MONEY real estate

Retiring? Stay or Go, You’ve Got Moves to Make

Housing accounts for the biggest part of your costs in retirement. So spend wisely.

Once you start looking at retirement over a horizon of five years or so, it’s time to start thinking about how you’ll manage your biggest single asset: your home.Whether you intend to stay put or move to that lake cottage, keeping real estate costs under control is key to your security.

Those costs may be larger than you think. On average, housing makes up one-third of spending for those ages 54 to 74—the largest single category. More than half of Americans ages 55 to 64 are carrying mortgages, higher than in previous generations. “Paying mortgage debt into retirement reduces your lifetime wealth and limits your spending,” says Pam Villarreal, a senior fellow at the National Center for Policy Analysis.

Staying in your house, with your mortgage paid, doesn’t free you from making decisions. Few pre-­retirees think about adapting their homes for retirement living. “It’s hard for active people in their fifties or sixties to think about what they might want 15 years from now,” says Bonnie Sewell, a financial adviser in Leesburg, Va.  Should you end up not being able to get around easily, though, you’ll have fewer choices and less ability to make them. So take action now:

Moving? Don’t take your mortgage with you. Nearly 30% of boomers plan to relocate when they retire, according to a new AARP survey. Many of them are seeking to cut costs by moving to a lower-tax state. Carry a mortgage, however, and this strategy may not have a big impact on your cash flow, as a recent analysis by Villarreal found. Mortgage debt can easily erode the benefits of lower taxes. Run your own numbers at whynotmove.org.

Cash flow

Sure, if you’ve got plenty of cash, mortgage payments may not seem like an issue. But there’s security, and flexibility, in not carrying debt. “Many of my clients see having no mortgage payments as a way of freeing up cash for future health care costs,” says Philadelphia financial planner Cathy Seeber.

If you plan to stay, renovate now. By your late fifties, your kids are probably out of the house, and the tuition bills are behind you—or nearly so. Time to renovate? Use this opportunity to make a few additional changes that will let you stay in your home for the next couple of decades. “The last thing you want to do in your seventies or eighties is manage a major rehab in an emergency,” says Sewell.

If you have a house with stairs, make sure you can live on one floor if necessary, says Mary Jo Peterson, a design consultant in Brookfield, Conn.  That may mean expanding a powder room to a full bath. You can also add design touches that appeal to people of all ages—a sloped ­entrance-walk instead of steps is more convenient for moms with strollers and college students dragging suitcases, not just the elderly. Find more ideas at aarp.org/­livable-communities, and your family home can last for generations.

 

MONEY Airlines

Your Best Shot at a Cheap Flight to Europe Is in Jeopardy

Norwegian Airplanes
Norwegian Air has drawn criticism alongside its reputation for low-cost flights within Europe and, more recently, on transatlantic flights from the U.S. Scanpix Sweden—Reuters

Airline worker unions and the world's biggest airlines are ganging up on a carrier that recently brought long-awaited cheap transatlantic flights back to U.S. travelers. How cheap? Often under $500 total.

In early June, Norwegian Air marked the one-year anniversary of the launch of service between the U.S. and Europe. The airline, known for much of its history as a low-fare carrier mainly in competition with Ryanair, EasyJet, and other airlines duking it out for budget travelers flying within Europe, has gotten plenty of attention over the past year for its incredibly cheap transatlantic flights.

Last year, Norwegian introduced several round-trip U.S.-Europe fares for under $500—amazingly, with taxes and fees included—on routes between Scandinavia and U.S. gateways such as Orlando, Los Angeles, Oakland, and New York-JFK. Lately, Norwegian is advertising one-way fares such as New York to London for $259, New York to Oslo for $211, and Oakland to Oslo for $244. Again, all taxes and fees included, which is astonishing considering that travelers have grown accustomed to the taxes-and-fees portion of transatlantic flights tacking on several hundred dollars in addition to the cost of, you know, actually flying.

