It should come as no surprise that most Americans find the current federal tax system complex, incomprehensible, and unfair.
A nationwide poll found that a majority of Americans, about 56 percent, including similar proportions of Democrats and Republicans, view the tax system as unfair. An even larger proportion, 60 percent, felt that some businesses and wealthy people were not paying their fair share of taxes.
According to the Commissioner of the Internal Revenue Service (IRS), most unpaid taxes are the result of evasion by wealthy and large corporations. No fewer than 55 of America’s largest corporations paid no taxes on billions in profits last year.
In addition, 26 companies have avoided paying federal income taxes in the past three years. Examples of very wealthy people who have paid little or no taxes in recent years are also frequently reported.
One proposal currently under negotiation in Congress but rejected by conservative political groups is to bolster the IRS with an additional $ 80 billion aimed at improving existing tax laws for large corporations and individuals with annual incomes greater than Enforce $ 400,000. The proposal is estimated to generate $ 700 billion in tax revenue over 10 years. In 2020, the IRS budget declined from $ 15 billion, adjusted for inflation, to $ 12 billion a decade ago.
In addition to reducing tax justice, many Americans would like a less complex tax system. Many economists agree that a simpler, more transparent and fairer tax regime would help the economy. The IRS currently estimates the country loses $ 1 trillion in unpaid taxes annually.
Concerns, dislikes, and complaints about taxes are nothing new, as they were a part of American society even before the country’s independence was declared in 1776. Under the slogan “no taxation without representation”, colonists protested in the 1760s against British tax policy that eventually led to the American Revolution.
When the United States was established, it levied import taxes, poll taxes, and property taxes on land and commercial buildings. Almost a century later, during the American Civil War, the US imposed income taxes in 1861 that lasted about 10 years.
In 1913, the 16th Amendment legalized federal income tax across America. In the 1920s and 1930s, many of today’s taxes such as social security, inheritance, and gift taxes were introduced, with Medicare and Medicaid founded in 1965.
In fiscal 2019, the government raised $ 3.5 trillion in revenue, or about 16 percent of gross domestic product (GDP). The IRS processed more than 240 million tax returns and forms, and approximately 60 million taxpayers were assisted by calls or visits to an IRS office. During that fiscal year, the IRS also issued more than $ 736 billion in refunds.
The federal government receives tax revenue from five main sources. The largest source, 50 percent, comes from individual income tax. The second largest source, 36 percent, comes from wage taxes, most of which are earmarked for social security, health insurance, and unemployment benefits.
Taxes on the profits of corporations account for about 7 percent of the revenue. Excise taxes on certain goods and activities such as gasoline, alcohol and gambling contribute 3 percent, and another 3 percent comes from customs duties and inheritance and gift taxes.
In fiscal 2019, the federal government spent $ 4.4 trillion, or about 21 percent of GDP. About 23 percent, or $ 1 trillion, went to Social Security and about 25 percent, or $ 1.1 trillion, went to four health insurance programs, namely Medicare, Medicaid, Children’s Health Insurance Program, and the Affordable Care Act.
Defense and international security received 16 percent of the budget, 8 percent went to safety net programs, and 8 percent went to interest on the debt. The remaining 20 percent of the federal budget went into other public expenditures, including benefits for federal pensioners and veterans, transport and infrastructure, education as well as science and medical research.
The Biden administration is currently negotiating an increase in the federal budget to around $ 6 trillion. The funds are aimed at improving the country’s infrastructure and expanding the social security network.
By and large, the US federal tax law is progressive. Taxpayers with higher incomes pay a larger proportion of their income in taxes. However, there are various loopholes and methods of avoiding taxes.
In addition, the tax rates differ significantly depending on the source of income. Ordinary earned income is taxed significantly more than income from dividends and investments. The favorable treatment of dividends and capital gains by the tax code therefore benefits those who increase their wealth mainly through investments and pay comparatively little taxes.
For example, while the average U.S. household, who earned about $ 70,000, paid 14 percent annually in federal taxes, the 25 richest Americans paid a true tax rate of about 3 percent on asset growth of $ 400 billion between 2014 and 2018. The true tax rate was even lower for some billionaires like Bezos and Buffet at 0.10 percent and 0.98 percent, respectively, over the period.
It is generally accepted that the US federal tax law is complex, labyrinthine, and endless. The Tax Act, or Title 42 of the laws enforced by the IRS, is no less than 2,600 pages, or well over 1 million words. However, much of the Tax Act also includes IRS regulations, tax notices, clarifications, court decisions, endorsements and other information that together make up 70,000 pages.
Most Americans want a much simpler and more understandable US tax code, with fewer Byzantine loopholes, sophisticated tax evasion, and devious tax avoidance mechanisms that particularly favor the rich.
It is also very important that Americans want a fair tax system, in which large corporations and wealthy individuals pay their fair share of the tax liability, which is clearly not the case in America today.
Joseph Chamie is an advisory demographer, former director of the United Nations Population Division, and author of numerous publications on population issues, including his recent book Births, Deaths, Migrations and Other Important Population Matters.