I would love to say that personal income taxes in the US are a joke, but it's no laughing matter. The US and individual state governments are serious enough about tax collection to put people in prison when they fail to file or pay their personal income taxes.
Personal Income Tax
I don't have the dates in front of me, but personal income taxes were instituted during World War I, removed after the war, put back into place for World War II and never removed again.
There are those that believe that the collection of personal income taxes is illegal in the first place. The Internal Revenue Service falls under the Department of the Treasury. The tax codes are indeed law and collection of personal income tax is legal, even though it's fruitless.
Earned Income Credit
How many people in the US get a tax break because of "earned income credit"? I don't know what the numbers are, but they can only go up as the economic recession deepens and employers cut back on wages.
This particular "credit" is akin to the government being a kind of Robin Hood, except that it isn't stealing (and some would beg to differ). It's taking from the rich and giving to the poor. Why? Because people who get the earned income credit tend to get a tax return which is more than they ever paid in the first place.
Personal versus Business Taxes
In a lot of countries, like the Philippines and other Asian countries, the majority of people don't earn enough money to pay personal income taxes. I don't know how much they have to earn and I don't intend to find out.
I don't agree with personal income taxes being collected. I think the government oversteps its bounds when it takes money from you when you earn AND when you spend it. Sales tax percentages continue to rise and it isn't going to get any better.
On the other hand, I believe that business taxes should be paid. If you ignore the fact that the burden of their taxes is shifted onto consumers through increased profits, you ignore the very reason I believe Americans are actually taxed THREE TIMES on the same income. With a consumer-driven economy, it would make a lot more sense to remove the personal income taxes from individuals while continuing to tax businesses. After all, the consumers would STILL be paying the taxes, only indirectly.
Fair Tax Acts and other Mumbo Jumbo
For more than 10 years, possible as many as 20 years, certain government elected officials have tried to push through one form of "fair tax act" or another. What a joke. The only fair tax for individuals as far as personal income taxes are concerned would be no tax at all.
Can you imagine how much of our taxes could be saved if the IRS was done away with entirely? If you do the research, the cost of running that service is enormous. Someone (not me) should take the time to construct a presentation that shows how much is personal income tax is actually collected, how much is returned as "earned income tax" above what a person actually pays in, and how much is spent administering the tax.
If the numbers add up to being a negative amount, someone in the government needs to be relieved of their position (perhaps a lot of people). I can't prove it, but I'd be willing to guess that the numbers do indeed go into the red when ALL of the numbers are included.
My Personal Tax Situation
Although I live in the Philippines, I still pay taxes to the US. I have an Internet business, I make money with AdSense and my wife is currently working in the US. I draw a pension from the US government. Once my wife returns to the Philippines, only the pension would be tied to the US and it isn't enough to be considered taxable by itself.
I'm seriously considering changing my country, for tax purposes, in 2010 when only my government pension will be accountable to the US. Of course, I'll have to investigate how the Philippines treats business income before I do that. It obviously wouldn't make sense to switch if the Philippines tax rates are higher than the US. Somehow I doubt it.
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This article is published as: The Farce of Personal Income Taxes in the US
I too hate income tax and we pay way to much. They all ready double tax us on most things and how ridiculous. Shortly, I guess we will get taxed even harder with the economy the way it is and the new stimulus pkg.
Lynda Info
Hi,
if you think tax system is rather strange in the US, don't go to France !!!
Actually, this is the same problem all over the world…very confusing.
A french guy, sick of taxes, too !
The funny thing is that the personal income taxes are a minority in goverments income. To completely get ride of them we should have only a tax for purchasing products, in UE it's called VAT, I know that states in US have something like that. Maybe goverment should take a piece of it also.
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Good Article! Being a small business owner, the tax issue is a sore point with me. Yah, I agree that if we got rid of the IRS we'd be saving a pretty penny. I don't mind paying some taxes. What gets me is how the government miss-manages the money we give them. And don't get me started on the more current issues.
I don't know the answer. It changes drastically every year.
Wow, I just had a bit of a history lesson there but I'm quite surprised and I feel somewhat robbed because of the way taxes are now. We pay so much…and company bonuses…bah, they take almost 40% of that!
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It's interesting to read about tax issue.Paying tax is very essential because it indeeds welfare of the people. If rich people are going to walk around and give money to the middle class and the poor, then there is no need in collecting tax by the government..
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It is quite interesting to read the issue of tax..If rich becomes rich and poor becomes still poor, then what is the need for paying the tax..tax should be utilized properly for the welfare of the people..
Thanks for the post..
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Taxing the rich. According to the Congressional Budget Office, in 2005 the top-earning 5 percent of U.S. households paid 60.7 percent of all income taxes. You can find all the charts and graphs you'd ever want about this issue at the CBO's page on the distribution of taxes and income. The myth that the rich aren't paying their fair share of taxes is nothing more than that… a myth. Designed to draw attention away from the fact that our government is insatiable and unaccountable for the waste of all that money. They'll never have enough money. Now that the recession has greatly diminished the numbers of "Rich" Americans, the tax burden on the Non-Rich will certainly increase because our government does not comprehend living on less.
Well, I know in America you don't have a free health service, but in England we do so when I get taxed I pray that it is going to pay for the life of an unhealthy person.
But as an economist, I'd like to point out that proregressive taxes are indeed fairer than regressive taxes and make more sense, especially in the US. Sin taxes are there to put off people for their own health, you aren't forced into buying the product. The revenue from sin taxes is what keeps the government from banning them all together. Because we have so many accidents and health damage because of them, taxes are our lifeline for them. And god knows what would happen if they took away our cigarettes and alcohol!
:)
Jack from buy to let mortgage