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| The Basics | Think your taxes are bad?
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Every year, you grimace as you sign your return. Imagine what it's like in Belgium or Hungary, where taxes can take half your pay. Plus: the wackiest taxes on record.
By Debora Vrana
Believe it or not, Americans enjoy some of the lowest income tax rates in the world. Today of all days, it might not seem so.
When you look at the overall tax burden, the U.S. is quite low," said Eric Toder, a senior fellow at the Urban Institute in Washington, D.C., and former director of the office of research for the Internal Revenue Service.
For a family with one wage-earner and two children, only Iceland and Ireland have a lower income tax burden than the U.S., according to the most recent data for 2005.
At the top, Sweden, Turkey, France and Poland impose the biggest tax burdens on families, but in most of those countries families get added social services, such as secure pensions and health care.
Citizens in these other countries are paying more money, but they are getting more back, in terms of social programs, said Christopher Heady, head of tax policy for the Paris-based think tank Organization for Economic Cooperation and Development, or OECD. Its a choice the electorate makes.
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The OECD collects data on 30 member countries and annually calculates what it calls the tax "wedge" for each -- the combined effects of personal income tax, employee and employer social security contributions, payroll taxes and cash benefits.
| Tax burdens around the world | | Country | Single, no kids | Married, 2 kids | Country | Single, no kids | Married, 2 kids | | Australia | 28.3% | 16.0% | Korea | 17.3% | 16.2% | | Austria | 47.4% | 35.5% | Luxembourg | 35.3% | 12.2% | | Belgium | 55.4% | 40.3% | Mexico | 18.2% | 18.2% | | Canada | 31.6% | 21.5% | Netherlands | 38.6% | 29.1% | | Czech Republic | 43.8% | 27.1% | New Zealand | 20.5% | 14.5% | | Denmark | 41.4% | 29.6% | Norway | 37.3% | 29.6% | | Finland | 44.6% | 38.4% | Poland | 43.6% | 42.1% | | France | 50.1% | 41.7% | Portugal | 36.2% | 26.6% | | Germany | 51.8% | 35.7% | Slovak Republic | 38.3% | 23.2% | | Greece | 38.8% | 39.2% | Spain | 39.0% | 33.4% | | Hungary | 50.5% | 39.9% | Sweden | 47.9% | 42.4% | | Iceland | 29.0% | 11.0% | Switzerland | 29.5% | 18.6% | | Ireland | 25.7% | 8.1% | Turkey | 42.7% | 42.7% | | Italy | 45.4% | 35.2% | United Kingdom | 33.5% | 27.1% | | Japan | 27.7% | 24.9% | United States | 29.1% | 11.9% |
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Source: OECD, 2005 data
Mysteries of the code
In 2003, total federal state and local taxes in the United States were 24.2% of our gross domestic product, ranking among the lowest in the world, with only Mexico at 19.5% with a lower tax rate. Along with the higher taxes, the difference between the U.S. and some of the other industrialized countries are increased social services, such as pensions and health-care funding.
But for many Americans laboring to file income taxes before the April 17 deadline, the main complaint is not the tax burden, but that confusing document called the U.S. tax code.
The tax system is much more complicated in America, said Toder. Taxes have become a much more stressful and complicated event, even if you are getting money back, he said.
In addition, there are often idiosyncratic taxes each state can levy. These taxes can be as wacky and as quirky as the character of each state. The local taxes can reflect what is important to residents and what activities residents may hope to curb.
Some of these are humorous and some probably dont bring in much revenue, said Lily Batchelder, an assistant professor at New York University who specializes in taxes and social policy. There are a lot of ways we need to simplify taxes.
For example:
- Last year, Tennessee became the latest of more than 20 states to tax illegal drugs. Under the law, when you acquire an illegal drug, you have 48 hours to report to the state and pay your tax, although you arent required to identify yourself. Once youve paid, youll receive stamps to put on your illegal substance to show evidence you paid the tax. You dont have to identify yourself to pay the tax.
