# Explain US Taxation **URL:** \ **Category:** Factual Questions\ **Created:** [July 20, 2009, 12:09pm UTC](https://boards.straightdope.com/t/explain-us-taxation/503612 "2009-07-20T12:09:31Z")\ **Posts on this page:** 20\ **Page:** 3
**Author:** ![dracoi](https://avatars.discourse-cdn.com/v4/letter/d/90db22/32.png) [@dracoi](https://boards.straightdope.com/u/dracoi)\ **Post date:** [July 20, 2009, 6:09pm UTC](https://boards.straightdope.com/t/explain-us-taxation/503612/41 "2009-07-20T18:09:48Z")
I think the complexities in US tax law compared to other countries can be explained by the degree to which the US government puts non-tax issues into the tax code. Earned Income Credit is just welfare under another name. When the WTO complained about US tariffs that favored domestic manufacturers, we added a tax credit to make up the difference. When we want people to buy houses, cars, energy efficient appliances, teaching supplies and investments, we give them credits or deductions to do that. When we want people to save for retirement, we give them credits and deductions. If we want upgrade low-income housing and employment for ex-felons we create tax credits. The tax code is probably going to be used for controlling carbon emissions. We could simplify 90% of our tax code if all these extras were implemented differently. For example, instead of putting the first-time homebuyer credit on tax forms, you could just have the real estate agent fill out another form, submit that to a government agency and have it all taken care of without the IRS ever being involved. Earned income credit could be administered through existing state welfare agencies. We could even have the EPA (Environmental Protection Agency) manage carbon emissions rather than the IRS. The problem is that “tax cut” is the magic word that gets Congressmen re-elected and we’d much rather call something a “tax credit” than “welfare” or “bailout.” In the last election cycle, many of the promised “tax cuts” were in fact refundable credits intended for people who don’t pay tax in the first place. (40% of tax return filers don’t pay ANY income tax under the current system). So politicians cram as much crap into the tax system as they possibly can. Voters just aren’t all that bright. Most of them are used to spending $400 a year for tax preparation and rapid refunds… which, ironically, would result in riots if that cost were called a tax. The IRS estimates that the cost of tax filing and compliance is 14% of the amount of tax collected. (Admittedly, that includes corporate and individual tax, and excise and payroll tax as well as income, but it’s still sickening). ---
**Author:** ![Telemark](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/telemark/32/372_2.png) [@Telemark](https://boards.straightdope.com/u/Telemark)\ **Post date:** [July 20, 2009, 7:02pm UTC](https://boards.straightdope.com/t/explain-us-taxation/503612/42 "2009-07-20T19:02:12Z")
> [@ghardester](#): > > Some states, such as Washington, have no state income tax. They have a sales tax instead. Some states have both an income tax AND a sales tax. And some have neither, NH. But the property taxes … ---
**Author:** ![Dangerosa](https://avatars.discourse-cdn.com/v4/letter/d/22d042/32.png) [@Dangerosa](https://boards.straightdope.com/u/Dangerosa)\ **Post date:** [July 20, 2009, 7:14pm UTC](https://boards.straightdope.com/t/explain-us-taxation/503612/43 "2009-07-20T19:14:55Z")
> [@Spectre\_of\_Pithecanthropus](#): > > Of course, there _are_ many individuals who decry “Taxation for something that I personally don’t benefit from, right now” thinking it’s the same idea. > > **Dangerosa** , doesn’t the IRS also collect excise taxes (e.g. on alcoholic beverages)? I believe that they do, but for most people they only deal with the IRS when working with income taxes - including FICA. A different spin on dracoi’s point (but its spin) - the U.S. government uses tax code to incentivize behavior or to create “fairness” - that’s what the mortgage interest deduction is about. Its what a reduced rate on long term capital gains is about. Or deducting charitable contributions. ‘Fairness’ comes into play when we talk about childcare credits or earned income tax credit - “fairness” in quotes because of course not everyone agrees what is fair. ---
