Every year, Americans greet April 15 with a mixture of anxiety and revulsion. This year was no different, as millions rushed to post offices across the country last Tuesday to beat the Internal Revenue Service’s deadline for submitting individual income tax returns.
Taxes, of course, are nobody’s favorite subject. In the 28 years since the federal tax code was last simplified, legislators, working closely with lobbyists, have ceaselessly worked to carve out an extensive and ever-growing array of tax credits, deductions and exemptions. The result of these efforts, besides costing the federal government nearly $1.1 trillion in annual revenue, is a notoriously complex tax code that has become nearly impossible to comply with — according to the IRS, the average American now spends 13 hours annually to properly file a federal income tax return.
Yet the horror does not end there. Just as the federal tax code has become increasingly byzantine, individual state tax codes have followed in lockstep. And since each state requires its citizens to fill out a separate return, the work required just to hand over some of your hard-earned cash can quickly pile up. During a year in which you move, for example, it is likely that you will have to fill out at least three separate returns, one for the federal government and one for each of the two states you lived in that year.
It is no surprise, then, that many Americans at times feel overburdened by their country’s tax regime. Americans for Tax Reform, led by Grover Norquist, has successfully sought to channel these frustrations by rabidly opposing any future tax increases. Since its founding in 1985, the group has become highly influential in American politics — the ATR’s “Taxpayer Protection Pledge” has become a cornerstone of conservative philosophy, underpinning much of the political power of the Tea Party.
However, the truth about taxes is far more nuanced than Norquist and his cronies would have you believe. For one, taxes can have immense utility. By funding goods and services that no individual can provide on his or her own, like schools and infrastructure, government tax revenues hold the potential to significantly boost both the short- and long-term potential of the U.S. economy.
More importantly, when viewed from a macro level, Norquist’s claims of an overtaxed society are suspect at best. For one, taxes in America are actually quite low by historical standards. The total tax collected at the state, federal and municipal levels, which peaked at just under 30 percent of GDP in 2000, dropped to just 24.3 percent of GDP in 2012.
Moreover, the top marginal income tax rate on the highest earners has dropped significantly since Ronald Reagan assumed the presidency in 1981. From 1950 to 1963, the highest marginal tax rate in the United States was over 90 percent, and it remained as high as 70 percent through 1981. Today, by contrast, the top marginal federal rate stands at just 39.6 percent.
Additionally, the United States collects far less tax revenue than most other industrialized nations. Countries in the Organization for Economic Cooperation and Development, a group of 34 rich nations, on average collect taxes worth 33.8 percent of their GDP, significantly higher than America’s take. In fact, within the group, only Mexico and Chile cumulatively tax less than the United States does.
So by both historical and international standards, taxes in the United States are low. Has this benefited the country at all?
Interestingly, by most objective measures, the answer seems to be no. Democratic presidents, who tend to favor higher tax rates, actually significantly outperform their Republican counterparts economically. In fact, under Democratic presidents, job growth has been 75 percent higher and annual stock returns have been over 22 times higher than under Republican presidents. Of course, correlation is not causation, but the point is still instructive — Republicans’ economic policies, while seductive to the ultra-rich, have not benefited the economy as a whole nearly as much as the Democrats’ economic policies do.
If the anti-tax revolution has not benefited the economy in any noticeable way, has it harmed it? The answer here, unfortunately, is also quite clear. By expanding the deficit and exacerbating inequality, lower taxes have certainly damaged the American economy.
At the end of 1980, shortly before Reagan took office, the national debt stood at just 33.3 percent of GDP. Now, after multiple rounds of tax cuts effected in large part by fiscally and economically irresponsible Republican presidents, the national debt stands at over 100 percent of GDP. While not all of this astronomical growth can be attributed solely to these cuts, a very significant fraction can be. The Bush tax cuts alone, for example, added $1.6 trillion, equal to nearly 10 percent of the nation’s GDP, to the national debt from from just 2001 to 2011.
Additionally, while inequality, as measured by the Gini coefficient, increased by just 7 percent from 1947 to 1980, it has soared by over 15 percent since then. Tax cuts, which tend to disproportionately benefit richer taxpayers, have played a significant role in this development.
The issue of fairness is one that often comes up in conservative counterarguments against higher taxes. Yet taxes in America are now at generational lows, and the tax cuts of the past 30 years have proved to be disastrous for the American economy. So rather than wasting time complaining about the fictional oppression that Americans face in the form of high taxes, maybe it’s time for Norquist and his cronies to focus on an issue that would actually benefit everyone: streamlining the tax code and eliminating all the credits, deductions and exemptions that benefit special interests at the expense of ordinary Americans. Not only would this simplify the process of filling out a tax return, but by increasing federal tax revenue, it would also greatly reduce the national debt and reverse the tide of rising inequality.
Kunal Sindhu MD’17 can be contacted at kunal_sindhu@brown.edu.
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