Are You Paying More
Taxes Than Your Parents Did?
By
A typical refrain at tax time goes like this, “I earn more than my parents ever dreamed, yet it seems that I pay so much in taxes that they were better off financially. How does my tax bill compare with those of previous generations?”
Everyone’s circumstances, and therefore their tax burdens, vary. Further the tax landscape has changed dramatically over the years so it is difficult to compare. But, let’s take a look.
Many people generalize by saying income tax rates are much lower now than they were a generation ago. For instance, the top marginal rate for federal tax today is 38.6%; 25 years ago that amount was 70%. True, but many deductions are no longer allowed such as personal interest, most medical deductions, limited itemized deductions and more. So tax burdens often are higher than they were 20 or 30 years ago. Not only income taxes but payroll taxes too, have increased in rate and taxable ceilings. Notably, the Social Security and Medicare taxes are much higher today than they were in prior generations.
Despite these differences we can make some general comparisons to give you a sense of how the tax burdens have changed over time. The U.S. Treasury Department provides inflation adjusted measures of “per capita tax burden.” The per capita tax burden indicates how much each person in the country would pay in taxes if everyone paid the same amount and how this amount differs today from earlier periods.
Here is how those numbers compare in 2002 adjusted dollars. This year the per capita federal tax burden is expected to reach $6,765. The all-time high tax burden happened just two years ago in year 2000 at $7,718. For comparison’s sake, in 1990 the per capita tax burden stood at $5,523 and a generation ago it stood at $4,832. So the per capita tax burden rose by $1,933, or almost 40 percent in a generation and this is after adjusting for inflation.
As large as that increase was, the increase in the per capita tax burden throughout the 1980s and 1990s was close to what has become a normal rate of increase, not the exception for the century. But let’s look back to what should have been a time of huge burden to Americans. At the end of the Second World War, the per capita tax burden stood at $2,505, up from less than $1,000 at the start of the war. So, while the per capita tax burden has risen 40 percent in a generation, it has risen over seven-fold, that’s 700%, in three generations.
So, are you paying more than your parents? Probably so – by 40% or more.
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