Tax Facts
With the due date for filing individual income tax returns getting lately passed, this appears like a very good time to reflect on the annual ritual of self-flagellation that Americans are forced to endure at this time of the year. The April deadline has turn out to be a sort of rite of passage for citizenship, although as items stand right now virtually half of all workers don’t pay any income tax at all.
Following are some random facts (in no certain order) about our income tax laws, who pays and who does not, and the impacts our method of taxation has on the nation’s productivity.
When the 16th Amendment to the Constitution established the federal income tax in 1913, the intent was to tax only the very wealthy. Rates began at 1% and increased to 7% for taxpayers with income in excess of ,000.
The leading 5% of wage earners pay over 50% of total individual income taxes, even though the leading 10% pay almost 66%, and the best 50% pay roughly 97%. Translation:
The Internal Revenue Service (IRS) has approximately 115,000 employees (FTEs or full-time equivalents), and a total spending budget of .6 billion.
Estimates of unreported commercial activity in the U.S. quantity to as significantly as one trillion dollars a year, and the IRS Oversight Board report for fiscal 2007 notes that the tax gap, “the distinction between what is owed and what is collected…is estimated at five billion of lost revenue annually.” Question: If it is an underground economy, how does the IRS know how much income is not reported?
The Cato Institute reported that That’s equivalent to over 3 million men and women working full time, just to deal with tax compliance. This amounted to a 22% tax compliance surcharge on the total amount collected via the tax system.
In the 1920s the federal tax code was comprised of about 40 pages of guidelines. Right now, according to the Virginia Chapter of NRSTA (Intriguing Tax Facts), . Between 1986 and 1996, there were over five,000 modifications in the tax code. In 1996 alone over 700 pages of tax law adjustments and regulations were adopted by the IRS.
The Linked Press (June 1, 2006) noted, “If GE had sent paper forms, the return would have staked up eight feet high…”
In 1993, the Common Accounting Office (GAO) audited the IRS for the initial time in its history and discovered widespread evidence of financial malfeasance and gross negligence, which includes the fact that the agency was not able to account for 64% of its congressional appropriation.
The Alternative Minimum Tax (AMT) “was designed in 1969 to target 21 – yes, 21 – millionaires who had managed to steer clear of paying any taxes at all.” (Wall Street Journal, April 14, 2007). . But next year (2007) that number could rise to 23 million…”
The federal income tax, at present as high as 35% of taxable income, is elevated by as considerably as 11% in state and local income taxes, plus one more 6.20% and 1.45% in social security and Medicare taxes, which makes the total tax burden for some taxpayers almost 54%, not like excise, sales and property taxes, along with a host of other taxes, assessments and fees to quite a few to mention.
Households in the lowest 20% of income received about .21 in federal, state and nearby government spending for every dollar of taxes paid (in 2004), whilst those in the top 20% received only 41 cents in positive aspects. (Tax Foundation Working Paper No. 1, March 2007).
It’s worth noting, I believe, that when I started practicing public accounting in the early 1960s, the filing deadline was March 15, not April 15, and only 1 90-day extension was permitted. Today, the very first filing date is April 15, and it is probable to obtain a six-month extension – to October 15 – all due to the fact of the increased difficulty of acquiring the needed information and the complexity of preparing and filing tax returns.
Several societies view taxation as a contest among tax collectors and citizens, with payment or avoiding payment of taxes as the prize. But we are distinct we are told, due to the fact Americans voluntarily, that is, willingly, file tax returns and pay their taxes.
Baloney! If that’s accurate, why do we hear so much about taxes not getting paid by individuals who work or do business in the “underground economy”? Would you file a tax return if you were not afraid of the consequences of not filing?
Putting aside the government’s hype and PR initiatives, the reason our income tax system is so effective is FEAR. Fear of being audited, fear of becoming assessed, fear of tactics employed to collect unpaid taxes, fear of intrusion into our individual affairs, fear of not being able to defend ourselves against the unlimited energy of government in general and the IRS in particular.
I believe the IRS has cautiously cultivated this image over a period of numerous years. Who can say that they do not have a sudden, albeit maybe brief, fearful reaction when they locate a letter or notice from the IRS in their mail? I know I do, and I’m a retired CPA. I don’t want to hear from them, ever! When I do get some sort of communication from my friendly tax agency (federal or state), I just know it is going to expense me time, funds and aggravation. Maybe you’ve noticed over the years that about tax time it’s common to see a spate of media stories about prosecutions for tax fraud. In my opinion, that’s no accident.
One of Ronald Reagan’s several sage observations, “The taxpayer: That’s somebody who works for the federal government but doesn’t have to take the civil service examination,” seems to sum up the situation rather neatly. For my part, I believe Americans are over-taxed and under served by their government, although our politicians are continuously seeking for techniques to impose new taxes under the radar of public scrutiny and awareness. Will it ever finish? Most likely not, until we have taxed ourselves into near or total oblivion.