Last week the US Treasury Department reported that tax receipts in April jumped 13.5% from a year earlier to $315.1 billion -- much of that increase coming from taxes on investments and other sources of income more important to the rich. Receipts from these so-called nonwithheld taxes in April, a month when many tax returns are filed, were up about 17% from a year earlier. The large majority of Americans have the bulk of their taxes withheld from wages paid through the year.
|US Treasury Secretary John Snow, speaking Friday at a meeting of the Bond Market Association.|
Treasury Secretary John Snow, in a speech to the Bond Market Association Friday, said: "Rarely in public life do we get to see a real test of an economic policy theory. But three years ago we put together a hypothesis: Are low tax rates consistent with growth and increasing revenues? Our critics said "no," but the evidence is a resounding "yes."
Of great importance to the country, and particular interest to this group, is the effect of low tax rates and robust growth on our budget deficits. Again, the results are in and they are clear: economic growth has led to a surge of tax revenues and shrinking deficits. Despite the cries from our critics, it cannot be denied that low taxes truly are consistent with rising federal revenues – which of course help bring the deficit down.
The numbers don't lie: With lower tax rates and higher growth, the federal government ran a monthly budget surplus of $118.85 billion last month, with tax receipts at all-time highs. In fact, government receipts are now close to their historic average of about 18% of GDP and are projected to rise above it. Lower tax rates are, in fact, consistent with rising revenues as job growth returns to natural levels.
Those strong April receipts were really just what you would expect with an economy that is growing, expanding, creating jobs and with rising equity markets."
The Wall Street Journal says that though the Bush tax cuts mean that the best-off Americans face lower effective tax rates than under President Clinton, they do pay a bigger share of all federal taxes. Data from the CBO (Congressional Budget Office) and projections by the Tax Policy Center, a joint venture of the Urban Institute and the Brookings Institution think tanks, show that the top 10% of income earners (with incomes above $251,400) will pay 56.2% of all federal taxes this year, up from 52.2% in 2000. That includes income and payroll taxes, Social Security and the like. The growing tax take from the rich reflects their growing share of the nation's income. In 2006, the top 10% is projected to receive 44.7% of all household cash income, up from 40.6% in 2000.
Despite the strong economy, wage growth among most Americans has barely kept up with inflation even as income at the top level has continued to rise as corporate executives, athletes, celebrities and other highly paid individuals enjoy fatter paychecks.
According to the US Census Bureau, the top 20% of households in terms of income received 50.1% of total household income in 2004, up slightly from each of the two previous years -- and that tally doesn't include all income that accrues to the very richest.
The Top 0.01% Income Share and Composition in the US, 1916-2000
Note: The Figure displays the top 0.01% income share (top curve) and its composition
(excluding capital gains).
*Source: Piketty and Saez (2003, 2006)
Thomas Piketty and Emmanuel Saez, researchers at the US National Bureau of Economic Research say that Figure 2 shows that the income composition pattern at the very top has changed considerably between 1960 and 2000. Salary income has been driving up top incomes and has now become the main source of income at the very top. The dramatic evolution of the composition of top incomes seems robust.
First, National Accounts data show that the share of capital income in aggregate personal income has been stable in the long-run. Therefore, the secular decline of top capital incomes is the consequence of a decreased concentration of capital income and not of a decline in the share of capital income in the economy as a whole. Second, estimates of wealth concentration constructed by Wojciech Kopczuk and Emmanuel Saez (2004) from estate tax returns for the 1916-2000 period in the United States show a precipitous decline in the first part of the century with only very modest increases in recent decades (see Figure 4, Panel B below). This evidence is consistent with the income share series, and shows that the dramatic recent increase in income concentration is a primarily a labor income phenomenon and this has not yet translated into a dramatic increase in wealth concentration.
*THE EVOLUTION OF TOP INCOMES: A HISTORICAL AND INTERNATIONAL PERSPECTIVE
Unemployment rate is lower than the average of the 1960s, 1970s, 1980s and 1990s at 4.7 percent
Snow said that in the three years since the enactment of tax cuts, job creation has been very strong – over 5.2 million workers have jobs today who didn't three years ago. The unemployment rate is lower than the average of the 1960s, 1970s, 1980s and 1990s at 4.7 percent. GDP growth has been excellent, around 3.5 percent last year and a very impressive 4.8 percent rate for the first quarter of this year. That was the fastest growth rate since 2003 and the fastest of any major industrialized nation.
Consumer confidence is at its highest level in nearly four years, business investment has seen 12 straight quarters of positive growth and given strong labor markets, we should see compensation rise in the months ahead.
At an average of 2.41 million over the latest four weeks, the number of people receiving unemployment insurance benefits is at the lowest level since January 2001. Overall growth is strong, and while it's true that headline inflation has picked up, core inflation remains in check. I have full confidence that Chairman Bernanke and the Fed are committed to price-stability and understand that this is their No. 1 priority.
The CBO said earlier this month that in the first seven months of fiscal year 2006, the federal government ran a deficit of $183 billion, CBO estimates, $53 billion less than for the same period last year. Robust growth in revenues and calendar-related shifts in the timing of certain payments account for much of that improvement. CBO now expects that the 2006 deficit will be significantly less than $350 billion, perhaps as low as $300 billion, assuming enactment of the pending supplemental appropriations and tax reconciliation legislation.
The surplus in April was $120 billion, CBO estimates, $62 billion more than the surplus recorded in the same month last year. About half of that increase is due to the effect of the calendar on the timing of certain payments.
Receipts in April totaled $316 billion, CBO estimates, $38 billion (or 14 percent) higher than receipts in April 2005. Nonwithheld receipts of individual income and payroll taxes, mostly amounts paid with income tax filings, climbed by $21 billion (or 14 percent). The percentage increase in nonwithheld receipts might be closer to 20 percent for April and May combined because more receipts are being recorded in early May this year than were tallied by this time last year. Corporate receipts rose by about $9 billion (or 27 percent) in April, when the first quarterly estimated payment for most firms was due. Refunds of individual income taxes were lower by $7 billion in April because, compared with last April, the month contained one fewer Friday, the day on which almost all refunds are disbursed.
Outlays in April were $24 billion lower than in the same month last year, largely because of shifts in the timing of certain payments. Calendar-related adjustments reduced outlays by about $30 billion relative to their level in April 2005. Outlays in April 2006 were unusually low because the first day of the month fell on a weekend, shifting roughly $17 billion in payments from April to the end of March. In contrast, outlays were unusually high last year because May 1 fell on a weekend, which shifted about $13 billion from May to April. In addition, adjustments to the estimated subsidy costs of loans and loan guarantees made in previous years increased outlays in April 2005 by about $2 billion. In the absence of those calendar and subsidy adjustments, outlays in April would have grown by about $9 billion (or 4 percent), largely because of increased spending on Social Security, Medicare, and defense.
Receipts of corporate income taxes have grown the most rapidly so far this year--by about $40 billion, or almost 30 percent. Receipts of individual income taxes have increased by more than $55 billion, or 10.2 percent, and receipts of social insurance taxes have risen by $32 billion, or 7.2 percent.
Payments of corporate income taxes through April have risen more than CBO expected at the beginning of the year. CBO expected receipts for the entire year to increase by $24 billion--or about 9 percent. But in the first seven months of the year, they have already increased by $40 billion. Data from the national income and product accounts suggest that profits in the January-March quarter of 2006 were higher than CBO anticipated, possibly explaining a large share of the unexpectedly strong receipts. It is very likely that corporate receipts will end the year well above CBOs previous projection, with the amount depending on corporate profitability in future months.
US superearners take lion's share of productivity gains