Tax rates hit historic low in 2009

The Congressional Budget Office reported today that Americans are paying near-record low tax rates.

Jeff Horwich: It's election season and we're in for all kinds of rhetoric on taxes: We're not paying enough to cover Medicare and Social Security; we're paying too much, stifling people's incentive to work. Into this mix comes a new report from the Congressional Budget Office, saying the tax rates paid by most Americans are at near-record lows.

The data come from 2009, it takes a while to compile all these numbers. Of course it's more complicated than that, so we've got Bill Frenzel. Until 1991, he was a Republican Congressman from Minnesota, now he's a visiting scholar at the Brookings Institution. Good to have you.

Bill Frenzel: Glad to be with you.

Horwich: Congressman, it seems like we are hearing all the time this conventional wisdom that Americans are being taxed like never before. Is that, apparently, not true?

Frenzel: Well it isn't true at least in 2008 and 2009 because gross tax collections as a percentage of GDP declined in 2009 to about the lowest point since World War II -- 17.4 percent. The reason for the decline was because income was declining.

Horwich: So it's a factor of income, that's a big part of it. Of course the rates people are paying and the amount of deductions they can take are also very important. Can you put those into historical context for me?

Frenzel: Yes, the deductions are somewhat similar except for lower income tax payers, but for the higher income tax payer, deductions are about the same as they have been. 

Horwich: Let's look at the 1 percent, let's call them, how high are their taxes compared with the trend over time?

Frenzel: Well the top 1 percent earns about 13 percent of all the income and they pay 23 percent of all the taxes. The bottom half of tax payers pay almost nothing. So we have a very progressive income tax system. But of course that leavened by the fact that the social security tax system is quite regressive. 

Horwich: Bill Frenzel is a former republican congressman from Minnesota. Great to talk with you, thank you.

Frenzel: Thank you very much. 

About the author

Jeff Horwich is the interim host of Marketplace Morning Report and a sometime-Marketplace reporter.

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