On Federal Taxes
With April 15th nearly a month behind us (phew), and the IRS last fall releasing detailed tax data from 2014 (click here), I thought I'd share a few interesting statistics related to the federal individual income tax. When considering our nation's tax scheme, however, always remember the wide variety of taxes we pay in addition to the individual income tax. Here are just a few of the taxes that we all know: Federal, State, and Local Individual Income, Medicare, Social Security, Corporate, Sales, Property, Unemployment, Estate, School, Gasoline, Telephone, Utilities, Insurance Premium, Air Travel, Cigarette, Tanning, and Hunting.
Here are a few stats from 2014
- Americans paid $1.4 trillion in federal individual income tax. Click here to see what a trillion dollars looks like.
- 148.6 million Americans filed federal income tax returns, out of a total of 245 million adults (60.5%).
- The 54 million Americans with income over $50,000 paid $1.3 trillion. Said another way, 36.5% of filers (22% of adults) pay 94.4% of federal income taxes.
- Over 52 million Americans (35% of filers) filed "nontaxable" returns - which means they did not pay income tax.
- Over 31 million of the "nontaxable" filers (21% of filers and 13% of adults) actually received money in the name of "refundable tax credits." With over $90 billion distributed to these filers, the average payment was $3,000.
Some Perspective
- While half of federal revenue comes from the income tax, one-third comes from the payroll tax that is paid by employers and employees. As shown in the graphs below, many taxpayers who pay no federal income tax do contribute via payroll and excise taxes.
- Since 1945, the federal individual income tax has remained steady as the #1 source of federal revenue, responsible for between 40%-50% of total funds to the treasury. While the corporate tax as a source of revenue has dropped significantly as a percentage of total revenue (approximately 35% to 11%), the payroll tax has increased dramatically (from less than 10% to 33%). See the graph below.
Purpose of the Tax Code
- Always remember that raising revenue is only one purpose of a tax code. Other purposes relate to affecting societal behavior and favoring special interests, to include business sectors, industries, and companies.
- Why do you think politicians like to pass voluminous, complex bills and other regulations with thousands of pages that are difficult to understand? Is it easier to sneak favorable provisions into mammoth pieces of legislation, or into short, simple ones?
- When I worked on Capitol Hill for a couple summers during my college years, I quickly noticed that the House Ways and Means and Senate Finance Committees are two of the most powerful. As the primary tax writing committees, they are also the most vulnerable to lobbying efforts.
- Over 3 billion dollars is spent on federal lobbying each year by over 11,000 registered lobbyists. Click here for more information on lobbying industry. Even more disheartening are the former legislative and executive branch public officials from both political parties who immediately parlay their public service experience into huge paydays in the private sector.
- President Trump was not the first politician to use the phrase "Drain the Swamp," and he won't be the last. In 1983, President Reagan used it as a reference to reducing the size and scope of the federal government. In 2007, House Democrat Leader Nancy Pelosi also explained her desire to "Drain the Swamp" in dealing with the problems associated with lobbyists. In my humble opinion, simplifying the tax code, or using a mechanism to raise revenue in a way that does not allow legislatures and executives to grant favorable tax treatment, would be a wonderful step towards actually draining the swamp.