**Author:** ![Chronos](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/chronos/32/134_2.png) [@Chronos](https://boards.straightdope.com/u/Chronos)\ **Post date:** [July 20, 2009, 8:52pm UTC](https://boards.straightdope.com/t/explain-us-taxation/503612/44 "2009-07-20T20:52:24Z")
Quoth **CookingWithGas** : > [@](#): > > Now the only ones who still pay federal taxes without representation are the 600,000 people who live in our nation’s capital. I have three members of Congress (Senate and House) representing my interests. A citizen of the District of Columbia has 535 members of Congress representing his interests. The problem is actually that the capital is over-represented, not under-represented, and the lack of representation specifically dedicated to the capital is are partial solution to that problem. Quoth **dracoi** : > [@](#): > > In the last election cycle, many of the promised “tax cuts” were in fact refundable credits intended for people who don’t pay tax in the first place. (40% of tax return filers don’t pay ANY income tax under the current system). 40% of filers don’t pay anything that’s called “income tax”, but they do still pay “payroll tax”, which amounts to the same thing. ---
**Author:** ![DrDeth](https://avatars.discourse-cdn.com/v4/letter/d/b487fb/32.png) [@DrDeth](https://boards.straightdope.com/u/DrDeth)\ **Post date:** [July 20, 2009, 10:10pm UTC](https://boards.straightdope.com/t/explain-us-taxation/503612/45 "2009-07-20T22:10:55Z")
> [@gazpacho](#): > > This is not true in the US. If you owe more than around $3000. You will be charged interest on the money you did not timely pay the government during the year. It is sort of a pain for people who cannot easily know what their income will be for a given year. There are complicated rules for how this is calculated. Investment income is not usually subject to with holdings and so people with large investment income generally need to make quarterly estimated tax payments so at the end of the year they don’t owe a large amount. And there _can_ be an exception for your first year, so if TurboTax or whatever has you owing a large Estimated Tax Penalty and you did not owe taxes before, then consult a Tax Professional. ---
**Author:** ![Ravenman](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/ravenman/32/2929_2.png) [@Ravenman](https://boards.straightdope.com/u/Ravenman)\ **Post date:** [July 20, 2009, 10:15pm UTC](https://boards.straightdope.com/t/explain-us-taxation/503612/46 "2009-07-20T22:15:15Z")
> [@Chronos](#): > > Quoth **CookingWithGas** A citizen of the District of Columbia has 535 members of Congress representing his interests. That is absolute nonsense. If I write a letter to a random congressman, I will be told that congressman X represents the people of the Nth District of Springfield, and that I should contact my own delegate if I wish to share my views on a particular matter coming before Congress, or if I want assistance in getting my Dear Aunt Mabel her overdue Social Security check. ---
**Author:** ![CookingWithGas](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/cookingwithgas/32/485_2.png) [@CookingWithGas](https://boards.straightdope.com/u/CookingWithGas)\ **Post date:** [July 20, 2009, 10:53pm UTC](https://boards.straightdope.com/t/explain-us-taxation/503612/47 "2009-07-20T22:53:14Z")
> [@Chronos](#): > > Quoth **CookingWithGas** :I have three members of Congress (Senate and House) representing my interests. A citizen of the District of Columbia has 535 members of Congress representing his interests. The problem is actually that the capital is over-represented, not under-represented, and the lack of representation specifically dedicated to the capital is are partial solution to that problem. > > Quoth **dracoi** :40% of filers don’t pay anything that’s called “income tax”, but they do still pay “payroll tax”, which amounts to the same thing. > [@Ravenman](#): > > That is absolute nonsense. If I write a letter to a random congressman, I will be told that congressman X represents the people of the Nth District of Springfield, and that I should contact my own delegate if I wish to share my views on a particular matter coming before Congress, or if I want assistance in getting my Dear Aunt Mabel her overdue Social Security check. Hijack carried over to GD in [this new thread](http://boards.straightdope.com/sdmb/showthread.php?t=525227). ---
