MONTHLY TAX FEATURES Toward bolte r government Volume 25, Number 7, August 198 1 Founde d 1937 Tax Foundation, Incorporated 1875 Connecticut Avenue, N .W. q Washington, D.C. 20009 q 202-328-4500 q New "Facts & First Quarter Tax Index Tops 400 Figures" Gives Fiscal Profile of American As Size of Federal Tax Bite Climbs Economy The Tax Index passed anothe r In the first quarter of this year, th e "To find the right answer, it is firs t milestone in the first quarter of 1981 , Federal Tax Index reached 412 .2, up necessary to ask the right question, " topping the 400 mark (1967 = 100) from the previous quarter by 8 .3 per- observes Tax Foundation's Chairma n for the first time, according to Tax cent, or an annual rate of 37 .6 per- Thomas M. Macioce in his Foreword Foundation economists . The Index cent. At the same time, the State - to Facts and Figures on Government rose by 6 .8 percent from the fourt h Local Index rose by 3 .8 percent, or Finance, 21st biennial edition . He quarter of 1980 for a stunning 30 . 3 16.3 percent on an annual-rate basis , continues by pointing out that "in percent annual rate of increase. At a reaching 400.0 . matters of public finance and in the level of 408.2 in this year's firs t The major taxes contributing to th e tax and fiscal arena, those question s quarter, the Tax Index was almost 1 6 latest quarterly upsurge in the Index cannot be formulated without moun - percent higher than in the same pe- were Federal social security taxes tains of statistical data . " riod a year earlier . (both the rate and base increased in And mountains of data are wha t After dipping slightly during the January) and the so-called windfall the latest major revision of Tax Foun- second quarter of last year in reaction profits tax on oil . The latter, classified dation's widely used handbook o n to the brief recession, the Index has as an excise tax, is grouped under government financial operations climbed in each of the three quarters indirect business taxes . contains. There are 250 tabulation s since. (Continued on page 2) in this edition, 40 of them brand new, containing over 51,000 entries . Some Tax Index and Related Measures of the highlights of the U .S . fiscal pro- Quarterly, at Seasonally Adjusted Annual Rates, (1967 = 100) file cited in the new Facts and Fig- ures are: Output Index • Since 1960, the portion of per- Year and Current Constant Price quarter Tax Index price prices Index ° sonal income taxable under Federal law has risen from 43 percent t 1978 I 278.1 254 .2 138 .7 183 .3 o 293.0 266 .3 141 .7 188.0 nearly 60 percent . At the end o f III 300 .3 274.0 143 .0 191 .5 World War II in 1945, only 31 percen t IV 313 .2 284 .1 144 .9 196 .0 1979 I 321 .1 292 .7 146 .3 200.1 was taxable. 325 .8 297.0 145 .7 203 .9 • Social security taxes for the me- III 336 .2 305 .7 147.1 207 .7 IV dian income family in 1980 were 344.5 312.2 147.4 211 .8 1980 I 353 .1 321 .6 148 .5 216 .6 about 10 times what they were in 349.3 320 .8 144 .7 221 .7 1959 . Last year, for every dollar pai d III 363 .4 329.8 145 .5 226 .6 IV 382 .1 341 .5 146 .9 232 .5 out in Federal income taxes, the me - 1981 I 408.2 356 .9 149 .9 238 .1 dian income family had to pay "Gross national product . another 58 cents in social security ° Implicit price deflator for gross national product . taxes. Source : Tax Foundation computations and estimates based on data from U .S. Department of Commerce , (Continued on page 3) Bureau of Economic Analysis . ATTENTION EDITORS : Monthly Tax Features is not copyrighted . Material may be reproduced freely . Please credit Tax Foundation . 1 mists to provide a continuing mea- The Front Burner Tax Index sure of trends in taxes on a basis com- (Continued from page 1 ) parable to official indexes for othe r By Robert C . Brown There was also a significant rise in segments of the economy . Data in the Executive Vice President social insurance contributions at th e table on page 1 depict recent quar- Tax Foundation, Incorporate d state-local level . The overall index terly trends in taxes, output, an d for social insurance taxes reache d prices. "Keeping the Numbers 544.9 in the first quarter, on the 196 7 There was a significant rise in the Honest" base . This represented an enormou s nation's output in the first quarter of jump from the