Saturday, April 16, 2016

Bend Over And Grab Your Ankles

It's everyone's favorite time of the year - Income Tax Time!


But seriously, folks, here's a few facts and figures for you to ponder while you chase your tail filling out overly complicated. complex, and incomprehensible IRS forms.

And, if you're like me, at the conclusion of that fun-filled exercise you get to write a check to Uncle Sam.

Again ... Yay!!!

Some Historical Perspective.
“In the beginning” when the US federal income tax was first introduced in 1913, it used to be a lot, lot simpler and a lot easier to file taxes; so easy in fact that it was basically like filling out your federal tax return on a postcard.
Click to embiggen.
For example, page 1 of the original IRS 1040 income tax form from 1913 appears above. There were only four pages in the original 1040 form, including: two pages of worksheets, the actual one-page 1040 form above, and only one page of instructions, view all four pages here. In contrast, just the current 1040 instructions for 2014, without any forms, runs 105 pages...

Individual federal income tax rates started at 1% in 1913, and the maximum marginal income tax rate was only 7% on incomes above $500,000 ($12.02 million in today’s dollars).
More recently:
In a 2012 report to Congress, the National Taxpayer Advocate estimated that American taxpayers and businesses spend 6.1 billion hours every year complying with the income tax code... That amount of time spent for income tax compliance – 6.1 billion hours – would be the equivalent of more than 3 million Americans working full-time, year-round... By way of comparison, the federal government currently employs 2.7 million full-time workers, and Wal-Mart, the world’s largest private employer, currently employs 2.2 million workers worldwide and 1.3 million workers in the US... At the current federal minimum wage of $7.25 an hour, the dollar value of the opportunity cost associated with tax filing would be more than $44 billion, equivalent to the 2015 GDP of both South Dakota ($45.4 billion) and Montana ($45.8 billion) and greater than the GDP of both Wyoming ($40.1 billion) and New Hampshire ($29.7 billion).
As for the 'make the rich pay their fair share' mantra chanted by both Bernie and hillary supporters, take a gander at the following.
All told, individual income taxes accounted for a little less than half (47.4%) of government revenue, a share that’s been roughly constant since World War II. The federal government collected $1.54 trillion from individual income taxes in fiscal 2015, making it the national government’s single-biggest revenue source.

Of that 47.4% of total government revenue from individual income taxes:

In 2014, people with adjusted gross income, or AGI, above $250,000 paid just over half (51.6%) of all individual income taxes, though they accounted for only 2.7% of all returns filed... Their average tax rate was 25.7%. By contrast, people with incomes of less than $50,000 accounted for 62.3% of all individual returns filed, but they paid just 5.7% of total taxes. Their average tax rate was 4.3%.
When you look at taxes paid compared to benefits received, the inequity becomes even more obvious.
The top 0.1% of families pay the equivalent of 39.2% and the bottom 20% have negative tax rates (that is, they get more money back from the government in the form of refundable tax credits than they pay in taxes).
Click to embiggen.

Here's another view. The numbers differ slightly because of timing differences, but the overall trend is clear. The 'rich' pay more than their fair share.

That trend is even more pronounced over time.

" the 1.38 million taxpayers in the top 1%, I say “Thank You” for paying almost as much in federal income taxes in 2013 as the 131.4 million taxpayers in the bottom 95% by income."

Final thoughts:
Bowling vs. Taxes. Under the scoring rules of bowling, you get rewarded, not penalized, for being successful. If you get a spare, the scoring system rewards you by adding the pins from the next ball into the current frame, and if you get a strike you get rewarded by adding your next 2 balls into the current frame.

Under our progressive income tax system with 7 tax rates in 2015 increasing from 10% to 39.6%, you get penalized, not rewarded, for being successful, productive and entrepreneurial, because the more you earn, the higher the tax rate you pay.

Coincidence? Why are Tax Day (April 15) and Voting Day (first Tuesday in November) so far apart? Couldn’t we move Tax Day to the first Monday in November or Voting Day to the first Tuesday following April 15?

What’s In a Name? Why do we call the IRS a “service?” Couldn’t it have been named a department like Labor, a bureau like the BLS or the FBI, a commission like the FTC, an administration like FDA, an agency like EPA, etc.?
That last one really struck home. The damn IRS is the farthest thing from a service I can think of. It is a cumbersome, inefficient, and highly politicized parasite that tramples common folks beneath its indifferent and uncaring feet. As long as criminals and thugs like Lois Lerner are allowed to freely bully individuals and groups in order to curry favor from their political masters the IRS will remain the most despised arm of the federal monster that lords it over us.

I would go on, but my wife just informed me that some people from the government are at the door...


Old NFO said...

Grrr... But at least now that I'm retired, they get LESS of my money...

CenTexTim said...

That's because you have less money to give them...

Well Seasoned Fool said...

Still think a flat tax makes sense. Of course, scads of lawyers and accountants would be out of work.

CenTexTim said...

I'm all for a flat tax, but like you, I doubt if we'll ever see it. It makes too much sense. Furthermore, there's no opportunity for special interests - not just lawyers and accountants, but all the other special interest groups who benefit from the loopholes and twisted regs.