5 Myths about your taxes

Rosanne Altshuler, Roberton Williams
Published: April 05, 2010

The Washington Post, April 4, 2010

April is here, which means it's almost time to pony up and render unto Caesar. We've gathered our receipts and other documents, and dragged ourselves to the strip-mall tax preparer or fired up do-it-yourself software to determine how big our refund is -- or how much we owe Uncle Sam. No one likes to pay taxes, but as we get ready to stand in line at the post office on the 15th, it might be useful to dispel some of the most common myths about this springtime ritual.

1. The poorest and the richest Americans pay no taxes.

About 45 percent of households will owe no federal income tax in 2010, according to our estimates. Half of them earn too little, while the other half -- mostly middle- and lower-income households -- will take advantage of tax credits such as the earned income credit, the child and child-care credits, the American Opportunity and Lifetime Learning credits, which help pay for college, and the saver's credit, which subsidizes retirement saving.

But even citizens who pay no income tax still pay other kinds of taxes. They pay Social Security and Medicare taxes when they work, sales taxes when they buy things and property taxes on their homes. Drivers pay gasoline taxes, and smokers and drinkers pay excise taxes on tobacco and alcohol. According to our research, more than 75 percent of us will pay at least some form of federal tax in 2010.

Those who pay no federal taxes are mostly the low-income elderly or very poor families with children. Even about half of those with annual incomes under $10,000 pay some federal tax, most often payroll taxes on wages.

And yes, the richest Americans pay taxes, too. Though a tiny minority manage to avoid federal income tax through elaborate tax planning, 99.7 percent of those with annual incomes above $1 million will pay federal taxes this year, surrendering 27 percent of their earnings to the government. The average American taxpayer pays 18 percent.

2. Americans are overtaxed.

In 2007, federal, state and local taxes claimed about $3.8 trillion, or 27 percent of U.S. gross domestic product. That's nearly $13,000 for every American. Two-thirds of tax revenues went to the federal government.

It may sound like a lot, but other developed countries collect even more. In 2006, taxes in 30 of the world's richest countries averaged 36 percent of GDP; only Mexico, Turkey, South Korea and Japan had tax rates lower than ours. And taxes in many European countries exceeded 40 percent of GDP because these nations offer more extensive government services than the United States does.

Americans do pay far more in individual income taxes than residents of other wealthy nations. Nearly 37 percent of U.S. tax revenue came from personal income taxes in 2006, about 10 percentage points more, on average, than in other industrialized countries. But we pay much less in sales taxes; 17 percent of 2006 U.S. tax receipts were from taxes on goods and services, or about half the 32 percent average for rich countries.

Bottom line: We may hate our taxes, but we pay far less than people in other wealthy countries.

3. Higher taxes could eliminate the federal deficit.

Washington spends more than it takes in through tax revenues, resulting in a projected budget deficit of almost $1.35 trillion in 2010, or 9 percent of GDP, according to the Congressional Budget Office. Couldn't we get rid of the deficit by raising taxes?

No. A study we conducted at the Tax Policy Center found that Washington would have to raise taxes by almost 40 percent to reduce -- not eliminate, just reduce -- the deficit to 3 percent of our GDP, the 2015 goal the Obama administration set in its 2011 budget. That tax boost would mean the lowest income tax rate would jump from 10 to nearly 14 percent, and the top rate from 35 to 48 percent.

What if we raised taxes only on families with couples making more than $250,000 a year and on individuals making more than $200,000? The top two income tax rates would have to more than double, with the top rate hitting almost 77 percent, to get the deficit down to 3 percent of GDP. Such dramatic tax increases are politically untenable and still wouldn't come close to eliminating the deficit.

4. Most people's tax returns are way too complicated.

No one claims that our tax system is simple. After all, the Internal Revenue Code runs more than 3 million words, and the instructions for the widely used 1040 form take up more than 100 pages. Small wonder that three out of five tax filers pay someone to prepare their returns, and another one in five uses software.

But most Americans have relatively simple tax returns. Nearly two-thirds of us claim the standard deduction and don't have to itemize our deductible expenses. And 40 percent of us file one of the simpler tax forms: the 1040A or the 1040EZ. The 2009 EZ has just 13 lines. Relatively few of us get income from any source besides wages and salaries, interest, dividends, and pensions, so it's not hard to tally how much we took in.

