“Sometimes I Feel Like A Black Republican…”: Tax Day 2012
April 17th, 2012 – Its tax day, but for many of you reading this the refund check has become a distant memory. For you early birds that owed this year, you’ve long since mailed off your return and accompanying donation to the federal budget. The rest of you will be standing in line at the Post Office today looking to get your tax return postmarked to avoid the wrath of the Internal Revenue Service.
Nobody likes paying taxes these days and never has, so why the heck do we allow the federal government to take it from us? What is all that tax revenue used for? Most importantly, who isn’t paying taxes and how can we join them? Are the rich really skating by without paying their fair share, while we common folk carry the burden? Isn’t tax day supposed to be April 15th? For the answer to these questions and more scroll down for a little Taxation 101:
What is the Federal Income Tax collected for?
Federal Income Taxes are used to fund billions of dollars worth of programs as agreed upon by a yearly budget worked out between the President and members of Congress. The tax is collected on any income earned by U.S. citizens, even income earned outside the country. The amount of tax paid is based upon how much income is earned in the previous year, so 2012 tax returns refer to 2011 income. Since higher incomes are taxed at a higher rate, we have what is considered a ‘progressive tax’ system. Meaning progressively higher tax rates, for greater income earned (35% being the highest individual tax rate).
Where is my money being spent?
Defense, Social Security, Medicare (health care for Americans > 65 yo), Medicaid (healthcare for the poor) and interest on debt are the highest singular expenditures in that order, but there are plenty of lesser programs that mean a lot to Americans. Some of those include: 1) Student financial aid for college, 2) Interstate road repair, 3) national park maintenance, 4) government employee salaries, 5) federal law enforcement, etc.
Whose pays taxes? Are the rich skating by?
Approximately 46% of Americans will pay no federal income tax in 2011. However, more than half of those filers are hit with payroll taxes.
The question of whether the rich are skating by is best answered this way – it depends. The cut for making it into the top 10% of households in the United States in 2012 is a total income of $140,000 per year (that’s a 5 yr NYC teacher and a NYC Police Officer living together) believe it or not. The top 10% paid a whopping 70% of all federal income taxes collected in 2008. As for the 1% (IRS defined as $380,000 or greater household income), they paid approximately 38% of all tax revenue collected.
What happened to April 15th? Today is the 17th isn’t it?
April 15th is tax day unless of course it falls on the weekend like this year. In that case, tax returns are due the very next business day which should be Monday April 16th. However, this year Washington, D.C. is celebrating Emancipation Day. It’s a local holiday that almost no one outside of D.C. knows or cares about, but by law District of Columbia holidays must be treated like a federal holiday with regard to tax deadlines. As a result, tax day is moved up to April 17th this year.
Who doesn’t pay Federal Income Tax?
Well, the vast majority of households making less than $59,486 total household income, but many do get hit with those pesky payroll taxes.
Why did billionaire Warren Buffett pay a smaller percentage of his 46 million dollar income than his secretary?
Because salaried employees like Mr. Buffett’s secretary are taxed at normal progressive income tax rates which go as high as 35%. Rich guys like Warren make the bulk of their money through Capital gains and corporate dividends, which have a maximum tax rate of 15%.
Is that 15% tax rate fair?
Well, the capital gains and corporate dividend income that many wealthy people receive is the result of them investing their money in businesses which provide jobs to people. The idea of taxing investment income at a lower rate is to encourage greater investment and thus greater job creation and increased economic activity. If investment income is taxed at normal rates, then the theory goes that less money would be available for business expansion, hiring, research and development for better products, etc. Also, the money paid out in the form of dividends and capital gains has already been taxed at the corporate level in the form of corporate income taxes.
Ok, that’s good for the rich guys but what is the IRS going to do if I don’t pay my taxes on time or don’t bother filing at all?
If you owe money and are late filing your return, you get 3 separate penalties to contend with: a) The Failure to File Penalty which is 5% for each month late your tax return is delayed up to a maximum 25% levy. b) The Failure to Pay Penalty, which is 0.5% for each month on the balance owed with no limit, and c) A 4% yearly interest rate on your balance owed, calculated and compounded daily.
Oh and in case you decide not to file your return, understand that you face all the above penalties on any money owed, the possible forfeiture of a refund (there is a statute of limitations), and/or 1 year in jail for each filing year that you didn’t file a return with the IRS. That’s what they got Wesley for! He got 3 years in jail and must pay 17 million in back taxes and penalties with recurring interest on what he owes until it is all paid up. Jail time doesn’t stop the interest from accumulating.
Taxes have become a major dividing issue in our government. President Obama’s call for the so called ‘Buffet Rule’ requiring a minimum tax rate on wealthy individuals was struck down yesterday in the Senate. The President thinks it is unfair that the wealthy pay a smaller percentage of their income. Those on the other side point to the fact that the wealthy still pay the bulk of the taxes collected, continue to be the job creators and main investors in American business, and believe higher taxes to be punishment for success and a supplement for wasteful government spending. Now that you know how much or how little you pay, what do you think? Expanding the tax base (making more people pay taxes) or keep raising the tax bill for the wealthy? I hope the answer to that question isn’t as simple leaving this article as it may have seemed coming in.
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