This is a 1958 Corvette, and when it came out of the factory, people paid higher income taxes than they do now. Image from Wikimedia Commons.

Tax Day has just passed by, and there has been customary grumbling in some circles about how awful income taxes are in the United States. However, most of the data on taxes indicate that Americans are actually paying the least they have in decades. The tax burden is lighter on nearly every segment of society.

Politicians wonder how we wound up with a deficit

The 1950s were an ideal decade to a lot of people. Wholesome and clean television shows like “Howdy Doody” and “Leave it to Beaver” ruled the airwaves; people pursued the American Dream with gusto and patriotism; and they paid more in income tax — before Medicare and Medicaid ever existed, according to USA Today. Average Americans devoted about 27 percent of their gross income to taxes from the 1950s until the 1990s, when the tax rate began to trail off. In 2010, it was down to 23.6 percent of gross income. Were taxes to be raised back to 1950s levels of taxation, it would raise approximately $500 billion. According to MSN, the Internal Revenue Service estimates that it issues more than $328 billion in tax refunds every year.

The beneficiaries

The people who have benefited, at least in some way, from lower income taxes and some generous tax breaks are poorer households, according to CNN. It was widely reported that the Tax Policy Center found that 45 percent of households did not or would not have to pay a dime in income taxes. Not having to pay taxes does sound attractive, but 68 percent of those people earned $50,000 per year or less. For people who earned $500,000 to $1 million per year, only 1.6 percent didn’t owe or have to pay any taxes, and only 1 percent of people who earned $1 million or more didn’t owe or have to pay. Still, the tax burden placed on the wealthiest seems disproportionate even to the wealthy. Charles Munger, right hand man to none other than Warren Buffet, said at a recent Berkshire-Hathaway conference that hedge fund managers paying lower tax rates than “professors of physics or cab drivers” was “demented,” according to the Motley Fool.

IRS not immune to fraud

The Internal Revenue Service is collecting less and paying more these days. The IRS wound up paying more than $12 million to dead people in a tax scam ring, according to MSN. More than 5,000 returns were filed fraudulently using the names and Social Security numbers of deceased individuals in the hopes of fooling the IRS into cutting a check to someone who wasn’t alivet. A man in Florida was ordered to apply for an Electronic Filing Identification Number, which was used by others after he received it to find recently deceased people and electronically filing tax returns using their identities. The IRS has recovered more than $800,000 from Bank of America accounts and more than $700,000 in Chase accounts used for this purpose.

Sources

USA Today

CNN

Motley Fool

MSN

Getting around taxes has been an American pastime since the 1773 Boston Tea Party. Image from Wikimedia Commons.

The amount of the average tax refund has been steadily increasing over the years, and so is the number of cases of tax fraud. The Internal Revenue Service has seen a rise in the number of fraudulent deductions taken on income tax returns. More people are trying to catch the government napping to scare up some extra cash.

Internal Revenue Service not amused with crazy deductions

Most Americans hate taxes, and finding ways to hoodwink, trick and blatantly lie to the tax man is practically a national pastime. The number of fraudulent tax returns, according to CNN, has skyrocketed since last year. The Internal Revenue Service received 335,341 tax returns that falsely claimed nearly $1.9 billion in deductions. That figure was a 181 percent increase over the number of similar returns last year, when the IRS received 119,484 returns that incorrectly claimed deductions totaling $721 million. However, not all of these returns were brazen acts of fraud, and the term “fraud” can be somewhat misleading.

False deductions aim to claim more money

The Internal Revenue Service investigated 230 people for questionable returns for Fiscal Year 2008 and 504 people for Fiscal Year 2010, according to the Internal Revenue Service website. In 2008, only 155 recommendations to prosecute were made and 301 were made in 2010. Those figures only include cases of bad deductions. The IRS made 1,507 recommendations for prosecution in total during 2010, according to USA Today. The reason people submit bad deductions on tax forms is simple — more deductions means more money. The average tax refund, according to the Wall Street Journal, was $3,003 for 2010, almost double the $1,698 average tax refund in 1999. The number of bad deductions in 2008 compared to 2010 suggests people are trying to claim greater deductions during lean years.