**Author:** ![Mangosteen](https://avatars.discourse-cdn.com/v4/letter/m/6a8cbe/32.png) [@Mangosteen](https://boards.straightdope.com/u/Mangosteen)\ **Post date:** [July 20, 2009, 11:02pm UTC](https://boards.straightdope.com/t/explain-us-taxation/503612/48 "2009-07-20T23:02:50Z")
[quote=“chowder, post:7, topic:503612”] **Keeve** If tax is paid to both the federal govt. and also to the state or city doesn’t this mean that you’re paying income tax twice?. It gets better! When you die, the money you have (that has already been taxed) is taxed again before your family gets it. Its called estate taxes. The parasites are never satisfied. ---
**Author:** ![Really\_Not\_All\_That\_Bright](https://avatars.discourse-cdn.com/v4/letter/r/e8c25b/32.png) [@Really\_Not\_All\_That\_Bright](https://boards.straightdope.com/u/Really_Not_All_That_Bright)\ **Post date:** [July 20, 2009, 11:09pm UTC](https://boards.straightdope.com/t/explain-us-taxation/503612/49 "2009-07-20T23:09:59Z")
> [@Mangosteen](#): > > It gets better! When you die, the money you have (that has already been taxed) is taxed again before your family gets it. Its called estate taxes. The parasites are never satisfied. Considering that the US prides itself on being a meritocracy, people seem to get awfully upset about estate taxes. Apparently most don’t know that estates are exempt from federal taxes on the $1 million-plus because there’s an offsetting tax credit. There won’t be one in 2010, though- the exemption runs out in '09, and Congress reenacted it effective for '11, so I advise everybody not to die in the next 17 months. ---
**Author:** ![FoieGrasIsEvil](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/foiegrasisevil/32/16638_2.png) [@FoieGrasIsEvil](https://boards.straightdope.com/u/FoieGrasIsEvil)\ **Post date:** [July 20, 2009, 11:24pm UTC](https://boards.straightdope.com/t/explain-us-taxation/503612/50 "2009-07-20T23:24:56Z")
I still fail to understand estate taxation. The estate monies have already been taxed for it’s value while the initial owner of it was alive. Why pass on another tax to the inheritor? It’s double taxation, isn’t it? ---
**Author:** ![Mangosteen](https://avatars.discourse-cdn.com/v4/letter/m/6a8cbe/32.png) [@Mangosteen](https://boards.straightdope.com/u/Mangosteen)\ **Post date:** [July 20, 2009, 11:32pm UTC](https://boards.straightdope.com/t/explain-us-taxation/503612/51 "2009-07-20T23:32:23Z")
The US prides itself on the fact that there are property rights. No one has a right to take any one else’s property (money) and redistribute it to others The vast majority of individuals who end up with a million dollars +, started out life studying their asses off so they could either start or work for a successful company. They chose to save and not spend and learned to live below their means. And how does the government treat them for this ruinous behavior? Estate Taxes. ---
**Author:** ![Really\_Not\_All\_That\_Bright](https://avatars.discourse-cdn.com/v4/letter/r/e8c25b/32.png) [@Really\_Not\_All\_That\_Bright](https://boards.straightdope.com/u/Really_Not_All_That_Bright)\ **Post date:** [July 20, 2009, 11:32pm UTC](https://boards.straightdope.com/t/explain-us-taxation/503612/52 "2009-07-20T23:32:45Z")
> [@FoieGrasIsEvil](#): > > I still fail to understand estate taxation. The estate monies have already been taxed for it’s value while the initial owner of it was alive. Why pass on another tax to the inheritor? It’s double taxation, isn’t it? Sure, but so are virtually any other types of personal taxes other than income tax. One of the basic things people generally don’t understand about taxes is that they aren’t levied against money or holdings. They’re