The Internal Revenue Service's Spring 2008 Statistics of Income Bulletin is a bit of misnomer as it mainly covers income stats for 2006 and 2005, but the report does provide some interesting insights into income patterns and sources in recent years.
For one thing, the IRS is managing to convince more taxpayers to file their returns. In 2006, taxpayers filed 138.4 million individual tax returns, a 2.9 percent increase from the 134.5 million returns filed for 2005, according to Brian Balkovic, an analyst with the IRS's Individual Returns Analysis Section. That number is likely to go up considerably this year, as more people file returns in order to receive their economic stimulus payments, even those who normally wouldn't be required to file a tax return.
Adjusted gross income increased in 2006 by 8.4 percent to $8.0 trillion, while taxable income rose 9.0 percent to $5.6 trillion. The alternative minimum tax also captured a bigger chunk of taxpayers' wallets despite efforts to contain its spread. The AMT rose 21.3 percent to $19.3 billion. Total income tax increased by 10.6 percent to $1.0 trillion and total tax liability rose by 10.3 percent to $1.1 trillion, according to the report.
Clearly the IRS's enforcement efforts are paying off. Also, the economy was doing relatively well in 2006. A large part of the increase in income came from capital gains.
The largest component of AGI, salaries and wages, increased 6.5 percent to $5,578.1 billion for tax year 2006, while the next largest component, net capital gains, rose by 13.4 percent to $685.3 billion. Meanwhile, capital gains distributions, which are part of net capital gains, increased from $35.5 billion in 2005 to $62.3 billion in 2006.
What's more, partnership and S corporation income grew by 10.2 percent to $468.1 billion. Income from ordinary dividends increased 21.0 percent to $186.0 billion. That must have been good news for many investors.
Whether we will see such increases for 2007 and 2008 seems more doubtful, though. It's a good bet that those trends will be changing now that the economic downturn is being felt more heavily around the country. But if the economy turns around relatively quickly and we see a "soft landing," the IRS may be able to boast of more such increases in both income and, more importantly for the service, income tax collections.
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