At the 100 Days panel discussion last night there were a number of issues raised that deserve further discussion, if only to explain how wrongheaded some of the assertions made were. However, one exchange I thought was interesting enough to return to it here. While responding to a question about the oppressive taxes in this country from a College Republican in the audience, I referred to the fact that we actually have some of the lowest effective tax rates in the developed world. Hardly exciting stuff, but the interesting thing was the response that invoked. A number of students from the College Republicans and the Student Liberty Front (think Ron Paul...) reacted immediately as though I misspoke or made an obvious error. To them it was obvious that we have oppressively high taxes.
They were confused, however, about nominal tax rates and effective tax rates. Behold, the data.
Anyone who has taken any economics understands the difference between nominal and effective rates. It's a distinction that's crucially important when discussing interest rates, for example. Nominal tax rates are the marginal rates levied, the numbers actually specified by statute. Effective tax rates, however, are what companies actually pay. The difference, of course, is that large corporations, as is their prerogative, spend a fair deal of effort lowering their actual tax liabilities through loopholes and tax shelters. While nominal marginal rates can certainly affect business decisions, effective tax rates are more relevant to a discussion of the effect of taxes on the economy, and for anyone claiming oppressive taxation.
