During “tax season”, I spend a lot of time talking with clients and tax preparers about, as you might expect, income taxes. This often includes strategizing about how to reduce them in the future, or simply helping to collect the volumes of detailed information necessary to prepare a tax return. Invariably, comments abound about the complexity of the tax code, how frustrating it can be and how we all might feel better about it if the money was used more wisely. One night, after a particularly heavy day of tax talk, I started wondering how taxation in the United States has evolved and how it compares to that of other countries. I did a few simple internet searches and came up with the following information that I found interesting. Therefore, I thought I would share some of it with you.
- Every known historical civilization has taxed its citizens. This includes the Sumerians, the first known civilization, for which detailed records of taxation have been found.
- The U.S. income tax traces its origins back to 1861 and the need to finance the Civil War.
- The modern U.S. tax system started in 1913 with the passage of the 16th amendment granting Congress the power to collect taxes on personal income. Initially, people would save all year long to pay a lump sum tax at the end of each year. With the start of World War II, the federal government needed a more consistent income stream, which gave rise to the practice of withholding taxes from our paychecks.
- According to CCH, at the start of the modern tax era in 1913, the federal tax code was 400 pages long. Today, it includes over 73,000 pages!
- According to Laura La Bella’s 2011 book “How Taxation Works”, there are at least 480 tax forms included on the IRS website!
- The Bible has approximately 700,000 words; the U.S. Tax Code has around 3,700,000!
- The 1040EZ, supposedly the easiest federal income tax forms to file, has over 40 pages of instructions.
- I contend that all of the above is more than partly responsible for over 1,000,000 accountants being hired each year in the U.S.
- I would also argue that it is the primary reason why Americans spend over $27 billion each year on tax preparation.
- According to the 2012 publication “Misconceptions and Realities About Who Pays Taxes”, approximately 40% of U.S. households paid no federal income taxes in 2007. In 2012, approximately 47% owed no federal income tax, perhaps a result of the recent economic crisis and slow recovery we have all experienced.
- On average, Americans worked 103 days in 2009 to pay his or her taxes.
- Per Laura La Bella’s book “How Taxation Works”, not including Social Security and Medicare taxes, the wealthiest 1% of Americans earn 19% of total income, but pays 37% of the income taxes collected in America. The top 10% or earners pay as much as 68% of the income taxes collected.
As hard as it can be to pay taxes in the U.S., especially for those who pay them at the highest marginal rate, it could be worse. The chart below provides a glimpse of the tax rates being paid by the citizens of several other countries throughout the world. Some of them may make you “appreciate” paying taxes in the United States.
|Country||Income Tax Rate||Top Rate Starting Income|
As the above points demonstrate, the U.S. tax code can be frustratingly complex and amazingly costly. Unfortunately, this does not seem likely to change anytime soon. However, I am hoping you can take some solace in knowing that taxes have been around since the beginning of civilization and that others around the world may actually be paying them at a higher rate than you. So, enjoy the time between now and next tax season, thank your tax preparer and take solace in the fact that you are not a taxpayer in one of the countries listed above!