American tax authorities

Americans have a legendary reluctance to pay taxes. Many are convinced that taxes - especially federal taxes - are simply a form of robbery, and funds transferred in this form to the state are always wasted. No politician seriously thinking about a career, especially if he is associated with the Republican Party, will not say loudly that taxes are a must. Nor will it say that if the United States wants to reduce its budget deficit and debt, it will be necessary to raise taxes in addition to spending cuts. President George Bush senior learned this painfully in the early 1990s when, forced by the difficult situation of public finances, he decided to offer - contrary to election promises - a relatively small tax increase. The Americans thanked him after the first term.

The American reluctance to pay taxes is older than the United States alone. When, in the second half of the 18th century, the British government decided to impose new taxes on colonies in America, while at the same time refusing the colonists the right to elect their representatives to the parliament in London, there was a revolt. Its effects are the war for independence and the emergence of the United States of America as an independent state, which, moreover, maintained a skeptical attitude towards taxes.


The first federal income tax was passed only during the Civil War (1861-1865). It was not high - just 3% on revenues above $ 800. per year and 5% for revenues greater than 10,000 dollars. annually. Calculated for today's money, it meant that taxes were paid by wealthy people. After the war, the federal government gave up income tax. However, it appeared periodically at the end of the 19th century to enter into force permanently in 1913, after the 16th amendment to the constitution was adopted. However, even then it was not high - it was just 1% of income exceeding 3,000. dollars. per year and an additional 6% on income higher than 500 thousand dollars. annually. When the United States entered World War I, taxes increased significantly, but even then the average rate did not exceed 15%. In the following decades, tax rates changed, but never returned to the level from before World War I. During and after the peak of World War II, the highest tax threshold exceeded 90% (however, the real rate - after taking into account the deductions - "only" 70%).


This does not mean that the Americans did not pay any federal taxes until the beginning of the 20th century. They paid, among others in the form of customs duties on imported products or on the value of real estate. State taxes were also in force, in the nineteenth century, e.g. head tax (a fixed amount paid by each resident). These were not high amounts, but hardly anyone paid any taxes.

Find your expert in accounting and taxes Stuart Rubin

Taxes today

US residents and companies pay not only federal taxes, but also state and local taxes, different in each state and county. This is one of the factors that complicates the modern American tax system. Another is the multiplicity of federal income tax thresholds. In 2013 there were seven of them. The lowest rate, from an annual income of up to $ 8,925, was 10%, and the highest, from an annual income exceeding 400,000. dollars. - 39.6%. In addition, there is a whole system of write-offs, donations for charity and religious purposes, as well as separate taxes, e.g. on capital gains.
No less complicated is the system of taxes paid by enterprises. In the US, no value added tax (VAT) has been introduced, while staying with the sales tax charged each time the item is sold. For these reasons, in order to know the true level of tax burden in the United States, it is better to look at the effective tax rate indicator rather than the nominal thresholds. It turns out that although corporations should pay tax of up to 40% of revenues, e.g. in 2012 their effective tax rate was only about 12%, and some of the largest corporations - despite millions of profits - did not pay taxes at all. The disclosure of tax declarations by the Republican presidential candidate Mitt Romney also resounded in 2012. Although, for example, in 2010 he earned about $ 22 million, his effective tax rate was only 14%, and in the years 1990-2010 the maximum effective tax rate he paid was at most 20%.


The high level of complexity of the tax system and historical reluctance to taxes translate into the true national hobby of Americans - avoiding, according to the law and against it, paying them. The Internal Revenue Service - US Tax Office - collects approx. USD 2.4 trillion annually. in taxes and settles approx. 200 million tax returns. However, it only thoroughly checks a small portion of incoming settlements. The temptation to lower income or increase the amount of write-offs due to the low risk of mishaps is very high. People and companies with larger assets - who can afford to use the services of specialists - instead of breaking the law explicitly, subtly exploit the loopholes, e.g. by creating fictitious foundations and companies in tax havens or in countries with very restrictive banking secrecy regulations such as Liechtenstein .


Richard Cebula and Edgar L. Feige, scientists from the University of Wisconsin-Madison, estimated that in 2008 the American tax office lost USD 450-490 billion due to incorrect tax settlement. 100 billion dollars should be added to this amount. lost in taxes on income obtained by persons residing in the USA and companies operating in the United States, but booked in tax havens. This difference between the amount of taxes that should affect if all taxpayers accounted for according to the law, and what actually came in is called a tax gap. In the US, it is more or less stable and amounts to approx. 18-19% of total tax revenues. This is twice as much as in Sweden or Great Britain. The tax gap for businesses is similar to that for individuals. Most often, they avoid paying taxes with assets exceeding $ 10 million.

How to fight tax avoidance?

From a state perspective, tax evasion by residents, as well as companies and organizations operating on its territory is one of the most important problems. Supreme Court Justice Oliver Wendell Holmes junior - one of the greatest legal authorities in US history - wrote in 1927 that "taxes are the price we pay for a civilized society." Lack of tax revenues prevents not only further development, but above all maintaining the current standard of living of the citizens. What action are the US tax services taking to reduce tax evasion, especially by transferring money to tax havens?
In 2006, the IRS established a special office that receives reports from whistleblowers about instances of tax evasion by the institutions they work for or the clients of these institutions. If the information proves to be true and allows the tax authorities to collect taxes and fines of at least USD 2 million, the notifier can count on 15-30% of this amount. In the case of suspicion of tax evasion or assistance in this process, the US tax authorities often take cases to courts that order banks and financial institutions to disclose all information. Finally, the IRS may audit the assets of private individuals to check that they are not concealing income.
At a time when European countries, squeezed by the crisis, are raising taxes and trying to improve the efficiency of their enforcement to reduce their debt, the US increases its debt, keeps taxes low and maintains tax services with relatively low efficiency. How is this possible? The United States, like many financial institutions and banks, has become "too big to fail." The world is ready to buy low-interest (sometimes below inflation) US bonds, because the collapse of the US economy would cost it much more than subsidizing it. However, this situation will not last forever and someday the time will come when Americans will have to start living for their own - collected in taxes - money.