Reflections on the aggregate share of taxes in the nation's income
Tax season is upon us, at least for the procrastinators who haven’t filed yet. And filing a tax return may get you wondering if the tax burden just keeps increasing. While FRED can’t address your personal situation, it can look at the big picture. The graph shows aggregate U.S. federal tax receipts as a percentage of national income (GDP). Apart from the run-up during World War II, there’s no clear trend. Of course, income and population have steadily increased over this period and so have tax receipts, but they haven’t increased as a share of GDP.
Now, there are provisions in the tax code that could have led to steady increases in tax receipts. The progressivity of the tax rate is one: As income grows, one has to pay a larger share in taxes. But the thresholds for progressivity have been adjusted over time, thus negating the channel for an automatic tax revenue increase. On the other side, the thresholds for calculating the alternative minimum tax have been left largely unchanged for a long time. Introduced in 1969, when they were applicable to only 155 tax payers, the AMT now applies to several million tax payers. Since 2012, the AMT has been indexed to inflation (but not to general income growth); thus, the effect on the aggregate tax share is supposed to lessen. So what prevented the aggregate tax share from increasing over several decades? Was it more-generous deductions, less progressivity, more exclusions…? These questions are too taxing to answer in this blog post.
How this graph was created: Search for “federal receipts” and click on the series you want displayed.
Suggested by Christian Zimmermann.
View on FRED, series used in this post: