Fox host Bill O'Reilly claimed that “rampant taxation” is “strangling the U.S. economy.” But the total U.S. tax burden is “at [the] lowest level since 58,” and the economy and employment grew at high levels under the Clinton administration, when federal income taxes were higher.
O'Reilly Claims Taxation Is “Strangling The U.S. Economy”
O'Reilly: “Your Take-Home Pay Is Being Gutted By The Rampant Taxation. That's What's Strangling The U.S. Economy.” On the September 14 edition of Fox News' The O'Reilly Factor, host Bill O'Reilly claimed that Americans' “take-home pay is being gutted by the rampant taxation” and concluded, “That's what's strangling the U.S. economy. ... Punishing taxation is bleeding us.” From the broadcast:
O'REILLY: Now, the Obama administration says it will continue the payroll tax cut for working Americans, while it wants to increase the income tax rate on the affluent and corporations. But all Americans are being battered by a variety of hidden taxes. Here is the grim news: in New York state, where I live, not only do we pay a federal income tax, but also a state income tax, and in places like New York City, a local income tax as well.
New York gasoline tax, 45 cents a gallon, the highest in the nation. Cigarette tax, $2.75 a pack. Sales tax collections average about $1,700 per New Yorker. That includes Baby Huey. $1,700 for every man, woman and child living in the state -- sales tax. Property tax, close to $2,000 per person. Toll revenue, $86 a person. New driver's license cost you $80. Cell phone tax and fees, 23 percent of your bill every month.
The list goes on and on and on. I'm exhausted. I can't even list anymore.
So you can see if you're a working person in New York or California or New Jersey or Massachusetts or most other states, your take-home pay is being gutted by the rampant taxation. That's what's strangling the U.S. economy. Consumers can't buy stuff without incurring even more debt. Punishing taxation is bleeding us. And these taxes continue to go up because the states and cities are bankrupt. Why are they bankrupt? Because of pensions, health care costs, corruption, and general irresponsibility with our tax dollars. [Fox News, The O'Reilly Factor, 9/14/11]
But Total Tax Burden Is “At [The] Lowest Level Since '58,” And Federal Taxes Are At “Historically Low Levels”
USA Today: “U.S. Tax Burden At Lowest Level Since '58.” In a May 5 article, USA Today reported:
Americans are paying the smallest share of their income for taxes since 1958, a reflection of tax cuts and a weak economy, a USA TODAY analysis finds.
The total tax burden -- for all federal, state and local taxes -- dropped to 23.6% of income in the first quarter, according to Bureau of Economic Analysis data.
By contrast, individuals spent roughly 27% of income on taxes in the 1970s, 1980s and the 1990s -- a rate that would mean $500 billion of extra taxes annually today, one-third of the estimated $1.5 trillion federal deficit this year.
USA TODAY examined the full range of taxes that individuals pay to all levels of government. That includes income taxes for Medicare, property taxes for schools and gas taxes for roads.
At the national average, a person with an income of $100,000 would pay $23,600 in taxes today vs. $28,700 in 2000 and $27,300 in 1990. [USA Today, 5/5/11]
CBPP: “With [Obama's] Making Work Pay Tax Credit, The Median Family's Federal Income Taxes ... [Are] Lower Than In Any Year Since 1955 ... Except For 2009.” A report updated by the Center on Budget and Policy Priorities (CBPP) on April 15 found that "[m]iddle-income Americans are now paying federal taxes at or near historically low levels." From the report:
Middle-income Americans are now paying federal taxes at or near historically low levels, according to the latest available data. That's true whether it comes to their federal income taxes or their total federal taxes.
- Income taxes: A family of four in the exact middle of the income spectrum will pay only 4.7 percent of its income in federal income taxes this year, according to a new analysis by the Urban Institute-Brookings Institution Tax Policy Center. This is the third-lowest percentage in the past 50 years, after 2008 and 2009.
- Overall federal taxes: Middle-income households are paying overall federal taxes -- which include income as well as payroll and excise taxes -- at or near their lowest levels in decades, according to the latest data from the Congressional Budget Office (CBO).
This year and last, the Making Work Pay tax credit, which President Obama and Congress enacted as part of the 2009 American Recovery and Reinvestment Act, is providing a credit of $800 to married joint filers ($400 to single filers). A median-income family with two children thus will receive an $800 tax cut in the return it files this year.
With the Making Work Pay tax credit, the median family's federal income taxes will equal just 4.7 percent of its income in 2010. That is lower than in any year since 1955 (the first year for which these data are available) except for 2009, when taxpayers also received the Making Work Pay credit, and 2008, when another stimulus-related tax cut was in effect.
