taxes

Facts

Benjamin Franklin famously wrote “Nothing in life is certain – except death and taxes.” Sadly, he was pretty on target, but although they're inevitably that doesn't mean taxes can't be fun to learn about! (Be kind: we're geeks – we spend all day writing about policy.) Needless to say, taxes are a complicated topic, but to help simplify matters, we break our tax page into two parts; a general overview of our tax system followed by (for those looking for adventure) an in depth analysis of the brackets, percentages and categories associated with our tax system – Enjoy!

Basics

  • Total Federal revenue from taxes (2007) CBO (pdf)

    • $2.6 trillion

    • 18.8% of GDP

federal revenue - as % of national economy (GDP) - over the years

note: about 2% of federal revenue comes from "miscellaneous receipts," which you may or may not consider a tax

  • Where the Federal funds come from (2004) CBO - pdf

    • Income Taxes - $927 billion

    • Corporate Taxes - $278 billion

    • Social Insurance Taxes - $794 billion

    • Excise (goods and services) Taxes - $73 billion

    • Estate and Gift Taxes - $25 billion

    • Other - $56 billion

kinds of taxes we collect - as % of national economy (GDP)

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  • Total State revenue from taxes (2002) NCSL

    • $905 billion - or 10.1% GDP

      • Sales tax – $324 billion

      • Property tax – $279 billion

      • Income tax – $203 billion

      • Corporate tax – $28 billion

The Breakdown on income tax - who pays what?

  • Federal tax brackets for 2004. How much your "taxable income" (your income after deductions) is taxed:

Rate

Single

Couple

10%

$7,000

$14,000

15%

$28,400

$56,800

25%

$68,800

$114,650

28%

$143,500

$174,700

33%

$311,950

$311,950

(This means that if you're single and you make $50,000, your first $7,000 is taxed at 10% and then from $7,000 - $28,000 you're taxed at 15%, etc )

  • The "effective" tax rate - that is, what % of their income American households really give, once you factor in all kinds of income, deductions, credits, etc.

source: CBO

  • How much each group contributes to the total federal tax burden

source: CBO

although the richest 5th are paying a larger share of the total tax burden, it should be pointed out that they're also making more:

source: CBO

Tax evasion

  • Americans avoid paying about

    • 15% of their taxes (according to the IRS (pdf), using 1998 numbers)

Tax Cuts

CBO

Bush set in motion two rounds of tax cuts - in 2001 (EGTRRA) and in 2003 (JGTRRA) - which cut taxes for folks at all income levels and which contained tax credits for families and research. The two acts cover similar ground and, in many cases, the 2003 act simply took tax breaks that the 2001 bill phased in gradually over 10 years and put them into place immediately. Three of those accelerated cuts - the child credit, the 10% bracket and the marriage penalty relief - were set to go back to their more moderate EGTTRA levels in 2004 - but Congress voted to extend them through 2010. Another tax break for the low income - the Alternative Minimum Tax relief - was also extended through 2005.

More extensions in 2005? As part of its budget reconciliation process, Congress may vote to extend the AMT exemption, research tax credits and, somewhat controversially, capital gains and dividends tax cuts.

The chart below breaks down the main elements of the Bush tax cuts, explains what they do, how much they cost and when they expire. In terms of ‘cost' this just means how much they add on to the deficit, but you could also look at it as ‘savings' to the taxpayer. CBO

Tax Cut What it does
How much it'll cost if it's extended
When it expires
10% income bracket creates a new lowest end tax bracket for the first $7000 of earnings ($14,000 for joint filers and $10,000 for heads of households) $51 billion in 2012 (CBO) 2010
AMT exemption frees up more middle class families from having to pay the "alternative minimum tax" which was originally designed to keep the wealthy from overusing loopholes $28 billion in 2006 (TPC) 2006
Capital gains and dividends lowers the tax on capital gains and dividends to 15% (and even lower for low income workers) $13 billion in 2009 (CBO) 2010
Child Tax Credit raises the child tax credit to $1000 per child, up from $500 $34 billion in 2011 (CBO) 2010
Estate and Gift Tax exempts a large portion of a dead person's estate from taxation (up to $3.5 million in 2009) and allows you to give tax free "gifts" $51 billion in 2012 (CBO) 2010
Marriage penalty relief changes the tax code to make sure couples are not taxed more as a married couple than as two single filers $6 billion in 2011 (CBO) 2010
Research tax credit gives tax incentives for research $2 billion in 2006 (CBO) 2005
Tax brackets at 25%, 28%, 33% and 35% lowers the tax rate for all brackets down from 28%, 31%, 36% and 39% $63 billion in 2012 (CBO) 2010