In addition to drawing the attention of travelers eager for the arrival of a cheaper means to cross the Atlantic Ocean, Norwegian Air has also been a magnet for criticism from both airline competitors and airline employees. Airline worker groups have accused Norwegian of being ruthlessly anti-union for its policy of hiring Thai pilots and American airline attendants on the cheap, rather than higher-paid union Norwegian employees. The major U.S. airlines have been trying to stop Norwegian from expanding service for the transatlantic market via a subsidiary airline (Norwegian Air International), claiming that the company’s plans of setting up headquarters in Ireland amount to the creation of a “shell company,” and that its business practices are “not in the public interest.” At the end of May, the U.S.-based Air Line Pilots Association began lobbying federal authorities to block planned Norwegian Air flights to the U.S. because the airline supposedly is circumventing labor rules to gain an unfair advantage over the competition. There has been plenty of hinting that flying on Norwegian is unsafe as well.

On June 4, the day of its one-year anniversary for service to the U.S., Norwegian attempted to set the record straight with a press release taking on the accusations one by one. For instance, the release states that Norwegian Air is not anti-union:

A majority of Norwegian’s pilots and cabin crew members in Scandinavia are union members. Technicians and administrative employees are also union members.

There’s nothing unsafe about the business model either, the release claims:

Norwegian has been running a safe airline operation since 1993 with no registered accidents or major incidents. Safety has always been the company’s number one priority.

Most interestingly, Norwegian takes several shots at the competition, accusing the big carriers of charging far more than is reasonable for international flights:

Norwegian believes that competition on intercontinental flights is long overdue. Flights between the U.S. and Europe have traditionally been way too expensive. Why should a flight between New York and Europe cost three times as much as a flight between New York and Los Angeles? The flight to Europe is only about an hour longer, sometimes even less.

Previously, Norwegian Air has been more brash in lashing out at critics. When asked about concerns that the airline was no longer really a Norwegian carrier, and that is abandoning its homeland by establishing a home base in Ireland, CEO Bjørn Kjos said bluntly, “We don’t give a s*** about that. We go where the passengers go. Norway is just too small to survive.”

“It’s obvious that they’re afraid of competition,” Norwegian spokesman Lasse Sandaker-Nielsen said earlier this year, referring to the airline competitors arguing against Norwegian’s plans. “Their strategy is to make false allegations in an attempt to prevent American travelers from getting inexpensive airfare to Europe.”

It’s no surprise where travelers and consumer groups stand on the issue. They want cheaper flight options to Europe, even if it’s via the Norwegian Air model, which–also no surprise–is rife with fees as a tradeoff for inexpensive upfront fares. Many believe it’s high time for true competition to return to the transatlantic flight market (if it ever actually existed, that is). “The other airlines are used to jacking up their prices because there is virtually zero competition,” a recent post at Consumer Traveler stated. “Only three alliances compete against each other across the Atlantic. Oneworld, Star Alliance and SkyTeam control about 85 percent of transatlantic traffic.”

For an example of how Norwegian matches up against the competition, a recent fare search showed a round-trip from Oakland to Oslo at the end of the summer coming to a total of $592, including all taxes and surcharges. The nearest competitor for a Bay area round trip to Oslo on the exact same dates was well over $1,000. Even if you never fly on Norwegian Air, you should probably be happy that it exists—and that it’s putting some pricing pressure on the competition.

[CORRECTION: An earlier version of this story stated that airline groups have been trying to shut Norwegian Air out of the transatlantic market. The efforts are focused on stopping Norwegian Air's plan to expand transatlantic flights via a subsidiary airline being established in Ireland.]

MONEY 529s

What Penalty Will I Pay On Leftover 529 Money?

Q: I recently graduated college and have money left in my 529 plan. I would love to use the funds to help relieve some of my debt. What will the penalty be for withdrawing funds for this purpose? —Stephen, San Francisco

A: You’re right to assume a penalty. While you can withdraw money from a 529 college savings plan tax free for qualified higher-ed expenses like tuition, fees and books, you’ll be dinged if you use the funds for other purposes. You will have to report the amount distributed as taxable income next April—and will therefore owe tax on it at your ordinary rate—plus you’ll pay an additional 10% federal penalty tax on your account’s earnings. (By the way, if for some reason your debt is student loans, you’re not off the hook; the IRS doesn’t consider them a qualified higher education expense.)

