U.S. GOVERNMENT | A resilient balance of institutions
14 April 2008
Americans "Celebrate" Tax Day
Annual reconciliation of tax obligations provides refunds for most
Washington -- It is for many Americans a chore delayed until the last possible moment. Some resolve to "file early" but instead queue up at local post offices, many of which obligingly remain open until midnight on this one night. Another mid-April has arrived, and once again citizens of the United States rush to file their income tax returns.
Tax Day is not when Americans pay their taxes, but is rather the annual deadline for reconciling their total annual tax obligation against payments withheld from their pay during the preceding year. For more than four in five tax returns, that reconciliation actually results in a refund of overpaid taxes. For those Americans, Tax Day is a genuine holiday.
Like other nations, the United States uses tax revenues to maintain a government, to furnish common services and to implement social policy and economic objectives.
The U.S. federal income tax is a relatively recent innovation. After rebelling against British taxation, Americans crafted a constitution that limited sharply their federal government’s ability to impose "direct" taxes. For much of its history, the United States met its revenue needs by imposing tariff duties on imports and through other "indirect" taxes. During the Civil War, however, the need for revenues increased sharply. Congress in 1862 imposed the nation’s first income tax, justifying it as an emergency measure, and repealed it a decade later.
Later in the 19th century, Americans increasingly came to view the income tax as a reform measure because it could be imposed "progressively," with higher levels of income taxed at higher rates. In contrast, the existing tariffs, excise taxes and property taxes struck hard at consumers and farmers. In 1894, Congress enacted a tax on annual incomes exceeding $4,000. The following year, the Supreme Court ruled that tax unconstitutional.
In 1913, the 16th Amendment to the U.S. Constitution authorized Congress "to lay and collect taxes on incomes." Congress passed such a tax later that year. Even so, the income tax did not become a major revenue source until 1943, when the federal government required that employers withhold estimated obligations from employee paychecks. Today, the income tax is the U.S. federal government’s largest source of revenue.
HOW IT WORKS
The federal income tax remains progressive. For each individual, a certain amount is exempt from tax. Certain other expenses also may be deducted from taxable income, or one may elect to use the "standard deduction. Among the most important deductions is one for mortgage interest; this helps Americans afford to own their own homes.
After these exemptions and deductions, the remaining "taxable income" is subjected to taxation in a number of brackets, ranging from 10 percent on the first $7,825 to 35 percent on that part of one’s annual income that exceeds $349,700.
For many years Americans completed their annual tax returns by pencil and paper and mailed them to the Internal Revenue Service, the federal agency that collects taxes and enforces the tax laws. That method still is acceptable, but today many taxpayers use tax-preparation software. These programs prompt for entry of the required data, complete the necessary forms and, if desired, file the tax return electronically. The majority of tax returns are now submitted electronically and most refunds are transmitted directly into taxpayers' bank accounts rather than paid by paper checks.
TAXATION SYSTEM “INSPIRES” WIT AND WISDOM
Americans’ love-hate relationship with its system of taxation also has been an inspiration to generations of pundits, politicians, philosophers and wits, with many of their sayings – from the lofty to the acerbic -- becoming mainstays of the culture.
Constitutional draftsman Benjamin Franklin reflected back in 1789, long before adoption of the federal income tax, that "our new Constitution is now established, and has an appearance that promises permanency; but in this world nothing can be said to be certain, except death and taxes."
President Franklin Delano Roosevelt, who held office from 1933 to 1945, said, “Taxes, after all, are dues we pay for the privileges of membership in an organized society.”
U.S. Supreme Court Associate Justice Oliver Wendell Holmes, who served on the court from 1902 to 1932, said, “I like to pay taxes. With them I buy civilization.”
On the less lofty level, Erwin Griswold, the U.S. government’s lead lawyer before the U.S. Supreme Court from 1967-1973, said: “We have long had death and taxes as the two standards of inevitability. But there are those who believe that death is the preferable of the two. ‘At least,’ as one man said, ‘there’s one advantage about death; it doesn’t get worse every time Congress meets.’”
And from comedian Paula Poundstone: “The wages of sin are death, but after they take taxes out, it’s more like a tired feeling, really.”
