Every other Tuesday, the team behind Civics 101 joins NHPR’s All Things Considered Host Julia Furukawa to talk about how our democratic institutions actually work.
As the 2023 tax filing season picks up, Civics 101’s Senior Producer Christina Phillips joins Julia to talk about federal income taxes. They break down why our federal income tax system is the way it is, what we get out of it, and why filing taxes can be so difficult.
You can listen to Civics 101 here, or wherever you get your podcasts.
Transcript
Christina, how did we come to have a federal income tax? Was it in the Constitution?
Well, the earliest federal income taxes were used to pay for war, and the Constitution says that Congress can set up taxes to “provide for the common defense.” And during the Civil War, the government introduced an emergency progressive income tax, meaning that the more wealth you had, the more you were expected to contribute. But it really only lasted through the Civil War. It expired. But then with the rise of industrialization and these mega-rich families accumulating a bunch of wealth, we got the 16th amendment in 1913, which allowed the government to impose a more permanent income tax.
Did everyone have to pay an income tax when that policy was initially established?
No, definitely not. That first income tax was very much a wealth tax. It was aimed at the richest Americans—we're talking the Rockefellers, the Carnegies, the Vanderbilts. And in those early years, that federal income tax only applied to about 1% of the population. And over time it expanded to include more of the population, especially during the Great Depression and World War II.
So what does the federal government do with the money that it takes from our income?
So federal income taxes account for about 50% of revenue. And the biggest expense is Social Security, followed by health insurance programs like Medicaid and CHIP [Children’s Health Insurance Program] and then defense. There are two other taxes that contribute to revenue in a big way, the payroll tax, which is a set tax that everyone pays, and the corporate income taxes.
Let's compare the U.S.'s tax policies to other countries. Are we taxed more or less? Do we get more bang for our buck?
Well, I think the biggest difference between U.S. tax policies and countries like us is that rather than charging higher taxes and using that revenue to set up big, comprehensive programs that ensure access to affordable health care, and retirement, and housing and child care, the United States incentivizes people and corporations to do things to reduce how much they pay in taxes.
So in some ways, this gives you more freedom to make decisions, like whether or not you want to save for retirement and how much. But the burden is also on you to save and provide for your own services a lot more. That means the government is providing less robust social programs to everyone directly, at least compared to other countries that have these higher income taxes. In those countries, you may lose more of your income directly to taxes, but you also don't have to put as much of that income into things like retirement or insurance.
So the deadline is sneaking up on us. Why is the process of filing our taxes so complicated and what can we do about it?
Well, it's complicated because of those deductions and incentives—all those things that you can do to lower your tax burden. In order to even get that tax burden reduced, you have to know about these programs, and then you have to apply for them while filing your taxes. Basically since the income tax was established, we were adding layers to it, making it more complicated to navigate, especially if you're doing it yourself.
So the most important thing you can do is keep all your papers organized. And if you aren't using an accountant, use government-approved tax preparation software. The government made it a policy that the majority of Americans should be able to file their federal taxes free of charge. So if you made $79,000 or less in 2023, and your taxes are relatively uncomplicated, you should be able to file federal income taxes online using software for free. Now, where do you do that? Start at irs.gov.
Well, good luck this tax season, Christina.
Oh you too, Julia.
