We hear a lot these days about how government spending has led to a deficit
that could pose a major long-term threat if it goes unaddressed. It's true that
government has of late grown under both Democratic and Republican presidents.
But deficit hawks often sidestep a no-less important trend: In recent decades,
tax rates--especially for the rich--have been on the decline by historical
standards. Everyone likes getting a tax cut, but it's worth remembering that
the shrinking of tax revenue has contributed to the deficit problem, just as
spending has.
Via Felix Salmon, a fascinating (and strangely beautiful!) chart, compiled by
Stephen Von Worley at the DataPointed blog, drives home that point, and a few
others.
What to make of all those swirling lines? The chart shows how tax burdens for
different income levels have fluctuated over the last century, adjusted for
inflation. Blue areas represent a historically low tax burden for a specific
income level, while red areas represent a historically high burden.
So in a nutshell, the chart shows that until around 1940, tax burdens were low
for everyone, in historical terms. Then they rose sharply for everyone until
about 1970. At that point, the rich and poor began to diverge. Those making
around $10,000 to around $50,000 per year enjoyed a comparatively low-tax
period in the 70s, but by the early 80s they were taxed slightly higher than
the historical average. In the 2000s, their tax rate came back down a bit. By
contrast, those making more than roughly $200,000 a year saw a sharp decrease
in their tax burden starting in the 80s. That trend has continued to this day.
It's clear, then, that across the board, today's tax rates are low by
historical standards--and for the rich they're very low. If the bottom of the
chart showed more red and less blue, our deficit problem would be a lot more
manageable.
The chart also has implications for another topic we've written about here
before--wealth and income inequality. As you can see, no one's taxes today are
particularly high by historical standards, but those making $1 million or more
per year--that is, roughly the top 1 percent--enjoy the lowest burden, relative
to past rates.
At a time when a horde of stats indicates that the gap between rich and poor
has widened into chasm--and when Congress and the White House are set to argue
again later this year about whether to permanently extend the Bush tax cuts for
the rich--it's well worth keeping this bigger picture in mind.