- To help clean up Chesapeake Bay, Maryland residents must pay a flush tax tacked onto septic and sewer bills.
- In Maine, anyone who grows, purchases or sells blueberries there will pay a tax.
- In Utah, owners of sexually explicit businesses, where someone appears nude or partially nude, must pay a 10% tax.
- If you want to buy a deck of playing cards in Alabama, be prepared to pay a tax.
- In Mississippi, youll pay a 7% tax on all amusements, unless you are going to hear gospel music and the program is not mixed with hillbilly or popular singing, according to tax experts.
- In Arkansas, youll pay a tax if you get a tattoo or nose ring.
- Canada isn't exempt. In Ontario, boxes of breakfast cereal that contain a toy or bonus item are not subject to retail sales tax, provided the item is not liquor, wine or beer.
Bellyaching since the revolution
It wasnt always this way.
America, founded after a revolution sparked in part on tax resistance, had few taxes in its early history. From 1791 to 1802, the U.S. government was supported by taxes mostly on distilled spirits, refined sugar, corporate bonds and slaves. In 1817, Congress abandoned all internal taxes, instead relying on taxes levied on imported goods.
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During the Civil War, however, Congress enacted the nations first income tax law. Under that, people earning from $600 to $10,000 per year paid a tax of 3%, and those who made more than $10,000 paid higher tax rates. It was the beginning of our modern income tax system.
In 1913, the 16th Amendment to the Constitution made the income tax a permanent fixture. The withholding tax on wages was introduced in 1943 and was instrumental in increasing tax collections to $43 billion by 1943.
This year, about 132 million tax returns will be filed in the U.S., and about 43 million returns will get back every dollar that was withheld from their paycheck. The remaining 90 million returns will end 2005 having paid about $1 trillion in federal income tax.
Noncompliance is hard to estimate, but by most international comparisons, Americans are paying the highest fraction of what they owe, experts said.
So we may bellyache, but we pay, said Bill Ahern, spokesman for the Tax Foundation Inc., a Washington, D.C.-based nonprofit research group, who said part of that compliance may be the result of fear of the IRS. But it may also be the amount is more reasonable. The higher the tax, the greater the incentive to evade, he said.
Lady Godiva and wacky taxes
Hate these taxes?
Well, you can take the path of one of the original tax protesters, Englishwoman Lady Godiva. In the 11th century, she successfully reduced a tax assessment on her husband, the Earl of Mercia, by riding naked on a white horse through the streets of Coventry.
In fact, taxes have been around nearly as long as there have been kings and queens, dictators and governments to levy them. And historically, some taxes were even wackier than those we have today. For example:- In England, William Pitt the Younger introduced a tax on every property with more than six windows. The taxes, levied during the 1700s and into the early 1800s, were used to pay for military campaigns in Ireland and elsewhere. As a result of the tax, many windows were bricked up.
- Also in England, during 1795 William Pitt introduced a tax on wig powder when the French fashion for wearing wigs was all the rage. The unpopular tax was short-lived.
- Salt, such an important commodity that the word "salary" stems from the practice of using it as part of a Roman soldiers wages, has been taxed periodically by various nations. It has been taxed in China for thousands of years.
Americans' resistance to taxes is as strong as ever. And so is confusion and anger about the U.S. tax code.
Last year, the Presidents Advisory Panel on Federal Tax Reform solicited ideas from the public to find out what exactly is wrong with the system.
Complaints poured in from individuals, businesses and experts, with many upset about complexity. The panel is trying to simplify the tax code without losing its progressive nature, which forces Americans to pay more as they earn more.
Some suggested a national sales tax that would replace the income tax. Others want a flat tax, exempting the poorest Americans. Some want value-added taxes, or VATs, which are common in Europe. These taxes are collected in small increments at every state of production of an item, such as a car.
Whatever the solution in the long run, theres only one thing to do on April 17.
You gotta pay up. Or ask for an extension, said Batchelder.
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