You Won't Believe These Income Tax Facts!

They tell me that our wise leaders are presently working on a tax reform or cut, or something. So I thought I’d add a new Income Tax Analysis page to my site. The page has a chart showing the federal individual income tax and the corporate income tax going back to 1913. This is what it looks like, as percent of GDP, with individual in blue and corporate in red.

Do you see what I see? In the early days about half of the income tax was collected from corporations, but over the years the corporations have managed to keep reducing their share of the tax. Thanks, Congress. But then the game stopped, for the Reagan tax cuts of the 1980s kept the corporate share to 20 percent of the total take. Let’s take a look at that:

And it’s the same thing with the state income taxes. Yay lobbyists!

On the other hand, if you go back to the first chart, there seems to be a ceiling on the individual income tax. Whenever it gets above 8 percent of GDP then Congress comes in and cuts it. So that’s all right.

But here’s another thing. Given the sky-high tax rates, it’s amazing how little the taxes rise. Total personal income in the U.S. is $16 trillion, and the top rate is just under 40 percent; yet the personal income tax at $1.9 trillion in 2016 raises 12 percent of total personal income. Total corporate profits are $2.2 trillion, but the corporate income tax raises $300 billion a year, or 14 percent of profits, despite the fact that corporate profits are taxed at 35 percent.

What is going on? You know as well as I do. A low tax rate that applies to all provides no opportunity for graft. It’s much better for the politicians to set high rates and then charge a fee to lobbyists and interest groups that want a special exemption.

Obviously, the corporations have done a number on the corporate income tax. When the feds yanked the corporate income tax take from about 1 to 1.5 percent of GDP in the 1920s and 1930s to the 5 percent of GDP that obtained in the mid-1950s, the CEOs and their lobbyists went to work, and slowly reduced the federal bite down to the present 1.5 to 2.0 percent of GDP. You have to admire their slow persistence.

But enough about the real world: what about an ideal world where the arc of history has bent away from brutal leftist tax-everything-that-moves injustice towards the gentle and kindly world of the bourgeois citizen? In that world, people wouldn’t be grabbing the exemptions and deductions for themselves and screwing the rest; they would say that the individual income tax should be the same for all, and if everyone paid their fair share, the income tax rate could be 12 percent. The same would go for corporations.

Okay, why stop there? In my ideal world we would only collect income tax during wars, because the Fourth Amendment and unreasonable search and seizure. Yes, and pensions and health care would be privatized and the poor relieved by billionaires out of their pride and ordinary people out of their own charitable kindness.

Now back to the real world and what I miss about the Trump presidency. I loved that back in the Reagan-era Ronnie and Maggie were banging their Constitution of Liberty on the table and saying “this is what we believe.” Crazy kids like Art Laffer and Jude Wanniski were running around infuriating liberals and making the argument for smaller government. Today I am not hearing a principled argument for repealing ObamaCare; I am not hearing a principled argument about reducing taxes. Instead it is just a question of the votes in Congress: will the wimps have the guts to vote for what they promised?

I understand why. Back in the 80s we thought we were setting a new direction towards smaller, limited government. We thought that the example of the successful Reagan boom would convert hearts and minds. We were wrong.

And another thing. Today in America we are doing hurricane relief, trying to help the folks whose lives have been wrecked by a century of class, gender, and race politics. I am thinking of everyone from the white working class to middle-aged cat ladies and the African Americans angried up by Obama. You don’t lecture those folks on the wonders of individual responsibility and the price system. You just do what you can to help them. That is what Trump was elected to do, and that is what he is doing, with 906,000 new jobs in September.

Wow! A million jobs here and a million jobs there: pretty soon the Obama years will just be a sad memory.

Christopher Chantrill @chrischantrill runs the go-to site on US government finances, Also get his American Manifesto and his Road to the Middle Class.

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