With the due date for filing individual income tax returns having recently passed, this seems like a good time to reflect on the annual ritual of self-flagellation that Americans are forced to endure at the beginning of each year. The April deadline has become a sort of rite of passage for citizenship, although as things stand today almost half of all workers don't pay any income tax at all.
Following are some random facts (in no particular order) about our income tax laws, who pays and who doesn't, and the impacts our system 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 rich. Rates began at 1% and increased to 7% for taxpayers with income in excess of $500,000. Less than 1% of the population paid any income tax at all, compared with almost 50% of taxpayers paying as much as 35% of their taxable income today.
The top 5% of wage earners pay almost 60% of total individual income taxes, while the top 10% pay about 70%, and the top 50% pay approximately 97%. Translation: Just half of all taxpayers pay almost 100% (96.93%) of all income taxes, while almost 50% pay no income taxes at all.
The Internal Revenue Service (IRS) has approximately 91,000 employees (FTEs or full-time equivalents), and a total budget of $11.4 billion.
Estimates of unreported commercial activity in the U.S. amount to as much as one trillion dollars a year, and the IRS Oversight Board report for fiscal 2007 notes that the tax gap, "the difference between what is owed and what is collected...is estimated at $345 billion of lost revenue annually." Question: If it's an underground economy, how does the IRS know how much income is not reported?
The Cato Institute reported that businesses and individuals now waste over 6.4 billion hours on federal tax compliance activities each year, which the Tax Foundation estimated amounted to $265.1 billion in 2005. That's equivalent to over three million people working full time, just to deal with tax compliance. This amounted to a 22% tax compliance surcharge on the total amount collected through the tax system.
In the 1920s the federal tax code was comprised of about 40 pages of rules. Today, according to the Virginia Chapter of NRSTA (Interesting Tax Facts), the tax code, regulations and IRS rulings now require over 66,000 pages to document. Between 1986 and 1996, there were over 5,000 changes in the tax code. In 1996 alone over 700 pages of tax law changes and regulations were adopted by the IRS.
When the General Electric Co. filed the corporation's tax return electronically, it took 24,000 pages to document. The Associated Press (June 1, 2006) noted, "If GE had sent paper forms, the return would have staked up eight feet high..."
In 1993, the General Accounting Office (GAO) audited the IRS for the first time in its history and found widespread evidence of financial malfeasance and gross negligence, including the fact that the agency was not able to account for 64% of its congressional appropriation.
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