levied against the _transfer_ of money or holdings. You can, incidentally, choose to be buried with all your wealth, in which case it isn’t subject to the estate tax. You can give it to a charity, in which case it won’t be subject to federal estate taxes. In any case, as I noted above, if you die this year, your heirs won’t pay any federal taxes on the first $3.5 million, and if you’re survived by a spouse, he or she won’t pay any federal taxes on _any_ of what you leave him or her. > [@](#): > > The vast majority of individuals who end up with a million dollars +, started out life studying their asses off so they could either start or work for a successful company. They chose to save and not spend and learned to live below their means. > > And how does the government treat them for this ruinous behavior? Estate Taxes. The vast majority of individuals who end up with over a million dollars on their balance sheets _do not pay_ estate tax- and they’re dead anyway. It is effectively their heirs who pay the estate tax, and they haven’t done anything to earn the money either. ---
**Author:** ![FoieGrasIsEvil](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/foiegrasisevil/32/16638_2.png) [@FoieGrasIsEvil](https://boards.straightdope.com/u/FoieGrasIsEvil)\ **Post date:** [July 20, 2009, 11:55pm UTC](https://boards.straightdope.com/t/explain-us-taxation/503612/53 "2009-07-20T23:55:02Z")
> [@Really\_Not\_All\_That\_Bright](#): > > Sure, but so are virtually any other types of personal taxes other than income tax. > > One of the basic things people generally don’t understand about taxes is that they aren’t levied against money or holdings. They’re levied against the _transfer_ of money or holdings. You can, incidentally, choose to be buried with all your wealth, in which case it isn’t subject to the estate tax. You can give it to a charity, in which case it won’t be subject to federal estate taxes. > > In any case, as I noted above, if you die this year, your heirs won’t pay any federal taxes on the first $3.5 million, and if you’re survived by a spouse, he or she won’t pay any federal taxes on _any_ of what you leave him or her. > > The vast majority of individuals who end up with over a million dollars on their balance sheets _do not pay_ estate tax- and they’re dead anyway. It is effectively their heirs who pay the estate tax, and they haven’t done anything to earn the money either. But that’s just it to me…who cares if they “did anything to earn the money”? It is the wishes of the rich deceased to leave a bucketload of cash in the form of a will to their children or whatever, why does that have to be taxed at all? It was already taxed when it was earned by the newly deceased. Seems unfair. ---
**Author:** ![dracoi](https://avatars.discourse-cdn.com/v4/letter/d/90db22/32.png) [@dracoi](https://boards.straightdope.com/u/dracoi)\ **Post date:** [July 21, 2009, 12:08am UTC](https://boards.straightdope.com/t/explain-us-taxation/503612/54 "2009-07-21T00:08:48Z")
Taxation occurs when there is a transfer of wealth. “Double taxation” is really a misnomer because every dollar is taxed a million times over. You take your paycheck from your employer (from which income and payroll tax was withheld). You deposit it into your bank and pay tax on the interest (while the bank is paying tax on the interest they earn by loaning it out). You pull it out to buy something and pay sales tax. The retailer you bought it from uses the money to pay someone else their paycheck… and the cycle continues. It’s also worth pointing out that the OP asked about differences in US tax and UK tax. UK “death duty” has wiped out the estates of many of the old noble families, so the two countries are not so different there. ---
**Author:** ![CookingWithGas](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/cookingwithgas/32/485_2.png) [@CookingWithGas](https://boards.straightdope.com/u/CookingWithGas)\ **Post date:** [July 21, 2009, 12:23am UTC](https://boards.straightdope.com/t/explain-us-taxation/503612/55 "2009-07-21T00:23:23Z")
Then there’s gift tax. If I want to give you more than, what, $12,000 this year, _I_ have to pay taxes on the money I give you. ---