There is one out: If you’re a recent graduate—as in, you’ve graduated in the same calendar year as when you plan to make the withdrawal—you can still take out funds tax free for qualified education expenses. So, if you paid out-of-pocket for books your spring semester, and haven’t already taken a 529 distribution to cover that expense, you can withdraw an equal amount from your account anytime during the rest of that year tax free even though you’re no longer a student, says Joe Hurley, founder of SavingforCollege.com and a certified public accountant. Keep in mind that, while you don’t need any evidence to make the withdrawal, “you just need to have proof available in case of an audit.”

If you still have money left in your 529 after that, look at any scholarships you received during your college career, says Hurley. The IRS doesn’t want to punish people for saving up for expected tuition that ended up being paid for with scholarships. So if you can attribute your leftover balance to those scholarships, the 10% penalty on non-qualified distributions is waived. The IRS does not state whether the distribution and scholarship have to occur in the same calendar year when applying for the waiver, but Hurley says most tax experts believe it does not need to match up. He suggests tracking the total amount of scholarship aid you received during college and using that amount to justify having the penalty waived.

Can’t use that workaround? Empty the account now while you’re still likely to be in a lower income tax bracket, says Hurley. If you wait a few more years, you could move up to a higher tax bracket and lose more of those funds to the IRS. Or, if you think you may want to go back to school at some point, your best bet will be to sit on the funds.

MONEY online shopping

Boycotting Amazon: A Brief History

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Amazon employees in Germany staged a strike over wages and working conditions during the holiday shopping season of 2013. UWE ZUCCHI—AFP/Getty Images

Throughout its history, Amazon has been the target of attempts to get you not to shop there. Here's a look at past boycott efforts against the retailer, and how they fared.

The recent rallying cry for a boycott of Amazon.com is hardly the first of its kind. It’s also not the first time the world’s largest e-retailer has been accused of using bullying, unfair, tone-deaf business practices.

To put the current “boycott Amazon” campaign—as promoted by The Stranger, Reuters, Gawker, and others—in perspective, here’s a brief retrospective of previous efforts to put Amazon in place by not giving it any of your money.

1999
The Free Software Foundation urged a boycott of Amazon because the site claimed a patent on one-click purchasing—something of a novelty at the time—and was suing other e-commerce companies (including BarnesandNoble.com) that used a one-click purchasing process. “Amazon has sued to block the use of this simple idea, showing that they truly intend to monopolize it,” a widely circulated e-mail that called for the boycott stated. “This is an attack against the World Wide Web and against e-commerce in general.” A couple years later, Amazon seemed less inclined to bother using its patent to threaten competitors, and the boycott was dropped.

2007
Around 2007—the year that NFL quarterback Michael Vick was suspended and sent to jail for running an illegal dogfighting ring—animal lovers began loudly calling for a boycott of Amazon because the site sold videos, magazines, and books about dogfighting and cockfighting. At least two of the titles described as “torture guides” by the People for the Ethical Treatment of Animals (PETA) are still available for purchase on Amazon.

2010
In late October 2010, a self-published e-book went on sale at Amazon with extremely disturbing subject matter, summed up in the title: The Pedophile’s Guide to Love and Pleasure: a Child-lover’s Code of Conduct.

At first, despite massive protests online and calls for a broad boycott of Amazon, the e-retailer refused to remove the item from the site. The company released a statement with its justification to keeping the e-book for sale, explaining, “Amazon.com believes it is censorship not to sell certain titles because we believe their message is objectionable.” Within a few days, however, Amazon relented and stopped selling the pedophilia book.

2010
After U.S. political leaders pressured Amazon to block Wikileaks, the whistle-blowing website known for leaking classified security documents, Amazon relented, and stopped hosting the site. Free speech advocates including Daniel Ellsberg, who leaked the Pentagon Papers to the press in 1971 leak of the Pentagon Papers, promptly called for a consumer boycott of Amazon.

2011
For several years, Amazon was in the habit of spending millions of dollars lobbying various states to cut off local efforts to start charging sales tax on online purchases. To small business owners, the fact that sales tax was not automatically charged for e-commerce purchases gave e-retailers such as Amazon an unfair advantage—customers could easily save 7% or whatever the local sales tax rate was simply by purchasing online. (Sure, those consumers were later supposed to pay the sales tax they owed to the state, but almost no one did that.) In 2011, while California approved the installation of a sales tax on online purchases but hadn’t yet put the policy in practice, Amazon was actively trying to get the law overturned. The company’s efforts were met with a call to (surprise, surprise) boycott Amazon.

