Facts You Didn't Know About the Tax Code That Turns 100 Today
On February 25, 1913, Secretary of State Philander Knox proclaimed that three-fourths of the states had ratified the 16th Amendment, thereby making the collection of income tax the law of the land.
When Congress passed the law in 1913, a couple making more than $4,000 in taxable income, after all deductions was subject to a one percent tax rate.
USA Today calculated that, with inflation, that $4,000 is equal to about $93,700 today. Unfortunately, those folks now find themselves in the 25 percent tax bracket (with an effective tax rate of about 16.5 percent).
Tax brackets are not the only things that have changed over the years. The original tax code was 400 pages. This year’s is 73,608.
Much of the change may be because the primary purpose of the original income tax was to raise money to operate the government and nothing else. Over the past 100 years, Congress has enacted changes and new tax laws that encourage charitable contributions, reward home buyers, and even punish certain behavior such as disallowing businesses from deducting fines and penalties.
To be fair, it is likely that Congress viewed many of these changes as "in the national interest." Unfortunately, the result for businesses and individuals is a lot of time and money spent trying to figure it all out.
The IRS estimated that U.S. taxpayers and businesses spend about 7.6 billion hours complying with tax law each year.
That’s a lot of time and time is money. For the average business, if the time spent complying with tax law resulted in significant tax savings, the investment might be worth it.
The truth, Forbes reported, is that according to Thomson Reuters Fundamentals via FactSet Research Systems, despite the time spent complying, large corporations pay substantial income taxes. Debate rages on about corporate loopholes, tax shelters, and “lawyer-tricks,” but for the highest paying U.S. corporations; the bottom line is a high effective tax rate, by any measure.
Last year, for example, ExxonMobil (NYSE: XOM) paid $27.3 billion in taxes on net income of $41 billion for an effective tax rate of 42 percent. Chevron (NYSE: CVX) handed over $17.4 billion on net income of $26.9 billion and had an effective tax rate of 43.3 percent. ConocoPhillips (NYSE: COP) wrote a check for $10.6 billion on a net of $12.4 billion for an effective rate of 45.6 percent.
JPMorgan Chase (NYSE: JPM) represented banks in the top group, paying $8.2 billion on net income of $19 billion resulting in an effective rate of 29.1 percent.
Finally, discounter, Wal-Mart (NYSE: WMT) likely would have preferred a better discount on its tax bill of $5.9 billion, paid on net income of $15.7 billion, giving the chain an effective tax rate of 32.6 percent.
(c) 2013 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.