HAT Manifesto Part 1/3 - Rubric Cube - 250406 edit

 

Tax Basics
Mostly from article Tax Basics In Five Charts. Adam Michel. February 28, 2024. Cato Institute.
It is natural to wonder where the $4.4 trillion the federal government collected last year came from and what it funds, or doesn’t.
Newly released data from the IRS show the federal tax system remains highly progressive (the higher the income the higher the tax percent rate) and has become more progressive over time.
The highest‐​income Americans pay a disproportionate share of income taxes and face the highest average tax rates across all federal taxes.
Despite high tax rates on some, the United States is a relatively low‐​tax country.
But with a projected $2 trillion annual gap between revenue and spending over the next decade, it is unlikely to stay that way unless Congress cuts spending.
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Most federal revenue comes from taxes on income, i.e. income taxes.
Americans paid roughly $6.5 trillion in taxes across all levels of government (federal, state, local) in 2023.
The federal government collected two‐​thirds of that revenue, or $4.4 trillion, in 2023.
Personal income taxes raise 49 percent of the federal government’s tax revenue.
However, for all but the top 10 percent of income earners, individual Americans pay more payroll tax (for Social Security + Medicare) on average than income tax each year.
Payroll taxes (mostly for Social Security and Medicare) account for 36 percent of federal revenue.
Figure 1 shows the remaining revenue comes from corporate income taxes (9 percent) and 5 percent from other sources, including tariffs, excises, taxes on estates, and other fees.
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Unlike federal taxes, more than half of state and local tax revenue comes from property and sales taxes.
While it varies significantly by state, income taxes often make up less than a quarter of sub‐​national revenues.
An example of taxation in the state of Indiana follows below.
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Data on income tax payments and estimates from the Treasury Department show the US federal tax system is highly progressive.
The top 10 percent of income earners pay more than 60 percent of all federal taxes and 76 percent of income taxes, shares that have been increasing over time.
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Figure 2 shows tax rates climb as incomes increase.
The lowest‐​income 30 percent of earners, measured by adjusted family cash income, face average tax rates that are either negative or close to zero.
A negative tax rate means the taxpayer is a net beneficiary of the tax system, likely receiving refundable tax credits, such as the Earned Income Tax Credit (EITC) and Child Tax Credit (CTC).
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On the other end of the distribution, the top 10 percent of income earners pay an average tax rate of 27 percent.
Treasury breaks the highest income earners into narrower segments, showing as incomes rise for the wealthy, so do tax rates, even at the very top of the income distribution.
The highest 0.1 percent of earners pay the highest estimated average tax rate of 33.5 percent.
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The latest Internal Revenue Service data on income taxes for the 2021 tax year show higher‐​income Americans continue to pay a disproportionate share of income taxes and the system has become more progressive over time.
Figure 3 shows as a share of adjusted gross income:
-the top 1 percent earned 26.3 percent of total income and paid 45.8 percent of all the income taxes.
-the top 10 percent earned 52.6 percent (10.6 + 15.7 + 26.3) of the income and paid 75.9 percent (10.2 + 19.9 +45.8 ) of the income tax
-the top half of income earners paid 97.7 percent (8.4 + 13.4 + 10.2 + 19.9 +45.8 ) of federal income taxes
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Since 2001, average income tax rates have fallen for all income groups.
Rates have fallen the furthest for those with the lowest income, declining from 4.9 percent in 2001 to 3.3 percent in 2021.
For the top 1 percent, average income tax rates fell from 27.6 percent in 2001 to 25.9 percent in 2021.
During this same time, the share of income taxes paid by the top 5 percent increased from 52.2 percent to 65.7 (19.9 + 45.8) percent.
The share paid by all other taxpayers has declined since 2001.
According to the National Taxpayers Union, the top 1 percent’s income tax share is the highest it has been since the 1980s.
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Figure 4, the United States is a low‐​tax country compared to similar nations around the world.
Compared to similar higher‐​income countries in the Organization for Economic Cooperation and Development (OECD), the United States enjoys the fifth lowest taxes as a percentage of the economy, only undercut by Turkey, Chile, Ireland, and Mexico.
America’s lower tax rates have broad economic benefits that foster innovation, higher living standards, and more job opportunities.
On the other end of the spectrum, more than half of the private economy is taxed and spent by many OECD countries, including Norway, Denmark, Finland, France, Greece, and Austria.
Such high tax burdens are financed with high taxes on citizens at every income level, not just the wealthy, who everywhere pay disproportionally high tax amounts compared to their incomes due to progressive taxation.
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Looking only at current taxes obscures the fact the US federal government has run a budget deficit every year since the early 2000s, financing higher spending levels through government debt.
Figure 5 shows tax revenue and spending on interest and other
-mandatory programs, spending required by law, includes Social Security and Medicare
-interest on debt
-discretionary programs, spending reviewed and decided on each year by Congress, includes military, transportation infrastructure, and legal system
When spending exceeds revenue the federal government sells bonds to cover the deficit, meaning it goes deeper into debt.
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Under current law, the CBO projects interest and mandatory spending will permanently surpass revenues by 2031.
Unless there is an economy boom generating much higher tax revenues the current U.S. fiscal trajectory is unsustainable and soon, without federal government spending cuts, money will run out.
(end of article)
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State of Indiana tax system, details.
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Here's a detailed breakdown of Indiana's tax system:
Income Tax:
Indiana imposes a flat-rate income tax on both residents and non-residents.
The flat income tax rate is set at 3.23% of federal adjusted gross income.
There are no personal exemptions or standard deductions at the state level.
Taxpayers can, however, claim various credits and deductions, including the Earned Income Tax Credit (EITC) and deductions for certain retirement income.
Sales Tax:
Indiana has a state-wide sales tax rate of 7% on the retail sale, lease, or rental of tangible personal property and certain services, grocery foods are not taxed.
Counties and municipalities may impose additional local sales taxes, which can vary the total sales tax rate in different areas of the state.
Property Tax:
Property taxes in Indiana are primarily based on the assessed value of real and personal property.
The assessed value is determined by local assessors and may be subject to a cap, limiting the amount of tax a property owner pays based on a percentage of the property's assessed value.
Homestead deductions and other exemptions may be available to reduce property tax liabilities for eligible homeowners.
Corporate Income Tax:
The Indiana corporate income tax rate is 5.5% of federal adjusted gross income.
Corporations may also be subject to other taxes and fees, such as the financial institutions tax and the utility receipts tax.
Excise Taxes:
Indiana imposes excise (sales) taxes on various goods and activities, including gasoline, cigarettes, and alcoholic beverages.
These taxes are typically included in the price of the goods and collected by retailers at the point of sale.
Inheritance and Estate Taxes:
Indiana has an inheritance tax on property under certain circumstances.
Other Taxes and Fees:
Indiana may levy various other taxes, fees, and assessments depending on specific activities or industries, such as gaming taxes, motor vehicle excise taxes, and utility receipts taxes.
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