**Author:** ![Dangerosa](https://avatars.discourse-cdn.com/v4/letter/d/22d042/32.png) [@Dangerosa](https://boards.straightdope.com/u/Dangerosa)\ **Post date:** [July 21, 2009, 12:49am UTC](https://boards.straightdope.com/t/explain-us-taxation/503612/56 "2009-07-21T00:49:38Z")
And estate and gift taxes have a unified system. The $3.5 million applies to all your holdings your entire life - that $12k I give you this year counts against the $3.5 million total. ---
**Author:** ![Dangerosa](https://avatars.discourse-cdn.com/v4/letter/d/22d042/32.png) [@Dangerosa](https://boards.straightdope.com/u/Dangerosa)\ **Post date:** [July 21, 2009, 12:54am UTC](https://boards.straightdope.com/t/explain-us-taxation/503612/57 "2009-07-21T00:54:40Z")
> [@Really\_Not\_All\_That\_Bright](#): > > The vast majority of individuals who end up with over a million dollars on their balance sheets _do not pay_ estate tax- and they’re dead anyway. It is effectively their heirs who pay the estate tax, and they haven’t done anything to earn the money either. Technically, no living individual pays estate taxes - its paid by the estate. Until the estate clears taxes, the heirs of the estate do not have their money. Should the deceased have chosen to spend that money on a yacht instead of save it, it would have been taxed as sales tax, taxed as property taxes and fees when he licensed it (assuming you registered it as a U.S. vessel) - then taxed again as profit from the company he bought his yacht from. ---
**Author:** ![SmackFu](https://avatars.discourse-cdn.com/v4/letter/s/53a042/32.png) [@SmackFu](https://boards.straightdope.com/u/SmackFu)\ **Post date:** [July 21, 2009, 2:20am UTC](https://boards.straightdope.com/t/explain-us-taxation/503612/58 "2009-07-21T02:20:29Z")
I take the standard deduction, and the only reason my taxes cannot be automated like the UK is that I have investment gains, and the government does not receive price paid data for investments. Everything else I put on the tax returns comes from a form submitted to the IRS independently, and they are really just checking my numbers. ---
**Author:** ![Tom\_Tildrum](https://avatars.discourse-cdn.com/v4/letter/t/e95f7d/32.png) [@Tom\_Tildrum](https://boards.straightdope.com/u/Tom_Tildrum)\ **Post date:** [July 21, 2009, 3:09am UTC](https://boards.straightdope.com/t/explain-us-taxation/503612/59 "2009-07-21T03:09:10Z")
> [@Really\_Not\_All\_That\_Bright](#): > > One of the basic things people generally don’t understand about taxes is that they aren’t levied against money or holdings. They’re levied against the _transfer_ of money or holdings. This is not true of property taxes. ---
**Author:** ![DrDeth](https://avatars.discourse-cdn.com/v4/letter/d/b487fb/32.png) [@DrDeth](https://boards.straightdope.com/u/DrDeth)\ **Post date:** [July 21, 2009, 8:04am UTC](https://boards.straightdope.com/t/explain-us-taxation/503612/60 "2009-07-21T08:04:15Z")
> [@FoieGrasIsEvil](#): > > I still fail to understand estate taxation. The estate monies have already been taxed for it’s value while the initial owner of it was alive. Why pass on another tax to the inheritor? It’s double taxation, isn’t it? No. As a mater of fact, most of the value of an Estate is almost always in unrealized and thus untaxed Capital gains. Very very few megabuck estates consist of a pile of cash under a (huge) mattress.Scrooge McDucks money vault is only in the comics. **CookingWithGas** : No that’s not how Gift Taxes work, the gifts are carried over unto the Estate. You would not pay taxes on a $15,000 gift to someone. **Really Not All That Bright** makes some excellent points as to how large the Estate has to be before it pays taxes. Yes, I know, the _idea_ of “Deathtaxes” as explained by the GOP makes them sound very unfair. In reality, they are not unfair at all. Basically, the heirs of millionaires get a little less of the money they did nothing earn anyway. [Previous page](https://boards.straightdope.com/t/explain-us-taxation/503612.md?page=2) [Next page](https://boards.straightdope.com/t/explain-us-taxation/503612.md?page=4)