Living in the Prairie State just got a whole lot more expensive. Facing a gaping hole in the budget, Illinois lawmakers have scrambled to find a way to pay the bills. Their solution? A significant tax hike.

The Senate and the House have approved tax increases across the board for the states. Personal income tax rates will jump 66% from 3% to 5%. Corporations are not spared either with corporate income tax rates rising more than 45% from 4.8% to 7%.

And the increases aren’t over yet. The House has yet to vote on a massive increase on tobacco. The price could jump to 200% of the original tax – from 98 cents to $1.99 per pack. (Note: If you live in Illinois, that “stop smoking” resolution might be more attractive now.)

But don’t get too comfortable or too smug if you live outside of the state. Many states are considering tax increases or the imposition of new taxes to plug holes in budgets. Federal funding cuts and lower tax revenues in a down economy are forcing many states to look at alternatives. Alternatives is, of course, another word for tax increases. Similar Posts:

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Some super interesting reading from the New York Times… Of the wealthiest taxpayers — those with annual incomes of $10 million or more — seventeen included income from unemployment benefits, averaging $5,765 each. Read more:

Off the Charts – In 2008’s Downturn, Some Managed to Eke Out Millions

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• Southern States Have Highest Percentages of Non-Paying Tax Filers

Remember this article (and this one) about the numbers of non-paying tax filers?

Today, the Tax Foundation released a series of groupings of IRS data showing the breakdown of non-paying tax filers. You can see the results by the numbers here. The Tax Foundation also released the data as a graph:

The red-colored states are those states with the highest percentage of non-paying tax filers (Mississippi tops the list at 45%) and the light blue-colored states are those with the lowest percentage of non-paying tax filers (Alaska sits at the bottom with a mere 21%). The white-colored states are those in the middle.

Overwhelming, those majority of non-paying tax filers are located in the South. Nine out of the top ten were located in the South or southwest (hailing from the South myself, I am quick to draw the distinction). Idaho is the lone exception. The top ten are:

1. Mississippi
2. Georgia
3. Arkansas
4. New Mexico
5. Alabama
6. South Carolina
7. Louisiana
8. Texas
9. Florida
10. Idaho

Not surprisingly, many of those states were also at the top of the poverty charts:

1. Mississippi
2. Louisiana
3. West Virginia
4. Kentucky
5. Arkansas
6. New Mexico
7. Alabama
8. Texas
9. South Carolina
10. Oklahoma

Florida and Idaho were two quirky additions to the non-paying tax filers top ten. Idaho ranks in the bottom half of the poorest states (meaning that they’re actually in the the top half of the richest states) while Florida is nearly smack in the middle. On average, the poverty rate in the US is 13.2% – Idaho comes in at 12.5%.

Conversely, the wealthiest states tended to pay the most. A quick peek at those states with the lowest percentage of non-paying tax filers (outside of Alaska, as already mentioned) reveals those states we consider “rich”: Massachusetts, Connecticut and New Hampshire for example.

Not rocket science. But still interesting.Similar Posts:

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But not necessarily in a good way. The Tax Foundation is reporting that two records were set in 2008: the highest numbers of non-payers and the highest earning non-payers. According to data recently released from IRS, nearly one in three taxpayers paid no taxes or received every dollar back which was withheld. And before you start screaming about the poor not paying their fair share, note that the income level at which a typical family of four will owe no income taxes now exceeds $51,000.

Let that sink in for a minute. I’ll post some thoughts later this afternoon about how I think that will affect the nation’s tax picture going forward.Similar Posts:

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And here’s their evidence:

Of course more folks are e-filing. It’s fast, it’s easy. And with more folks than ever with internet and computer access, it’s to be expected.

But.

And you knew there would be a but.

Here’s my cynical take… You’ll note fewer taxpayers filing generally, down a whopping 12 million this year. There’s a bump in 2008 – certainly attributable to the stimulus. Might it be the case – and I’m just saying – that folks have been encouraged to filing electronically in order to get money back a little quicker.

