The objective of the chapter is to delineate and differentiate between the three major taxes in the United States through analyzing their differences, applicability, and issues associated with each. As the chapter begins, Mikesell explains the beginnings of the income tax and how it evolved from an unstable and unenforced law to a steady revenue to aid in the cost of the Civil War. Throughout our early history as a nation, levying a personal income tax proved to be one of the most daunting tasks we would tackle as a united country and enforcing said task, even more difficult. By 1913, at a rate of 1% for allotted incomes, President William Howard Taft was able to levy and enforce a personal income task that would prevail throughout the coming decades. Several figures were given throughout the early 1900’s to detail the changes in income taxes and the marginal differences between personal and corporate filing taxes.
Finally for this section, the tax for social security is explained and how it is applied to individuals, employers, and contractors. The book details “The third, and newest, portion of the federal income tax structure consists of the payroll taxes for support of the social insurance system. These narrow- base taxes on wage and salary income and certain income from self- employment may legally be imposed on the employer, imposed on the employee, or shared between the employer and employee; most analysts suspect that the economic incidence is on the employee regardless of who is responsible for sending payment to the government.” In simple terms, employers spreading a tax to the payroll systems in order to provide the social insurance benefit.
The next main talking point in the chapter is about equity and dealing with diverse income distribution. The major thesis of this section explains that overall income is the single most identifying attribute of affluence in The United States. As well, adjustability is mentioned so that readers understand the income tax is based on an adjusted amount of many variables such as house size, income, dependents, etc. whereas the tax distributions on common goods could be overburden to some taxpayers.
One of the most interesting talking points in the chapter is that of the topic of administration, compliance, and enforcement. Mikesell explains that even with an overall operating budget of $12bil, the IRS actually only spends about 50¢ per $100 collected. However, he combats this with saying the cost to tax payers for simply just complying with the law is 10 times that of the operating cost of the IRS collection service as a whole. Taking into account both money and time, the average 2011 individual tax payer will spend 22 hours on a tax return and spend an average of $79 simply preparing their taxes. Even the simplest forms, such as a 1040EZ form, will take 7 hours and are 5.5% of the time done by a preparer. The process and requirements being so difficult, Mikesell explains how many critics believe the income tax overall creates a wave of economic instability and distortion while adding to the already growing levels of economic inequity.
Throughout chapter 9, many real world applications can be seen through examples of poor tax preparation to a list of items people often omit claiming. The information provided under the section headings such as “Adjusted Gross Income” or “Personal Deductions” could benefit the American population as a whole if they were given access to read this information in a simple form. It currently being tax season, this information was actually helpful to me as I was filing my taxes (the day of, of course) and figuring out what every question meant on the 1099 and W-2 forms. Overall, throughout the entire book thus far, Chapter 9 has without a doubt been the most useful and applicable chapter to what we will use in the working world.