The Tax Burden in Relation to National Income and Product
Research Aid No. 4
The $72 billion Federal budget presented in January 1957 stirred anew discussions of the relationship of Federal expenditures and taxes to national income or product, as well as questions involving the definition of items in the national income and product accounts.
This Research Aid deals with the appropriateness of various income series in measuring the total tax burden. Specifically, it is concerned with the question, should the tax burden be expressed as a percentage of total taxes to national income, gross national product, net national product or personal income? All four of these national income and product totals published by the U.S. Department of Commerce, as well as other income concepts, are currently being used to indicate “how much of our total income the government takes.”
This study concludes that for general purposes the net national product is the most appropriate base on which to measure the total tax burden. But the study is also concerned with the limitations of any over-all ratio of taxes to income.
While it is relatively easy to define “taxes,” it is much more difficult to define “income.” For example, do indirect business taxes themselves represent a part of our total income out of which taxes may be paid? The sources from which taxes may come cannot in fact be exactly delineated. To assign the sources of tax revenue for statistical purposes involves the uncertain matters of the incidence and effects of taxation. The study urges an awareness of the assumptions involved in statistics which provide deceptively simple answers to such questions.
The severity of the tax burden depends in, part upon the uses to which the tax revenue is put. Some expenditure programs involve more “taking away” than others. Examination of the weight of the tax burden demands consideration of the expenditure side of the accounts. This is particularly true of comparisons over long time periods and as between different countries where differences in the make-up, of expenditures and taxes may be as important as the totals. The study warns that, while the percentage of taxes to national product is a useful summary figure, the role of the government in the economy cannot be accurately or adequately described by a few over-all statistical measures.