The Fine Print

Tax returns filed for 2004

  • 131 million TF

  • 42.5 million (32%) had no tax liabilities after deductions and credits (This is the largest percentage between 1950-2004 with a low of 16% in 1969)

Alternative Minimum Tax CBO

The Alternative Minimum Tax (AMT) was created in the 1970's to ensure that those with very high incomes couldn't exempt-the-heck out of their taxes. An "alternative" formula for calculating taxes was set up; wealthier people would have to pay whichever formula was higher - the regular or "alternative minimum" tax. The problem is that the system was never adjusted for inflation and so many ‘middle-class' families are now beginning to fall under the AMT category (up to 20% of Americans by 2010). Under the Bush tax cuts, lower income tax payers (singles who make less than $40,250; and joint filers who make less than $58,000) got an exemption from the AMT. In May 2006 those exemptions were extended by Congress to apply through 2006.

The Estate - or "Death" Tax TPC

The estate tax is a tax on a person's estate after they die – and before it gets inherited by the heirs. The Bush tax cuts changed the estate tax by decreasing the tax rate and increasing how much of an estate would be protected from the tax (in stages - see below). In 2011, the estate tax will return to pre-Bush levels, but there are moves in Congress to either do away with the estate tax completely, or to permanently raise the tax-free ceiling to somewhere between $3 - $8 million.

The Bush tax cut:

  • Decreased the percentage that gets taxed

    • 2001 (pre Bush tax cuts) – 60%

    • 2005 – 47%

    • 2009 – 45%

    • 2010 – repealed for one year before taking effect again

    • 2011 – 55% (unless new legislation is passed)

  • Increased the amount that was protected from the estate-tax

    • 2001 (pre Bush tax cuts) – $675,000 and up was taxed

    • 2005 – $1.5 million and up is currently taxed

    • 2009 – $3.5 million and up will be taxed

  • Federal revenue from the estate-tax – $25 billion (roughly 1.3% of total revenue for 2004)

Marriage penalty relief : (CBO)

Through a quirk in the tax system, many married couples used to pay more in taxes as a couple than if they had filed their taxes separately. To correct this marriage "penalty", the Bush cuts lifted the standard deduction for married couples and pushed up the 15% tax bracket for married couples. Set to expire in 2004, Congress voted to extend the 2003 levels of tax relief for married couples through 2010.

Child credit:

Tax credits for having kids existed before the Bush cuts, but the 2003 act brought the credit up to $1000 per child. The credit would have gone back down to more moderate levels - $700 per child - in 2005 if Congress had not voted to extend the higher credit. (CBO)

  • Costs to the government/Savings to individuals of extending the $1000 child credit (September 2004):

    • 22.6 million families will save an average of $448 more on their taxes in 2005 because the $1000 credit is extended. (Over 96% of tax payers who benefit fall in the $20,000 - $100,000 income range) (Tax Foundation - dead link)

    • Families with the lowest incomes are least affected by the higher child credit. Because they pay little to no taxes, their child credit doesn't get deducted from their taxes - it shows up instead as a check. But because that check is limited to a percentage of what the family earns, lower earners get smaller credits so don't see the possible $700, let alone $1000, savings. (CBPP)

10% tax bracket:

The 2001 act created an entirely new tax bracket, so everybody's first $6000 of taxable income is taxed at 10% ($12,000 for joint filers). The 2003 law expanded that bracket up to the first $7000 for singles (and $14,000 for couples), and was extended by Congress in 2004. (CBO)

Where the facts are from:

Other sources:

  • The Government Accountability Office has a great overview (pdf) of the current tax system and proposed ways to switch it up.

Did we miss something, let some slant slip in, lose a link - or do you just have something to say? Drop a line below! In the spirit of open dialogue, cJ asks you keep it civil, keep it real and keep it focused on the message, not the messenger. See our policy page for more on what that all means.

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