Taxing Businesses: Tax Receipts

Part 5 of a series about Taxing Businesses

Although profits and therefore corporate tax receipts varied with the business cycle, the corporate tax receipts generally declined from the 1950s to late 1970s, falling to less than 3% of GDP in the bad economy due to inflation and oil shocks.  However Federal tax receipts collected from corporate tax code never returned to previous values when the economy recovered because the number of c corporations declined and the number of pass-throughs increased. With the increase in pass-throughs one would expect the receipts from individual income tax returns to increase but they didn't.

View fullsize

Data is from the Office of Management and Budget, Historical Tables, Table 2.3

Alternative version available in a early post

10/3/2017 Fixed y-axis label to read % of GDP

Percent of Households Filing an Income Tax Return: 1913-2008

View fullsize

A federal income tax was imposed on several occasions in the 1800s. However, in response to a court case which determined that income from property was required to be imposed in proportion to states' population, Congress proposed the Sixteenth Amendment. Thus in 1913, the modern income tax system was born. In 1913, 358,000 returns were filed which was 2% of all households. While the top tax rate was 7% on incomes above $500,000 ($10.9 million in 2010 dollars), the first $3,000 ($65,331 in 2010 dollars) was exempt from the the income tax for single persons.

In 1918, 4,425,000 returns were filed which was 20% of households. Now the exemption was $1,000 ($14,352 in 2010 dollars) while the top rate of 77% was now applied on income over $1,000,000 to pay for World War I ($14.3 million in 2010 dollars). There was high inflation during and right after the war so by the peak in 1923 almost 40% of households were being taxed due to bracket creep. This was fixed in 1925.

In 1942, 36,619,000 returns were filed and the exemption had been dropped to $500 for single persons ($6,613 in 2010 dollars). For the first time the number of income tax returns filed exceeded the number of households.

Data: Top Income Tax Rates; Tax Exemptions; Number of Tax Returns; Number of Households

Top 400 Taxpayers: Income and Taxes Paid 1992-2005

This graph shows the average income reported to the IRS and the average taxes paid by the top 400, i.e. the 400 taxes returns with the highest adjusted gross income from 1992-2005. This does not represent not gains in the wealth of people like Bill Gates but instead shows the annual income of the superrich reported to the IRS. They accounted for 1.15% of total income reported in 2005, more than twice as large as their 0.49% share in 1995. {Click on the image to take a closer look}

Data from the IRS via Wall Street Journal's Tax Report

Average Income: PreTax vs AfterTax 2005

I created this graph showing the average income for different household percentiles, comparing pretax income and aftertax income. The minimum income threshold for each percentile is noted in the graph. {Click on the image to take a closer look}

Data from Congressional Budget Office

[tags]United States, Income tax, average income[/tags]

Tax Collection by Type of Return 2006

From the IRS Tax Stats at a Glance, I have graphed the percent of returns compared to percent of dollars collected (before refunds), broken out by the type of tax: Individual, Employment, Corporate, Excise, Estate, and Gift.