Would you consider telling us more about how we can do better? An individual income tax or personal income tax is levied on the wages, salaries, investments, or other forms of income an individual or household earns. The U. The Federal Income Tax was established in with the ratification of the 16th Amendment.
Though barely years old, individual income taxes are the largest source of tax revenue in the U. August 24, Download Data. Print this page Download Data Subscribe Support our work. Last law to change rates was the Tax Reform Act of Last law to change rates was the Revenue Act of The Revenue Act of allowed income-splitting by married couples.
Last law to change rates was the Internal Revenue Code of Tax liability according to these rates was reduced by 5 percent, and the maximum effective tax rate on net income was Last law to change rates was the Revenue Act Code of The maximum effective tax rate on net income was 90 percent. Last law to change rates was the Individual Income Tax Act of Defense tax of 10 percent of normal tax and surtax limited to 10 percent of excess of net income over sum of normal tax and surtax.
The voluntary compliance rate is now estimated at After accounting for enforcement and late payments, the net compliance rate is The small increase in the estimated size of the tax gap and small decrease in the voluntary compliance rate are largely attributable to improvements in the tax gap estimation methodology, and do not represent a significant change in underlying taxpayer behavior.
The changes also reflect the overall decline in the nation's tax revenues due to the severe recession during the time period covered by this study, as well as changes in the mix of income sources that have different compliance rates. A high level of voluntary tax compliance remains critical to help ensure taxpayer faith and fairness in the tax system. Those who don't pay what they owe ultimately shift the tax burden to those who properly meet their tax obligations.
The new tax gap estimate updates long-standing research findings that information reporting and withholding are strongly associated with higher levels of voluntary compliance. The IRS continues to look for ways to keep the voluntary compliance rate high, including educational efforts aimed at preparers and taxpayers, ongoing efforts to improve compliance in the international tax arena, and working with businesses on employment tax issues.
The IRS released a set of tax gap estimates for tax year New York, New Jersey, and Connecticut have occupied the top three spots on the list since This may be partially attributed to high levels of expenditures which must be sustained by high levels of revenue.
Further, in the case of Connecticut and New Jersey, relatively high tax payments to out-of-state governments add to already high in-state payments. This is likely related to the fact that these are high income states that pay high levels of capital gains. New York residents experienced the highest burden at Next were New Jersey and Connecticut, where residents paid Residents of Wyoming paid the lowest percentage of income in at just 6.
Wyoming replaced Alaska, which had previously been the least-taxed for multiple decades, as the least-burdened state in the nation. Residents of these states paid between 7. Since , state-local tax burdens as a share of income have grown slightly from 9. During that period, however, there has been some slight fluctuation. From to , burden as a share of income slowly increased, hitting a high of First, there could have been a change in total collections by the state, either due to policy changes or economic fluctuations.
Second, there may have been a change in the level of state income as a result of the economy. And third, other states to which residents pay state and local taxes could have seen changes in tax collections again due to changing policy or economic conditions.
The most pronounced changes in burdens between and occurred in Wyoming decrease of 1. The largest movement in rank occurred in Delaware. The state had a ranking of 30th in but moved up to 15th in Table 2 lists the burden as a share of income and ranks for each of the fifty states and Washington, DC for the last three fiscal years. DC is included in U. Please see Appendices A and B for more information on all data sources and methodology. An interesting observation is that many of the least-burdened states do without a major tax.
For example, Alaska 49th , Nevada 43rd , South Dakota 48th , Texas 47th , and Wyoming 50th all do without a tax on wage income. Similarly, Nevada, South Dakota, and Wyoming all lack a corporate income tax, and Alaska has no state-level sales tax though it does allow local governments to levy sales taxes.
Also worth considering is the possibility that opting to not levy a personal income tax causes a state to rely more on other forms of taxation that might be more exportable. Not every state with a significant amount of nonresident income uses it to lighten the tax load of its own residents. Maine and Vermont have the largest shares of vacation homes in the country, [8] and they collect a sizeable fraction of their property tax revenue on those properties, mostly from residents of Connecticut, Massachusetts, and other New England states.
Despite this, Maine and Vermont still rank 14th and 9th highest, respectively, in this study. This study is not an endorsement of policies that attempt to export tax burdens. From the perspectives of the economy and political efficiency, states can create myriad problems when they purposefully shift tax burdens to residents of other jurisdictions. This study only attempts to quantify the amount of shifting that occurs and understand how it affects the distribution of state and local tax burdens across states.
Whose income is ultimately reduced as a result of the tax? This person bears the economic incidence. For example, businesses bear the legal incidence of business taxes that is, they write the check to the government , but the ultimate economic burden of the tax is passed on to consumers in the form of higher prices, to employees in the form of lower wages, and to shareholders in the form of lower returns. Further, those bearing the burden of business taxes may sometimes be nonresidents.
In many cases, a sizeable fraction of those who bear the burden of state and local taxes are not residents because the state is able to shift significant portions of their tax burdens to out-of-state individuals. Alaska provides the best example. In , the state was able to export nearly 80 percent of its tax collections to residents of other states.
This is not an accurate measure of the true tax burden faced by Alaskan taxpayers. Alaskans pay no state-level tax on income and face no state-level sales tax though there is a local option sales tax with rates that can range from 0 to 7.
The burden of these Alaskan oil taxes does not fall predominantly on Alaska residents. This study assumes that much of the economic burden of these taxes falls not on Alaskans but rather on consumers of oil and oil-based products across the country in the form of higher prices.
Taxes levied on mineral extraction in other states have similar but less dramatic effects.
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