4 Wild Facts About Taxes in America

April 15. Tax day. One of the most dreaded days in America.

If you haven't finished your taxes yet, run. They're due today.

For those who have, here are four wild facts about taxes in America.

1. Tax cheats have cost trillions of dollars over the last decade.
Every few years, the IRS provides an estimate of the "tax gap," or the difference between how much revenue it should have collected based on known business activity, and how much it actually collected. It's a rough measure of tax cheats.

In 2006, the most recent year it has data on, IRS estimates the tax gap at $385 billion, or an 85.5% compliance rate. And that's after subsequent audits brought in late payments and penalties. 2001's tax gap totaled $290 billion.

The IRS only issues these reports every five years, and each report covers just one year. But let's assume 2001's tax gap of $290 billion was reflective of the 2001-2005 period, and 2006's $385 billion gap was reflective of the 2006-2010 period. In total, that's $3.3 trillion in lost tax revenue over the last decade.

The national debt increased by $8.3 trillion from 2001 to 2011. Tax cheats, then, are indirectly responsible for more than a third of the increase in the national debt. Thanks, guys.

2. The annual cost of tax preparation totals far more than the government spends on education
Nina Olson, the National Taxpayer Advocate (an IRS watchdog), estimates Americans spend 6.1 billion hours per year preparing their taxes.

The average wage in March was $20.03 per hour, so 6.1 billion hours, then, costs Americans $122 billion of their time.

For perspective, consider that the federal government has spent an average of $97 billion per year on "education, training, and employment" since 2008.

Go ahead, get angry.

3. The composition has changed enormously over time
The federal government collected tax receipts equal to 15.8% of GDP in 2012. That's less than the average of 17.7% since 1945, and a touch below the 16% average of the last decade.

But perhaps more important than the amount of taxes collected is how the burden has shifted. In 1950, corporate taxes made up 27% of revenue, and payroll taxes brought in 11%. By 1980, it was 12.5% and 30.5%, respectively. And by 2011, corporate taxes made up 7.9% of revenue, while payroll taxes made up 35.5%:

Source: Office of Budget and Management.

4. The one-man class war
In 1935, president Roosevelt set a special 79% tax rate on those earning more than $5 million a year. According to historian Mark Leff, only one man in America made that much money over the following three years: John D. Rockefeller, Jr.

Rockefeller's father, John D. Sr., wasn't happy. "When a man has accumulated a sum of money, accumulated it within the law, the Government has no right to share in its earnings," he once said, according to his biography, Titan. (Anti-trust courts, of course, questioned whether Rockefeller's wealth was made within the law.)

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  • Report this Comment On April 15, 2013, at 5:59 PM, TMFMurph wrote:

    " The annual cost of tax preparation totals far more than the government spends on education"

    So why don't we simplify the system and free up the dollars! Maybe because the current complexity of the tax system is basically a full employment plan for tax lawyers and accountants? Oh, that's right, Congress traditionally has loads of lawyers in it's ranks. Go figure! ;-)

  • Report this Comment On April 15, 2013, at 6:13 PM, SisyphusRocks wrote:

    It's not about the lawyers or accountants in Congress. Most of them aren't tax lawyers, anyway. It's about the indirect value in campaign contributions from lobbyists that complicated tax laws can bring. Every major industry has tax interests they fight to preserve, expand, etc., and they pay lobbyists to do that (many of which are former Congresspeople and staffers), and those lobbyists provide substantial funding for their campaigns.

    There's an extensive public choice literature on the phenomenon, but what it comes down to is that democracies will often choose policies with concentrated benefits and diffuse costs, because the people who get the benefits really care, and the people with the costs often don't even notice.

  • Report this Comment On April 15, 2013, at 6:22 PM, p366 wrote:

    Morgan

    I assume that the increase in payroll taxes is due to higher Social Security taxes?

    Pam

  • Report this Comment On April 15, 2013, at 6:25 PM, Zombie111 wrote:

    How did the the burden shift so much from the corporates? Do they take advantage of the complex nature of multi-nationals where they can be taxed in another (lower rate) country?

  • Report this Comment On April 15, 2013, at 6:34 PM, agwisreal wrote:

    There are two ways to look at an economy. You can track money, or you can track physical resources (manhours, steel, electricity, etc.)

