|Issue of the Day Archive for the ‘Taxes’ Category|
According to the Department of Education, countries such as Canada, Japan, and Korea have advanced beyond 50% of their adult populations earning the equivalent of an associate degree or higher. To get the US population to the competition’s level represents a roughly 50% increase in US annual degree production for the next 16 years. Moreover, we would have to pay close attention to the shifting demographics of the US population, which by 2020, whites will decrease to 63%; Hispanic will increase to 17%; and Blacks will reach 13%. A study by the National Center for Public Policy and Higher Education argues that if current gaps remain, the net result would be a projected 2% decline in per capita income over the period from 2000 to 2020. This would result in a shrinking tax base and a weakened global competitive edge.
College degree attainment rates within the US have been relatively flat for two decades at 20-28% for males and 24-30% for women, averaging 29% overall in 2008. Of those aged 25-29, broken down by race, Whites achieve 32%; Blacks earn 19%; and Hispanics are awarded 13% of all degrees. Adding an Associate’s degree increases income by about $10,000 annually; adding a Bachelor’s near doubles income; and a professional degree quadruples a High School annual income. This is especially important when considering that the top 50% of wage earners have paid 96% of our total Income Tax Share in 2007.
Tax Freedom Day — the first day of the year in which the nation as a whole has theoretically earned a total income equal to its annual tax burden — will arrive on April 13 this year, which is eight days earlier than in 2008 and two weeks earlier than in 2007. The reason for this early occurance is that the recession has reduced tax collections even faster than it has reduced income, and the stimulus package includes large temporary tax cuts for 2009 and 2010. Despite the extra days to ourselves, Americans will pay more in taxes than they will spend on food, clothing and housing combined. To break it down, individual federal and state taxes will require 38 days work. Payroll taxes take another 27 days, sales and excise taxes take 15 days, corporate income taxes take 6 days, and property taxes take 12. Americans will log 4 more days to pay other miscellaneous taxes and 1 day for estate taxes.
The individual taxes have been by far the largest proportion of the gross federal and state tax collection since 1944, 50.8% as of 2007. Before the Bush tax cuts, the individual tax proportion has ranged from 55.3% in 2001 to its lowest in 2005 at 48.8%. Of the other components of the tax revenue, employment taxes came to 31.6%; excise, gift and estate taxes amounted to 3%. Corporate taxes amounted to 14.7% of the total, the highest it’s been since 1978.
In two separate events, the Obama administration has started investigating tax reform. The last major tax reform took place in 1986. President Bush appointed a tax reform commission in 2005, which delivered a report in that same year, but its recommendations were not included in the 2007 budget. Prof. Elizabeth Garret of USC, who sat on the commission, has been announced to become assistant secretary of the treasury for tax policy. Also, President Obama asked Paul Volcker, who chairs his Economic recovery Advisory Board, to appoint a tax reform task force that would report no later than December 4th.
Given the composition of tax receipts over time, the percentage of each category has changed given the reforms made by various administrations. For the 2008 fiscal year, individual tax income amounted to $1,146 billion; $23 billion lower than expected. Corporate taxes amounted to $304 billion, $5 billion lower due to $4 billion lower in payments and $1 billion in extra refunds. Social Insurance and Retirement Receipts were $900 billion, $1 billion lower than estimated. Other taxes, such as customs duties, estate and gift taxes came to $106 billion, which was $1 billion more due to higher estate taxes, gifts, fines and penalties. The overall budget in 2008 amounted to $2,979 billion, which was $36 billion above the estimate due to the Department of Defense and the Treasury.
The Release of the 2008 Internal Revenue Service Data Book details many aspects of the fiscal intake of the Federal Government, including information about returns filed, tax collections, enforcement, taxpayer assistance, the IRS budget and workforce. During the fiscal year (Oct. 1, 2007-Sept. 30, 2008) of 2008, the IRS collected more than $2.3 trillion in taxes and processed over 250 million returns. $270.4 billion was distributed through the stimulus payments. Overall, the IRS spent an average of $0.41 to collect each $100 of tax revenue; that is $94.3 million. This number is actually down since the advent of the electronic filing system, of those filed, 101 million or 58% of individual tax returns were filed electronically.
The amount of tax revenue in current dollars has just recovered its stride from the deep tax cuts—its recent low point of 1.66 trillion in 2003—that the Bush Administration imposed. The percentage of tax returns examined by the IRS has actually increased and stayed steady since 2006 at an examination rate of 1% per year. However, with the new spending by both Presidents Bush and Obama, the increased tax revenue will not meet spending for the eighth year in a row.