Houses, cars and kids most common bad deductions

The most common falsely or mistakenly taken deductions were for real estate, motor vehicles or children. The Treasury Inspector General for Tax Administration released a report that asserts the most problematic deductions were the Adoption Credit, the Qualified Motor Vehicle Deduction, the Non-Business Energy Property Credit, the Plug-in Electric Drive Motor Vehicle Credit and the First Time Homebuyer Credit. The Qualified Motor Vehicle Deduction and First Time Homebuyer credits caused the most trouble; the Treasury found that 218,069 people claimed $318 million in QMV deductions, but those people would have had to put off paying any sales tax or excise tax for 2009 and 2010. The First Time Homebuyer credit, according to the Los Angeles Times, paid out an estimated $513 million to people who didn’t necessarily qualify for it. At least $326 million was credited to 47,000 people who had previously owned homes.

Sources

CNN

Internal Revenue Service enforcement statistics

USA Today

Wall Street Journal

Los Angeles Times

Treasury Inspector General for Tax Administration

April 18 is Tax Day, and income tax returns are due to the Internal Revenue Service. Photo Credit: Saturnism/Flickr.com/CC-BY-SA

Federal income tax returns are due on April 18, 2011, and most Americans will dutifully fulfill their obligations to do so. There has been a lot of discussion about how large a tax burden is actually placed on the taxpayers, and how oppressive the income tax is. Nearly 50 percent of income tax filers will not owe the government a dime.

55 percent of Americans pay income tax

Tax Day 2011 falls on April 18 rather than April 15. This year nearly 45 percent of households will not have to pay any taxes on their 2010 income, according to Bloomberg. Low-income households receive exemptions and deductions, such as the Earned Income Credit and the Making Work Pay Credit. Those who pay no income taxes are very low income or living on a fixed income such as Social Security or disability income. People who have children but make very little also commonly pay no income taxes. The average tax refund, according to CNN, was $3,003 last year.

Wealthy paying less

The tax burden for the wealthiest taxpayers, according to Daily Finance, has been falling for some time. In 1992, the 400 returns with the highest reported incomes averaged a tax bill of 26 percent of their income, but that figure was 17 percent in 2007. Though the wealthiest 10 percent account for more than half the nation’s tax revenue by dollar amount and the wealthiest 5 percent account for 44 percent, the more lucrative tax breaks, such as for charitable contributions, are available to the rich. There are more than $1 trillion in tax breaks in the current U.S. tax code, enough to get an $8,000 refund per taxpayer per year. However, trying to catch the Internal Revenue Service napping is not a good idea. The IRS is more likely to press charges now than at any point in the past decade, according to USA Today.

Americans pay lower taxes than most developed countries

Though many people protest the U.S. tax system for myriad reasons, most technical literature reveals that Americans pay very little income tax compared with the rest of the developed world, according to MSNBC. The Organisation for Economic Co-operation and Development, or OECD, maintains data on taxes in the developed world. The OECD estimates that Americans average 24 percent of income paid in taxes, compared to 48 percent for Danes, 42 percent for the French, 37 percent in Germany and 27 percent in Australia.

Sources

Bloomberg

CNN

Daily Finance

USA Today

MSNBC

Most people would rather get locked in the stocks than deal with an IRS audit, but the odds of getting audited are less than 1 percent for the typical person. Image from Wikimedia Commons.

Everyone dreads getting a notice of a tax audit from the Internal Revenue Service. There are few documents that cause as much terror as an audit notice. However, the odds of being audited are very low.

78 of 100 audits take place via correspondence

According to a recent post on CNN, up to 78 percent of tax audits in the year 2009 took place via mail correspondence. The article also clarified that “22 percent took place in person.” That means fewer Internal Revenue Service agents are being dispatched out to conduct audits. Performing audits via correspondence is cost effective for the IRS, and it is happening more frequently because the IRS has already had to deal with diminishing budgets and is facing a further $600 million in cuts from its budget. A Taxpayers Advocacy Service survey cited in the CNN piece revealed, however, that more people would prefer an audit in person because the legalese is difficult to understand. However, normal taxpayers should fear not, because only 1.6 million people were audited in 2009. That’s less than 1 percent of the U.S. population.

