Don't Quit Your Day Job…

Our tax visualization last time was interesting, but this one might convey more data. Once again, or source for tax data is the IRS’s publication 2010 Data Book. Just like last time, note these are tax collections, and the IRS annual year ends in September. True revenue is after all refunds and credits are finalized, but this data is interesting to see the amount of tax collected – and how it makes it’s way to Uncle Sam.

Been reading DQYDJ for a while? Good. You know that looking at data from a different angle yields very interesting insights.

Here’s one interesting thing: the federal income tax code benefits 18 to 35 year olds at the expense of 45 to 65 year olds. How do I figure? The IRS helpfully posted data for 2009 (links are xls files) on both the amount of income made by age group and the amount of Federal income taxes paid after credits. So, should the Silent Generation and Baby Boom Generation be mad at Generations X and Y? Partially! Read on.

“In this world nothing can be said to be certain, except death and taxes.” – Benjamin Franklin

What is less certain is what those taxes will be called – the tax code continues to get more and more complex every year. The IRS puts out a data report annually about their fiscal year which includes tax collections by the type of tax (Table 6). These numbers are not the final numbers – those numbers are arrived at once all credits and refunds are complete. However, the chart that results is instructive, and it allows us to visualize how the tax code has change over the years to collect revenue from the country in different ways.

In the chart that follows, you can turn off individual categories so you can see how individual categories stack up. Note the relative size of the estate and gift taxes. For the amount of interest they receive, they are an insignificant portion of total tax collections.

Sorry to miss the news cycle (I bought a house, as I alluded I might in my slightly pessimistic earlier real estate postings), but I wanted to share the perfect example of the incentives and disincentives of tax laws.  As predicted a while ago, California finally passed a law which stated that any out of state businesses which had affiliates in California would have to collect taxes when consumers in California purchased goods from the mother company.  A few other states have already passed similar laws, nicknamed ‘Amazon Taxes’.  Overstock.com and Amazon.com (disclosure: this site was technically an Amazon affiliate) immediately announced plans to cut off California affiliates.

Here at DQYDJ, we like to write about things that have unintended consequences – a perfect example is the Alternative Minimum Tax, which was intended to stop the very rich from having a 0% tax rate.  Of course, since that tax was not indexed for inflation, it has creeped its way into the middle class’s check book.  Today we’ll link you to an article on another distortion of the AMT – deepening the “Marriage Penalty”, a situation where two singles would be better off, tax-wise, staying single as opposed to marrying.

The Alternative Minimum Tax, a tax enacted in 1969 to set a minimum level of taxation, has had major mission creep – especially in the last 10 years. The Alternative Minimum Tax is a secondary set of tax brackets which disallow certain deductions which are allowed under the normal tax code. The tax was enacted since 155 rich households avoided paying tax altogether back when the tax was started. Today, even with annual ‘patches’ by congress, the alternative tax bracket is hitting more and more people – 4.5 million tax payers last year. Hope you’re having fun doing your taxes this year!

… or Madam! What exactly did your tax money go to when you paid your taxes last year? How much went to Social Security, Medicare, even Congressional Salaries? The think tank The Third Way came up with an idea of the IRS reporting where taxpayer funds end up as a part of taxpaying. Megan McArdle hosts one such taxpayer “receipt” in one of her articles, and also makes a few poignant comments about income tax withholding. So, how does the receipt look?

Here’s something you can really sink your teeth into – a calculator from the Tax Foundation which will let you input your tax data. What does it output? Well, your tax burden under the ‘Bush’ tax cuts (passed in 2003), your tax burden if the plan expires, and your tax burden if the changes in President Obama’s budget are enacted. Now that you have this data, you can cut through the noise and choose which one you like the best by simply figuring out under which plan you owe the least! Joy!

You knew it was only a matter of time – once it was revealed that Treasury Secretary Timothy Geithner blamed his personal tax problems on a misuse of the tax software TurboTax – that someone would try to blame their own tax problems on the software in Tax Court. Well, your wishes came true, and the first tax case was decided on the 19th concerning the “Geithner Defense”!

The “VAT”, the so-called value-added tax, has received some attention here before at Don’t Quit Your Day Job. Unfortunately for everyone, it probably will receive a bunch more in the future. Fresh off Paul Volker’s comments to the New York Historical Society putting the VAT in play, the United States could be getting a VAT of its own. As pointed out in this very good article at Super-Economy, the US is the only county in the OECD that doesn’t have a Value-Added Tax.