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Report: Americans Paid Smaller Percentage Of Income In Taxes In 2009

By MARA LEE

May 13, 2010

Americans paid a smaller percentage of their income in taxes in 2009 than in any year since 1950, according to data collected by the U.S. Commerce Department — even as the volume of anti-tax voices grows louder.

Only 9.2 percent of earnings was spent on federal and state income taxes, property taxes and motor vehicle registrations, the Bureau of Economic Analysis reports. Over the past 60 years, Americans have paid an average of 11.5 percent of their income in taxes, the report says.

In Connecticut, the state with the most people in high tax brackets, that percentage is higher -- but how much higher, the government has not calculated.

The decline, well over $1 trillion, is about the economy as a whole, and doesn't necessarily mean families that earned the same amount are paying less. Some tax credits and other federal moves have lowered the levy for individuals, though, and the new report can only intensify the debate about taxes and the role of government.

"I think people across the country have the perception that taxes have been increasing, or are higher than in the past, when in fact the opposite is true," said Joachim Hero, a research analyst for Connecticut Voices for Children.

The nonprofit group endorses more progressive income taxes — and more collected from corporations — because it believes the state does not spend enough on reducing poverty or on public education.

In dollar terms, 2007 was the high mark for personal tax-paying, with almost $1.5 trillion collected. Tax collection eroded — in both dollars and percentage of income — when the economy cratered.

As a family's workers lose jobs, or work fewer hours, the household can slip into a lower tax bracket.

Two million households reduced — or eliminated — federal taxes with the $8,000 tax credit for first-time home buyers.

"I'm sure those who are unemployed would prefer to have a job, and pay withholding taxes again, than to not have a job," said Fergus Cullen, executive director of the Yankee Institute, a think tank that studies New England. "We at Yankee are for lower taxes, but not this way."

He also noted that these low percentages can't last. Because the federal government is spending a trillion dollars more than it is collecting to support two wars, extend unemployment benefits, pay nursing home bills for the indigent and invest in transportation — and more — at some point, the piper will have to be paid, Cullen says.

Cullen said record deficits because taxes are lower today mean higher taxes tomorrow. "This is not a good trade," he said.

Cullen said that although the big picture shows a steep drop in tax collection, it ignores what's happening to the 60 percent of people who pay federal income taxes.

He said popular tax increases — like those on millionaires — aren't good tax policy.

"We believe as a matter of policy that everyone should have skin in the game," he said. "One of the problems with our tax code right now is that huge numbers of people have no stake in the game because they're not affected by a tax increase."

He called this the "proletariat voting for bread and circuses."

Others look at the same facts and draw the opposite conclusion — that it's unjust that lower-income residents spend a higher proportion of their income on taxes, because of sales and property taxes.

Hero said that the state income tax should include an earned-income tax credit. That device is the reason many low-income workers pay nothing in federal income tax.