Not All Tax Codes Are Created Equal
The characteristics that should be built into a states tax code include: Accountability Stability Transparency
Accountability means that tax credits, exemptions, and deductions are easy to monitor and evaluate. Tax cuts are often enacted in the hopes that they will change behaviors get companies to hire more employees, for example. If the state cannot determine if those goals are met, the tax system is not accountable.
Adequacy means that the tax system meets state spending needs, provides enough revenue to build strong communities, and provides robust opportunities for children and families to thrive. Additionally, adequacy means that state spending keeps pace with inflation and population growth.
Consistency is achieved when tax revenues grow at the same rate as state personal income. Gross receipts and income taxes are the most consistent because they closely follow population growth. This is important because population growth impacts the need for state services.
Efficiency means that the tax code has a broad enough base to avoid excess reliance on one tax. Most states rely on three tax sources: income, sales, and property taxes. New Mexico also collects severance taxes, so the state has four main sources of revenue, giving it a broader base.
Transparency is what makes accountability possible. A tax system is transparent when citizens have enough information about the tax code to hold government accountable.
Tax Facts
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Selling Your Current Home And Buying A Less Expensive One
Selling your home and buying a less expensive one can provide you with extra money in retirement. This is often called downsizing.
You may save money in rent or mortgage payments, or free up some of the money that is invested in your home, by moving into a less expensive home. You may also pay less for utilities such as heating and electricity. However, remember that there are many fees and costs associated with buying and selling a home.
Turning Your Savings Into Retirement Income
You’ll need to decide how you want to convert your savings and investments into retirement income. You should start thinking about these things before you retire so you can have a better understanding of what your options are and how much money you may have.
Some options include:
- converting an RRSP into a Registered Retirement Income Fund
- buying an annuity
- investing your money in other products, such as stocks or bonds
- withdrawing your savings as cash
You may be able to convert some of your retirement savings into income before you retire. This can help you transition from working to retiring.
Think about your other sources of retirement income before deciding how to use or invest your savings. Your other sources of retirement income can impact the amount of money you receive from government benefits and pensions that are based on your income.
For example, lets say you are a Canadian with a low income and receive the Guaranteed Income Supplement . If you withdraw a large amount of money from an RRSP or an RRIF, then you might not be considered low income for the next year. You may receive a lower GIS payment, or you could no longer be eligible for the GIS in that year.
If you think you may earn a low income when you retire and will qualify for the GIS, then a TFSA may be a better savings option for you than an RRSP.
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Reported Income Increased And Taxes Paid Increased In 2017
Taxpayers reported $10.9 trillion in adjusted gross income on 143.3 million tax returns in 2017, the last tax year before the Tax Cuts and Jobs Act took effect. Total AGI grew $780 billion from 2016 levels, significantly more than the $14 billion increase from 2015 to 2016. There were 2.4 million more tax returns filed in 2017 than in 2016, and average AGI rose by $4,232 per return, or 5.8 percent.
Taxes paid rose to $1.6 trillion for all taxpayers in 2017, an 11 percent increase from the previous year. The average individual income tax rate for all taxpayers rose from 14.2 percent to 14.6 percent.
The share of income earned by the top 1 percent rose from 19.7 percent in 2016 to 21.0 percent in 2017, and the share of the income tax burden for the top 1 percent rose as well, from 37.3 percent in 2016 to 38.5 percent in 2017.
Table 1. Summary of Federal Income Tax Data, 2017|
Note: Table does not include dependent filers. Income split point is the minimum AGI for tax returns to fall into each percentile. Source: IRS, Statistics of Income, Individual Income Rates and Tax Shares . |
| 21.0% |
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Black Families Carry More Student Loan Debt Than White Families
Urban Institute calculations from Survey of Consumer Finances 19892016.
Notes:2016 dollars. Age is defined as the age of the household head.
Since the mid-2000s, black families, on average, have carried more student loan debt than white families. This is driven in large part by the growing share of black families that take on student debt. In 2016, 42 percent of families headed by black adults ages 25 to 55 had student loan debt, compared with 34 percent of similar white families.
Because black families, on average, have less wealth and fewer private resources, they may be more likely to turn to loans to finance their education. White families are five times more likely than black families to receive large gifts or inheritances, which can be used to pay for college.
However, black students also have lower graduation rates than white students. Student loan debt doesnt always translate into a degree that promotes economic mobilityand income and wealthin the long run.
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Racial And Ethnic Wealth Disparities Persist
Median wealth by race and ethnicity is lower than average wealth, but the trends stay the same. Both measures are important because average wealth indicates how a group is prospering as a whole relative to other groups, while median wealth shows how the typical family is doing.
