Michael Hiltzik: The truth about U.S. taxes is that they aren't high enough

Michael Hiltzik, Los Angeles Times on

Published in Business News

Monday being tax day, it's only proper to deliver an important home truth to American taxpayers: You don't pay enough.

That isn't a reference to the hoary old questions about whether corporations and the rich pay their fair share (they don't, but more on that in a moment). It's more about the level of government revenues in the U.S. compared with other developed countries, and compared with what's needed.

U.S. tax revenues from all levels of government in 2017 were lower as a percentage of gross domestic product than in all but five of the 36 members of the Organization for Economic Co-operation and Development (OECD) -- 27.1 percent. The highest were France and Denmark, at 46.2 percent and 46 percent; the lowest Mexico, at 16.2 percent The OECD average was 34.2 percent.

These figures put the lie to the claim often heard from anti-tax conservatives -- and in grousing around the water cooler -- that Americans are taxed at the absolute limit. They're not, especially in relation to the costs of all the services Americans expect from their government.

The comparatively low tax receipts are the reason that the nation's infrastructure is crumbling and the educational system is a shambles. They're the reason that public universities give away faculty-hiring decisions to outfits like the Koch network and make other deals that compromise their principles.

Mark Laret, CEO of the UC San Francisco Medical Center, last week tried to justify UCSF's appalling proposal to affiliate with the Catholic hospital chain Dignity Health, which discriminates against women and LGBTQ patients, by reminding a UC regents committee that his public institution receives no funding from the state of California.


Internet speeds, consumer product safety oversight, and environmental regulations are all substandard in the United States because the government turns these crucial responsibilities over to the regulated industries, ostensibly to save money. We're told that Social Security and Medicare benefits will have to shrink in the future because we simply can't afford them.

One chronically underfunded government service is tax collection itself. The consistent diminishment of the enforcement capabilities of the IRS creates the "tax gap," the shortfall of revenues compared with expectations, because of tax evasion. Estimates of the size of the tax gap this year run to as high as $600 billion. The U.S. budget deficit is currently $779 billion, as William Gale and Aaren Krupkin of the Brookings Institution report. That means "the tax gap could plausibly have been 70-80 percent as large as the entire budget deficit in 2018," they observe. Who benefits here? The wealthy, of course -- they're the source of most of the evasion.

U.S. tax revenues as a share of GDP are certain to be even lower in 2018 than the year before thanks to the Republican tax cut of December 2017. Republicans have claimed that the tax cuts are paying for themselves in heightened economic activity, and therefore higher tax collections, but that's simply untrue.

In fiscal 2018 (ended September 2018) federal revenues fell to 16.4 percent of GDP; prior to the tax cut enactment, the Congressional Budget Office had projected they would come in at 18.1 percent. The tax cuts have exploded the federal deficit, which the CBO expects to top $1 trillion in 2020. According to the Tax Policy Center, the economic growth traceable to the tax cuts will offset only about a quarter of the 10-year revenue loss from the cuts.


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