A Closer Look at Popular USA Today Article Claiming Historically Low Taxes

 
 
May 11, 2010

An article in the business section of today's USA Today that is headlined, "Tax bills in 2009 at lowest level since 1950" has garnered a lot of attention on the web today (the White House has even re-tweeted it.) The headline is accurate when properly interpreted, but the numbers within the article contain some flaws.

Specifically, the article says: "Federal, state and local taxes - including income, property, sales and other taxes - consumed 9.2% of all personal income in 2009, the lowest rate since 1950, the Bureau of Economic Analysis reports. That rate is far below the historic average of 12% for the last half-century. The overall tax burden hit bottom in December at 8.8% of income before rising slightly in the first three months of 2010."

9.2 percent? Taxes in 2009 were low but not that low. The 9.2 percent figure is almost exclusively personal income taxes (federal, state and local) and does not include real estate property taxes, sales taxes and most other taxes.

By counting as taxes what the Bureau of Economic Analysis (BEA) calls "Personal Current Taxes" and dividing by a well known BEA measure of income called "Personal Income," the author came to 9.2 percent as being the overall tax rate. Personal Current Taxes includes federal, state and local income taxes, as well as personal property taxes and personal motor vehicle licenses. But many taxes are not tallied in that category. It does not include the bulk of property taxes (i.e. those paid on homes or business property), and it does not include sales taxes (general or selective), severance taxes, and other taxes imposed on businesses. Finally, the figure does not include corporate income taxes, estate taxes, or payroll taxes (acknowledged by the author).

Despite these problems of data definition, the headline's claim about 2009 being a year of historically low taxes isn't far off. Tax Freedom Day, which is calculated by taking total taxes divided by a broad income measure, NNP (which is somewhat close to personal income), had a rate of about 26.6 percent in 2009, which was the lowest since 1959.

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