21+ Income Tax Statistics to Open Your Eyes in 2020

It comes around on April 15, year after year.

It’s Tax Day!

Why is it so hard for Americans to meet the deadline?

The chances are most people struggle to get things right – and that’s precisely where income tax know-how can make a great deal of difference. Believe it or not, but individuals and businesses alike are united in the slow process.

As it turns out, if you want to make the most of the US progressive tax system, you need to dive into some insightful income tax statistics. They will help you understand how things work.

Some may call it procrastination or general grumpiness, but the truth is that filing your taxes is a skill. Like most skills, if you don’t have it, you can’t fake it!

Here are some income tax stats to show you the bigger picture:

Income Tax Statistics (Editor’s Pick):

  • The total US tax revenue equals 26% of the Gross Domestic Product.
  • 90% of Americans don’t understand the new tax brackets reform.
  • 48% of taxpayers don’t know in which tax bracket they are in 2019.
  • 91% is the tax income rate that the rich paid in 1963.
  • 51% of Americans feel their taxes are too high.
  • 50% of California’s personal income taxes come from people earning $500k or more.
  • 50% tax filers pay 97% income tax revenues.
  • 37% of tax revenues consist of income taxes.
  • 72% of tax evasion happens on individual income taxes.

Statistics on taxes in the US and other countries (GDP representation in the OECD)

We’ll kick things off with some of the most representative stats about tax revenues in developed countries. They’ll highlight an interesting difference between the US and international economic partners.

Income tax day - due date is April 15, 2020.

1. US tax revenue represents 26% of GDP.

(Source: Tax Policy Center)

Let’s consider that for a minute.

According to the United States tax statistics, the tax revenue funds around one-quarter of the federal budget.

Now the question you want to ask is: Is it even enough to finance governmental services?

Looking at the US debt, it seems that the federal government is not reducing its spending to support American citizens. So, that’s good news. But how do other developed countries make it work?

Indeed, you’d be surprised to know that despite our large economy, the US receives one of the lowest GDP ratios compared to the OECD weighted average.

2. OECD tax revenue represents 33% of GDP.

(Source: Tax Policy Center)

Wait. What?

Do other developed countries receive a third of their government budget through taxes? Technically, 33% of GDP is the average of the 35 members of the OECD.

According to international taxpayer statistics, Korea, Turkey, Ireland, Chile, and Mexico receive less tax funding than the US. Obviously, the size of the economy and the welfare systems in place differ.

But, in general, OECD members choose to favor a higher taxing system.

If you think this stat is impressive, then wait until you find out more about Denmark’s tax funding:

3. Almost 46% of Denmark’s GDP comes from tax revenue.

(Source: Tax Policy Center)

This is crazy, right!

But, here’s the deal: Denmark has a small economy compared to the US. Therefore, the country needs to rely on tax revenue to finance its governmental services. Admittedly, Denmark also provides more extensive government services than the US.

But here’s the kicker – the comparison highlights the differences not only between taxpayer stats but also governments, economies, and national priorities. In short, international comparisons are an eye-opening experience; there’s more than one way to deploy the tax system.

No wonder Americans get confused about how much they pay!

The 2017 tax law divides the US tax-paying population

As it turns out, Americans accept their tax duty even though many wonder why tax differs from a country to another. The good news is that you don’t need to pay the same tax ratio than in a country such as Denmark. But, you see, it doesn’t mean things are always obvious!

4. 28% don’t understand the ins and outs of the tax law.

(Source: NerdWallet)

According to a Nerd Wallet survey, almost 1 in 3 Americans don’t understand how Tax Cuts and Jobs Act works. The tax law from 2017 affects everybody’s taxes. But the survey also discovered that many taxpayers still didn’t understand the changes or their implications.

What’s more important is the fact that the IRS still needs to create an educational campaign to help Americans with their tax return.

5. 90% don’t understand the Tax Reform brackets.