    In the physical economy, the government doesn't run a deficit. All resources consumed are somehow or other obtained from the overall economy. So in a sense, taxes are about 60% higher than what the numerical economy says they are. Because for every dollar we take in, we're spending about $1.60.

  • Report this Comment On April 15, 2013, at 6:37 PM, TMFMorgan wrote:

    << Because for every dollar we take in, we're spending about $1.60.>>

    $1.35.

    http://www.whitehouse.gov/omb/budget/Historicals

  • Report this Comment On April 15, 2013, at 6:44 PM, imic77 wrote:

    When are we Americans going to wake up and push for JUST FLAT Taxes. Which would really generate much more revenue.

    - I will gladly pay my 12-17% flat tax, with corporations PAYING THEIR 12-17% share !!

    Remember, 48% of America does not pay taxes, a great deal is the corporate world.

    - How much savings in reducing the IRS.

    - No heavy expenditures in Dollars AND Time by corporations trying to get loopholes and deductions. (We do not have the leverage for the loopholes, only the very rich and corporate america has).

    - And we would get rid of the 60% of time and resources in the Federal and State government that simply if fiddling with the 84000 pages of CODE !!! Send 90% of PACs packing !!

    WHEN WILL we get a Flat Tax !!!!!!

  • Report this Comment On April 15, 2013, at 6:55 PM, Notsoangry wrote:

    Number 3 makes me much angrier than number 2.

    I am part of a group that provides free tax preparation to citizens. If you are not looking for less than legal loopholes, taxes are not so complicated and definitely not complicated for most Americans who have no loopholes to explore.

  • Report this Comment On April 15, 2013, at 8:39 PM, boone1112 wrote:

    Mr. Motley Fool:

    A corporation never has, does not now, and never will pay a penny taxes. A corporation takes stuff and turns it into other stuff for sale to the CONSUMER.

    Only the CONSUMER pays taxes. All taxes paid by a corporation are collected from the CONSUMER. If you had taken Bookkeeping II as a Sophmore in High School, you would have learned this.

  • Report this Comment On April 15, 2013, at 8:55 PM, crca99 wrote:

    And the difference between payroll tax and income tax is....? I'm drawing a blank.

    For what year, or what ratio, did the balance of corporate tax to other taxes work best?

  • Report this Comment On April 15, 2013, at 9:03 PM, TMFBlacknGold wrote:

    Morgan,

    I'd be interested to see your take on a flat tax. Our boy Eddy Elfenbein tried his hand at it recently. Seems it could eliminate tax cheats pretty easily, no?

    Fool on!

    -Maxxwell

  • Report this Comment On April 15, 2013, at 9:10 PM, chris293 wrote:

    Ah, the wonder of taxes run by the princes of Congress, just think of the loss of employment for lawyers and accountants if the tax codes were simplier or if the IRS collected with fines the money that the tax cheats get away with?

    We might have a balanced budget if Congress controlled their terrible spending habits. Who knows what some improvements or enforcement of the present tax laws would do? That appplies to the present gun laws as well. Enforce the laws!

  • Report this Comment On April 15, 2013, at 10:07 PM, jomueller1 wrote:

    As they say: Americans love it complicated.

    In my portfolio I owned a few shares of MLPs. My brokers do not necessarily report the purchase price from a previous year. It would be so easy for them to report it all to the IRS instead of me sitting down for hours trying to figure out what is what. I use a tax preparation program. It complains that in my brokerage account I used "various" for purchase and sell dates. That is legal with the IRS only if I file paper returns. So I printed some 50 or more pages of forms and documentation.

    If the brokerages would file their stuff and I add some other personal business, then the IRS could calculate it all and tell me the result. That would surely reduce the tax cheating.

    The IRS should also be more flexible with the deadline. If I file later, like September, and I owe, they just collect interest. If the IRS owes but does not pay interest I have an incentive to file soon.

    It seems that the makers of tax software and the companies making money on tax returns want it that complicated. Where I come from I go to the IRS with my documents, the employee walks with me through the stuff and accepts or denies line items. At the end he hands me my stuff back, gives his data to the IT department and shortly after my visit I get the results. Plain and simple. But in the US they always need a middleman to fleece the customer.

  • Report this Comment On April 15, 2013, at 10:14 PM, Wradical wrote:

    What the article doesn't mention is that the decline in revenue from the corporate income tax is largely due to the shift from business organized as C Corporations (regular corporations, subject to the tax) to S Corporations and LLCs taxed as partnerships, where the taxes are paid directly by the owners.