So why do taxes seem so complicated? Blame Congress. Legislators use the tax code not just to collect revenue but also to encourage and reward specific activities. The 1986 Tax Reform Act greatly simplified the income tax by getting rid of many special provisions and cutting the number of tax brackets. Since then, Congress has expanded the earned income and child-care credits, created the child, saver's, and education credits, established health savings and Roth retirement accounts, imposed different tax rates on dividends, created a class of long-term capital gains with a lower tax rate and doubled the number of tax brackets.

Last year's stimulus bill added temporary tax cuts that benefit house and car buyers, workers, and families with children, but also make tax returns longer and harder to complete.

5. You should aim for a big tax refund.

It's wonderful to receive a big check in the mail. And having to write a check to the IRS is never fun. But you're better off owing the government a small amount on April 15 than receiving a huge refund. Here's why: Even though it seems like you pay your income taxes once a year, you actually pay them all year long as your employer withholds taxes from your paycheck. When you file your tax return, you are refunded the difference between the tax you owe and the cash your employer withheld.

Three-quarters of Americans allow their employers to withhold too much; income tax refunds averaged nearly $2,300 in 2008. In effect, we're giving the government an interest-free loan. You'd be better off stashing these withheld wages in an interest-bearing bank account and writing a check to the IRS on April 15.

It's not hard to cut the amount of money withheld from your paycheck. Just give your employer a W-4 form asking to withhold less each payday. Your human resources office should have the form, and it's easy to fill out. But there is a catch: If you owe too much (and there are specific rules defining what "too much" is), you may have to pay a penalty -- usually interest on the unpaid tax. And if you're not careful, you may end up owing more in taxes than you saved.

http://www.taxpolicycenter.org/publications/url.cfm?ID=901335

or you could read these articles. they actually did research and curiously produce factual evidence which I know is a hard pill to swallow for a neocon.



http://www.perrspectives.com/blog/archives/002130.htm

speaks for itself

http://www.perrspectives.com/blog/archives/002128.htm

that's right elite tax cheats are more easily caught when the IRS has sufficient funds and personnel to investigate FRAUDULENT returns!!! the return on the investment is $10 for every $1 spent. the pennywise pound foolish party would prefer not to.


http://www.perrspectives.com/blog/archives/001469.htm

I see your so called tax lies and double yours. beat that

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In a rich man's house there is no place to spit but his face.
Diogenes Of Sinope

What if we raised taxes only on families with couples making more than $250,000 a year and on individuals making more than $200,000? The top two income tax rates would have to more than double, with the top rate hitting almost 77 percent, to get the deficit down to 3 percent of GDP.

Did I read that right, 77% federal income tax rate on top of all the other taxes?!

Lets take an example person in California. California levies a 10% income tax and we all know about California's budget problems so that rate might go up. California also levies a 10% sales tax. The counties and cities in California also levy property taxes, utility taxes and a bunch more. Added up it may well be over 100%. We do know what the Laffer curve looks like near 100% tax rate.

Yep, only way is for MASSIVE cuts in spending.

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1) Column on left hand side of "perrspectives". Now you know their ugly leanings.

2) "Tax experts said lowering tax rates to 25% might require Congress to find $2 trillion in new revenue over a decade if Mr. Camp wants to offset the entire cost, reflecting the magnitude of the rate changes." - WHO? Cite them. What Aides?

3) "Congresswoman Jan Schakowsky (D-IL) introduced the "Fairness in Taxation Act." - Sorry Jan, fair is a flat tax. The tax system is so progressive now, we have half the country filled with freeloaders.

FAIR

1.
free from bias, dishonesty, or injustice: a fair decision; a fair judge.
2.
legitimately sought, pursued, done, given, etc.; proper under the rules: a fair fight.
3.
moderately large; ample: a fair income.
4.
neither excellent nor poor; moderately or tolerably good: fair health.
5.
marked by favoring conditions; likely; promising: in a fair way to succeed.
6.
Meteorology .
a.
(of the sky) bright; sunny; cloudless to half-cloudy.
b.
(of the weather) fine; with no prospect of rain, snow, or hail; not stormy.
7.
Nautical . (of a wind or tide) tending to aid the progress of a vessel.
8.
unobstructed; not blocked up: The way was fair for our advance.
9.
without irregularity or unevenness: a fair surface.
10.
free from blemish, imperfection, or anything that impairs the appearance, quality, or character: Her fair reputation was ruined by gossip.
11.
easy to read; clear: fair handwriting.
12.
of a light hue; not dark: fair skin.
13.
pleasing in appearance; attractive: a fair young maiden.
14.
seemingly good or sincere but not really so: The suitor beguiled his mistress with fair speeches.
15.
courteous; civil: fair words.
16.
Medicine/Medical . (of a patient's condition) having stable and normal vital signs and other favorable indicators, as appetite and mobility, but being in some discomfort and having the possibility of a worsening state.
17.
Dialect . scarcely; barely: It was just fair daylight when we started working.


