Monday, March 31, 2014

4 Wild Facts About Taxes in America

April 15. Tax day. One of the most dreaded days in America.

If you haven't finished your taxes yet, run. They're due today.

For those who have, here are four wild facts about taxes in America.

1. Tax cheats have cost trillions of dollars over the last decade.
Every few years, the IRS provides an estimate of the "tax gap," or the difference between how much revenue it should have collected based on known business activity, and how much it actually collected. It's a rough measure of tax cheats.

In 2006, the most recent year it has data on, IRS estimates the tax gap at $385 billion, or an 85.5% compliance rate. And that's after subsequent audits brought in late payments and penalties. 2001's tax gap totaled $290 billion.

The IRS only issues these reports every five years, and each report covers just one year. But let's assume 2001's tax gap of $290 billion was reflective of the 2001-2005 period, and 2006's $385 billion gap was reflective of the 2006-2010 period. In total, that's $3.3 trillion in lost tax revenue over the last decade.

The national debt increased by $8.3 trillion from 2001 to 2011. Tax cheats, then, are indirectly responsible for more than a third of the increase in the national debt. Thanks, guys.

2. The annual cost of tax preparation totals far more than the government spends on education
Nina Olson, the National Taxpayer Advocate (an IRS watchdog), estimates Americans spend 6.1 billion hours per year preparing their taxes.

The average wage in March was $20.03 per hour, so 6.1 billion hours, then, costs Americans $122 billion of their time.

For perspective, consider that the federal government has spent an average of $97 billion per year on "education, training, and employment" since 2008.

Go ahead, get angry.

3. The composition has changed enormously over time
The federal government collected tax receipts equal to 15.8% of GDP in 2012. That's less than the average of 17.7% since 1945, and a touch below the 16% average of the last decade.

But perhaps more important than the amount of taxes collected is how the burden has shifted. In 1950, corporate taxes made up 27% of revenue, and payroll taxes brought in 11%. By 1980, it was 12.5% and 30.5%, respectively. And by 2011, corporate taxes made up 7.9% of revenue, while payroll taxes made up 35.5%:

Source: Office of Budget and Management.

4. The one-man class war
In 1935, president Roosevelt set a special 79% tax rate on those earning more than $5 million a year. According to historian Mark Leff, only one man in America made that much money over the following three years: John D. Rockefeller, Jr.

Rockefeller's father, John D. Sr., wasn't happy. "When a man has accumulated a sum of money, accumulated it within the law, the Government has no right to share in its earnings," he once said, according to his biography, Titan. (Anti-trust courts, of course, questioned whether Rockefeller's wealth was made within the law.)

For more on taxes, check out:

The 7 States With No Income Tax The States With the Highest Income Taxes This Company Is Fighting to Keep Your Taxes Complicated

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