I’d love to see the data for 2009 returns filed in 2010. I’m betting if you back out the homebuyer’s, that percentage will drop a little. And I’m not a betting girl normally. But I have a hunch on this one.Similar Posts:

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The good news: nearly 50% of American households (47%, to be precise) won’t pay any federal income tax in 2009.

The bad news: the remaining 50% (or so) will have to foot the bill for everyone.

You can thank (or blame) the new economic recovery package for bumping the percentage of taxpayers who won’t be paying a wee bit higher (about 10%).

But don’t just start pointing fingers at the working poor. While it’s true that the majority of those who are paying no federal income tax this year make below $30,000 annually, up to 10% of households making between $75,000 and $100,000 also qualify. New tax breaks, refundable credits, exclusion of a portion of unemployment benefits and state and local sales tax deductions account for much of the zero income tax for 2009.

It’s important to note that these figures don’t include payroll taxes (Social Security and Medicare). On average in 2009, taxpayers will pay an average of 8.4% of their income in payroll taxes. If you take those taxes into account, only 24% of households will pay no tax.

Payroll taxes often get left out of the “who pays tax?” equation. While it’s true that the top percentage of wage earners pay most of the federal income taxes as a percentage of income, they are also among the lowest in terms of payroll taxes. The top 1% of income earners report 16% of total income but pay less than 4% of payroll taxes. That’s because contributions for Social Security are capped at $106,800. If you make more than that, the overage is not subject to Social Security; this is referred to as a regressive tax (our “regular” income tax system is said to be progressive). Additionally, much of the unearned income in the country (dividends, etc.) is attributable to the very wealthy; unearned income is not subject to payroll taxes.

The lower 60% of income earners report 25% of income but pay about 33% of payroll taxes. Those somewhere in the middle pay the rest (of course).

How does this play out in terms of averages? In 2009, the average federal tax rate paid as a percentage of income in the US is 18.2%. The top 0.1% wealthiest taxpayers will pay an average of 27.9% (not as high as I would have guessed) while the very poorest taxpayers actually “pay” a negative tax (this is due to refundable credits like the EITC and the Making Work Pay credit).

In terms of all federal taxes, and not just income tax, the top 20% of income earners will report more than half of total cash income but will pay a whopping 2/3 of all federal taxes (including income, estate, etc.).

Of course, this data can be manipulated a million different ways (look, I already started!) and you can bet it will continue to be throughout the next election. For now, it’s just something to munch on. You can read the entire Tax Policy Center report here (downloadable as a pdf).Similar Posts:

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We have a winner! See comments!

Our next tax trivia question is:

For the 2006 tax year, which state’s population filed the fewest number of individual tax returns reporting adjusted gross income of more than $1 million?

Don’t forget: the first correct answer wins free CCH tax prep software.

What’s your guess?Similar Posts:

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According to the Government Accountability Office, in any given year, at least 60% of US corporations surveyed paid no federal income tax liability for 1998 to 2005 (the years studied). That statistic includes corporations of varied sizes.

If the trends in the survey are accurate, nearly one quarter of large US corporations don’t pay any federal income tax at least half of the time. Large U.S. corporations are those with at least $250 million in assets or gross annual receipts of at least $50 million.

Even more interesting? Nearly three-quarters of large foreign-owned corporations operating in the US reported no tax liability for at least one of the seven years in the study. Foreign-owned corporations are required to file and pay federal income taxes if they are doing business in the US.

So how do so many corporation escape taxation? Deductions and credits. Corporations wipe out their tax liability by using tax credits or net operating losses (NOLs) from excess deductions. NOLs allow a company to deduct losses generated in previous years in a current year. In contrast, individuals, unless reporting business losses on their personal returns, are not allowed to carry forward federal income tax losses. In other words, if a company has a good year, it can offset taxable income from losses it faced in a bad year. If an individual has a bad year, the loss is wiped clean.

