When it Comes to Taxes, Americans Have Pretty Much Never Had it Easier
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For most Americans, the mere mention of the word "taxes" is enough to cause them to shudder in fear or groan in disgust.
According to the largest tax regulatory body in the U.S., the Internal Revenue Service, taxpayers spent an estimated 8.9 billion hours, or the equivalent of nearly 13,000 lifetimes, complying with federal tax laws in 2016. Complying with federal tax laws is further complicated by the fact that the U.S. tax code is now comprised of more than 10 million words, of which an average of 144,500 have been added each year since 1955.
But tax time is also a time of joy for many Americans. Despite being viewed as a grueling walk through your finances from the previous year, a vast majority of taxpayers wind up netting refunds from Uncle Sam. Getting a large refund usually isn't optimal, because it means you've allowed the federal government to hang onto money you're owed on an interest-free basis for months, or perhaps even longer than a year. But for many individuals and families, an average refund that totaled more than $2,700 in 2016 can make a dent in credit card debt, kick-start an emergency fund, or help boost a retirement nest egg.
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You should really stop griping about paying and preparing your taxes
Yet what many taxpayers today may not realize is just how good they have it, with regard to the tax preparation and payment process, compared to how things used to be many years ago. This isn't to say the tax preparation process will ever be "fun" or "easy," but there are a handful of reasons to be thankful when preparing your taxes in the coming weeks and months.
1. The tax schedule is considerably less complicated than it used to be
To begin with, taxpayers should be grateful that Congress has stuck with a very simple tax schedule containing just seven tax brackets. In 2016, taxpayers paid a peak ordinary federal income tax ranging from a low of 10% to as high as 39.6%.
Though seven brackets is a tad more complicated than the all-time low of just two tax brackets (15% and 28%) that taxpayers dealt with between 1988 and 1990, it's a far cry from the average... I repeat average... of 25 tax brackets in the six decades between 1920 and 1980, or the 56 income tax brackets taxpayers had to take into account in 1918, which ranged from a low of 6% to a peak of 77%! Could you imagine the nightmare of factoring in a new tax rate every roughly $2,000.00 in earned income, and without the use of software to handle the calculations for you?
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2. Peak marginal tax rates have come way down
When it comes to well-to-do taxpayers, they should be counting their blessings that today's peak marginal tax rate is just 39.6%. Once again, even though the peak marginal tax rate has been lower in previous years, such as the 28% rate top income earners paid between 1988 and 1990, today's rate of 39.6% is light years below what the rich used to pay.
Since federal income tax laws were passed in 1913, the peak marginal tax rate has been 50% or higher in 61 of those years. That's right -- the rich would have owed at least half of their income to the federal government in every year between 1917 and 1922, and 1932 through 1986. In fact, peak ordinary income tax rates topped out at 94% (yes, that's ninety-four percent) toward the end of World War II for the highest-earning Americans. That should make the wealthy grumble a bit less when handing over 39.6% of their wages to the federal government.
3. You can prepare everything electronically, and often with free assistance
Finally, the American taxpayer has absolutely no reason to gripe about preparing and paying their taxes when they have the luxury of using online tax preparation software and electronically filing their taxes once completed.
In 1986, the IRS began a pilot program that allowed just three cities -- Cincinnati, OH., Phoenix, AZ., and Raleigh-Durham, N.C. -- to electronically file their tax returns and pay later should they owe money. That year, some 25,000 returns wound up being filed electronically. The program was expanded nationally in 1990, bringing in around 4.2 million electronic tax filings. In 2000, the IRS improved even more by going completely paperless, allowing consumers to use their personal identification number as their signature. Today, better than nine in 10 of more than 150 million taxpayers take advantage of the e-filing system to send their tax forms to the federal government.
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In addition to e-filing, consumers also have access to tax preparation software that does the hard work for them, and ensures they get the maximum refund possible. It's not only faster for taxpayers and the federal government, but it's also 41 times less likely to result in an error compared to a paper return.
As if this weren't enough, a majority of taxpayers also qualify for free tax preparation software and/or assistance. Taxpayers with less than $64,000 in income may qualify for Free File software from the IRS, while senior citizens aged 60 and up, and taxpayers with $54,000 or less in income, could qualify for Tax Counseling for the Elderly or Volunteer Income Tax Assistance, respectively.
If you look back beyond the mid-1980s, paper returns were commonplace, as was a costly visit to a tax professional.
When it comes to preparing and paying your taxes, Americans have pretty much never had it any easier.
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