Many people associate April more with taxes than with rain showers. It is a good month to think about how much we pay, particularly in federal income taxes, and what is done with the money.
The individual income tax is the largest source of revenue for the federal government. In 2006, it accounted for more than 43 percent of federal revenues.
The Internal Revenue Service (IRS) publishes statistics on the federal income tax returns received from the various states. The most recent IRS data shows that Alabamians filed just more than 2 million federal income tax returns in 2006. The federal tax liability on these returns amounted to $11.6 billion, which was 1.1 percent of the U.S. total and represented $2,526 for each Alabama resident.
Taxpayers can deduct certain state and local taxes in computing their federal tax liability, allowing a rough comparison of state and federal tax burdens. About $3 billion in state and local taxes were claimed as deductions on federal returns from Alabama in 2006; this was less than a third of the federal income tax paid by Alabamians in that year. Thus many Alabama taxpayers pay more federal income tax than they pay for income, sales and property taxes to their state and local governments.
What does this money buy? The federal budget in 2006 was allocated in the following way: 50 percent for direct payments to individuals (such as Social Security), 20 percent for national defense, 10 percent for grants to state and local governments, 8 percent for interest on the national debt and 12 percent for everything else.
It is, of course, important where federal money is spent. The U.S. Census Bureau tracks federal spending in the various states, and its data indicates that Alabama ranks ninth among the 50 states in the amount of federal expenditures per capita. In 2007, federal spending in Alabama amounted to $10,348 per capita and was 1.9 percent of the U.S. total. This compares very favorably to the percentage and per capita amounts paid in federal income taxes from our state, as noted above. It shows why we have to consider both sides of the budget when thinking about taxes.
EDITOR’S NOTE — Jim Williams is executive director for the nonprofit, nonpartisan Public Affairs Research Council of Alabama.
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