The post also included the following chart illustrating the average federal income tax rate since 1955:
Former Reagan Adviser Bartlett: As Percentage Of GDP, “Federal Taxes Are At Their Lowest Level In More Than 60 Years.” Bruce Bartlett, former adviser to President Reagan and Treasury Department economist under George H.W. Bush, wrote in a May 31 post on the New York Times blog Economix: “The Congressional Budget Office estimated that federal taxes would consume just 14.8 percent of G.D.P. this year. The last year in which revenues were lower was 1950, according to the Office of Management and Budget.” From his post:
Historically, the term “tax rate” has meant the average or effective tax rate -- that is, taxes as a share of income. The broadest measure of the tax rate is total federal revenues divided by the gross domestic product.
By this measure, federal taxes are at their lowest level in more than 60 years. The Congressional Budget Office estimated that federal taxes would consume just 14.8 percent of G.D.P. this year. The last year in which revenues were lower was 1950, according to the Office of Management and Budget.
The postwar annual average is about 18.5 percent of G.D.P. Revenues averaged 18.2 percent of G.D.P. during Ronald Reagan's administration; the lowest percentage during that administration was 17.3 percent of G.D.P. in 1984.
In short, by the broadest measure of the tax rate, the current level is unusually low and has been for some time. Revenues were 14.9 percent of G.D.P. in both 2009 and 2010.
The truth of the matter is that federal taxes in the United States are very low. There is no reason to believe that reducing them further will do anything to raise growth or reduce unemployment. [Economix, The New York Times, 5/31/11]
Bartlett: "[F]ederal Taxes Are Very Considerably Lower By Every Measure Since Obama Became President." In a March 19, 2010, post on Forbes.com, Bartlett wrote that “federal taxes are very considerably lower by every measure since Obama became president. And given the economic circumstances, it's hard to imagine that a tax increase would have been enacted last year”:
As noted earlier, federal taxes are very considerably lower by every measure since Obama became president. And given the economic circumstances, it's hard to imagine that a tax increase would have been enacted last year. In fact, 40% of Obama's stimulus package involved tax cuts. These include the Making Work Pay Credit, which reduces federal taxes for all taxpayers with incomes below $75,000 by between $400 and $800.
According to the JCT, last year's $787 billion stimulus bill, enacted with no Republican support, reduced federal taxes by almost $100 billion in 2009 and another $222 billion this year. The Tax Policy Center, a private research group, estimates that close to 90% of all taxpayers got a tax cut last year and almost 100% of those in the $50,000 income range. For those making between $40,000 and $50,000, the average tax cut was $472; for those making between $50,000 and $75,000, the tax cut averaged $522. No taxpayer anywhere in the country had his or her taxes increased as a consequence of Obama's policies. [Forbes.com, 3/19/10]
AP: “You Wouldn't Know It By The Tax Day Rhetoric, But Americans Are Paying Lower Taxes This Year.” The Associated Press reported on April 14, 2010, “You wouldn't know it by the Tax Day rhetoric, but Americans are paying lower taxes this year, even with increases passed by many states to balance their budgets.” While noting that in future years, some taxes may increase for some Americans, the article said that “Tax Day rhetoric” does not match the reality of Americans' tax burdens today. From the article:
Congress cut individuals' federal taxes for this year by about $173 billion shortly after President Barack Obama took office, dwarfing the $28.6 billion in increases by states
The massive economic recovery package enacted last year included about $300 billion in tax cuts over 10 years. About $232 billion was in cuts for individuals, nearly all in the first two years.
The most generous was Obama's Making Work Pay credit, which gives individuals up to $400 and couples up to $800 for 2009 and 2010. The $1,000 child tax credit was expanded to more families, and the working poor can qualify for as much as $5,657 from the Earned Income Tax Credit.
There were also credits for qualified families who buy new homes or make energy improvements to existing ones, as well as tax breaks to help pay college tuition or buy new cars. [AP, 4/14/10, via Yahoo Finance]
And Economic Growth Was High During Clinton Presidency, When Tax Rates Were Also Higher
PolitiFact: “Most [Economists] Agree That The [Clinton] Tax Increases Did Not Appear To Hinder Job Growth.” In a July 6 post, PolitiFact fact-checked President Obama's claims about economic growth and taxes during the Clinton administration. While PolitiFact said that Obama went “too far” by “suggesting raising taxes created job growth,” it also found that most economists agreed that higher tax rates under Clinton “did not appear to hinder job growth.” From the post:
As for Obama's claim that in the years after the Clinton tax increase, job rates soared, the numbers back him up. Employment rates grew a healthy clip through the mid 1990s after Clinton's tax hike, according to the federal Bureau of Labor Statistics. And it's also true that jobs didn't grow as quickly after the Bush tax cuts were enacted.
So tax hikes equal job growth?
“The 1990s were very good, but not because of higher tax rates,” said Dan Mitchell, an economist with the libertarian Cato Institute.
In an April 18, 2010, blog post, Mitchell argued that “while Bush had a better record (than Clinton) on taxes, he had a much worse record on spending.”
Other economists say the trend at least shows raising taxes on the wealthy isn't going to cause the economy to tank.
