Tax code grows like a weed
Taxes are at least as old as the ancient civilizations of Egypt, Greece, and Rome. At first mostly used to fund military pursuits and royal lifestyles, taxes have expanded, contracted, and today could fill a library in regulatory volume. Case in point: The federal income tax. At a mere 400 pages in its first year 1913, the U.S. tax code (including related explanatory provisions) now numbers 73,608 pages. That's 80 percent more than when I took tax law in the mid-1990s.
Most of it doesn't describe the tax itself, but rules covering deductions, exemptions and other ways to reduce what we pay. Not that all those pages are helpful; the circuitous language often weaves a verbal web so tangled, even experienced tax preparers strain to interpret.
A few more facts about tax:
* Hours each year spent by American individuals and businesses complying with IRS regulations: 6.1 billion
* Changes to the code in past 10 years: 4,428
* Number of calls annually to the IRS for tax help: 110 million
* Percent of those calls which go unanswered: 25
All this derived from a few simple words:
"The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration." U.S. Constitution, Amendment XVI
Also known as The Revenue Act, the federal income tax law was passed by Congress in 1909 and ratified in 1913 as a response to a Supreme Court decision which tossed out a flat rate income tax because it was not apportioned according to varying state populations. If you're curious about federal tax history, see USTreasury.gov.
Of course income isn't the only variety of tax.
Others include inheritance, property, sales/consumptive, capital gains, and payroll. In North Idaho of late is a focus on something related to, but is not actually, a property tax - tax increment financing (TIF).
Don't let the first word confuse you; TIF is not a tax. It's more of a debt vehicle - like a loan secured by future increases in property values. American municipal governments turned to this financing when other (e.g., national) sources to fund local revitalization projects dried up.
Local economic development areas use TIF, rather than municipal bonds or other loans, to fund city improvement projects. A "tax increment" is a mathematical concept, the measure of the difference between the amount of property tax revenue generated (before TIF district designation) and the amount of property tax revenue generated after TIF designation. Property taxes are based on the value of property, so only the amount of this difference - the additional money generated by the increase in value of the TIF district - is available to finance the projects within the district. So tax rates do not change when a TIF is created, even if more taxes result by increased values down the road.
TIFs are often misunderstood and sometimes controversial. The idea is that economic improvements will increase property values and thus the resulting tax volume (at the same rate as before) will bring more revenue to pay back what was spent. Usually development does increase surrounding property values (and thus brings greater funding for schools, services, etc.). Sometimes, that doesn't happen; even then there may be no impact on taxes/expenditures if the additional services (e.g., utilities and upkeep) required of the city for the new development are not significant. Of course other factors affect property values, such as general growth, the state and national economies, and site-specific factors.
Unbiased sources about TIFs are fewer than the biased variety. Many states and localities have Web site primers, tailored to their own laws of course, but the basics work similarly. The National Association of Realtors' TIF report in 2002 is comprehensive.
For more Internal Revenue Code and federal tax statistics see IRS.gov/taxstats and TaxFoundation.org.
Sholeh Patrick, J. D. is a columnist for the Hagadone News Network. Contact her at [email protected].