Tax Sophistry

                How about this latest drivel from the likes of “USA Today,” which proudly proclaimed last week that “Americans paid less taxes in ’09.”

               “Amid complaints about high taxes and calls for a smaller government,” quoth USA, “Americans paid their lowest level of taxes last year since Harry Truman’s presidency.”

               Who was it that said, “The devil is in the details?”  Not to be confused with the adage, “Figures don’t lie, but liars figure?”

               The word is that Federal, state and local taxes – including income, property, sales and other taxes – consumed 9.2% of all personal income in 2009, the lowest rate (we repeat – “rate”) since 1950, according to the Bureau of Economic Analysis.  And that rate is ostensibly far below the historic average of 12% for the last half century.

               “The idea that taxes are high right now is pretty much nuts,” says Michael Ettlinger, head of economic policy at the (admittedly liberal, per USA) Center for Economic Progress.

               Oh really?  What about the impact of all of the recent government spending on these stats?

               “The importance of the current Federal deficit can hardly be overstated,” notes Tax Foundation economist Kail Padgitt, Ph.D.  The fact is that the Tax Foundation has measured “Tax Freedom Day” on April 8, 2009 and only one day later this year – April 9, 2010.  Not surprising, considering historically low tax collections in 2009 and 2010.  But if the calculations regarding the arrival of Tax Freedom Day were to include the amount necessary to cover the deficit this year, Americans would be working until May 17, 2010 before generating enough dough to pay for all of the government spending!

               So why is the overall rate of tax collections so “low?”  Could it be that when income declines, payers of income taxes actually revert to lower tax rate brackets?  Could it be that when property values decline, property taxes paid as a percentage of income might also decline?  Could it be that when spending declines, sales taxes paid as a percentage of income also drops?

               So maybe it just all depends on how you look at it.  Indeed, Tax Foundation’s Padgitt says that current government deficits are so large that they may deliver an early Tax Freedom Day now, but promise a much later one in years to come.  “These huge deficits must translate into higher taxes or inflation soon, and that will drive Tax Freedom Day much later into the year, likely somewhere near where the deficit-inclusive measure is now, in mid-May.”

               Using current deficit projections from the Congressional Budget Office, the average household’s share of total spending, notes the Tax Foundation, is $31,737, and the average household’s share of total taxes is $18,579, leaving a per-household deficit of $13,158.

               So, USA Today’s surmise is nice.  But it ain’t all it’s cracked up to be.

CONSULT YOUR TAX ADVISOR – This article contains general information about various tax matters.  You should consult your CPA regarding the implications to your own particular situation.

               Jeff Quinn, the author of this article, is a shareholder in Ashley Quinn, CPAs and Consultants, Ltd., with offices in Incline Village and Reno.  He is also a contributor to the recently published 13th edition of Tax Savvy for Small Business, published by Nolo.  He can be reached at 831-7288, and welcomes comments at

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