America is becoming the land of taxation even though it was founded to avoid taxation. Each year the tax code gets more and more complex in order to fund new government programs, fund existing government programs and to find an optimal taxation formula to collect the most tax revenues. With taxes rising in 2013 individuals hope that they will be taxed fairly, that their tax dollars are being used efficiently and their money is being used for the betterment of our country. If you believe our tax dollars are being used efficiently and individuals are being taxed fairly then here are some tax facts that will make you think otherwise.
1) Tax dollars pay higher than the market average for labor
Based on Bureau of Labor Statistics, the average Federal employee earned 20% more than private sector employees in similar work type jobs (cooks, janitors, nurses, accountants, etc). This shows that our tax dollars are being inefficiently used by paying a higher than the market average for labor.
2) 107 days of the year are spent working to pay taxes
For the typical American working a full-time job, they spend 107 days of the year working to pay taxes. This means that the average American spends 29.3% of the year generating income to pay for their annual tax bill. You can also look at it in the sense that if you work 8 hours a day, you must spend the first 2 hours 20 minutes and 42 seconds of each day working to pay taxes. To make things worse, if you take into account inflation (the hidden tax discussed more in #5) caused by the government, you will work another 12 days a year or another 15 minutes and 30 seconds a day to pay for this “hidden tax”.
3) Taxpayers spend 7.6 billion hours & $140 billion complying with tax code each year
With the tax code getting more and more complex each year it takes individuals a significant amount of time organizing documents and getting their tax returns prepared. The IRS estimates that the average tax return would take 22 hours to prepare by hand, if a schedule C and or E is filed with a tax return then it would take 32 hours.
4) Little incentive for the tax code to be simplified
The complexity of the tax code literally gives millions of individuals jobs each year that range from tax preparers, CPAs, corporate tax professionals, IRS employees, state tax employees, etc. If the tax code was simplified it would significantly decrease the workload which would cause a significant loss of jobs. No President of the United States wants to decrease the number of jobs in the United States, especially since unemployment rates have been so high recently.
5) Inflation is a hidden tax passed onto everyone
Inflation happens when there is more money available that is chasing the same number of goods and services, which results in increased prices for goods and services. Inflation can be seen as a secret method of taxing people without them knowing. This is done by the government “printing” money. So instead of increasing taxes and collecting more money from U.S. taxpayers, the government will print money, spend it and dilute everyone else’s money.
- The government has the incentive to hide actual inflation numbers: The government has so many mandatory programs that it needs to fund each year that are adjusted for the cost of inflation. The less the inflation numbers are, the less they have to increase their payments. The government tweaks what items are contained in the consumer price index (CPI) each year. If the government was to use the same metrics that were used to calculate inflation back in 1990, inflation would show more than double what it currently does. By hiding the actual inflation, the government can save billions in payments each year.
- Investment income is taxed even if no actual gain is made considering inflation: If you hold long term investments that only grow at the rate of inflation, you will still be taxed on the gains and therefore leaving you with less buying power than you had before the investment was made.
- Inflation devalues our liability to other nations: By inflating the U.S. money supply, the liability that the U.S. has is actually devalued. This gives the U.S. government incentive to inflate the money and in essence, pay back the money of lesser value to its liability holders.
- Gains on gold are taxed at 28%: The U.S. use to back all of its currency with actual gold. Gold can be seen as a great hedge against inflation because this is what our actual money was backed by. The U.S. has since been taken off the gold standard and now taxes gains on the value of gold at 28%. With this tax, it makes it nearly impossible to hedge against inflation because the government will take over a quarter of the value gained by holding and selling gold.
- Since the Federal Reserve was created the dollar has lost 95% of its value: $100 today is worth what about $5 was worth back in 1913.
6) The majority can vote to take minority money through taxes
As seen in recent elections in California, voters chose to raise taxes on other individuals so they didn’t have to pay more. The ballot item was set to appeal to the majority at the expensive of the minority. So now there is a large group of individuals in California that are required to pay over 50% of their income to Federal and State governments. This tax change is not based on tax fairness and shows that tax law does not look out for everyone’s best interest.
7) U.S. Tax Code is 72,536 pages long
Back in 1913 when the U.S. tax code started it was about 400 pages long. By the end of the first term of President George W. Bush it reached over 60,000 pages and now it is 72,536 pages long. Also, IRS form 1040 (U.S. Individual Income Tax Return) was 4 pages long back when it was created and has now grown to 189 pages.
8) America’s corporate tax rate is one of the highest in the world
More so than ever, businesses are competing on a worldwide level with major changes in technology and transportation in the past 30 years. The higher corporate tax rate makes U.S. companies less competitive abroad. This also gives incentives for large corporations to not start in the U.S. since the main goal of corporations is to “maximize shareholder wealth”, which also lowers employment opportunities in the U.S. and shifts them abroad.
9) The government barely collects enough in revenues to cover it’s “mandatory” programs
If the government shut down today and stopped spending on “discretionary” programs (Military, FBI, CIA, Education, energy, etc), the taxes the government collects still would barely be enough to cover the United States “mandatory” programs (social security, Medicare, Medicaid, troubled asset relief program and more). Total receipts for 2013 = 2,882 b, total discretionary spending = 1,265, total mandatory spending = 2,459. This would leave the government with $423 billion if they cut out the discretionary spending. The original budget that came out in February 2012 showed that total receipts would not even cover the mandatory programs.
10) Illegal Immigrants claim billions in tax credits, even if they pay no taxes
Loopholes in the tax code allow people that are not authorized to work in the U.S. to receive government payments through the Additional Child Tax Credit. This a refundable credit, which means they can get the money even if they didn’t pay any taxes. The Treasury Inspector General for the Tax Administration did a study that found that illegal immigrants claimed up to $4.2 billion in 2010 and that figure has been increasing ever since.
With the 2012 tax season getting ready to kick into full gear just remember to keep working hard and making money because millions of people on welfare and unemployment and illegal immigrants are depending on you!