Death and taxes. These are life's two inevitabilities, and
sometimes they happen together. According to a study published in
Journal of the American Medical Association
, deaths from traffic accidents are 6% higher on tax day (usually
April 15) than on the same day one week before and after.
"Stressful deadlines might increase the risk of road trauma by
impairing drivers or by compromising surrounding individuals from
making compensatory adjustments," the researchers wrote.
That's one thing to keep in mind before tax day next week.
Assuming you make it through the day, here are three more.
1. Why it's so hard to simplify the tax code
Everyone who isn't a CPA wants a simpler tax code. Yet it becomes
more cumbersome and loophole-ridden year after year. "The federal
code plus IRS rulings is now 70,000 pages long. The code itself
is 16,000 pages," CNN's Fareed Zakaria recently wrote. President
Barack Obama's recent budget proposal criticizes the tax code's
complexity, and in response suggests closing several loopholes --
but adds others at the same time.
Why is it so hard to simplify the tax code?
There are several reasons, not the least of which is lobbying.
As Reuters columnist David Cay Johnston wrote this week, Turbo
(Nasdaq: INTU) donated $1 million in support of a California
candidate for state controller who opposed tax simplification in
But the biggest reason by far is that the rules complicating
the tax code -- deductions, credits, and loopholes -- are
incredibly popular with voters.
Tax deductions (technically called "tax expenditures," since
they mimic a cash subsidy) will reduce tax revenue by $1.1
trillion in 2014, according to a recent study by the
Congressional Research Service. There are dozens of special
deductions, but just a few make up half the total cost:
Cost in Lost Tax Revenue (2014)
|Employer-provided health insurance
|Capital gains rates
|Earned income credit
Source: Congressional Research Service (link opens PDF
Most polls show overwhelming support for simplifying the tax
code, but support drops sharply when you get into specifics.
According to a 2011 Gallup poll, 61% of respondents opposed
getting rid of the mortgage-interest deductions; 62% opposed
ending the deduction for state and local taxes. In one Bloomberg
survey, more than half of respondents opposed even reducing the
deductibility of employer-provided health insurance. There's a
version of the NIMBY paradox when it comes to tax reform: People
want a simpler, fairer tax code as long as it's not in my
backyard -- or on their tax return.
Eliminating all tax deductions could, of course, fund a
in tax rates. But because of how deductions are distributed, such
a proposal is unlikely to receive much support, either. Many
benefit so handsomely from the tax code's complexity that their
effective tax rates are rock-bottom. That brings us to the second
2. Any way you measure it, federal tax revenue is
Adjusted for inflation, federal tax revenue was the same in 2009
as it was 1997, even though the U.S. population grew by 37
million during that period.
As a percentage of gross domestic product, federal tax revenue
is near the lowest it's been in more than half a century:
Source: Tax Policy Center.
A lot of this decline is simply due to the recession -- high
unemployment means low income tax receipts. But that's not the
only reason. The average federal tax rate for those with a
positive liability was 11.06% in 2009 (the most recent year
calculated), according to the Tax Foundation. That was the lowest
since the group began collecting data in the 1980s, and more than
a third lower than the average rate in the 1990s. "Nationally,
average effective income tax rates were at their lowest levels
since the IRS began tracking them in 1986," the group wrote. And
overall rates will stay low at least through this year as the
payroll tax cut saves most taxpayers 2% a year.
No one likes paying taxes. But as you file your returns this
year, know that at almost any time in recent history you'd
probably owe more on the same amount of income.
3. Many, many don't pay their fair share
In January, the IRS released a report on the estimated "tax gap,"
or money that people legally owe in taxes but evade paying.
For 2006 (the most recent year calculated), the gap stood at
$450 billion, an increase from 2001's estimated tax gap of $345
This isn't money people legally avoid paying by using tax
shelters like an IRA or 401(k). It's tax revenue
illegally unpaid thanks to things like offshore bank accounts and
unreported cash receipts from businesses.
The IRS only issues these reports every five years, and each
report details just one year. But let's use some assumptions.
Assume 2001's tax gap of $345 billion was reflective of the
2001-2005 period, and 2006's $450 billion gap was reflective of
the 2006-2011 period. In total, that's $4.4 trillion in lost tax
revenue over the last decade.
Happy tax day. And drive safe.
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