    Bill

  • Report this Comment On April 15, 2013, at 10:35 PM, Spectremac2 wrote:

    With respect to the chart in Item 3, as I recall the original Constitution (before some awful Amendments), only the purple band was allowed!

    A vast difference!!

  • Report this Comment On April 15, 2013, at 10:41 PM, GatorTrekE wrote:

    <i>For perspective, consider that the federal government has spent an average of $97 billion per year on "education, training, and employment" since 2008.</i>

    The education comparison seems to be a bit misleading in that education spending has primarily been a local and state matter, not a federal matter. As best I can tell, we will spend 781 billion on education this year when combining federal, state and local monies.

    I get your point and agree that we spend too much time and money on funding the government which adds to their natural waste proclivities. I'm not convinced we can count on the people who created this mess to repair it. I hope this doesn't make me a cynic.

  • Report this Comment On April 15, 2013, at 10:44 PM, irvingfisher wrote:

    " The annual cost of tax preparation totals far more than the government spends on education"

    most education spending comes from the states (not counted in your comparison), as education is under state pervue.

  • Report this Comment On April 15, 2013, at 10:59 PM, JohnnieBeGoode wrote:

    If the IRS says the compliance rate is 85.5%, and there's still $385B/yr left on the table, wouldn't hiring a few more IRS auditors be a smart move to raise federal tax revenues, while creating a few government jobs that actually make a positive contribution..??

  • Report this Comment On April 15, 2013, at 11:27 PM, Jarmbru wrote:

    If we were to institute a flat tax what would happen to the children of families that are already unable to adequately feed them? They cry themselves to sleep at night from the gnawing pain of their hunger. One in six Americans does not have access to enough food. What about seniors who are taking half doses of life sustaining medicine because that's all they can afford on a tiny budget? A flat tax rate is appealing, but how could it possibly be right?

    If only consumers pay taxes, why do corporations spend billions on lobbying Congress in an effort to avoid taxes?

  • Report this Comment On April 16, 2013, at 12:30 AM, tomcat09 wrote:

    progressive flat tax.

  • Report this Comment On April 16, 2013, at 12:55 AM, dgmennie wrote:

    Attention all tax fixers and flat taxers:

    So long as the US Govenment is set up so that lobby groups have far more influence that voters, the tax complexity "problem" will never be solved. Furthermore, the social engineers who expect to use the Federal tax code to push politically-correct agendas on the average citizen (e.g., green energy projects, special programs for specific "disavantaged" groups, newly-discovered minority rights, and all manner of other "lets do-good with someone else's money" opportunities) the tax situation will only get worse.

    While a flat tax sounds fair, it is also fraught with basic inequities simply because someone with a $50,000 income will still be far more heavily burdened in relative terms than someone with (for example) a $5 Million income. Yet it is the $5 Million earner who gets far more back from society than his average-wage compatriot. If the income tax was simply 10% for everyone (with minimal or no deductions allowed) would not the typical $50K wage slave still struggle to come up with $5000 for Uncle by April 15th? Meanwhile, would the $5 Million earner really have much measurable difficulty "scraping by" on a mere $4.5 Million??

    The road to hell is paved with good (and often poorly conceived) intentions. THINK ABOUT IT!!

  • Report this Comment On April 16, 2013, at 1:16 AM, KongPL wrote:

    @dgmennie: absolutely agree! Lobbyists corrupt the whole system. And we accuse others - Chinese e.g. - for their corruption while this happens directly under our eyes. It's massive, a massive scam. A flat income tax, complemented by a sales tax - is an easy, effective and efficient solution. I have lived in Hong Kong under the 16% flat tax regime. It takes a "normal" person about 15 minutes at most to fill out the tax return - no support required. It can be done online. It's paradise!

  • Report this Comment On April 16, 2013, at 3:29 AM, JGBFool wrote:

    I would guess that the majority of time I spend figuring my taxes involves filling out forms that allow me to take deductions, so my "pay rate" for tax document preparation is worth it.

    It was nice to see that my brokerage figured out my cost basis for my DRIP dividend stocks that I sold this year. That was tedious to do in Excel, so it's nice to have someone else checking to make sure that I'm getting the right cost basis.

