By Scott Jennings
This article first appeared in the April 14, 2015 edition of the Courier-Journal.
As you stand in line at the post office today to mail your taxes, you might be thinking to yourself: “It would be super cool to amaze my friends at a party this weekend with eight awesome facts about paying taxes in America.” If you fancy yourself the next Louis Tully, erstwhile accountant of the Ghostbusters, memorize these facts before you are transformed into the Keymaster of Gozer:
•The top 20 percent of earners pay 84 percent of all federal income taxes. A report in the Wall Street Journal last week said this same group — people making $134,300 or more —accounted for 51 percent of American income. People making $615,000 or more pay 45.7 percent of all income tax. That means just 3 million Americans pay nearly half of all federal income taxes. On the other end of the scale, the bottom 40 percent of earners (making $0 to $47,300) actually have a negative burden, meaning their tax credits exceed their income tax burden. The article does point out that when you add in Social Security and Medicare payroll taxes, the bottom 40 percent wind up with a net positive tax burden.
•What about the 1 percent? What do they pay? Kiplinger’s has done the math: “The latest numbers from the IRS — based on just released data from 2012 tax returns — show what it takes to be among the top 1 percent of income earners: adjusted gross income of $434,682 or more. That’s almost $50,000 more than it took to buy into this rarified status a year earlier.” The math goes on to show that 1.4 million Americans made up “the 1 percent” in 2012 and accounted for 21.9 percent of the total adjusted gross income on all 2012 returns. This group paid 38 percent of all federal income taxes in 2012, three percent more than the previous year’s data.
•Federal income tax makes up a plurality of the government’s revenue. About 46 percent of federal revenue comes from personal income taxes. Second on the list at 34 percent are payroll taxes that pay for Social Security, Medicare and unemployment insurance. Corporate income tax is 11 percent, and other taxes make up the final nine percent, according to the Center on Budget and Policy Priorities.
•Where does it all go? Entitlements, mostly. According to the Heritage Foundation, “Social Security, Medicare, Medicaid, welfare and other benefit programs, and interest on the debt made up 66 percent of federal spending in 2014.” National defense was 17 percent.
•It will take 114 days this year for Americans to earn enough to pay our collective tax burden. Congratulations, America, you still haven’t worked enough to pay your taxes this year. That won’t happen until April 24, also known as “Tax Freedom Day.” If you add up what we all collectively owe in federal, state, and local taxes — $4.85 trillion — we have to work a few more days to pay off the government. If you just look at Kentucky, however, “Tax Freedom Day” was on April 11, the sixth-fastest state to make it across the line. Sorry, Connecticut, you are last to get there on May 13. Americans pay 31 percent of everything they earn in taxes across the board, according to the Tax Foundation, which also reports that “Americans will collectively spend more on taxes in 2015 than they will on food, clothing, and housing combined.” Oh, in 1900, Tax Freedom Day was Jan. 20.
•The complexity of the tax code drains billions out of the U.S. economy in lost time and resources. A study released this month by the National Taxpayers Union Foundation found “the economy lost $233.8 billion due to 6.1 billion hours (an estimated value of $202.1 billion) and $31.7 billion in out-of-pocket costs spent complying with a complex and invasive tax code.” The NTUF points out that 6.1 billion hours is the equivalent of 152.5 million 40-hour workweeks.
•Nine states have no or nearly no income tax. Tennessee, on Kentucky’s southern border, won’t tax your income but does tax interest and dividends. Kentucky has a top income tax rate of six percent, 19th-highest among states that levy an individual income tax. The Tax Foundation reports that “Kentucky’s state and local income tax collections per person were $1060 in 2012, which ranked 18th highest nationally.” On the positive side, Kentucky’s per capita property tax collections are among the lowest in the nation.
Remember: If asked to choose the form of the destructor, under no circumstances should you think of the federal tax code. It is far more damaging than any marshmallow man could ever be.
Scott Jennings is a former advisor to President George W. Bush and U.S. Senator Mitch McConnell. He is a partner at RunSwitch Public Relations and can be reached at email@example.com or on Twitter @ScottJenningsKY.