Urban Institute calculations from Survey of Financial Characteristics of Consumers 1962 , Survey of Changes in Family Finances 1963, and Survey of Consumer Finances 19832016.
Notes: 2016 dollars. No comparable data are available between 1963 and 1983. Black/Hispanic distinction within nonwhite population available only in 1983 and later.
Families of color will soon make up a majority of the population, but most continue to fall behind whites in building wealth. In 1963, the average wealth of white families was $121,000 higher than the average wealth of nonwhite families. By 2016, the average wealth of white families was over $700,000 higher than the average wealth of black families and of Hispanic families .
Put another way, white family wealth was seven times greater than black family wealth and five times greater than Hispanic family wealth in 2016. Despite some fluctuations over the past five decades, this disparity is as high or higher than it was in 1963.
How Social Security Is Financed
Social Security is largely a pay-as-you-go program. Most of the payroll taxes collected from today’s workers are used to pay benefits to today’s recipients. In 2018, the Old-Age and Survivors Insurance and Disability Insurance Trust Funds collected $1.0 trillion in revenues. Of that amount, 88.2% was from payroll tax contributions and reimbursements from the General Fund of the Treasury and 3.5% was from income taxes on Social Security benefits. Interest earned on the government bonds held by the trust funds provided the remaining 8.3% of income. Assets increased in 2018 because total income exceeded expenditures for benefit payments and administrative expenses.
2019 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds
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American Funds Retirement Income Portfolio Seriessm
The American Funds Retirement Income Portfolio Series® consists of three managed portfolios Conservative, Moderate and Enhanced that can help retirees address their income and longevity needs.
Made up of American Funds, these portfolios:
- Were created by the Portfolio Oversight Committee, the predecessor to the Portfolio Solutions Committee a seven-member team of seasoned investment professionals based on extensive research and their in-depth knowledge of the underlying funds.
- Seek to support varying withdrawal rate ranges and risk tolerances while maintaining as much of a retirees initial investment as possible.
- Were designed to be a part of a broadly diversified retirement income portfolio.
Reported Income Increased And Taxes Paid Decreased In 2016
Taxpayers reported $10.2 trillion in adjusted gross income on 140.9 million tax returns in 2016. Total AGI grew $14 billion from 2015 levels, less than the $434 billion increase from 2014 to 2015. There were 316,000 fewer tax returns filed in 2016 than in 2015, meaning that average AGI rose by $260 per return, or 0.4 percent.
Taxes paid fell slightly to $1.4 trillion for all taxpayers in 2016, a 0.8 percent decrease from the previous year. The average individual income tax rate for all taxpayers fell slightly, from 14.3 percent to 14.2 percent, and the average tax rate fell for all groups.
The share of income earned by the top 1 percent fell slightly from 20.7 percent of AGI in 2015 to 19.7 percent in 2016, and the share of the income tax burden for the top 1 percent fell slightly as well, from 39 percent in 2015 to 37.3 percent in 2016.
Table 1: Summary of Federal Income Tax Data, 2016|
Note: Table does not include dependent filers. Income split point is the minimum AGI for tax returns to fall into each percentile. Source: IRS, Statistics of Income, Individual Income Rates and Tax Shares . |
| 14.20% |
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Social Security Covers Less For Higher Earners
For many people, a significant portion of retirement income comes from Social Security, but that share is relatively higher for lower-income people. As you can see in the chart above, a person earning $50,000 a year could expect Social Security to replace about 35% of income, or $17,500, with the rest coming from savings. Someone who made $200,000 each year might expect to get 16% of that income from Social Security, or $32,000. If you made $300,000, only 11%, or $33,000, would likely come from Social Security.
Average Household Spending By Age & Category
Even as people transition into retirement and continue to age, its not all that surprising that as we age, we see a decrease in expenses across a broad range of categories. This is a good example of why spending slightly more at the beginning of retirement isnt necessarily a bad idea since you are likely to pare down spending over time.
The three areas where we see a noticeable increase in spending over time are health care , housing excluding mortgage, and charitable giving.
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Implications For Social Security
With almost 90% of older Americans receiving Social Security benefits, it is the dominant source of retirement income, according to the research.
Yet for many elder Americans, those Social Security checks still fall short of what they need.
That’s because Social Security replaces just 40% of pre-retirement income, on average. Meanwhile, most financial experts recommend at least a 70% income replacement rate, the study said.
Those findings are in line with recent research from the University of Massachusetts Boston, which found that retirees generally face a shortfall between their Social Security benefits and the cost-of-living, no matter where they live.
