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U.S. Tax Rates Are High and Tax Avoidance Is Growth Industry

Aaron Task
Editor in Chief
Fin - Daily Ticker - US

The Senate Finance Committee held a tax reform hearing Tuesday to discuss, among other things, whether the tax burden is equitable in America.

Among other things, those who believe the tax burden is too high will doubtless be citing the following stats: -- At 35%, the U.S. corporate tax rate is the second highest among developed economies, trailing only Japan.

-- The top 10% of U.S. earners paid the highest percentage of taxes in an OECD study of 24 advanced economies.

-- 51% of U.S. households paid no federal income taxes in 2009, according to a new study for the Congressional Joint Committee on Taxation.

Judging by these metrics, it's easy to make a case that U.S. corporations and wealthy Americans are overburdened and deserve relief, not higher taxes as President Obama and most Democrats contend.

But as Dan Gross and I discuss in the accompanying video, there's two sides to every story, especially when it comes to taxes.

Thanks to loopholes, subsidies and write-offs, few (if any) major U.S. corporations pay a 35% effective tax rate. In fact, 55% of U.S. companies paid no federal income taxes in at least one year during a seven-year period studied by the GAO, The NY Times reports.

As recent controversy over GE's tax burden revealed, tax avoidance is a major growth industry in America today. And as Dan Gross notes, most corporations seem to prefer the current system to a flat rate without deductions, as some reformers are advocating.

As for the tax burden on individuals, "many who paid no federal income tax for 2009 are likely low-wage workers, students and the elderly," The WSJ reports. Furthermore, most of them did pay Social Security and Medicare payroll taxes, which are very regressive forms of taxation.

Finally, the top 20% of U.S. earners received 55.9% of U.S. income in 2007, up from 45.5% in 1979. And even that statistic underestimates the rising income inequality because it focuses on the average income rather than the median and overlooks the following data points:

  • Since 1973, the median take home pay of full-time workers is virtually unchanged on an inflation-adjusted basis.
  • The top 11,000 households in America have more income than the bottom 25 million.
  • Since 1976, 58% of real income growth has gone to the top 1% of Americans.

With more wealth going to the very top of the income pyramid, it's only natural (some say fitting) those Americans are paying a higher percentage of the tax burden. The questions (still) is whether they're 'taxed enough already' and whether $250,000 really is a legitimate demarcation for "wealthy" in America.

What do you think?

Aaron Task is the host of The Daily Ticker. You can follow him on Twitter at @atask or email him at altask@yahoo.com