closing quarter o f this year, but not so great as the ris e George Bernard Shaw is supposed 1980—a rise of 10.0 percent, which in taxes. The nominal GNP index ros e to have observed that if all the econ- is equivalent to 46 .4 percent on an by 4.5 percent, an annual rate of 1 9 omists in the world were laid end to annual basis . At the Federal level, the percent. A comparison of the relativ e end they still would not reach a con- jump was even steeper; social insur - movements in taxes and GNP reveals clusion. While Shaw may have over- ance taxes climbed by 11 .3 percen t that for every 1 percent of the GNP stated the case, the tentativeness of for the quarter, a seasonally adjuste d rise, there was a rise of 1 .5 percent in the "dismal science" is real enough . annual rate of 53 .5 percent. taxes. In other words, in the firs t To find more than a handful of econ- Measured against the first quarter quarter of the year taxes rose 50 per - omists who will agree on present dat a of 1980, the Federal index for indirect cent faster than current dollar GNP . is difficult. To find any kind of con- business taxes jumped from 184 .4 to Such sharp differentials in th e sensus on future trends is well nig h 364 .9. This represented a 98 percent rates of change between the two se- impossible . advance, largely because of revenue s ries are not likely to continue in the Long-range economic forecastin g from the windfall profits tax whic h months ahead, according to Tax is a very chancy business, indeed , became effective on March 1, 1980, Foundation economists, since th e and highly subject to manipulation . according to Tax Foundation re- higher social security tax provisions If the projections do n 't fit the goals , searchers . introduced in January will stabiliz e just change assumptions until the de - The Tax Index is a fiscal yardstic k for the current year . Also, the rate of sired numbers pop out of the com- designed by Tax Foundation econo - increase in revenues from the wind - puter. This is a game regularly playe d role of the Federal social welfare fall profits tax may level off or by economists of all stripes . In Wash- structure . We must look again at the decline. ington, it has been raised to the leve l dangerous tax expenditure concep t Compared with the 408 .2 Tax In- of a fine art . and the notion of sunset . dex, the GNP index stood at 356 .9 in Looking at the out-year projection s If economic slight-of-hand ever the first quarter, the price index a t for spending and revenues, whether had a place, that time has passed . 238 .1 and the index of real outpu t in the Administration's bill or the var - Out-year projections must be accu- (inflation-adjusted GNP) at 149 .9 . ious alternatives which were debated rate or the coming debate will mean In absolute terms, first quarter 1981 before the final vote, is enough to give little . This is the only economy we've taxes for all levels of governmen t the thoughtful observer the willies . got. If there are problems down the amounted to an annual equivalent o f All things being equal, and given the road, let's see them and deal with $895 billion—$611 billion Federal , most optimistic assumptions, if ev- them. We can only do so if we keep and $284 billion state and local . erything works out just perfectly, w e our eyes open—and our numbers These figures compare to a total o f will reach the economic promise d honest. $219 billion in 1967—$148 billion in land in 1984 . How we will get there Federal and $71 billion in state and and what shape we will be in whe n About Tax Features local taxes . we arrive depends on whose projec- Tax Foundation, Incorporated, is a Taxes on income at all levels o f tions—and assumptions—you buy . nonprofit organization engaged in non - government continue to show hig h I do not mean to downgrade the partisan research and public education rates of growth, as demonstrated by on the fiscal and management aspects overall thrust of both the budget ac- of government . It is supported by vol- the Tax Index. tion and the tax restructuring that untary contributions from corporat e The index for state and local per- have taken place . Governmen t and individual sponsors, nationwide . sonal income taxes eased past the 80 0 Original material in Monthly Ta x spending had to be reined in.