Monthly Archives: March 2016

Distribution of taxes paid, who pays?

Chapter 11

Distribution of taxes paid, who pays?

In the prior post we learned that only 53% of households pay the tax from employment (earned income). But that is only part of the story.

How much of the tax is being paid by wage earners vs. companies? Has that distribution changed over time?

Let’s see:

Currently 82 % of tax is paid by wage earners

Of the total taxes paid 9 % are paid by companies

Over time the tax burden has shifted significantly:

In 1950 25 % of taxes were paid by companies and 65 % were paid by wage earners

Source for the below: http://www.taxpolicycenter.org/briefing-book/background/numbers/revenue.cfm

“The Numbers: What are the federal government’s sources of revenue?

Individual income taxes and payroll taxes accounted for 82 percent of all federal revenues in fiscal year 2010. Corporate income taxes contributed another 9 percent. Excise taxes, estate and gift taxes, customs duties, and miscellaneous receipts (earnings of the Federal Reserve System and various fees and charges) made up the balance. The composition of tax revenue has changed markedly over the past half century. The share coming from individual income taxes has remained roughly constant, while payroll taxes have accounted for a larger share and corporate income and excise taxes smaller shares.

In 2010 the federal government collected $2.2 trillion, an amount equal to 14.9 percent of GDP. Federal revenue has ranged from 14.4 of GDP in 1950 to 20.6 percent in 2000 over the past five decades, averaging 17.9 percent.

The-Numbers-Jan-2012-Fig1

  • The individual income tax has been the largest single source of federal revenue since 1950, averaging 8 percent of GDP.
  • Payroll taxes swelled following the creation of Medicare in 1965. Taxes for Medicare, combined with periodic increases in Social Security taxes, caused payroll tax revenue to grow from 1.6 percent of GDP in 1950 to 6 percent or more since 1980. Payroll taxes also include railroad retirement, unemployment insurance, and federal workers’ pension contributions.
  • Revenue from the corporate income tax fell from between 5 and 6 percent of GDP in the early 1950s to 1.3 percent of GDP in 2010.
  • Excise taxes fell steadily throughout the same period, from nearly 3 percent of GDP in 1950 to 0.5 percent in recent years.
  • The remaining sources of revenue have fluctuated less, together claiming between 0.5 and 1.0 percent of GDP since 1950 and standing near the bottom of that range in 2010.
  • The-Numbers-Jan-2012-Source-Fed-Rev
  • Changes in the shares of the various taxes in total federal revenue reflect these historical shifts. The individual income tax has consistently provided nearly half of total federal revenue since 1950, while other revenue sources have waxed and waned. Excise taxes brought in 19 percent of total revenue in 1950 but only about 3 percent in recent years. The share of revenue coming from the corporate income tax dropped from about one-third in the early 1950s to less than a tenth in 2010. In contrast, payroll taxes provided two-fifths of revenue in 2010, four times its one-tenth share in the early 1950s.”

 

 

One argument that has been made is that this distribution does not really matter as the taxes paid by companies are ultimately passed along to the general public in the form of their price structure. I believe there is in part merit to this notion, but am not entirely convinced that it is entirely true. I really lean more to “right” when it comes to a free market and like the idea of government staying out of “business” in almost all areas.  Finding statistics to support either side of taxing corporations’ debate is not easy. However, please consider the following:

Balancing the budget – Labor!

10d) balancing the budget – Labor

Labor is the single largest factor in administering the Federal Government. There are almost 24 million government employees. I have not been able to find any actual dollar stats, but if we use an average salary of $30K (probably low) plus 15% in taxes & benefits then this would total $828 Billion.  According to several studies the largest labor productivity variable resides within the administrative function. Studies have shown that there can be a 2.5 multiple productivity difference between administrative employees doing identical jobs (from the worst to the best employee). I estimate that a 3rd party management consulting firm could easily improve administrative productivity by 25%, if not more that would represent a savings of over $200 Billion annually.

While on the topic of federally funded employment or subsidies let’s consider the following statistics from the us debt clock as of April 2015:

Available – workforce    178,000,000
Employed    149,000,000
GOV’T WORKERS        24,000,000
full time – private sec        97,000,000
part time – private sector        28,000,000 Tot private 125,000,000
collecting unemployment          9,000,000
unemployed not collecting          9,000,000
disability        11,000,000
Retired collecting SS        48,000,000 Tot gov’t 92,000,000
 
Totals work force + retired    226,000,000  

41% of the total work force plus retired are being paid by the government.  Only 53% of households are paying any income tax.

Balancing the budget – The Elephant in the room

10c) Balancing the budget – The Elephant in the room

If you have been following this blog you will know the identity of the elephant and why it is the most important element required to be addressed with respect to both the deficit and the unfunded liability. If not, then please take a look at earlier blogs. Our healthcare system is completely out of control! But what about the affordable health care act? Did it not address this issue? The short answer is absolutely not. From my perspective, by requiring everyone to have insurance, it will actually add cost (not all of your premium will reach the system). Until we address the real issues of obesity, insurance, drug costs & law suits this problem will continue and possibly accelerate. Currently we have an extremely high cost of care for 2nd rate quality of care. Until we seriously & professionally examine the systems being used by other countries that are providing a high level of quality at a reasonable cost we will continue to suffer. A couple of examples to examine (in my opinion) would be France and possibly Italy.

Both Countries rank near the top (France is #1) in terms of quality of care and both accomplish this level of performance at less than ½ of the per capita cost in the US: France at 48% and Italy at 35%.

Source for below: http://www.aetna.com/health-reform-connection/aetnas-vision/facts-about-costs.html

“The Facts About Rising Health Care Costs    –       underlying medical costs drive growth

Total health care spending in the United States is expected to reach $4.8 trillion in 2021, up from $2.6 trillion in 2010 and $75 billion in 1970. To put it in context, this means that health care spending will account for nearly 20 percent of gross domestic product (GDP), or one-fifth of the U.S. economy, by 2021.

Current government spending is just under $1 trillion annually ($924 Billion).

Let’s assume that we were able move to a similar system where we were able to achieve a per capita cost of 25% less than currently (nowhere near what either Italy or France achieves). This would decrease spending in this area by over $230 Billion! I suspect that moving to a much less insurance dominated system would be difficult to enact given the “special interest” election funding involved.

Another factor to consider are the cost of health care to both companies and individuals. This is currently running at over $2 trillion a year. Wouldn’t it be great if both companies and individuals were able to free up $500 billion a year for investment or spending in other more productive areas?

Please stay tuned next week for more on this issue.