4) Tax cheats - those that use the system but pay nothing. That would be nearly half the country.

5) Best point of the article I posted:

Couldn't we get rid of the deficit by raising taxes?

No. A study we conducted at the Tax Policy Center found that Washington would have to raise taxes by almost 40 percent to reduce -- not eliminate, just reduce -- the deficit to 3 percent of our GDP, the 2015 goal the Obama administration set in its 2011 budget.

...

3) "Congresswoman Jan Schakowsky (D-IL) introduced the "Fairness in Taxation Act." - Sorry Jan, fair is a flat tax. The tax system is so progressive now, we have half the country filled with freeloaders.
...

but the 1st point in your article says that even poor people pay taxes. So which is it? Do you agree with the article you posted or not?

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Reality Internet Personality

"About 45 percent of households will owe no federal income tax in 2010, according to our estimates. Half of them earn too little, while the other half -- mostly middle- and lower-income households -- will take advantage of tax credits such as the earned income credit, the child and child-care credits, the American Opportunity and Lifetime Learning credits, which help pay for college, and the saver's credit, which subsidizes retirement saving."

Freeloaders.

"About 45 percent of households will owe no federal income tax in 2010, according to our estimates. Half of them earn too little, while the other half -- mostly middle- and lower-income households -- will take advantage of tax credits such as the earned income credit, the child and child-care credits, the American Opportunity and Lifetime Learning credits, which help pay for college, and the saver's credit, which subsidizes retirement saving."

Freeloaders.

"Owe" it says. Not "haven't paid"

I've filed my taxes for the last year and I won't "owe" any, but I can assure you I have paid taxes.

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Reality Internet Personality

Keith
Unless you are one of the super rich pampered elites, who's vast wealth the tax codes are written to protect, you really make no sense.
Why would you advocate a system that simply prolongs the rule of the wealthiest?

What possible benefit to the well being of the masses is there in keeping the super rich able wipe their arses with silk?

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I do not fight fascists because I think I can win.
I fight them because they are fascists.
Chris Hedges

A riot is the language of the unheard. -Martin Luther King, Jr.

No Robert, I make perfect sense. I'm far from a pampered elite. I'm working class like everyone else.

What worries me is that when the scales tip and more than 50% of the people aren't going to pay income taxes, then they naturally want everything politicians promise. They don't pay for it, so they don't care. There won't be a feedback mechanism that says "Jeez, taxes are getting a little high...maybe I should look more closely at what politicians are promising me". At the tipping point, society starts going down hill quickly, the rich to the middle class and anyone with common sense flees our shores and the country is left barren. I've never seen a poor person create jobs. Like it or not, it's the rich that create jobs and when they leave and invest elsewhere, we're finished.

It's human nature Robert. It's got nothing to do with the rich versus the poor. As the original article stated, 99.7% of the people with annual income over 1 million pay taxes. That's not true of a large percentage of lower earners, even though they're benefiting from services.

Why do you think California is in real trouble? They tried to penalize people for success and those people left the state for other, more reasonable states. Now what's in store for California long term? The proof is in the results.

You can hope for the iron fist of government to impose more and more taxes on only the rich, but at some point, they call BS and leave for greener pastures. Then what?

---------

"Government's view of the economy could be summed up in a
few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it." - Ronald Reagan

Jez taxes are getting to high? really? The US tax code is at its lowest rate since 1950 before the Korean war started. To say we are over taxed today is a farce. We hear complaints about being over taxed. We in general are very much under taxed. YOu do get the fact that we are deeply in debt as a country and that taxation is a means of creating revenue for the Gov't to operate. Nobody is getting rich in the non-elected non political jobs the US gov't has. Those people actually make substantially less than private sector jobs of equal standing.

Lets hear less about being over taxed- we aren't
and lets have more of a reality check. the wealthy clearly can afford to pay more taxes. So they won't be getting the second yacht this year boohoo

Heck, I'd say I can probably afford getting 1/2 less of a return if it meant we are reducing the deficit. Currently we have a party that insists on cutting and cutting just as long as its not in things they like. So much for having civil discussions on the matter.