  • Report this Comment On April 16, 2013, at 9:09 AM, Darwood11 wrote:

    boone1112,

    My small C corporation files federal and state income tax returns every year, at the appointed time at the end of our fiscal year. We do pay federal and state income taxes.

    We also pay the employers share of SS and Medicare taxes which is 7.65% of wages.

  • Report this Comment On April 16, 2013, at 9:15 AM, TMFMorgan wrote:

    <<And the difference between payroll tax and income tax is....? I'm drawing a blank.>>

    Payroll taxes only apply to the first ~$106k of income. They are highly regressive.

  • Report this Comment On April 16, 2013, at 9:45 AM, mdk0611 wrote:

    The Social Security benefits are also calculated based on a cap on income at that same ~106k. Not as regressive as portrayed.

  • Report this Comment On April 16, 2013, at 9:49 AM, TMFMorgan wrote:

    ^ Why doesn't anyone use that logic in the rest of government? You get the same military protection as someone who pays 10x more or 10x less income tax.

  • Report this Comment On April 16, 2013, at 9:50 AM, mdk0611 wrote:

    And with respect to the growing percentage of payroll taxes. In 1950, payroll taxes were 1.5% of the first $3000. of salary, matched by the employer. It was raised that year from 1% in previous years. I believe that $3000 of salary would translate to somewhere between 30 and 35,000. of salary in 2013 dollars.

    There was no Medicare in 1950.

    And I'd suggest you look at what the spending on these entitlement benefits was in 1950 and compare it to today, both in real terms and what % of the federal budget it represents.

  • Report this Comment On April 16, 2013, at 10:05 AM, TMFGortok wrote:

    "Tax cheats, then, are indirectly responsible for more than a third of the increase in the national debt. "

    Really? Did Tax Cheats tell the government to spend more money than they 'made'? Did Tax Cheats make political promises that could never be kept fiscally?

    I'm still amazed it's a bad thing to want to keep what you've earned, and considered an even worse thing to think it immoral to take money from others by force.

  • Report this Comment On April 16, 2013, at 10:15 AM, djkumquat wrote:

    ^yes

  • Report this Comment On April 16, 2013, at 10:35 AM, DonkeyJunk wrote:

    "I'm still amazed it's a bad thing to want to keep what you've earned, and considered an even worse thing to think it immoral to take money from others by force."

    If you are willing to pay for your own local infrastructure and mercenary military, this is an acceptable philosophy. It's not a bad thing to want to keep what you've earned. It's a bad thing to expect the world around you to sustain itself independently and allow you to utilize its functionality without your support, particularly when what you've earned is a function of the world around you that you choose not to support financially. That's a form of robbery as well.

    Are there inefficiencies in that system? Absolutely. As there are in all systems. But your own innovation and elbow grease can only take you so far before you require the support of a national infrastructure that everyone pays into to support. If you don't believe that's true, you're welcome to return to a nomadic, hunter-gatherer lifestyle.

  • Report this Comment On April 16, 2013, at 10:56 AM, Chontichajim wrote:

    Payroll tax increases reflect the fact that we were not paying enough for Social Security until recently. We are still not paying enough for Medicare, so it needs to go up more or we pay through another tax.

    Flat tax will never sell and not just because of lobbyists. Small business, rental owners, and others with high deductions have built lives around the current tax codes and will not shift to a revenue based tax.

    I would also welcome the end of Corporate income tax as that is just a flow through to the consumer anyway. Better to raise capital gains and dividend tax rates to the same level as other income to pay for any lost corporate tax, or replace it with a simple VAT which it is anyway.

  • Report this Comment On April 16, 2013, at 4:03 PM, Lesssense101 wrote:

    What a graph like this doesn't show is the actual amounts of each. What you don't see is how income taxes have ballooned while corp taxes have increased at a constant pace. Very misleading. Only the top 4% of income earners paid anything in the beginning (how it should be). In 1960, the top rate in the tax table was 95% and Kennedy lowered it. Nobody paid that much because of allowable deductions, which is how it was designed... to get people to spend their money the way the gov't wanted them to without actually mandating it.

    I don't for one minute believe the tax cheat figures are accurate. It would be so much more efficient and logical if there was no income tax(I do agree we are wasting too much time and money in preparing income taxes and wasting too much money on an organization to audit and administer it). If it went back onto business, there would be far fewer returns to review so compliance would be higher.

