Random observations on this most ominous of days—Tax Day.
So much for broader, flatter, simpler. President Trump’s (and Congress’) 2017 tax reform included significant simplification of the tax code, lowering rates and broadening and flattening the base. All that was great.
But the 2025 tax bill backslid on 2017. Free-market tax philosophy since 1980 has stressed making the tax code as simple, flat and broad as possible, and not using the tax code to create loopholes for favored political constituencies.
In 2025, special tax favors narrowed the tax base and added more complications. No tax on tips, convoluted rules on the taxation of Social Security benefits and other changes made taxes more complicated, raising compliance costs.
American-style tax rates, European-style government spending. Europeans receive a high level of government services and pay high tax rates for it. In the U.S., we are trending toward European level spending but keeping our tax rates at lower levels more typical for the U.S.
Steady revenue, increasing spending. But the problem isn’t our low tax rates. In the postwar era, federal revenue has remained surprisingly consistent, around 18% of GDP, regardless of changes in tax policy. The problem is, in 2025 the federal government spent 23% of GDP. In 2020, the feds spent an astonishing 35.3% of GDP, the highest level since 1945.
The result is that interest payments servicing our national debt in 2026 will exceed $1 trillion dollars for the first time in American history.
Who pays the taxes? For 2025, the top 10% of income earners will pay 60% of all federal income taxes. Meanwhile, 44% of U.S. households will pay zero in federal income taxes. The U.S. has the most progressive, i.e. most distorted, tax system in the developed world.
All but the top 10% of income earners will pay more in payroll taxes than in income taxes.
What constitutes the top 10% of income earners? For individual earners, $149,000 puts you in the top 10%. For households, it’s $251,000. (These are national averages and vary by both the location and age of earners).
Many Americans profit from the tax code. The lowest 20% of income earners have a negative federal tax liability, which means they receive income from the tax code. This happens because of refundable tax credits such as the earned income tax credit, the child tax credit, Obamacare tax credits, etc. For some households, the refundable tax credits even offset their payroll tax liability. Most tax fraud involves tax returns that fraudulently claim refundable tax credits.
Happy Tax Day!