Rich audited more often

Those most likely to be audited by the IRS are the wealthy. According to Forbes, those with an income of $200,000 or more per year stand a 2.7 percent chance of an audit, and the Wall Street Journal reports that those making $10 million or more stood an 18 percent chance of being audited. Forbes and the Wall Street Journal noted that the rate at which the wealthy were being audited was increasing. Though that is awful news for Donald Trump, the rest of us can rest easy knowing there is a 1 percent or less chance of being audited.

If an audit does come around

Beware of any phone calls or emails concerning an IRS audit; those are scams. The Internal Revenue Service only communicates in an official capacity by mail. According to Investopedia, should always keep at least the last three years of income tax returns and related records on hand. Most audits happen for a reason and are triggered by red flags in a person’s tax file. The IRS has a lot of people and a lot of data to keep track of and won’t take the time to perform an audit unless it thinks it should. The most common penalties are 20 percent and 75 percent of the amount of tax that should have been paid.

Sources

CNN

Forbes

Wall Street Journal

Investopedia

I propose that fewer Tea Party tax protests would be so angry if we all had a few more. (Image from Wikimedia commons)

My fellow Americans, it is tax time, and I note some of you are into this Tea Party thing, which has many people incensed against government and taxation.  Well, since Tax Day is passing and many of us are mailing painful checks to the IRS, I figured I’d let you all in on something I discovered about why so many people are angry about taxes.  You’d never guess this one, and I’m letting everyone in on it for free. You won’t need payday loans to rectify it either.

An odd correlation

Many Americans are stressed over taxes.  Some of us begin to wonder – do U.S. citizens give that much more in cash advances to our government? Actually, no – Americans pay some of the most reasonable taxes in the developed world.  Here are four tax categories and what Americans pay:

• Corporate Tax: 15 to 39% Federal, 0 to 12% State
• Income Tax: 0 to 35% Federal, 0 to 10.3% State
• Value Added/Goods & Services/Sales Tax: 0 to 10.25% State and/or local
• Payroll Tax: Up to 15.3% Federal

Consider the UK has income taxes of 40 to 50 percent, and a 23.8 percent payroll tax.  Denmark imposes an income tax of up to 59 percent of income. Sweden starts at almost 29 percent, and can go as high as almost 60 percent of income. It seems as though there aren’t the kind of tax protests there as here.

Why?

Well, for two reasons. One is that they may be OK with government providing services.  However, another statistic is far more telling:

They drink more and better beer than we do.

Oh yes, I went there. Average beer consumption per capita by Americans is 13th.  Almost every country in the ranking by beer consumption above us has higher taxes than us, and the average U.S. citizen puts away almost 82 L per year in beer. For instance:

• Spain: Almost 2 liters more per year, and up to 7% more in income tax
• Luxembourg: They pay almost 4% more, drink 3 L more
• Finland: Drink over 3L more, pay up to 60% in federal and local tax
• Denmark: Pays up to 14% more, drink 8 L more
• Belgium: Income tax up to 50%, and they put 11 L more away
• The UK: 50% income tax, they drink 17 L more per year
• Germany: Up to 45% income tax, and a liver killing 115 L per year
• Ireland: Income tax of up to 41% and they consume a pulverizing 131 L of beer every year.

Of the top 13 beer drinking nations, only Slovakia and the Czech Republic pay less income tax and drink more beer than us.

So what’s the point?

The point is that alcohol is a depressant.  You calm down.  Tea Party protests, do not seem calm.  (Granted, they aren’t violent – but very agitated.) Thus – I present the following argument:

• First – that people who indulge in more beer, responsibly, are calmer
• Second – that the majority of the countries that drink more beer than us pay more in taxes (10/12, in fact)
• Third – that they protest these taxes less
• Fourth – if drinking more beer leads to a more relaxed frame of mind, U.S. tax protests would happen less or with less vitriol if we as a nation started drinking more beer.

Remember, always indulge responsibly, legally and with a designated driver.