda.

My first set of primary data comes courtesy of the U.S., non-partisan, Office of Management and Budget (OMB).  I went back to 1934, the first year of the Roosevelt administration and deep in the heart of the Great Depression which had begun in 1929.  The data we are going to look at are total taxes as a percentage of GDP.  Total taxes include personal income taxes, corporate income taxes, social security taxes, excise taxes, and everything else that you can imagine.  In the language of the OMB taxes are known as ‘receipts.’  Feel free to download the What My Intuition Tells Me Now U.S. Budgetary Data spreadsheet.

Where We Have Been?

On average, since 1934, total receipts as a percentage of GDP have averaged: 16.5%.  And folks, this is a fairly smooth data stream, as the standard deviation, σ, is a very low 3.8%.

However, I have to tell you that the data would be even more smooth if the data leading up to World War II are excluded.  The Japanese attacked Pearl Harbor on 7 December, 1941.  Clearly the war effort got ramped up then, starting roughly, in 1942.  Hopefully you agree with me that its okay to take a look at the data beginning with World War II.

So if we exclude the 8 years leading up to World War II when taxes as a percentage of GDP were just 6.3%, then the picture shifts a little bit.  In fact, the data get smoother.

Receipts as a percentage of GDP have averaged 17.7% starting in 1942, while the σ has been a very low 1.7%.

Where is the United States now with its tax situation?

Where We Are Now, Up to the End of 2010?

Right now receipts as a percentage of GDP are: 15.0%.

So that the partisan Republicans don’t have a conniption fit I am going to compare this to the non-modified data.  Taxes in the United States are currently 9.1% below the average since 1934, or 15.0% ÷ 16.5% – 1 = 9.1% .

But wait, there’s more!  Taxes in 2009 as a % of GDP were just 14.9%!  So taxes are much lower under Barack Obama than they have been under any Republican President since 1934.  That’s because in 1950 Harry Truman, a Democrat, was President and preceding him was another Democrat, Roosevelt.

In fact, under Republican godsend Ronald Reagan taxes as a percentage of GDP averaged 18.3%, or a full 18.3% ÷ 15.0% – 1 = 22.0% higher!  Under George Bush I, taxes were 18.1% of GDP.  Under Gerald Ford taxes were 17.6% of GDP.  Under Richard Nixon taxes were 18.3% of GDP.  Under Dwight Eisenhower, taxes were 17.5% of GDP.  And under George Bush II, taxes were 17.6% of GDP.

So the average tax burden as a % of total GDP under Republican presidents since 1934 has been 17.8%.  While under Democrats since 1934 it has been 16.2%.

I’ll let you draw you own conclusions about whether or not the Tea Party, and Republican refusal to raise taxes makes any sense.

If taxes were just raised to their historical average from their current 15.0% of GDP to 16.5% of GDP it would increase receipts by $215.7 billion.  Compare that to last year’s budget deficit of $1,293.5 billion and you would effectively wipe out 16.7% of the U.S. budget deficit from now going forward into the future.

In conclusion, taxes are the very lowest they have been in 61 years.  Further, they are lower now than they have been under any Republican president in the last 78 years.  So there is in fact room to raise taxes to help balance the U.S. fiscal budget and to reduce the accumulated U.S. debt.

Jason