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In a rich man's house there is no place to spit but his face.
Diogenes Of Sinope

You aren't in command of the facts.

You aren't in command of the facts.

I have a firm command of facts. I am able to discern a fact from an opinion and know enough to see through a lie.

BTW facts aren't just something you make up. They are discernible and clear in meaning. they don't require someones opinion. facts are facts because they just don't change without irrefutable evidence.

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In a rich man's house there is no place to spit but his face.
Diogenes Of Sinope

Give them what they want or they'll leave???
Pretty weak argument Keith.

I say "Bye bye and good luck being rich in Libya. Oh by the way, there's a 99%exit tax."

See? Problem solved.

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I do not fight fascists because I think I can win.
I fight them because they are fascists.
Chris Hedges

A riot is the language of the unheard. -Martin Luther King, Jr.

"Owe" it says. Not "haven't paid"

I've filed my taxes for the last year and I won't "owe" any, but I can assure you I have paid taxes.

You mean the line on your 1040 that says "This is your total tax" is zero? That means you don't owe tax.

Or aren't you aware that you don't owe tax until April 15 (18th this year)? They arm wrestle you into making pre-payments and charge you interest if you don't, but you do not owe the tax until the filing deadline. Everyone who has income but doesn't get that income from a payroll knows this. Those who only get income from a payroll are usually ignorant of this fact.

Plus we hashed this out a couple of months ago. How quickly they forget.

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I agree the US gov't among others found it easier to take more money from us by actually taking a little out of each paycheck. My mother has told me back when she first started working. Apparently around the time fred flintstone was alive, the IRS sent a simple card out to individuals that was very simple to fill out and usually cost the individual around 1/2 of a 2 week paycheck. Its amazing how easy they made it to take more and more.

How many here realize that before WWII the only time the Gov't asked for income tax was during a war. now its a permanent tax

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In a rich man's house there is no place to spit but his face.
Diogenes Of Sinope

"Owe" it says. Not "haven't paid"

I've filed my taxes for the last year and I won't "owe" any, but I can assure you I have paid taxes.

You mean the line on your 1040 that says "This is your total tax" is zero? That means you don't owe tax.

Or aren't you aware that you don't owe tax until April 15 (18th this year)? They arm wrestle you into making pre-payments and charge you interest if you don't, but you do not owe the tax until the filing deadline. Everyone who has income but doesn't get that income from a payroll knows this. Those who only get income from a payroll are usually ignorant of this fact.

Plus we hashed this out a couple of months ago. How quickly they forget.

mmmm...I'm not on a payroll. I don't know what line it's on because I filed Canadian tax. For years I paid my payroll tax in the UK. Never owed any there either. Paid a hell of a lot of tax too.

I guarantee you that I have paid tax and I won't be owing any whenever the deadline is. Deadline here is April 30th, but I've already filed.

My partner too has filed his taxes. He is on a payroll and also won't be owing any taxes come the deadline.

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Reality Internet Personality

I don't know what line it's on because I filed Canadian tax.

You might want to absent yourself from this discussion of the United States Income tax.

You pay extremely regressive consumption taxes north of the border, if I understand it correctly. VAT and GST I believe they are called. The US doesn't have those.

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How many here realize that before WWII the only time the Gov't asked for income tax was during a war. now its a permanent tax

And we are getting less services from the Government than we did back then too. Where is all that money going?

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You might want to absent yourself from this discussion of the United States Income tax.

I assume that means you will absent yourself from any discussions about the goings on in China, Japan, the Middle East and any other country you are not living in?

You pay extremely regressive consumption taxes north of the border, if I understand it correctly. VAT and GST I believe they are called. The US doesn't have those.

The US most definitely has sales tax. I've paid it when I've visited.

VAT us the UK sales tax.

In Canada GST (which no longer exists) was the federal sales tax, and PST was the provincial sales tax. They have been now harmonised into one sales tax called the HST.

As it seems you are unaware of the taxes you pay here is a list of them by state:

Table of Sales Tax Rates

I can assure you, that even if you have no income, you still pay taxes.

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Reality Internet Personality

How many here realize that before WWII the only time the Gov't asked for income tax was during a war. now its a permanent tax

And we are getting less services from the Government than we did back then too. Where is all that money going?

It's going to the almost religious fervor of generating...wait for it....PAPER.