April Looms Large for American Taxpayers

Every year on April 15, Americans find new meaning in Benjamin Franklin’s famous saying that “nothing [is] certain, except death and taxes,” as they report their income, profits, losses and personal data on tax returns for the federal and state governments.  

At the same time, U.S. lawmakers struggle to reconcile the need for enough money to pay for important government programs with the knowledge that voters want to see their money spent wisely and efficiently. 

The progressive tax rate

	Under the nation's progressive tax system, the top five percent of taxpayers pay more than half of all federal income taxes.

Although the nation’s tax system is notoriously complicated, it relies on the basic principle that Americans who earn the most money must pay a higher percentage of their income to the government than people who make less. This is called a progressive tax rate. 

Americans who have the least amount of disposable income sit in the lowest tax bracket –which can be as low as 0 – 10 percent. 

Taxpayers in the highest income bracket can pay up to 35 percent of their income. 

How do taxes work?

	Employees receive a W-2 in the mail, one for each employer they worked for the previous tax year.

When you start a new job, you are required to fill out the W-4 tax form, which helps the government determine how much money you owe. For each pay period, the federal and state governments withhold a portion of the money you earn to pay for the pension program, Social Security, and the health care program, Medicare.  

The process of withholding money from paychecks ensures that the government has a constant supply of revenue year-round. 

A few months before April 15, your employer will send you a W-2 form which shows how much money you made the previous year and how much money the government withheld in taxes.  

You can then use this form to help you fill out tax information which will determine whether or not you owe the government more money or if you paid too much and are entitled to a refund.  

Some people are eligible for deductions that lower the amount of money owed to the government. Taxpayers can claim deductions for paying interest on a loan, the cost of childcare, higher education or giving to charitable causes.  

For more detailed information on paying taxes, check out the Internal Revenue Service’s student website, Understanding Taxes.

History of the U.S. income tax

	This lithograph depicts the 1773 Boston Tea Party, when protestors objected to King George's new tax policy on imported Tea from Britain.

After the war, the U.S. government collected revenue from taxes on imports and on goods like whiskey and tobacco, rather than taxing the personal income of American citizens.  

But in 1861, when America was embroiled in the expensive Civil War, the government issued the Revenue Act of 1861 which allowed them to temporarily collect the nation’s first federal income taxes. 

When President Grover Cleveland tried to institute a permanent income tax in the 1890s, the U.S. Supreme Court declared it unconstitutional. In 1913, Congress passed the Sixteenth Amendment to the Constitution which made it legal to tax Americans’ individual income. 

Alternatives to the income tax

	Former U.S. President Ronald Reagan was a major supporter of lowering income tax rates.

Since the ratification of the Sixteenth Amendment, the income tax remains controversial even though the U.S. has a relatively low tax rate compared to other industrialized nations in Europe and elsewhere.  

Many conservatives believe that the government is punishing individual achievement by taxing wealthier people more than less wealthy people. They also argue that Americans in higher tax brackets are more likely to invest in businesses that fuel the economy. 

A proposed alternative to the income tax is a flat tax, in which all taxpayers pay the same percentage on their income.  

Supporters say that this would make the tax system less complicated while opponents believe that the plan would ultimately place a greater burden on the poor. 

More tea parties?

	Protesters will hold mock tea parties this week to protest President Obama's stimulus package, which he signed into law in February of this year.

In a symbolic nod to the 1773 demonstrations against British taxes when colonists threw tea into the Boston harbor, some Americans hold modern-day “tea parties” this week to protest the large amounts of taxpayer money used for federal spending programs.  

This year, protesters criticized the government’s $787 stimulus package and the Obama administration’s $3.6 trillion budget proposal.