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Promising Policies To Shrink Wealth Inequality And Racial Wealth Gaps
Federal asset-building subsidies disproportionately benefit high-income families that need them the least. Here are six recommendations that could help reduce wealth inequality and racial wealth disparities:
- Limit the mortgage interest tax deduction and use the revenues to provide a credit for first-time homebuyers.
- Establish automatic savings in retirement plans.
- Reduce reliance on student loans while supporting success in postsecondary education.
- Offer universal children’s savings accounts.
- Reform safety net program asset tests, which can act as barriers to saving among low-income families.
- Provide subsidies to promote emergency savings, such as those linked to tax time.
* This chart title was updated on Oct. 24, 2017, to reflect the full range of years presented in the chart.
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Secure And Affordable Energy
Household electricity prices are 11.2 per cent lower than they were a year ago, and wholesale prices in the National Electricity Market are at their lowest levels in six years. The Government will support investment in new dispatchable generation and deliver affordable and reliable power for consumers in the nationâs electricity markets.
Households
New Commonwealth programs will provide $895.5 million for initiatives to improve long-term resilience of Australian communities and households, and support the ongoing recovery needs of communities impacted by the 2019-20 bushfires.
Households
Shifting Income Sources Of The Aged
Traditional defined benefit pensions, once a major source of retirement income, are increasingly giving way to tax-qualified defined contribution plans and individual retirement accounts . This trend is likely to continue among future retirees who have worked in the private sector. This article discusses the implications of those trends for the measurement of retirement income. We conclude that Census Bureau’s Current Population Survey , one of the primary sources of income data, greatly underreports distributions from DC plans and IRAs, posing an increasing problem for measuring retirement income in the future. The CPS and other data sources need to revise their measures of retirement income to account for periodic distributions from DC plans and IRAs.
Chris Anguelov and Patrick Purcell are with the Division of Policy Evaluation, Office of Research, Evaluation, and Statistics , Office of Retirement and Disability Policy , Social Security Administration . Howard Iams is a senior research advisor to ORES, ORDP, SSA.
The findings and conclusions presented in the Bulletin are those of the authors and do not necessarily represent the views of the Social Security Administration.
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Womens Increased Earnings Will Power Retirement Income Growth
Retirement incomes depend on how much people worked and earned when they were younger. Higher lifetime earnings mean more Social Security andfor those with coveragelarger pensions and retirement account balances. They also mean the ability to save more outside of retirement accounts.
As women work more and earn more per hour, their lifetime earnings are increasing rapidly. We project that, compared with pre-boomer women, median lifetime earnings will be 88 percent higher for Gen X women and 129 percent higher for Xennial women in inflation-adjusted dollars. These gains will raise retirement incomes for women as well as for married men.
Mens lifetime earnings, by contrast, are not keeping pace with inflation. Projected median lifetime earnings are 3 percent lower, in inflation-adjusted dollars, for Xennial men than for pre-boomer men.
Despite womens gains, the gender gap in earnings persists. We project that Xennial median lifetime earnings will be 40 percent higher for men than for women.
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Individual Income Tax Returns With Tax Computation
Returns with Modified Taxable Income: Adjusted Gross Income and Tax Items Classified by: Size of Adjusted Gross Income and Type of Tax Computation Individual Complete Report , Table 3.1 Tax Years: 2019 XLS 2018 XLS 2017 XLS 2016 XLS 2015 XLS 2014 XLS 2013 XLS 2012 XLS 2011 XLS 2010 XLS 2009 XLS 2008 XLS 2007 XLS 2006 XLS 2005 XLS 2004 XLS 2003 XLS 2002 XLS 2001 XLS 2000 XLS 1999 XLS 1998 XLS 1997 XLS 1996 XLS
Returns with Form 8615 Tax Computation: Tax Items Classified by: Size of Adjusted Gross Income and Type of Tax Computation Individual Complete Report , Table 3.1A Tax Years: 2019 XLS 2018 XLS 2017 XLS 2016 XLS 2015 XLS 2014 XLS 2013 XLS 2012 XLS 2011 XLS 2010 XLS 2009 XLS 2008 XLS
Individual Income Tax Returns with Total Income Tax: Total Income Tax as a Percentage of Adjusted Gross Income Classified by: Size of Adjusted Gross Income and Selected Marital Status Individual Complete Report , Table 3.2 Tax Years: 2019 XLS 2018 XLS 2017 XLS 2016 XLS 2015 XLS 2014 XLS 2013 XLS 2012 XLS 2011 XLS 2010 XLS 2009 XLS 2008 XLS 2007 XLS 2006 XLS 2005 XLS 2004 XLS 2003 XLS 2002 XLS 2001 XLS 2000 XLS 1999 XLS 1998 XLS 1997 XLS 1996 XLS
