Taxes – Fast Facts

All fast facts for taxes are from the non-partisan Congressional Budget Office (CBO) and one from the Tax Policy Center. Although they represent some of their most recent reports on this subject, they do not represent all of their reports on this subject. Occasionally minor word adjustments may have been made for clarity or to reflect the updated nature of the statement. As always, verify and view statements in their full context as often as possible.

Rising real incomes have driven federal tax revenues upward since 1979 (from 1997 report).  Verify here
Although revenues from individual income taxes are nearly 50 percent greater than revenues from social insurance taxes, households in the bottom 80 percent of the income distribution on average pay nearly twice as much in payroll tax as in income tax. In 1997, 9.6 percent of that group’s income went to payroll taxes, compared with 5.2 percent going to income taxes.  Verify here
How much additional revenue will be obtained by increasing tax rates on capital gains is uncertain.  Taxpayers can defer the payment of capital gains taxes by not realizing the gains-that is, by holding onto assets instead of selling them; they can avoid taxation of gains entirely by passing on their assets to others at death. If realizations decline by a greater percentage than the tax rate increases, revenues from capital gains taxes could fall instead of increasing.  A number ofstatistical studies have provided strong evidencethat realizations of capital gains decline when tax rates on gains are increased.  Verify at Page xii
Arguments for lower tax rates on capital gains are that they promote saving and investment and channel more resources into new ventures.  Verify at Page xii
Arguments against reintroducing a differential between long-term and short-term capital gains and ordinary income by lowering the tax rate on capital gains are that the differential would add complexity to the tax system, encourage tax shelter activity, and distort choices among financial instruments and real assets.  Verify at Page xii
Taxes have an effect on the economy in addition to the revenues collected because they cause people to alter their economic behavior, which generally results in a less efficient allocation of resources.  Verify here
Taxpayers can respond in three general ways to taxes: They can change the timing of their activities, for example by accelerating bonus payments or the sale of assets into this year if they think tax rates on earnings or capital gains will increase next year; they can adjust the form of their activities, for example by substituting tax-preferred fringe benefits for cash wages if the tax rate on wages increases; or they can change more fundamental aspects of their behavior, for example by working or saving less if tax rates on earnings or capital income increase.   Verify here
Taxes raise the price of taxed activities and thereby lower the relative price of other things. In particular, the income tax reduces the returns from working (the after-tax wage), which lowers the price of other activities relative to working; it also reduces the returns from saving (the after-tax rate of return), which lowers the price of current spending relative to saving for spending in the future. Verify here
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