The US Relies Too Much On Incomes For Tax Revenue

BCA Research | US Tax RevenuesReprinted from: Business Insider, The Money Game
By, Lisa Mahapatra

 

There are plenty of different ways to look at a country’s tax rate. 

The US Relies Too Much On Incomes For Tax Revenue

Taxes on income, profits and capital gains account for 47% of tax revenue in the U.S. compared with a median 30% in other OECD countries.

F or instance, if you look at tax as a percentage of GDP, the U.S. has a relatively low rate. However, BCA Research goes one step further and considers the make up of those tax revenues. It turns out that the U.S. relies pretty heavily on incomes as a source of tax revenue.

BCA believes this should be addressed when considering tax reform.

The U.S. tax system is desperately in need of reform. Tax revenues as a share of GDP need to rise, but this should be done by sweeping away all the loopholes and this could even allow marginal rates to come down. Ultimately, a national sales tax will probably be needed. This would broaden the tax base and reduce the heavy reliance of the U.S. on income taxes. Taxes on income, profits and capital gains account for 47% of tax revenue in the U.S. compared with a median 30% in other OECD countries.

This is not to say that taxes on incomes should come down.  Rather, the U.S. should better diversify its sources of revenue.

[Read the full article at Business Insider, The Money Game]

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U.S. Household Deleveraging: A Smoother Ride Ahead

Except for student loans, U.S. household credit in all major categories has now fallen enough to allow a higher pace of overall economic growth.

US Household Deleveraging Cylce

A s we have previously highlighted, the U.S. deleveraging cycle is at least half over (a typical consumer deleveraging cycle that follows a credit-driven housing boom and bust lasts 5-7 years).

Importantly, the drag on growth from household deleveraging should diminish as the cycle becomes more advanced. Real house prices are no longer falling and down payment rates have moved up: the dollar value of loans falling into delinquency has decreased to the lowest level since late-2006. This means that mortgage deleveraging should become more organic in nature, which, in turn, means that it will be less of a drag on spending.

Outside of housing debt, the pace of deleveraging should also diminish over time: as a share of disposable income, consumer credit has already fallen to mid-1990s levels. The only area of household debt that has continued to expand rapidly is student debt, which has more than quadrupled since 2003. Given that the bulk of student debt is either held directly or guaranteed by the government, this is a worrying development for taxpayers. Nonetheless, as a whole, there has been meaningful progress in household deleveraging.

This means that, assuming a positive outcome in Washington, a higher pace of growth in 2013 is more possible than at any other previous point in the recovery.

Stay tuned.