Distribution of taxes paid, who pays?

Government Issues, tax related issues

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: