Tax Day: 5 Things You Probably Don't Know About Taxes

As tax season comes a close with its April 18 deadline, the topic of taxes is only set to become more prominent in the coming months. Though the trauma of tax day itself will be over — until it comes around again next year — lawmakers on Capitol Hill, along with the Trump administration, are gearing up to overhaul the federal tax system. Before any actual bill proposals are presented, however, it's important to ask: What do the American people actually know about their taxes?

Vanessa Williamson, a fellow at the Brookings Institute, a prominent think tank in Washington D.C., asked just this question when writing her book "Read My Lips: Why Americans Are Proud To Pay Taxes." In her research, she polled and spoke to ordinary Americans to assess their understanding and attitudes toward tax law. (For more information on this and other political stories, subscribe to the White House Patch for daily newsletters and breaking news alerts.)

Unsurprisingly, she found that many people had significant misunderstandings and misconceptions about the way the government collects revenue. But she also discovered that American beliefs about and understanding of taxes are much more complex and even nuanced in some areas than many would expect.

Here are five things that may surprise you about taxes in the United States:

1. Americans are proud to pay their taxes

As her book's title implies, Williamson found that Americans as a whole feel proud to pay their taxes, despite the pain and complaining associated with Tax Day.

"It doesn’t mean that everyone is happy about their taxes to say that they’re proud of being taxpayers," she explained. "But people really are committed to tax-paying as a civic responsibility."

She continued: "How often have you heard someone say, 'I pay my taxes!' 'Or, 'I’m a taxpayer!' It’s always a way of asserting yourself as the sort of person who contributes to the community, the sort of person who deserves to be listened to by the government."

And while this way of speaking feels completely natural to most Americans, Williamson notes that it's not nearly as common in other nations. In other countries, the reported sense of civic duty is not nearly as high. It seems many Americans agree with the late Supreme Court Justice Oliver Wendell Holmes who wrote, "Taxes are what we pay for civilized society."

2. Low-income people pay taxes

"There’s a common misperception — I talk a lot about this in the book — that a large percentage of the public doesn’t qualify as tax payers," Williamson said. But this is just not true.

Significant portions of the population do not pay federal income taxes, and this fact is often mangled into the assertion that these people — usually poor people — don't pay any taxes. But there are many taxes that exist in addition to the income tax, such as the payroll tax, which is labelled as funding Medicare and Social Security, that nearly every working person pays. Those who don't pay payroll taxes are mostly elderly, the very people who are supposed to benefit from Medicare and Social Security.

But aside from the payroll tax, there are many other taxes that everyone has to pay, including sales taxes, gas taxes, automobile taxes and real estate taxes. Even if you rent your home, you are indirectly paying your landlord's real estate taxes. With very few exceptions, nearly every American pays some taxes one way or another.

3. Entering a higher tax bracket is not as bad as many think.

Since the United States has a progressive income tax system, wealthier people pay a larger portion of their income to the government than poorer people. Knowing this fact, many people wrongly believe that, if they earn more income than they expect and cross the threshold into the next highest bracket, they will be penalized with a much heftier tax bill.

If this were true, it would be a very bad system — which is precisely why taxes don't work this way. For example, a single person earning $91,150 to $190,150 is in the 28 percent tax bracket according to the Tax Foundation. If you were expecting to make $190,150, but you actually made $200,000, you wouldn't end up with less money than you expected because you crossed into the next highest tax rate, which is 33 percent.

Instead, only income earned above the first threshold of $190,150 is taxed at the new rate. In this example, you would only have to pay the 33 percent rate on $9,850, the amount you earned in excess of the previous bracket's cap, rather than on the whole $200,000.

4. Most high-income earners do pay higher rates

Many people believe that the higher up on the income ladder you are, the easier it is to avoid paying taxes. But according to Williamson, this is a pretty misleading idea. "By international standards," she said, "the United States has an unusually progressive tax code."

This means, by and large, most wealthier people aren't actually using "loopholes" to get out of paying taxes. The vast majority of the people in the top bracket, after all, have jobs as doctors and lawyers and get paid high salaries, which then get taxed at top rates.

"If your income is wages or salaries, there’s not nearly as much complexity in your tax-filing process," she said.

However, people who make tens of millions of dollars often make their money through investments, which are taxed at much lower rates, and these people really do pay lower rates. These people — like Warren Buffet — are an important part of the equation, but there are many fewer of them than there are doctors and lawyers earning a couple hundred thousand dollars a year and paying the statutory rates.

"At the really astronomically wealthy level, those households are likely paying a lower rate than people making less than them," Williamson said. But she also points out that a lot of the tax advantages these individuals receive are not accidents or "loopholes" in the traditional sense, but are intentionally designed features of the tax code. Investments are taxed at a lower rate, for instance, because lawmakers believed this policy would spur more investment.

5. You're probably better off not getting a refund.

Everyone loves getting a check from the government rather than paying the government at tax time, right? Well, regardless of how they feel about it, in strict economic terms you're better off if you end up owing a little bit to the IRS by the time April rolls around.

Why? "Even though it seems like you pay your income taxes once a year, you actually pay them all year long

as your employer withholds taxes from your paycheck," explain Rosanne Altshuler and Roberton Williams of the Tax Policy Center. "When you file your tax return, you are refunded the difference between the tax you owe and the cash your employer withheld."

But this means that during the entire year, the government is just sitting on your money. "In effect, we're giving the government an interest-free loan," they write. "You'd be better off stashing these withheld wages in an interest-bearing bank account and writing a check to the IRS on April 15."

However, your calculation may be different if you have poor impulse control. If you know you couldn't help but spend the money irresponsibly instead of letting it earn interest, it might make sense to let the government hang on to your money for you until a later date.

Correction: The article was updated to correct a math error.

Photo by Win McNamee/Getty Images News/Getty Images