This week in Denver, the President signed the $787 billion stimulus package that streaked its way through Congress. The final bill is split into 36% for tax cuts and 64% percent in spending and money for social programs. Overall, it is $38 billion different from the original plan President Obama had introduced earlier in January. Highlights include:
• $787 billion total, $38 billion subtracted from original
• $308 billion in total spending, $142 billion subtracted (Federal Budget)
• $190 billion in Federal Aid for Education, Public Safety, Low-income, Individual and Health Care (Number of U.S. citizens below the poverty level)
• $288 billion in tax relief ($800—down from $1000—tax cuts for families, $400 tax cuts for individuals through social security payroll deductions, Business, Manufacturing, Economy, Infrastructure, Energy and other tax cuts), $13 billion added (Tax as a percentage of GDP)
• $48 billion for infrastructure, $42 billion subtracted (Spending on infrastructure)
• $90 billion Medicaid aid to states, $3 billion added (Public and private expenditures for health care)
• $53.6 billion to aid state in education, $25.4 billion subtracted
(Spending for the Department of Education)
• $44.6 billion for additional school funding to balance education budgets, prevent cutbacks and modernize schools, $3.6 billion added (Average finances by school district size and Higher education spending)
• $45 billion to encourage renewable energy production, $9 billion subtracted
(Non-Renewable v. Renewable)
• $18.6 billion for health care technology incentives and research for effective treatments, $5.4 billion subtracted (Cost per patient per day and per stay)
• $16 billion for Science/technology, equal (Research funds for science and technology)
• $15.6 billion to increase Pell Grants by $500, $0.6 billion added
Of course, this is just the combined highlights; the Stimulus and Recovery Act is well over 1,000 pages long. The administration, in an effort to become more tranparent, has set up a site in which anyone can track how and where the money is being spent: www.recovery.gov
In his effort to fill his cabinet, President Obama had unwittingly chosen two otherwise qualified appointees to both the Department of Health and Human Resources and the Treasury who made relatively large mistakes on their past tax returns —Tom Daschle owed nearly $140,000 and Timothy Geithner owed $34,023. These mistakes were only found by a combination of previous tax audits and the vetting process by the Obama administration for their respective positions. The mistakes have caused quite a stir and have prompted Sen. Daschle to resign the appointment process. His fellow appointee was, however, confirmed as the new Head of the Department of the Treasury, which oversees the Internal Revenue Service.
Mistakes on tax returns are mainly attributed to complexity of the system and accordingly, legislation in 2003 reduced penalties and allows taxpayers to pay installments on their tax liabilities for less than the full amount that they owe. However, finding those mistakes has been difficult for the IRS due to the department’s ability to review only a fraction of a percent—0.93%—of all returns filed.
Last night, the US House of Representatives passed its version of President Obama’s Stimulus package. The original package-as of January 15th-before the House debated and changed the bill, contained the following provisions:
• $825 billion total
• $550 billion in new spending. (Federal Budget)
• $275 billion in tax relief ($1,000 tax cut for families, $500 tax cut for individuals through SS payroll deductions). (Tax as a percentage of GDP)
• $ 90 billion for infrastructure (Spending on infrastructure)
• $ 87 billion Medicaid aid to states. (Numbers of enrollees)
• $ 79 billion school districts/public colleges to prevent cutbacks. (Average finances by school district size)
• $ 41 billion for additional school funding ($14 billion for school modernizations and repairs, $13 billion for Title I, $13 billion for IDEA special education funding, $1 billion for education technology) (Spending for the Department of Education)
• $ 54 billion to encourage energy production from renewable sources (Non-Renewable v. Renewable)
• $ 24 billion for “health information technology to prevent medical mistakes, provide better care to patients and introduce cost-saving efficiencies” and “to provide for preventative care and to evaluate the most effective health care treatments.” (Cost per patient per day and per stay)
• $ 16 billion for science/technology ($10 billion for science facilities, research, and instrumentation; $6 billion to expand broadband to rural areas). (Research funds for science and technology)
• $ 15 billion to increase Pell grants by $500 (Rising tuition)
• $ 6 billion for “higher education modernization.” (Higher education Spending)
The two main cadidates for the presidency have promises to change the tax code (John McCain’s approach vs Barak Obama’s approach). With both bickering about the monetary definition of the Middle Class and who will get a tax break or hike, one could always look at the income versus tax data put out by the Internal Revenue Service (IRS) to see just who is paying the most for Individual Income Taxes.
The data for the distribution of income versus taxes only exist up unto 2005 but it does show some remarkable information. In 2005, the top 5% of taxpayers paid more than one-half (59.7%) of all individual income taxes, but reported about one-third (35.7%) of income. Also, the top 1% of taxpayers paid 39.4% of all individual income taxes. Since 1990 this group’s tax share has grown faster than their income share. Taxpayers who rank in the top 50% of taxpayers by income pay nearly all individual income taxes. In all years since 1990, taxpayers in this group have paid over 90% of all individual income taxes. The bottom 50% however, have a reversal of fortune in that they have more income share at 12.83% than income tax share which has remain relativly steady at 3.07%.