Where We Stand: Taxes
Here’s a quick look at the world of taxes.
- An estimated 45% of households don’t pay any federal income tax, according to the Tax Policy Center, which is a joint venture of the Urban Institute and Brookings Institution.
- For all taxpayers, the average federal tax rate in 2014 was 14.4% of total income, according to IRS figures. The vast majority of taxpayers were in the 15% marginal tax bracket or lower. Just 2.9% of tax returns were hit with the alternative minimum tax.
- Some 6% of the federal government’s revenue comes from the corporate income tax and just 0.6% from the federal estate and gift tax, according to a March 2015 report by Congress’s Joint Committee on Taxation. These figures pale next to the 79.7% that comes from taxes on individual incomes, such as income taxes and Social Security payroll taxes (though, to be fair, a portion of these payroll taxes are paid by employers).
- Pew Charitable Trusts found that 36.2% of all workers don’t have access to an employer-sponsored retirement plan, whether it’s a traditional pension plan or a 401(k) plan. For these workers, it’s especially important to contribute to an IRA and to fund a regular taxable account.
- The standard IRA contribution limit for 2017 is $5,500, while the contribution limit for 401(k) plans is $18,000.
- No major federal tax legislation was passed in 2016. But numerous tax proposals have been making the rounds—and there’s a strong likelihood we will see a rewriting of the tax code in 2017. The last big rewrite of the tax code was in 1986, resulting in significant simplification. In the three decades since, the tax code has grown increasingly cluttered with new taxes, deductions, credits and special savings accounts.
Next: Income Tax Basics