Per Capita Tax Revenue Down, Down, Down – Who Cares?

When I was working in direct marketing we would spend weeks writing the sales copy for our letters and sales brochures. One thing we always looked at was how we would describe any discount we might be offering.  Say we were offering a 20% discount on a $1,000 item, we'd try and figure out which would have more impact, writing "You can save $200 by ordering right now" or "You can save 20% by ordering right now."  We didn't have a hard and fast rule, but generally the lower the dollar amount the more likely we were to use a percentage instead.  Saying you saved someone 30% is a whole lot better than saying you saved them $3 on a $10 purchase.

That memory hit me when I read this post on by my go-to guy on taxes, David Cay Johnston:

We take you now to the official data for important news. Federal tax revenues in 2010 were much smaller than in 2000. Total individual income tax receipts fell 30 percent in real terms. Because the population kept growing, income taxes per capita plummeted.

Individual income taxes came to just $2,900 per capita in 2010, down 36 percent from more than $4,500 in 2000. Total income taxes and income taxes per capita declined even though the economy grew 16 percent overall and 6 percent per capita from 2000 through 2010.

Corporate income tax receipts fell 27 percent and declined 34 percent per capita, even though profits boomed, rising 60 percent.

Payroll taxes increased slightly overall, but slipped per capita because the nation's population grew five times faster than the number of people with any work. The average wage also declined slightly.

You read it here first. Lowered tax rates did not result in increased tax revenues as promised by politician after pundit after professional economist. And even though this harsh truth has been obvious from the official data for some time, the same politicians and pundits keep prevaricating. Some of them even say it is irrelevant that as a share of GDP, income tax revenues are at their lowest level since 1951, when Harry S. Truman was president.

So to compare this to my direct marketing work, in this case we have one side of the political aisle saying "Hey we cut taxes AND raised revenue" while on the other side they're saying "Whoa, we have more revenue only because we have more people and those people are paying a LOT less in taxes than they did 10 years ago."  My reaction?  So what!?

I know sometimes I sound like a broken record, but I really wish we could start arguing about the right things.  Instead of worrying about whether or not lower tax rates generate more tax revenue, let's worry about what we do with that tax revenue.  In other words it's totally irrelevant to me that the per capita tax rate is lower; what's relevant is that we're taking in less money per person BUT we haven't reduced how much we're spending on each person.  As I wrote in a previous post, we get caught up arguing about issues that really are irrelevant in and of themselves and lose sight of the big picture. In this particular case I think it's disingenuous of any leader to focus on how much our tax receipts have grown in the gross sense or shrunk in the per capita sense, without putting it into context by comparing it to a growth in expenses, both gross and per capita.  

To be fair, as Johnston points out later in his post, it's not that politicians aren't also talking about government spending – he highlights several conservative leaders saying that we don't have a revenue problem, we have a spending problem – it's just that we continually get bombarded with arguments like this one about tax revenues that really don't make a hill of beans of difference in and of themselves. Johnston concludes his post by saying it is a revenue problem, but between those two points he also writes that there's a need to figure out what we need our government to do and how we should pay for it. I'm going to disagree with both sides and say what I think is pretty obvious: it's a revenue and a spending problem. 

So if you made me king for a day what would I do? I'd mandate that we all agree that the real questions that need to be answered are:

  • What's the proper scope of government services for our society? Should it just be the basics like fire, public safety, defense of our borders, etc. or should it include healthcare, retirement, etc? 
  • Once we determine the proper scope of our government how should we finance it? Flat tax of 10% on everyone but those living under the poverty line and with zero deductions, a progressive tax structure, or a VAT?

That's it. Simple, huh?  Yeah and if you believe that I have a bridge in Brooklyn I'll sell you.  Honestly I can't think of a tougher nut to crack than determining the role of government in our society, and how much that should cost us.  Everyone has their own ideas, and everyone has their government program that they think is essential.  For every person who thinks we simply can't live without the FDA there's probably someone who thinks the FDA is just another example of over-regulation.  So no it's not a simple problem, but getting distracted by silly arguments over how we measure revenue only makes it worse.

2 thoughts on “Per Capita Tax Revenue Down, Down, Down – Who Cares?

  1. andrew sexton

    I have recently been researching this entire tax situation, and one thing that strikes me is how the income has moved up to the top 10% of the country, AND how that top 10% is paying for an ever larger share of all income taxes. While it may be fashionable to talk about raiding the wealthy to pay for everything that we want to spend money on, it just wont work in the long run. Seems to me we need to be focused on helping, and I stress helping in the sense of helping people help themselves, the 50% of the people in this country who paid virtually no taxes improve their skills/capabilities so they can contribute to our domestic output in a way that moves them into the tax paying class.

  2. Jon Lowder

    Thanks for the comment Andrew and sorry I’m a little slow replying. I don’t dispute that the wealthiest pay an ever larger share of the income taxes, but their share of the wealth has increased at a higher rate than their share of the taxes. Basically as they’ve acquired more wealth they’ve paid a lower percentage of it in taxes. Also, many of those people who are said to not pay any federal income taxes are paying taxes (sales & payroll taxes), but when people hear on the news that 50% of people aren’t paying taxes they tend to think that those people are getting a free ride all the way around. I’m not saying that’s what you’re saying, but it’s an observation of mine based on many conversations I’ve had with folks about this issue.
    Personally I think we would be much better off if we simplified our tax system, lowered the tax rate for everyone across the board, removed the vast majority of deductions, including the mortgage and dependents deductions that are big contributors to many people not paying federal income taxes, and concentrated our efforts on figuring out the best way for our government to provide a stable environment for economic prosperity. I seriously doubt that’s ever going to happen because there are too many vested interests out there that would fight it (I’d imagine that most tax lawyers and accounting firms would fight tax reform), and quite frankly I don’t think there’s a leader out there willing or capable enough to identify and tackle the problems that are at the core of our country. Instead our political leaders stake out their typical positions, point fingers at each other, pit different groups of citizens against each other (it’s the rich’s fault – no it’s the freeloaders who don’t pay any taxes fault – no it’s the non-Christians’ fault – no it’s the ChristoFascists’ fault, etc.) and accomplish their primary goal, staying in power, while doing nothing more than nibbling at the fringes of the issues that affect every one of our lives.
    Okay, enough of a rant for one comment. I guess you could say I’m fed up with the lot of them.


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