The GAO also noted in its report that taxable income in many corporations differed from profits reported to shareholders. Companies that are reporting no taxable income are still reporting profits to shareholders. This is an exercise in accounting, to be sure, but proof to some that the corporate tax structure needs to be fixed – and soon.

Corporate tax issues have been on the political agenda even before the report was released. Amid rising profits for companies and rising costs to taxpayers, both presidential candidates, Senators McCain and Obama, have vowed to close corporate tax loopholes. My bet is that no matter who becomes president, it won’t happen. And I’m not even cynical – just realistic (did you see those numbers?).

Technorati Tags:
Barack Obama, John McCain, corporate tax, tax, Government Accounting Office

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The IRS has reported that as of May 3, 2008, more tax returns had been processed than at the same time last year. How many more? About 15 million more to nearly 142 million, an increase of about 11%.

And despite what those hold times felt like, the number of phone calls answered by IRS representatives totaled 18.4 million calls, up from 16.2 million calls, an increase of 13.1%. More significantly, the IRS completed 22.2 million automated calls (a la “Where is my refund?”), an increase of 19.2% from last year.

More taxpayers filing returns. That wasn’t unexpected, was it?

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• And So It Begins: E-File Officially Opens for 2009

The semester before I left for law school, my best friend, Bren, and I packed our stuff into my old Buick Regal (the former family car), affectionately named “Bessie” because she looked like a cow. We were on a mission to examine East Coast law schools that were still on my short list. It was easy enough to noodle up I-95 from Raleigh, NC, with stops in, among other places, Washington, DC (to visit Georgetown) and Philadelphia, PA (to visit Temple). We also had a trip to Atlantic City planned but that’s another post altogether…

The second that we stepped out of the car in Philly, I knew that it would be home. There was so much about the city that I adored – the buildings, the history, the people. I even handed my keys over to an attendant without even noting whether he was really a valet (we didn’t exactly have valet parking in Hampstead, NC).

Bren and I decided to pop into a few stores and “urban up” a little since I had arrived in – not kidding – short denim overalls and Birkenstocks. With my hair in braids and Brooks and Dunn on the radio, I didn’t exactly fit in.

I found a few things that I liked and hustled them over to the counter. When the cashier rang up my order, I was perplexed. It was a few dollars cheaper than I had imagined (and being a math minor, I was usually pretty spot on). The difference? Sales tax.

You see, I hail from the “tax everything” state of North Carolina. In NC, there is sales tax imposed on practically everything, including necessities like food and clothes. In PA, however, there is no sales tax imposed on certain necessities – and clothing fit the bill. For Bren and I, it was the equivalent of an extra discount.

In our case, it was a happy surprise. But many cities and states have used sales tax rates and exemptions as a calculated method of luring shoppers to spend money at their stores rather than somewhere else. In my neighboring state of Delaware, for example, they regularly tout that they are the “home of sales tax free shopping.” Does it work? You bet. Shoppers flock to places like Christiana Mall – particularly in the fall for back to school – looking for sales tax free bargains.

Is that about to change?

Vertex, Inc., recently reported that in the last year, 485 U.S. cities increased their sales tax rate. That included 178 newly imposed city tax rates and 307 straight increases in existing city tax rates. Of course, the news that taxes are going up wouldn’t phase Chicagoans – they are facing the highest sales tax rate in the country.

Of state tax rates, only South Carolina raised its state-wide sales tax rate, from 5.0 percent to 6.0 percent.

What does all of this mean? Sadly, it’s likely part of a trend. As the economy turns sour, cities and states scramble to find revenue. The federal government is in no position to help. This is particularly devastating for metropolitan areas where the federal government has imposed regulations requiring action on the part of municipalities that might not have the funds to comply. Examples include No Child Left Behind legislation and Homeland Security programs – both are federally mandated but largely funded on the state level.

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