The boycott never really gained steam, and as of mid-September 2012, the campaign was totally moot, as Amazon began charging sales tax in California. Amazon customers in many other states who once could skip out on sales tax are now automatically charged sales tax on e-commerce purchases as well.

2011
In the fall of 2011, reports spread about deplorable worker conditions at Amazon warehouses and shipping centers around the country. An investigation by the Pennsylvania Morning Call showed employees at the Amazon warehouse in the Lehigh Valley enduring sweatshop-like conditions, including indoor temperatures so hot (over 100 degrees during summer heat waves) that the company arranged for ambulances to parked outside, waiting to treat workers for dehydration or other heat-related issues.

“Workers said they were forced to endure brutal heat inside the sprawling warehouse and were pushed to work at a pace many could not sustain,” the Morning Call reported. “Employees were frequently reprimanded regarding their productivity and threatened with termination, workers said.”

After consumer and worker groups got wind of Amazon worker complaints, a boycott was called for during the 2011 winter holiday shopping season. Some 12,600 consumers pledged to boycott Amazon for the holidays, if not indefinitely. If nothing else, Amazon stated that it has since installed much-need air-conditioners in warehouses, when appropriate.

The U.S. isn’t the only country where Amazon workers have voiced gripes against the company. In late 2013, for instance, Germany’s Amazon.com workers went on strike and staged protests outside the company’s Seattle headquarters due to “low wages, permanent performance pressure and short-term contracts.” Many have called for a boycott of Amazon among German consumers because of the company’s treatment of workers.

2012
Calls for a consumer boycott Amazon, as well as Starbucks and Google, throughout the UK started spreading in 2012, continued through 2013, and gained more traction in spring of 2014, with Margaret Hodge, chair of the public accounts committee in the UK, personally calling for consumers to avoid doing business with these companies.

Why? Due to a range of strategies employed by the companies, they pay relatively little in corporate taxes. Amazon, for instance, paid £4.2m in UK taxes in 2013, or 0.1% of its UK revenues. “It is an outrage and Amazon should pay their fair share of tax,” said Hodge. “They are making money out of not paying taxes. I no longer use Amazon. We should shop elsewhere.”

2013
In September, Boston-based author Jaime Clarke launched an odd website to help sell his new novel, Vernon Downs. The site’s url was PleaseDontBuyMyBookonAmazon.com. Clark said he was motivated to create the site because he wanted help independent publishers such as Roundabout Press, which published Clarke’s book.

“Most indie publishers rely on Amazon to sell their books, and to quote F. Scott Fitzgerald, the price is high,” Clarke said in a Q&A with CNET. “Indie publishers realize a fraction of the purchase price and are at the mercy of Amazon’s discounting policies.”

What’s more, Clarke just so happens to be the co-owner of Newtonville Books, which just so happens to be an independent bookstore—the ranks of which have been depleted during Amazon’s rise to power. “Independent bookstore owners loathe Amazon and its bald-pated founder, Jeff Bezos,” a Boston Globe story on Clarke explained.

2014
The most recent boycott Amazon push is related to the company’s ongoing battle with the Hachette Book Group. Essentially, Amazon wants to sell Hachette e-books at a lower price than the publisher wants, and to get its way, Amazon has stopped selling preorders of Hachette books, and it has slowed down the process of customers buying and shipping other Hachette books. For many, this clash epitomized the view that Amazon has too much power, is verging on a monopoly, and is perhaps just plain evil. And for many, this clash is what finally makes them feel that it is time to buy stuff elsewhere.

MONEY retirement income

Retirement Income: Five Steps to a Sound Plan

You want to be sure that your income will last throughout retirement. A financial planner offers key guidelines.

The moment you announce your retirement is a big deal. Few voluntary life transitions—besides marriage or having children—can match it. So before you tell your boss that you’re calling it a career, it’s important to make sure your retirement income plan is really ready.

My advice is based on the growing body of research about generating a sustainable retirement income. Some of this is my own published research, including the first-ever study to show how higher safe withdrawal amounts are possible—if you can be a bit flexible in your spending following years with especially poor investment returns.

