Over the past month, particularly in Wisconsin and a few other states, and on the federal level, there’s been a surfeit of political rhetoric about the need for fiscal responsibility, affordable public services, and the need to cut back on unnecessary government/public spending. On the surface, and indeed on the balance sheets of many states and the federal government, this looks to be an accurate picture of the fiscal status of the United States, or at least of the governmental entities of the United States.
But just how accurate is that “picture,” especially if examined in a larger context? And how did the states get into that predicament?
I can’t speak to all the states, but here in Utah, when times were flush, the state legislature cut tax rates, reducing revenue by more than 10 percent as well as cutting sales taxes rates on food. Of course, once the economy turned sour, so did tax receipts, but it’s rather duplicitous to blame government for “wasteful” spending, especially when Utah has the lowest per capita spending on education of any state in the union.
Similar patterns seemed to have occurred in other states as well, and yet no one seems to be talking about returning tax rates to previous levels.
According to BLS statistics, the average American household spends about as much on entertainment, tobacco and alcohol as it spends on education [through its share of state and local taxes]. And if you add in fast food, the average household spends 60% more on entertainment, tobacco, alcohol, and fast food than it does on public education [through state and local taxes].
In general, more than 90% of public primary and secondary education costs are paid through state and local taxes, including sales taxes. And, on average, these taxes run 8-9% of family income. While much has been made of the fact that 47% of all U.S. households owe no federal income taxes, I’d be among the first to admit that figure is misleading. The problem is that it’s so misleading that it clouds the issues. In fact, less than 10% of all households pay no federal taxes, and the average federal tax rate for the “47 percent” runs about 14 percent, taking into account federal payroll taxes, federal gas and excise taxes, and other indirect federal taxes.
The problem here is that the same math applies to those in higher tax brackets as well, so that someone in the 30% federal tax bracket may well be paying 50% in taxes, after one factors in state, local, and sales taxes. In practice, this tends to suggest that additional funds can’t be obtained easily from trying to hike taxes significantly from supposedly more affluent families who are “undertaxed.”
Yet…less than a one percent increase in state income tax receipts would resolve the budget problems of all but a handful of states [such as California, Arizona, and Nevada], and the monthly increase in state taxes would range from $20- $60 a month for most families, which, by the way, is about 10% of the average family’s monthly fast food bill.
So… is the question really about “affordability”… or is it about politics, and the fact that both politicians and Americans value fast food, entertainment, and other items they view as necessities more than they do education?




