Opinion Columns & Blogs

Three common myths about U.S. tax system

No one likes to pay taxes. But as many of us get ready to stand in line at the post office today, it might be useful to dispel some of the most common myths about this springtime ritual:

* The poorest and the richest Americans pay no taxes.

About 47 percent of households will owe no federal income tax for 2009. Half of them earn too little, while the other half — mostly middle- and lower-income households — will take advantage of tax credits such as the earned income credit and the child and child-care credits.

But even citizens who pay no income tax still pay other kinds of taxes. They pay Social Security and Medicare taxes when they work, sales taxes when they buy things and property taxes on their homes. Drivers pay gasoline taxes, and smokers and drinkers pay excise taxes on tobacco and alcohol.

And, yes, the richest Americans pay taxes, too. Though a tiny minority manage to avoid federal income tax through elaborate tax planning, 99.7 percent of those with annual incomes above $1 million will pay federal taxes this year, surrendering 27 percent of their earnings to the government. The average American taxpayer pays 18 percent.

* Americans are overtaxed.

In 2007, federal, state and local taxes claimed about $3.8 trillion, or 27 percent of U.S. gross domestic product. That's nearly $13,000 for every American. Two-thirds of tax revenues went to the federal government.

It may sound like a lot, but other developed countries collect even more. In 2006, taxes in 30 of the world's richest countries averaged 36 percent of GDP; only Mexico, Turkey, South Korea and Japan had tax rates lower than ours. And taxes in many European countries exceeded 40 percent of GDP because these nations offer more extensive government services than the United States does.

Americans do pay far more in individual income taxes than residents of other wealthy nations. Nearly 37 percent of U.S. tax revenue came from personal income taxes in 2006 — about 10 percentage points more, on average, than in other industrialized countries. But we pay much less in sales taxes; 17 percent of 2006 U.S. tax receipts were from taxes on goods and services, or about half the 32 percent average of rich countries.

* Most people's tax returns are way too complicated.

No one claims that our tax system is simple. After all, the Internal Revenue Code consists of more than 3 million words, and the instructions for the widely used 1040 form take up more than 100 pages. Small wonder that 3 in 5 tax filers pay someone to prepare their returns, and another 1 in 5 uses software.

But most Americans have relatively simple tax returns. Nearly two-thirds of us claim the standard deduction and don't have to itemize our deductible expenses. And 40 percent of us file one of the simpler tax forms — the 1040A or the 1040EZ. The 2009 EZ has just 13 lines. Relatively few of us get income from any source besides wages and salaries, interest, dividends and pensions, so it's not hard to tally how much we took in.