  • Report this Comment On April 16, 2013, at 4:11 PM, TMFMorgan wrote:

    <<What you don't see is how income taxes have ballooned while corp taxes have increased at a constant pace. Very misleading.>>

    There's a reason you don't see this: Namely, it's not true.

    Here's corporate taxes as a % of GDP:

    http://research.stlouisfed.org/fred2/graph/fredgraph.png?&am...

    It's a constant pace all right. A constant downward drop.

    Now here's income taxes as a share of GDP:

    http://research.stlouisfed.org/fred2/graph/fredgraph.png?&am...

    If by "balloon" you meant "decline," we're on the same page.

  • Report this Comment On April 16, 2013, at 5:53 PM, Rolin4ward wrote:

    "2001's tax gap totaled $290 billion"

    What a joke. I read that illegal immigrants don't pay 240 billion dollars of taxes, for jobs they are doing here, illegally. I also read a financial analysis where if all the illegals are made legal via back door amnesty, they will have access to so many more services that it would cost up 3 times the amount they are costing us now so what do you think will happen to your taxes with that when the country's already broke? 40 BILLION dollars on average go south of the border , untaxed,and you are complaining about tax cheats!? For and about who?! By the way, for economic sake, Obamacare doesn't exclude illegals either. Bon Apetite to anyone that believes that illegals working cheaply make things cheaper. Good Grief! And the IRS has hired approx. 4500 more agents to enforce Obamacare while your gardner is mowing your lawn. You WILL be paying those agents with your taxes.

  • Report this Comment On April 16, 2013, at 6:07 PM, golfnutt33 wrote:

    The comparisons should include state income taxes, social security, medicare, and other taxes that have come about over the periods being discussed.

  • Report this Comment On April 17, 2013, at 12:40 PM, DMOE754 wrote:

    Get the money out of politics and the rest will follow.

    dmoe754

  • Report this Comment On April 17, 2013, at 5:51 PM, Slewdog wrote:

    "The national debt increased by $8.3 trillion from 2001 to 2011. Tax cheats, then, are indirectly responsible for more than a third of the increase in the national debt. Thanks, guys."

    Your assumption that congress/POTUS wouldn't have us just as far in debt if every tax cheat had paid every penny they owed is a stretch. Ask yourself this...if somebody wrote the US Gov't a 2 trillion dollar check today....would they use it pay down the debt? If you say yes....you are the wrong kind of "fool". :)

  • Report this Comment On April 17, 2013, at 8:01 PM, JBRodgers wrote:

    Current tax laws are nothing more than behavior modification and wealth redistribution. And I don't mean modified for you, the tax payers, but modified so to get you to spend money that fills someone else's pocket.

    Two examples: Green energy and the fact that 47% do not pay any federal income taxes.

  • Report this Comment On April 18, 2013, at 12:30 PM, mikecart1 wrote:

    Flat Tax = the answer for everyone and the answer for no one

    :)

  • Report this Comment On April 18, 2013, at 12:31 PM, zgriner wrote:

    FAIRTAX!!!

    Will make sure EVERYONE pays their fair share of what they use.

    http://www.fairtax.org

  • Report this Comment On April 19, 2013, at 4:49 PM, bigtex55 wrote:

    "It's a bad thing to expect the world around you to sustain itself independently and allow you to utilize its functionality without your support..."

    Agreed. Which is why EVERY American should pay some income tax. We all benefit from defense, infrastructure, education spending etc. I get tired of hearing that those who don't pay any income tax do pay payroll taxes. Payroll taxes are a direct quid pro quo - you get back in benefits what you pay into the system (and in some cases more). It's like arguing that you shouldn't have to give to charity because you contributed to your own 401K at the office.

  • Report this Comment On April 21, 2013, at 12:49 AM, VictorErimita wrote:

    Corporate taxes are double taxes. And our corporate tax rates are still the highest in the industrialized world.

    I have to say, the more I read the articles in TMF Newsletter, the more I see conventional leftist boilerplate and happy face boosterism of our current economic trajectory. I find it shallow and disappointing, and it makes me question the world view of the entire enterprise.

    So, what? You advocate higher corporate taxes? Seriously?

  • Report this Comment On August 31, 2013, at 11:18 AM, jaybird43 wrote:

    So why then did our government make a tax cheat secretary of the treasury?

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