The United States raises revenue through a variety of taxes that are fragmented or “disaggregated” into multiple components. Although most Americans think of taxes primarily in terms of the income tax, its lesser known cousin, the payroll tax, produces nearly identical revenues while falling disproportionately on the poor and middle-class. Disaggregating the tax system into several component taxes thus conceals the true aggregate tax burden on taxpayers. This misleading effect is exaggerated because the media and politicians focus on the income tax while ignoring the equally significant payroll tax.
The use of abusive tax shelters by major corporations has been called “‘the most serious compliance issue threatening the American tax system . . . .’” Losses to the Department of the Treasury (“Treasury”) are estimated to range anywhere from $7 billion to $30 billion per year. Meanwhile, corporate profits have risen 23.5% while their corresponding tax obligations rose by only 7.7%. Personal income taxes, on the other hand, are up 44%, which represents 79% of the total federal income tax and is estimated to increase to 85% by the year 2004. Also astounding is that the corporate tax-to-profit ratio has dropped between 1.5% and 2.9%, roughly translating into a decrease in corporate income tax receipts between $13 and $24 billion. Although the decrease in corporate tax receipts is unlikely to be attributed to a single cause, many commentators point to the growing acceptance of abusive tax shelters by large corporations as a major contributor.