Fair share?: Bad economy hinders tax collections

Americans are paying the smallest share of their income in taxes since 1958, USA Today reported last week.

The total tax burden -- for all federal, state and local taxes -- dropped to 23.6 percent of income in the first quarter, according to Bureau of Economic Analysis data.

By contrast, individuals spent roughly 27 percent of their income on taxes in the 1970s, 1980s and the 1990s -- a rate that would mean $500 billion of extra taxes annually if collected today, one-third of this year's projected $1.5 trillion federal deficit.

Individuals paid taxes at an annual average of $10,549 per person in the first quarter of this year -- about the same as individuals have paid since 1990 when adjusted for inflation.

"Incomes have grown; tax payments haven't," the newspaper reported.

Some tax cuts, intended to goose the economy, contributed. "The latest dip in the tax burden came from a Social Security tax cut included in a December budget deal between Democrats and Republicans," the newspaper reported. "It will reduce taxes $100 billion this year."

But the weak economy was also a large contributor, in a reverse version of the familiar "bracket creep."

"Bracket creep" once meant that employees should be wary of a small raise in pay that "bumped" them into a higher tax bracket, which could eat up all of their raise and more.

Under these conditions, though, it refers to taxpayers who pay less in taxes because they're earning less, and because their homes and other real estate are worth less.

Gasoline tax revenues can also fall when prices discourage Americans from traveling as many miles.

In fact, the fall in tax revenues is almost entirely caused by a weak economy rather than lower rates, says Curtis Dubay of the conservative Heritage Foundation, who warned USA Today, "It's easy to draw the wrong conclusion."

Meantime, federal, state and local government spending hit a $5.6 trillion annual rate in the first quarter -- the highest ever.

Government spent at an annual rate of $18,086 per person in the first quarter, up from $13,552 in 2001, even after adjusting for inflation.

How can they do that? Corporate tax payments helped, somewhat. But for the most part, government can spend more because Washington is now borrowing 40 percent of what it spends. And in recent years it's been doing that borrowing from the Federal Reserve, which gets those dollars by, well, printing them, a recipe for future price inflation.