Taxes remain one of the great contradictions of society. No one likes to pay them, but basic things like roads, police and fire departments, public schools, public parks, and thousands of other necessities wouldn’t exist without them. We spend a lot of time dreading the filing and paying of taxes, and seemingly more time waiting on any refund we might have gotten. However, we spend precious little time thinking about the basic facts of taxes. Why is Tax Day April 15? Does filing have to be complicated? How much of my taxes go to which programs? Today, we take a quick look at four of the more taxing questions.
1. Why is Tax Day on April 15?
Tax Day has been fixed on or around April 15 since 1955. Income tax has been a constant since the Revenue Act of 1861, which went into effect to levy monies from income to help pay for the Union’s war expenses. If you made more than $800, you had to pay a three percent flat tax. That was repealed in 1871, but a new flat federal income tax law went into effect in 1894. The Supreme Court threw that one out, based on a claim that taxes needed to be tied into population distribution. The population question was eliminated by the 16th Amendment, which was passed in 1909 and ratified in 1913; the amendment allowed for an individual income tax regardless of population.
In 1913, the filing deadline was March 1. That was pushed to March 15 in 1918. During tax code reforms in the mid-1950s, the date got pushed again, this time to April 15. The basic reason is that, well, it takes a lot of time to do all the paperwork. Knowing that there’s a deadline down the road, it theoretically gives people all of January, February, March, and half of April to do their filing for the previous year. However, very few people do it as soon as the calendar turns (“As soon as I kick this New Year’s hangover, I’ll file my returns” is not a common sentiment).
2. When Did Electronic Filing Begin?
You might think of e-filing as a relatively recent innovation, but it’s actually been available since 1986. That’s right; 33 years ago, five tax preparers agreed to take part in the first e-file program. It waspretty complicated; the preparers used a Mitron, which was a machine that was basically a tape reader connected to a modem. The tape with the tax data would go into the Mitron; the data would then transfer via the modem to a different machine at the IRS called a Zilog. The Zilog read and reconfigured the data for the Unisys computer that the IRS had at the time. Like we said: complicated.
By 1987, the IRS began to allow electronic direct deposits so you could get your refund as soon as possible. The next year, they shed the complicated Zilog system in favor of IBM Series I. With the continuing evolution of electronic communications and the internet, half of all returns were e-filed by 2005. The IRS stopped mailing out 1040s in 2010, making them and other forms available online.
3. Isn’t This All Simpler in Other Countries?
In a word, yes. A number of countries have what we call “return-free” taxes. That is, the equivalent of the IRS does your taxes for you ahead of time, sends you a verification form to make sure everything is correct, gives you time to make sure it’s right, and then you send it back. That’s how it works in Spain, Denmark, and Sweden. Japan and the U.K. use “precision withholding,” which are regular withdrawals that take care of what you owe while accounting for your charitable contributions.
While some complications stem from the fact that our tax system tries to be fair and observe that differences in income can affect how people are taxed, that’s only part of the issue. In the U.S., efforts to make your filing easier, and even free, have been undermined by lobbying. Intuit, the makers of TurboTax, has spent $20 million in lobbying in the past 10 years to keep things the way they are. Confusing legislation exists right now that would ban the IRS from making their own free tax-filing software available, keeping private companies like Intuit and H&R Block in control. The legislation would require the companies to make free software available to everyone that makes under $66,000 a year, but that could be a problem for people who file jointly, depending on the specificity of the rules. It’s safe the say that filing won’t get much easier anytime soon.
4. Where Exactly Does Our Tax Money Go?
This is a perennial question, but it got a lot more attention recently when rapper Cardi B asked about it on her Instagram in March. A number of outlets, like CNBC, rushed to provide answers and statistics. Citing the Peterson Foundation, the article indicated that about half of our discretionary spending (the spending that lawmakers control with appropriations) from tax revenue goes into defense, which was roughly $6.11 billion in 2017. For context, the Foundation notes thatU.S. defense spending is “more than China, Saudi Arabia, Russia, United Kingdom, India, France and Japan [defense spending] combined.” In other discretionary funds, six percent goes into education, with another six going into Medicare and related accounts. When we examine what is spent on “mandatory spending,” which are programs that have been set by laws, that goes to things like science, agriculture, transportation, social security, health care, and anti-poverty accounts like SNAP.
