Fun Facts About The U.S. Tax System
RENEE MONTAGNE, HOST:
And of course in presidential campaigns taxes are a perennial issue. And now that you are experiencing the misery of preparing your return or perhaps the exhaustion of filing, we're here to cheer you up with some tax trivia. Here with the scintillating statistics is our regular guest David Wessel. He's director of the Hutchins Center at the Brookings Institution and a contributing correspondent for the Wall Street Journal. Good morning.
DAVID WESSEL: Good morning, Renee.
MONTAGNE: All right - April 15. Why don't we start with how many people still file their returns by snail mail?
WESSEL: Well, you know, those stories that newspapers used to love about the post office in some towns staying open late so people could get their returns postmarked just before midnight and meet the deadline - well, they're quickly becoming history. Last year the IRS tells us 88 percent of the 150 million tax returns were filed electronically either by some paid tax preparer or by someone working on their home computer.
MONTAGNE: And although those are some fun memories, from anyone a not pleasant memory is how long you spend on average filling out tax returns. What is the average?
WESSEL: Well, you know, the IRS is required by something called the Paperwork Reduction Act to actually figure out how much time people spend on their tax returns. Most people - by which I mean the 70 percent of individuals who don't have any business income on their returns - spend about eight hours doing their taxes, according to the IRS, about three hours for record-keeping, three to fill out the forms and a couple of hours for what they call other. More than half the people pay someone to do their taxes. A third use the tax software. And one thing I think a lot of people don't know is that if you have income below $62,000, you can file out your taxes for free on an IRS website either using some random software or some software that they have come up with.
MONTAGNE: Well, how big is the typical American family's tax bill?
WESSEL: That's a good question. So you know if you take a family of four that earns about $75,000 a year - half the families in America earn more than that, half earn less, so that's the median - they pay about $4,500 or 6 percent of their income in income taxes. But most of them will pay as much or more in Social Security and Medicare payroll taxes that come directly out of their paychecks. In fact, most Americans pay more to Washington in these payroll taxes than they do in federal income taxes. One that I find often surprises people though is, if you look at the data, the share of income that the typical American pays in all federal taxes - income taxes, payroll taxes, all that - it actually has been coming down over the past couple of decades, although very few people I think accept that.
MONTAGNE: And there are some people who pay no taxes at all.
WESSEL: That's right. There's some people who pay no taxes at all because they're cheating, but we're not talking about them. The government has decided that some people don't earn enough money to pay taxes. The Tax Policy Center, a think-tank, estimates that about 45 percent of American households pay no federal income taxes, although most of those people do pay payroll taxes on their wages. About 17 percent of Americans pay neither payroll taxes nor federal income taxes. Of course a lot of them do pay state sales taxes and other local taxes.
MONTAGNE: And the people at the top?
WESSEL: Well, generally the more you earn the bigger the tax bite. The IRS every year reports some interesting numbers on the Top 400 taxpayers. You have to have about $100 million to make the list. Those people pay on average about 23 percent of their income in federal income taxes but they still have quite a bit left over.
MONTAGNE: David, thanks very much.
WESSEL: You're welcome.
MONTAGNE: David Wessel is director of the Hutchins Center at the Brookings Institution and a contributing correspondent for the Wall Street Journal.