(Source: CNBC on GoBanking data)

A quiz by GoBanking showed that the majority of taxpayers don’t know how the tax brackets have changed.

Previous tax burden by income level relied on the following brackets: 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%. However, the new brackets are now divided as follows:

  • 10% for a taxable income bracket of $0 to $9,525
  • 12% from $9,526 to $38,700
  • 22% from $38,701 to $82,500
  • 24% from $82,501 to $157,500
  • 32% from $157,501 to $200,000
  • 34% from $200,001 to $500,000
  • 37% for $500,001 or more.

With only 1 taxpayer in 10 aware of the changes, it’s easy to see how the confusion can affect tax returns. Here’s why:

6. 48% don’t know in which bracket they are.

(Source: CNBC on GoBanking data)

Wait a second.

Almost half of Americans don’t know how much taxes they need to pay!

You don’t need to ask yourself why tax return data are all over the place. Chances are that for half of the population was forced to guess how much tax they owe.

It comes as a surprise to no one that many find their tax burden unfair. How can you define fairness when you don’t know how to file?

The income tax survey reveals the tax burden 

It’s hard to tell whether people genuinely feel they owe too much or whether they miscalculated their tax return. But the truth is that the Tax Reform has tried to address the issue – and made things a lot more difficult in the process!

7. 51% think they pay too much taxes.

(Source: Statista)

According to the entrance to the IRS headquarters building in Washington CD, “taxes are what we pay for a civilized society.” But income tax statistics from Statista reveal that over half of Americans think that the price for a civilized society is too high.

Think about it.

Filing your taxes is difficult enough as it is. Introducing new income brackets can only make things worse. So, it’s easy to understand how one might resent the amount to pay.  And the whole process in general, to be honest.

On the other hand, things used to be different in the old days:

8. 91% was the top income tax rate in 1963.

(Source: Tax Policy Center)

Surely not!

91% – that’s madness!

It’s also true. IRS statistics of income show that the 20th century, up until 1963 has especially aggressive tax income rate for the wealthier part of the population.

But wait, there’s more!

Income tax return rates were even higher in the 1950s. There’s a long history of taxing the rich in the US! On the other hand, the period between the 1940s and the early 1960s focused on paying for the war efforts. So, although insane, the top tax rates were also necessary.

The rich pay most of the taxes in California

Historical and current US tax data are clear. The government doesn’t only rely on tax for funding. It relies on wealthy taxpayers to carry the weight of the income tax burden. The sentiment is real and correct. The richer you are, the more tax you pay.

9. 50% of CA income taxes come from people earning $500k or more.

(Source: Cal Matters)

If anybody still doubted that CA was a prosperous state, the California income tax statistics should clarify things.

Wealthy taxpayers make up around half of the state income taxes. That’s because California relies heavily on the wealthy to fund the state income. While everything is fine and dandy at the moment, you can imagine the dramatic effect of a period of recession on state services.

10. 1% tax surcharge on taxable income of $1 million or more.

(Source: Bankrate)

What?

Does the state of California penalize the rich with a tax surcharge?

Yes, they do. The wealthier you are, the more you get to contribute to the state.

IRS tax stats reveal California is making the most of its wealthy population. No surprises here, given that the Hollywood scene and Silicon Valley attract and create wealth.

Admittedly, it doesn’t mean that everybody who pays taxes lives in California. Look:

Disparities among taxpayers in the US

Equality, you say? Not when it comes to paying taxes.

income tax statistics

11. 50% tax filers pay 97% income tax revenues.

(Source: National Taxpayers Union Foundation)

According to IRS tax data, around half of the taxpaying population carries the burden of almost the totality of tax revenues.

Give yourself a moment to digest this stat.

Does it mean that half of the population is rich?

Well, not exactly. It means that 50% of tax filers don’t earn enough to have a taxable income.

The thing about income disparities in the US is that they’re literally everywhere.

But there’s more to it:

12. The top 10 bore 70% of all income taxes paid.

(Source: National Taxpayers Union Foundation)

Wait. What percentage of taxes do the top 10 pay?

Yes, you read it right. The top 10 pay for almost three-quarters of all taxes.

Remember when we said that 50% of tax filers bore almost all the taxes? Well, here’s the proof that the rich heavily finance the federal government. Ultimately, it’s a result of the US progressive tax system. Those who earn more have to pay more. Therefore, they carry more financial responsibility.

If that wasn’t enough to highlight the wealth disparities in the country, here’s the direct consequence for the top 10:

13. Some suggest a top rate of 70% on incomes over $10 million.

(Source: Edition CNN)

Democratic Rep. Alexandria Ocasio-Cortez proposes taxing the wealthy as high as 70% to support climate change initiatives.

Using the IRS database of income tax statistics, Ocasio-Cortez justifies her ambitious goal. For some taxpayers, a 70% tax rate wouldn’t make a huge difference to their lifestyle. But it would have the potential of improving everybody’s lives in the process.

So, to the question of whether the rich carry most of the tax income burden.

The answer is a huge YES. The principle shows no sign of ever stopping. If anything, the top rate is likely to carry on increasing.

Tax return statistics and the importance of income-based revenues

According to the IRS SOI, income-generated revenue is at the heart of the debate. Indeed, disparities in wealth and the change of tax brackets affect taxpayers in many ways, whether you’re in the top 10 or not.

14. 37% of US tax revenues consist of income taxes.

(Source: Tax Policy Center)

To put it briefly, over one-third of all tax revenues come directly from income tax returns.

What difference does it make?

It’s simple. Compared to income tax statistics from other OECD members, the US has one of the highest tax burdens on income. It’s not just a matter of when you make more money, you pay more tax. It’s also a case of US taxpayers paying more on the money they earn than other developed countries.

That might explain the next stat, though:

15. 72% income tax evasion.

(Source: IRS SOI)

According to the US tax evasion statistics by the IRS, almost three-quarters of taxpayers intentionally or accidentally forget to file some of their income.

It’s the consequence of a variety of factors. Some taxpayers do feel they are paying too much and try to boost their income savings. However, there are sufficient income deduction regulations in place to help reduce the amount they owe “legally”. Are they worried they won’t be able to manage their lifestyle otherwise? Or do they not know how to use tax deductions?

The introduction of new income tax brackets has greatly affected the latest tax returns. Indeed, how can you file correctly if you don’t understand where your income fits?

But there’s more to that:

16. The IRS assisted only 38% of callers in 2015.

(Source: US Government Accountability Office)

GAO’s IRS statistics show that when it comes to helping taxpayers navigate complex returns, things are bad. With less than 40% of callers receiving the assistance they need, it’s hard to blame 2019 tax filers for accidental tax evasion.

After all, it should be the responsibility of the IRS to help. Not only could it help boost tax revenues, but it could also help people to make peace with the latest reform.

We’re doing fine, says the IRS

It’s impossible to ignore the wealth and income tax rate disparities. But, we’re hitting a cul-de-sac when it comes to improving our progressive tax system. Indeed, things are getting confusing for everyone.

Including tax experts.

17. 80% of taxpayers are satisfied with IRS.

(Source: IRS)

But you’ve just said people couldn’t get assistance!

Yes, we did. But stick with us, you’ll see why the stats are not contradictory.

According to a survey by the IRS, 8 in 10 taxpayers are happy with their personal interactions with the IRS. It’s fair to ask whether IRS tax data are correct. After all,  many taxpayers couldn’t receive the help they needed.

The truth is that the IRS conducted the compliance survey over the phone to monitor whether they provided people with sufficient communication channel options. Also, whether taxpayers had the right attitude toward their returns. In this instance, taxpayers are happy with the service provided.

If anything, it only shows how difficult it is to offer a comprehensive service. It’s even more complex to meet expectations when not everybody pays income taxes:

18. 44% of Americans don’t pay income taxes in 2019.

(Source: Tax Policy Center)

Income tax statistics by the Tax Policy Center show that over 44% of Americans didn’t pay any federal income tax in 2019.

While it’s below the peak of the Great Recession, where 50% of tax filers didn’t pay income taxes, the feature of the progressive tax system may also be an obstacle.

Ultimately, to put it clearly, over 4 in 10 Americans don’t make enough money to pay taxes on their earnings. True, they also receive financial aid and tax credits. But it’s a sign that, perhaps, the tax system isn’t helping citizens move through the income brackets. Are those who are stuck at the bottom doomed to remain there?

Who pays income taxes? 

By definition, the federal tax code excludes specific households and individuals from paying taxes on their incomes. While it’s a positive feature that takes personal exemptions into consideration, it’s also a wealth overview of the United States. Here’s what you can learn from the historical stats on taxes:

19. 43.2% didn’t pay income tax in 2016.

(Source: Tax Policy Center)

According to the IRS statistics of income 2016, around 4 in 10 Americans didn’t owe any income tax payment.

The stat is a little below the result for 2019. However, there’s no denying that wealth disparity is not a novelty in the US. It would be foolish to blame it on the new income brackets. 2016 still worked with the traditional 10%, 15%, 25%, 28%, 33%, 35%, and 39.6% brackets. While the IRS doesn’t put any heavy tax liabilities on the most vulnerable members of the population, it’s good to ask what is done to help them.

So what does the US government do to help people move through the income brackets?

20. 42.7% didn’t pay income tax in 2017.

(Source: Tax Policy Center)

Wait.

42.7 is less than 43.2.

Does that count as a drop in poverty levels?

The IRS statistics of income 2017 are, in truth, fairly similar to the stats of the previous year. It isn’t a drop. Fluctuations are bound to happen over time. People go in and out of employment or decide to become their own boss, for instance. In short, family, health and work situations change, and it’s pretty normal.

2017 results remain pretty much the same as in 2016. For memory, 2019 show a rise of over 44% of non-taxpayers on income data. Here again, we can’t judge. The recent law changes have affected everyone!

Do no income taxes mean no tax payment?

You may think that no earning sufficient taxable income means you don’t get to pay any taxes, but you’d be wrong. Tax return statistics show that the link between income and tax is more complex than it first appears. Here’s what you need to know about it:

21. 60% of people who pay no income taxes still owe taxes

(Source: Tax Policy Center)

Oh, I see – they’ve cheated on their taxes, right?

No, they haven’t.

Indeed, you may need to pay payroll taxes even if your income isn’t taxable for a variety of reasons. Payroll taxes, for clarity’s sake, refer to taxes on healthcare, unemployment money, and social security.

What’s the big difference?

Both the employer and the employee contribute to payroll taxes. Income-based taxes, on the other hand, focus only on your individual income.

A brief word to conclude our tax stats: 

The US income tax system has changed dramatically over time. However, the wealthy continue to carry huge responsibilities in the tax revenue. This only increases disparity with other income brackets.

The current US income tax statistics highlight the differences in strategy and priorities with other developed countries.

Will the latest reform help lower incomes to move through the taxable brackets and make their American Dream come true?

Only time will tell! In the meantime, we sure have a lot to learn to improve our tax return skills!

Hope you found those income tax stats helpful! Till next time!

Sources:

  1. Tax Policy Center
  2. Tax Policy Center 
  3. Tax Policy Center 
  4. Nerd Wallet 
  5. CNBC
  6. CNBC
  7. Statista 
  8. Tax Policy Center
  9. Cal Matters
  10. Bankrate
  11. NTU
  12. NTU
  13. Edition CNN
  14. Tax Policy Center
  15. IRS SOI
  16. US GAO
  17. IRS 
  18. Tax Policy Center
  19. Tax Policy Center
  20. Tax Policy Center
  21. Tax Policy Center
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