Like them or not, taxes, simply put, are how we pay for things in America. Different countries may have different priorities and programs, but they typically push toward the same rough equivalent, which is an overall attempt to provide services and security to citizens. Whether we pay in March or April, whether we file on paper or on a computer, taxes always come due.
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President Obama’s recent talk about a “wealth tax” prompted the media to analyze and criticize the proposal—even though there was very little substance to the idea: no specifics, no numbers, and no chance it would ever get through Congress.
Technically, it wasn’t a “wealth tax” but a “alternative minimal” income tax, which would ensure millionaires paid the same effective tax rate as middle income taxpayers.
Nevertheless, critics promptly named it the “Soak the Rich” tax.
Curiously, this is the same name used to describe a similar plan in 1935. In that year, Franklin D. Roosevelt proposed raising the annual tax rate for individuals earning over $50,000 (roughly equivalent to $800,000 today.)
The Post—ever opposed to Roosevelt and the New Deal—believed that raising taxes on the wealthy was the beginning of a program to redistribute wealth. The rich, according to the editors, couldn’t provide the revenues needed; they simply didn’t have enough money.
The colossal debts which the Government has incurred can never be paid from “wealth taxes,” no matter how nearly confiscatory. The rich are too depleted, in both income and fortune, to yield the sums which are required. Strictly speaking, what the situation calls for is not so much more taxes as more individuals and corporations capable of paying taxes.
They believed the government could only get the revenues it needed by raising taxes on middle-income Americans.
Under any system of private enterprise, the necessary revenues cannot
be had except by making people of moderate means pay far more than they now are paying. But an official announcement of such intention would be most unpopular in a political sense at the present time. On the other hand, an appeal to “soak the rich” is one of the oldest and most popular in the whole political game. Naturally, nothing is said at the start about making other people pay. That will come later.
He is an innocent and guileless soul indeed who does not realize that this program of soaking the rich is merely a preliminary to a grinding of the face of the middle class and the poor.
The Post consistently argued against any scheme to make the wealthy pay higher taxes. But this was 1935. Back in 1913, when Congress first approved a peacetime income tax, it held a different opinion. In that year, the editors regarded income tax as an enlightened, fair-minded approach to raising government revenue. And it published an article by Congressman Benton McMillin, who explained why wealthy should contribute more to the country.
Way down in the hearts of the masses of mankind there lurks a strong sense…
that vast accumulations of wealth in the hands of individuals or corporations should help to support the Government under which they are acquired, by which they are protected and without which they would vanish.
Why tax the widow’s mite and the orphan’s bread and not tax these accumulations? Why lay tribute on what we eat and wear, and leave untaxed millions in the hands of those who can never personally consume it, and with whom it is surplus?
If there ever was a time when the concentrated wealth of the land should bear its share of our enormous expense of government, it is now.
There were only two sources of revenue, McMillin said, that could be fairly and practically taxed:
whiskey, wines, beer and tobacco, because, being subject of voluntary consumption, they are more properly taxable than the necessaries of life; and incomes, because thereby each taxed citizen pays in proportion to his ability.
An income tax was more equitable than sales taxes, he wrote, because they put a heavier burden on lower-income taxpayers.
it takes as many yards of cloth to clothe comfortably and as many pounds of sugar, meat, and vegetables to feed bountifully a poor man as a rich one.
Hence, when taxation is based on consumption… the burden is borne unequally—the poor paying more and the rich less than their fair share.
Heretofore we have taxed Want instead of Wealth.
When President Roosevelt put his “wealth tax” proposal into the Revenue Act of 1935, he knew it wouldn’t get far. But it was an election year during the Depression. A growing number of middle- and lower-income voters were feeling impatient for recovery and resentful toward the wealthy, who they believed were responsible for the ailing economy. Demagogues like Senator Huey Long were gaining broad support for programs for redistributing wealth. Roosevelt hoped to win back these voters with a proposal that would be whittled down in Congress to a modest increase.
The Revenue Act that was finally approved raised the top tax bracket from 63% to 79% for any American making over $5 million a year. Which was just one person: John D. Rockefeller.