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Sunday, April 17, 2011

New White House Taxpayer Receipt and Its Limitations

The White House has created a website to enable individuals to enter their 2010 Social Security, Medicare and federal income taxes to get a receipt as to what it paid for (you can see it - and use it, at the bottom of this blog page). This is helpful to give individuals (who know about it) a sense of direct spending in the federal budget. The California Franchise Tax Board also has a taxpayer receipt - here. I calculated receipts for a single taxpayer - Jane, with $50,000 of wages and $500 of interest income. Jane's taxes are as follows:

  • Social Security $3,100

  • Medicare $725

  • Federal income tax (after Making Work Pay Credit of $400) $6,075

  • California income tax $2,080

  • California use tax $13 (Jane is a compliant taxpayer! She also paid lots of sales tax.)

Jane's federal tax receipt shows (with my commentary):

  • Social Security $3,100 (this should be $6,200 to include what Jane's employer paid which otherwise would most likely have been extra wages for Jane)

  • Medicare $725 (this should be $1,450 for same reason as above)

  • Defense $1,598 (the largest amount other than Social Security)

  • Health Care $1,477

  • Job & Family Security $1,331

  • Education & Jobs $293

  • Veteran Benefits $250

  • Natural Resources, Energy, Environment $128

  • International Affairs $103

  • Science, Space, Tech $73

  • Immigration and related $122

  • Agriculture $50

  • Community Development $30

  • Natural Disaster Response $24

  • Other $146

  • Net interest expense $450 (perhaps instead of giving Jane a Making Work Pay Credit of $400, that should have been used to pay down the debt)

Jane's California taxpayer receipt for $2,080 of state income tax shows:

WHAT'S MISSING? Plenty! (and see my prior post- 10/14/10)

  • What is Jane's total federal income tax? The White House tells Jane to pull the number from line 55 of Form 1040. But that is before her tax credits. Since the tax credits are not included in the spending amounts (most likely), she should pull her line 55 amount and subtract credits from it to get her federal tax paid (Jane got the Making Work Pay Credit in 2010). In fact, the Form 1040 should be re-ordered to make it obvious what her net federal tax liability is or have a line at the very end to show this. That would result in greater transparency (and we also know that many people think what they owe on April 15 or get as a refund is their actual federal income tax).

  • Jane also paid some portion of the federal and California (and other state) corporate income tax.

  • As noted above, the payroll taxes Jane's employer paid should be attributed to her since without them, her wages would have been higher.

  • Jane likely also paid about $1,000 of sales tax.

  • Jane also paid various federal and state excise taxes and various local taxes such as a utility user tax.

  • The expenditure amounts above are not accurate because of spending that is in the tax rules (special deductions, exclusions and credits) that don't show up in the agency budgets. For example, for 2010, the Joint Committee on Taxation estimates that higher education related tax expenditures were $18 billion (JCS-3-10, pages 44-45). Jane did not claim any of these benefits, but through higher taxes, she in effect, paid them. That is, without these tax provisions, her overall tax bill could have been lower.

  • What is Jane's share of the national debt? About $46,000! ($14.2 trillion debt/311 million people in the US)

  • What is Jane's average federal income tax rate? 12% This information, along with her marginal tax rate (next), may be useful to Jane as she listens to tax reform debates. Her average CA income tax rate is 4%.

  • What is Jane's marginal federal income tax rate? 25%

  • What would her receipt look like if federal spending percentages of five and ten years ago had been used? Data is most useful when compared to something.

  • What were average federal tax bills in different income quintiles? Again, data is most useful when compared to something.

What do you think? What additional information do you think Jane should have?


sandra peters said...

I agree there is plenty missing in Jane’s receipt and out of context she has no idea if it is fair or not compared to other’s tax bill. She has no idea of what “normal” tax is for her set of facts or even how this might compare to those in other countries. The IRS statistics published ( would provide her some additional information on where she fits in the overall scheme such as whether she is in the lower or higher quintile.
I agree, the receipt is only for the relatively small amount of income taxes she paid. It looks reasonable on the surface as a percentage of her income, but what about all the hidden taxes she paid. It may be more shocking to assess the total taxes an individual pays in her income bracket. There is hidden tax in everything including 132% on peanut butter and 30% on bicycles ( There is the tax we see, (sales, property, gasoline, etc.) and the taxes we do not see hidden in product or service prices.
There is also little conveyed on her total debt balance as you mentioned, $46,000, the interest payment, or how long it will take to pay off at the current rate. Credit card companies must now tell you this information; let’s have transparency in our federal debt as well. The receipt tool seems more like a public relations attempt rather than education and transparency of any real substance. On the surface, the items listed seem like money well spent; Jane can feel good about paying her taxes. I know the devil is in the details and there is always more to the story…

Tim Kelly said...

Looks like President Obama beat these two legislators to the punch. Massachusetts Republican Senator Scott Brown and Florida Democratic Senator Bill Nelson co-sponsored a bill (S. 437) earlier this year requiring the IRS to issue every U.S. taxpayer a receipt for their income tax payment.

The receipt lists 29 expense categories, some with sub categories, as well as two line items “showing the amount of Federal debt per legal United States resident at the end of such fiscal year, and the amount of additional borrowing per legal United States resident by the Federal Government in such fiscal year”.

The proposal does call for the use of technology to limit the cost of this program. Interestingly the 14th expense line item is the government’s spending on -(14) Natural resources, land, and water management and conservation funding, including National Parks. Will the costs of this program be off set by a reduction in the funding for conservation? This is a good idea let’s hope receipts can be emailed with out being blocked by our spam filters and we can save a few trees.