A Brief Visual History of U.S. Taxes

Tax reform might be The Issue of 2011. Or, like most years, it might linger on the sidelines of the national debate, but never press its way into the limelight. Either way, the Senate Finance Committee is hearing the case for tax reform today -- and who better to hear from first than the head of the Joint Committee on Taxation, Congress' official oracle and arbiter of tax policy.

You can download the full testimony here, but I wanted to pass along four easy charts from the presentation that explain some major developments in the tax code over the last 40 years. I don't want to say too much, as these charts speak for themselves.

Observation 1: The Flattening of the Tax Code. The individual income tax code has flattened out considerably in the last few decades. After the Reagan tax reforms ended in the late 1980s, President George H. W. Bush and President Clinton raised taxes in the Omnibus bills of 1991 and 1993 to fight back a possible deficit crisis. Twenty years later, we still have the lowest tax rates in modern history for middle and upper-middle class families making between $50,000 and $200,000.

Observation 2: The Rise of Tax Expenditures. As tax rates for individuals have fallen, exceptions have grown. Tax expenditures, which carve holes in the tax code to benefit certain groups, from low-income families to certain alcohol producers, have grown steadily in the last 30 years and they have especially zoomed in the last three years.

Observation 3: The Rising Share of Employment Taxes. While marginal tax rates on earned income have fallen over the last three decades, employment taxes on wages split between employer and employee have only gone up. As a result, employment taxes now account for 40 percent of total federal revenue -- basically the same as individual income taxes. Revenue from corporate income, on the other hand, has fallen from more than 30 percent in 1950 to about 7 percent in 2010.

Observation 4: Tax revenue looks awfully stable. Consider how volatile the last 30 years have been in the tax code. Top marginal rates have gone from 70 percent to 28 percent to 35 percent. Tax expenditures have doubled. Employment taxes and corporate income taxes both provided about 20 percent of government revenue in 1970. Today they contribute 40 and 7 percent, respectively. But despite all this surgery, federal revenue as a percent of GDP has basically hung around 18 percent for the last 30 years, despite flying to 20 percent at the end of the 1990s and falling to 15 percent at the end of the 2000s.