Tax Facts & Principles

April 15, 2009

Tax Facts

  • In 2005, the estimated time and money cost of complying with the federal Internal Revenue Code was 6 billion man-hours worth $265 billion.
  • The code that year stood at 7 million words in 736 code sections, up from 718,000 words in 103 code sections in 1955. By contrast, the King James Bible has 788,280 words in 66 books, the Harry Potter series has just over 1 million words in 7 books, and the English translation of War and Peace has 560,000 words.
  • In 2009, Americans worked 103 days of the year to pay for federal, state, and local taxes. This is more than the days worked for housing, food, and clothing combined. Americans worked 38 days to pay income taxes, 27 days to pay Social Insurance taxes, 15 days to pay sales and excise taxes, 12 days to pay property taxes, 6 days to pay corporate income taxes, and 4 days to pay other taxes.
  • In 2006, about one-third of all individual income tax returns (45.6 million) reclaimed every dollar of income tax withheld during the year.
  • The form 1040 and instructions in 1913 was only 4 pages. In 2009, they are 94 pages.
  • In tax year 2008, 154.3 million individual income tax returns were filed, resulting in government collections after refunds of $1.059 trillion.
  • 61 percent of filers used a paid preparer.
  • In tax year 2006, the “top 10 percent” began at $108,904 in adjusted gross income; the “top 1 percent” at $388,806 in adjusted gross income. 355,204 returns had more than $1 million in adjusted gross income.
  • 62.8% of individual returns claim the standard deduction; 35.3% itemize.
  • In 2005, 21.9 million returns claimed the Earned Income Tax Credit (EITC), which paid out $39.7 billion. 12.8 million returns checked the box to provide funds to the Presidential Election Campaign Fund. 48 taxpayers gave a total of $21,179 to reduce the national debt.
  • 7 states have no state income tax: Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming. Two other states, New Hampshire and Tennessee, tax capital income but not wage income.
  • 5 states have no state sales tax: Alaska, Delaware, Montana, New Hampshire, and Oregon.
  • The first income tax was levied in 1404 in England. While the U.S. adopted a temporary income tax in 1862, it was not permanently enacted until 1913 after ratification of the Sixteenth Amendment.
  • The 1913 income tax rates ranged from 1 percent to 7 percent on income over $500,000. The average annual income earned that year was $800.

Principles of Sound Tax Policy

Simplicity. Administrative costs are a loss to society, and complicated taxation undermines voluntary compliance by creating incentives to shelter and disguise income.

Transparency. Tax legislation should be based on sound legislative procedures and careful analysis. A good tax system requires informed taxpayers who understand how tax assessment, collection, and compliance works. There should be open hearings and revenue estimates should be fully explained and replicable.

Neutrality. The fewer economic decisions that are made for tax reasons, the better. The primary purpose of taxes is to raise needed revenue, not to micromanage the economy. The tax system should not favor certain industries, activities, or products.

Stability. When tax laws are in constant flux, long-range financial planning is difficult. Lawmakers should avoid enacting temporary tax laws, including tax holidays and amnesties.

No Retroactivity. As a corollary to the principle of stability, taxpayers should rely with confidence on the law as it exists when contracts are signed and transactions made.

Broad Bases and Low Rate. As a corollary to the principle of neutrality, lawmakers should avoid enacting targeted deductions, credits and exclusions. If such tax preferences are few, substantial revenue can be raised with low tax rates. Broad-based taxes can also produce relatively stable tax revenues from year to year.

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