Real Taxes and Real Tax Rate

5/18/2009 draft

We hear a lot about who pays the taxes in America, what the tax rate is, how high taxes are. But have we really examined the numbers to be sure all our claims are accurate? This short review will look at federal tax. Where does the money come from?

We will start with one recognition, ignored by many. Since all federal expenses must be paid, taxes are always equal to, or larger than, spending. Somebody must pay for that outlay. So, to address the question, who is paying, we must be sure to address, what is being spent.

We will start by looking at all federal taxes (federal spending) since 1981.

Data Sources:

Taxes can be categorized into 6 types. Ignored in most tax discussions is the tax on our children - the deficit. The deficit is a tax that is being charged - charged to the future - our children, and our retirement accounts. The tax on the future has been charged every year except 1998 - 2001.

The negative in the graph from 1998 through 2001 constitutes an investment in the future. That era is the only time in the last 30 years that we actually paid the future (our children) back for what we taxed them for expenditures this year.

We can also notice that total real taxes increased quite rapidly since 2002.
The rate of increase was lowest under Clinton (D), and higher under both Bushes (R) and Reagan (R) (not shown)
We can also look at this pattern in terms of percent of the whole budget for each year.

For most years, the three largest parts of the budget have been Individual taxes, SSI, and tax on the future (your children and your retirement account.)

Again, the years larger than 100% were the only years that we actually paid our children back for we borrowed from them.

We should note here, that numbers for 2008 are preliminary estimates. They do not include the borrowing for the $700 billion bailout of the financial industry.


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Footnote: Fiscal conservatives (like this author) rallied behind Reagan's cries for lower spending and lower deficits. However, under Reagan and Bush our nation had higher spending and higher deficits. Some call this"borrow and spend" governing.


  So let's look at the averages over the last 4 years.
Tax Type Percent of whole (2005 - 2008)  
Individual 40%  
SSI 32%  
Corporate 12%  
Deficit (future) 10 - 15% * bail out  
Excise 3%  


Coming soon: share actually paid by the rich

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