(MoneyWatch) COMMENTARY From all the griping you hear this time of year, you would think American taxpayers are overtaxed. That's far from the truth, at least if you take a historic look at federal income taxes.
In 1987, after a sweeping tax reform law that slashed rates in exchange for eliminating many loopholes, your average American family was paying more - much more - to Uncle Sam, according to an analysis by tax preparation service H&R Block.
Indeed, today's family of four, with $80,000 in income, is likely to pay a paltry 6.9% of their taxable income in federal tax versus 14.9% for the same (inflation-adjusted) income in 1987. The current family's tax savings comes thanks to a host of tax deductions and credits that didn't exist in the late 1980s. Of course, if the family couldn't take advantage of those deductions and credits, they'd pay more. But their effective tax rate would still be lower than it was.
To be specific: This analysis assumes the family has two kids, ages 20 and 16, and that the 20-year-old is in college. With that scenario, the family qualifies for the American Opportunity Tax Credit - a $2,500 break to defray their college bills, and they get a child tax credit of $1,000 - for just having a child under the age of 17. In the end, they pay $3,690 in federal income tax. In 1987, this family would have paid $4,297 on income of just over $40,000 (that's what today's $80,000 income was worth in 1987, according to the Bureau of Labor Statistics Inflation Calculator).
After taking standard deduction and personal exemption amounts out of each family's income, the 1987 couple paid 14.9% on their taxable income; the 2011 couple pays 6.9%.
What happens if they have no kids and, thus, can't claim as many personal exemptions, not to mention those mouthwatering kid-centric deductions? The 2011 couple pays $8,304 in tax. That's more than the 1987 couple's $5,361 tax. But, of course, since the 1987 couple only earned $40,155, they were still paying a much higher percentage of their taxable income - 16.5% vs. the 13.6% for the 2011 couple.
However today's consumer pays for those lower rates in complexity. Every deduction and credit comes with qualification standards, an instruction booklet, and, often, an extra form. In 1987, the 1040 instruction booklet spanned a total of 56 pages. Today, the same booklet requires 189 pages. There's also been a three-fold rise in "temporary" tax breaks that could be gone - or renewed - tomorrow.
"That creates all sorts of confusion and anxiety," says Jackie Perlman, principal tax analyst with the H&R Block Tax Institute. "You don't know for sure what you should be planning for."
These temporary breaks affect everything from tax credits for college expenses to credits for buying hybrid cars and energy-efficient appliances. The nation's increasingly complicated tax code is a target for reformers, who say that complexity costs money - most people need a professional preparer, or at least tax software to file - and encourages game-playing (also read as "cheating"). And yet, when it comes to reforming the system, political will turns to Jello.
The reason is simple, says Perlman: "Everyone thinks it's a great idea to eliminate tax breaks - unless they start talking about the breaks you use every year. Then they start saying, eliminate that guy's breaks, but you'd better leave mine alone."