There will probably be millions of Americans, including me, who will be working on their taxes this weekend before next Tuesday’s deadline on April 15. So it’s time for my annual post at tax time to help put things in perspective.
In a recent report to Congress, the National Taxpayer Advocate estimated that American taxpayers will spend 6.1 billion hours this year complying with the income tax code, based on IRS estimates of how much time taxpayers (both individual and businesses) spend collecting data for, and filling out tax forms. That amount of time spent for income tax compliance – 6.1 billion hours – would be the equivalent of more than 3 million Americans working full-time, year-round (or 2.2% of total US payrolls of 138 million). By way of comparison, the federal government currently employs 2.7 million full-time workers, and Wal-Mart, the world’s largest private employer, currently employs 2.2 million workers worldwide and 1.4 million workers in the US (both full-time and part-time).
“In the beginning” when the US federal income tax was first introduced in 1913, it used to be a lot, lot simpler and a lot easier to file taxes; so easy in fact that it was basically like filling out your federal tax return on a postcard.
For example, page 1 of the original IRS 1040 income tax form from 1913 appears above. There were only four pages in the original 1040 form, including: two pages of worksheets, the actual one-page 1040 form above, and only one page of instructions, view all four pages here. In contrast, just the current 1040 instructions for 2013, without any forms, runs 207 pages.
Individual income tax rates started at 1% in 1913, and the maximum marginal income tax rate was only 7% on incomes above $500,000 ($11.85 million in today’s dollars). The personal exemption in 1913 was $3,000 for individuals ($71,145 in today’s dollars) and $4,000 for married couples (almost $95,000 in today’s dollars), meaning that very few Americans had to pay federal income tax since the average income in 1913 was only about $750. The Tax Foundation has historical federal income tax rates for every year between 1913 and 2013 here for tax brackets expressed in both nominal dollars and inflation-adjusted dollars.