“I don't think Obama was claiming that the higher tax rates in the '90s led to the boom, just that they did not prevent it,” said Dean Baker, a liberal economist and co-director of the Center for Economic and Policy Research. “Similarly, the tax cuts of the Bush years did not lead to strong growth. Most of the evidence shows that tax increases with a given level of deficits will have a modestly negative impact on the economy.”
Higher tax rates in the top brackets does create some disincentive effect, Baker said, and some people work less, “but it is not a very big deal in the scheme of things.”
“The idea that going back to something like Clinton era tax rates would be a disaster is nonsense,” Baker said.
Said Gus Faucher, director of macroeconomics with Moody's economy.com: “I think he (Obama) is making the point that higher tax rates, at least at the levels under President Clinton, are compatible with strong economic growth, and the evidence is clear on that.”
“You can argue that one reason we had strong growth in the 1990s is that Bush I and Clinton reduced the deficit (cut spending and raised taxes), bringing down budget deficits,” Faucher said. “This, in turn, lowered long-term borrowing costs and made more capital available to the private sector. The strong growth then helped bring down the deficit further, and eventually we got surpluses. I think the fiscal discipline of Bush I and Clinton was a reason for the strong growth in the 1990s.”
So where does this leave us? It is true that when Clinton raised the top marginal tax rate to 39.6 percent -- the same level Obama would like to return it to now -- the U.S. saw strong job growth in the ensuing years. But to the extent Obama is suggesting a cause and effect relationship between those two events -- and we think he certainly leaves that impression when he says we “should go with what works” -- that is dubious, according to the cross-section of economists we spoke to. There were many other economic factors that played a larger role in job growth, they said. However, most agree that the tax increases did not appear to hinder job growth, and that's significant given the dire warnings some Republicans have issued about Obama's plan to return the top tax rate to Clinton levels. Perhaps, as Foster argues, the situation is different enough now -- more precarious -- that a tax hike would have a more damaging effect. That's a matter for economists to debate.
When Obama says we saw job growth in the 1990s even as Clinton raised taxes, he's right. But to the extent that he's suggesting raising taxes created job growth -- as he appears to be when he says “we should go with what works,” he goes too far. [PolitiFact, 7/6/11, emphasis added]
CBPP: “Job Creation And Economic Growth Were Significantly Stronger In the Recovery Following The Clinton Tax Increase Than They Were Following The 2001 Bush Tax Cut.” In a May 13 post on CBPP's blog Off the Charts, economist Chad Stone wrote:
[Speaker Boehner] also repeats the Republican shibboleth that raising taxes is the enemy of growth. That's what they said in 1993 when President Clinton and a Democratic Congress -- with no Republican votes -- enacted a tax increase on top earners. As the chart shows, job creation and economic growth were significantly stronger in the recovery following the Clinton tax increase than they were following the 2001 Bush tax cut. And the Clinton policies produced a balanced budget.
Stone's post included the following chart:
[Off the Charts, CBPP, 5/13/11, emphasis original]
Former Reagan Adviser Slemrod: “It's Just Hard To Say That [Higher Marginal Taxes Are] The Kiss Of Death For Economic Growth.” A June 2 Bloomberg article quoted Joel Slemrod, who served as senior staff economist for President Ronald Reagan's Council of Economic Advisers, on the effect raising taxes has on the economy. From the article:
Economic growth also is affected by elements other than taxes, including interest-rate policy, the price of oil and other commodities, and the business cycle itself.
“High GDP countries are high tax countries,” said Joel Slemrod, an economist at the University of Michigan's Ross School of Business. “That doesn't mean high taxes cause the high GDP.”
Slemrod, who served as senior staff economist for President Ronald Reagan's Council of Economic Advisers, said raising taxes today would be risky because the economy remains fragile. But given the economy's performance in the 1990s, returning marginal rates to their Clinton-era levels in 2013, as Obama proposes, wouldn't be, he said.
“It's just hard to say that's the kiss of death for economic growth,” Slemrod said. [Bloomberg, 6/2/11]
CBPP: “Under The Clinton Administration ... Small Businesses Generated Jobs At Twice The Rate As Under The Bush Tax Code.” A March 26, 2009, CBPP report noted that “under the Clinton Administration, when the tax treatment of high-income families was very similar to what President Obama has proposed [ending Bush tax cuts for those making over $250,000], small businesses generated jobs at twice the rate as under the Bush tax code”:
Critics have claimed that President Obama's proposal to roll back tax cuts for families with incomes above $250,000 would kill job growth in the small business sector. But under the Clinton Administration, when the tax treatment of high-income families was very similar to what President Obama has proposed, small businesses generated jobs at twice the rate as under the Bush tax code.
Thus, the last two decades provide a useful test of the argument that the President's proposed tax changes would badly damage small business job creation. Small business employment rose by an average of 2.3 percent (756,000 jobs) per year during the Clinton years, when tax rates for high-income filers were set at very similar levels to those that would be reinstated under President Obama's budget. But during the Bush years, when the rates were lower, employment rose by just 1.0 percent (367,000 jobs). (See Figure 1.)
The post also included this graphic: