Tax Collection Statistics You Need To Know

Tax Collection Statistics You Need To Know

Taxes are a crucial source of government revenue used for providing public services like healthcare, education, infrastructure development, and defense. It’s essential to have a transparent and efficient tax collection system to ensure that tax revenue is collected and used effectively. This article gives an overview of tax collection statistics that you need to know.

1. Tax-to-GDP Ratio

The tax-to-GDP ratio is the total tax revenue collected as a percentage of Gross Domestic Product (GDP). It is a measure of the tax system’s strength and efficiency and gives insights into a country’s fiscal policy. According to the World Bank, the average tax-to-GDP ratio for high-income countries was 40.6% in 2019, while it was only 17.9% for low-income countries.

In the United States, the tax-to-GDP ratio was 24.5% in 2019, indicating a relatively low tax burden compared to other developed economies. However, some states in the US have higher tax-to-GDP ratios than others. For instance, California had a tax-to-GDP ratio of 5.3% in 2019, while Delaware had 4.1%.

2. Tax Compliance

Tax compliance refers to the extent to which taxpayers report their income and pay taxes accurately and on time. According to the IRS, the voluntary compliance rate in the US was 83.6% from 2011 to 2013. This means that taxpayers correctly report their income and pay their taxes voluntarily, without the need for enforcement.

The IRS uses various methods to enforce tax compliance, such as audits, penalties, and criminal prosecutions. In 2019, the IRS audited approximately 0.45% of all individual tax returns, which is the lowest audit rate since 2002. The audit rate for taxpayers with incomes over $10 million was 6.66%.

3. Tax Revenue Sources

Tax revenue comes from different sources, such as income tax, payroll tax, corporate tax, property tax, and sales tax. In the US, 49% of tax revenue comes from individual income tax, followed by payroll tax (34%) and corporate tax (7%). Property tax and sales tax account for 3% each.

The distribution of tax revenue sources varies among states. For instance, in Texas, over half of the tax revenue comes from sales tax, while Alaska and Wyoming rely heavily on mineral extraction taxes.

4. Tax Exemptions and Deductions

Tax exemptions and deductions are ways to reduce taxpayers’ tax liability. Tax exemptions exclude certain types of income or taxpayers from paying tax, such as the personal exemption for dependents. Tax deductions reduce taxable income for certain expenses, such as mortgage interest and charitable donations.

In 2017, the Tax Cuts and Jobs Act (TCJA) eliminated personal exemptions but increased the standard deduction and expanded some tax credits. The TCJA also capped the state and local tax (SALT) deduction at $10,000, which affected taxpayers in high-tax states like California and New York.

5. Tax Administration Costs

Tax administration costs include the expenses associated with collecting taxes, such as salaries for IRS employees, enforcement activities, and tax software development. In 2019, the IRS’s total budget was $11.8 billion, with $2.6 billion allocated to tax enforcement and $2.5 billion to taxpayer services.

The cost of tax administration varies among countries. In Denmark, for instance, the tax administration cost per capita was $296 in 2018, while it was $43 in the US.

6. Tax Evasion and Fraud

Tax evasion is the illegal non-payment or underpayment of taxes, while tax fraud involves deliberately providing false information to evade taxes. Tax evasion and fraud pose significant costs to governments and taxpayers and erode public trust in the tax system.

The IRS estimates that the tax gap, which is the difference between taxes owed and taxes paid, was $441 billion per year from 2011 to 2013. The IRS’s budget cuts in recent years have also contributed to weakened tax enforcement, making it easier for taxpayers to evade taxes.

7. International Taxation

International taxation refers to the taxation of cross-border transactions, such as foreign investments, transfer pricing, and taxation of multinational corporations. Countries use double taxation avoidance treaties and transfer pricing rules to regulate international taxation.

In 2020, the Organization for Economic Cooperation and Development (OECD) released its Two-Pillar Plan to reform international taxation. The plan includes new rules to ensure that multinational corporations pay their fair share of taxes and a global minimum tax rate of 15%.

Conclusion

Tax collection statistics provide insights into the effectiveness and efficiency of the tax system. The tax-to-GDP ratio measures the tax burden, while tax compliance rates indicate taxpayers’ willingness to pay taxes voluntarily. Tax revenue sources, exemptions and deductions, and tax administration costs influence how much revenue the government collects and how it is used. Tax evasion and fraud raise ethical and legal issues and affect the fairness of the tax system. International taxation rules are evolving to ensure that the global tax system keeps up with the changing nature of the economy.

It’s essential to have transparent and accountable tax collection systems that maintain public trust and ensure that tax revenue is collected and used effectively. Governments must balance the need for tax revenue with taxpayers’ rights and compliance costs to achieve a fair and efficient tax system.

To get a glimpse of the enormity of the IRS and the federal government’s revenue through taxation, one simply needs to observe the federal tax statistics in America. Funds generated through IRS taxes are essential to fuel the public goods and services offered by the central government. Without revenue created from the IRS tax levy, the federal government would cripple, and America would severely fragment.

To appropriately review the magnitude and effectiveness of IRS taxes one must compare and contrast the different forms of taxation and their corresponding percentages based on varying years. The following chart will document IRS taxes in 2007, the number of returns, the amount of gross collection, and their relevant percentages. The chart below was taking from the IRS website (IRS.gov), which offers infallible and detailed statistics for all forms of IRS taxes.

In 2007, there was a total of 173,351,839 separate tax returns which accounted for $2,691,538,000,000. The 2 trillion+ dollars accumulated through the IRS tax is allocated between various public goods and services. The government’s appropriated numbers vary from public perception but in 2007 the following percentages were apportioned as such:20% was given to the military for defense purposes, 33% was spent on medicare, 8% was used to pay off our nation’s debt, 21% was given to social security, and the following 18% was allocated for discretionary reasons.

The IRS tax, through observation of the above statistics are incredibly exorbitant. Most don’t realize the amount of funding necessary to run a country as large, diverse, and powerful as the United States of America. Even though IRS taxes account for trillions of dollars of public funding each year, America is still operating under an obscene deficit. To further elaborate on such statistics one can observe that the Individual Income Tax is the predominant source of revenue for the national government.

More than 50% of revenue acquired through IRS taxes is generated from the Individual Income Tax. This number has steadily increased over the year due to rising wages and inflation. To meet inflation, and the rising CPI, wages need to appropriately increase. As a result of the progressive tax system, the more money an individual makes, the more taxes he/she pays.

This relationship is tangible through inspection of year to year tax statistics. In 2006 for instance, the personal income tax accounted for just 44% of the total gross collection from IRS taxes. That being said, the main source of yearly revenue is always spawned through the personal income tax. In essence, if all other revenue was combined through the various forms (employment taxes, corporate income tax, excise taxes, estate taxes, and gift taxes) of IRS tax levied the numbers would not equal the amount collected from the individual income tax.

The individual income tax levied by the IRS is the most complex and important form of levy for the national government. The income tax category includes a collection of funds from the four divisions of the IRS. Individuals (investments and wages, small businesses, mid to large cap corporations, and government entities or non-profits all contribute to the personal income tax levy. The progressive system, places a responsibility on those individuals who yield higher annual incomes. For example the progressive income tax breakdown in America for 2010 is as follows:

Due to the proportional relationship between tax rate and annual income, the top tax bracket routinely accounts for 60-65% of all revenue produced through the personal income tax. Although the numbers are prodigious the IRS estimates that on average, $250-$300 billion dollars a year go uncollected.