And I’ve also learned a lot from watching dozens of our clients implement this advice to achieve a comfortable retirement. Based on this research and experience, I’ve come up with five guidelines to help you get ready to tap your nest egg:

1) Set a sustainable income target. To meet your core expenses, including health care and taxes, you’ll need a regular stream of payments that will increase with inflation. Start by detailing your core retirement spending needs, then determine the portfolio withdrawal rate it will take for your assets to fund them. Make sure your plan is based on solid research and your level of spending flexibility.

2) Get the most out of Social Security. If you’re married and one of you is in good health, try to wait till age 70, when you can file for the largest possible benefit. Otherwise, you may be leaving tens of thousands on Uncle Sam’s table. Remember that the bigger check is what the surviving spouse keeps regardless of who dies first. To make this strategy work, you may have to tap other income sources to fund your spending while you wait.

3) Choose the right asset allocation. Holding too little in stocks can be even more costly than holding too much—that’s because equities are likely the only assets able to generate the long-term returns needed to sustain your retirement income. Make sure you’re well-read on the recent research that’s been published on navigating the inevitable market ups and downs. Yes, stocks are risky, but even the recent market crash didn’t sink most plans unless you panicked at exactly the wrong time.

4) Be smart about taxes. Your current tax bracket matters a lot less than your bracket when you or your heirs take IRA distributions. A good strategy can be to spread out these withdrawals so their taxation can occur at lower federal tax brackets. Delaying can cause higher taxable amounts that may push your into much higher brackets. In 2014 singles are taxed at just 10% on their first $9,075 of taxable income after deductions; for married couples filing jointly, it’s $18,150. Rates then rise to 15% until $36,900 for singles and $73,800 for married couples. The next bracket jumps to 25%. In years when your income is low, take full advantage of the opportunity by doing Roth conversions in modest amounts that won’t trigger a move up in brackets.

5) Leave room for splurges. You don’t want to jeopardize your financial security, but you want to enjoy your retirement too. Set aside 5%-10% of your nest egg as a discretionary fund for that trip to Paris or seasons tickets to your local team’s games. That way, you can have your fun and still avoid poking dangerous holes in your retirement income plan with each extra “just-this-time” withdrawal.

Once you launch your retirement, you’ll want to keep tracking your spending and keep your plan on course. Consider setting up a withdrawal policy statement as a guide for the adjustments you may need to make along the way. Having these policies in place can help keep your emotions from getting the best of you during choppy markets or life’s upheavals.

If you found yourself confidently checking off these items as you read, chances are your retirement income plan is well on its way to being ship-shape. Bon voyage!

_____________________________________

Jonathan Guyton, CFP is a nationally-recognized financial planner and a retirement columnist for the Journal of Financial Planning. A Principal at Cornerstone Wealth Advisors, a fee-only advisory firm in Minneapolis, he can be reached at jon@cornerstonewealthadvisors.com.

MONEY Ask the Expert

Should I Use My Roth IRA to Pay Off Debt?

Q: I am trying to pay off some debt to become debt free. I’m 44 years old. Is it possible, at my age, to withdraw from my Roth IRA to pay off debt? – James, Nashville, TN

A: Yes, you can withdraw money from your Roth IRA to pay off debt. But it is rarely a good idea to tap money earmarked for your retirement.

First, you should understand the rules. IRS regulations allow you to withdraw your contributions from a Roth IRA without incurring a penalty, since you’ve already paid taxes on that money. But if you withdraw earnings on those contributions, and you are under age 59 1/2, you will incur a 10% penalty and income taxes. “That’s a hefty price to pay,” says Ed Slott, founder of IRAhelp.com.

You have to weigh the benefit of erasing high-cost credit card debt with the impact on your future retirement income. And that impact could be significant. Roth savings are an especially valuable stream of retirement income because they offer both flexibility and tax diversification. After age 59 1/2, if you’ve kept the money in the account for five years, all withdrawals are tax free. Moreover, Roths aren’t subject to required minimum withdrawal rules after age 70 1/2, like traditional IRAs. That means you can pull out a large sum for a health emergency in retirement without worrying about taxes. And if stock prices plummet, you won’t be forced to make withdrawals at a market bottom.

At age 44, you’ve got two decades till retirement. Even if you withdraw a small amount, it will end up costing you a lot when you consider the 20 years of compounded growth you are giving up. Look for other ways to free up cash to pay down the debt. Do you have expenses you can cut back on? Can you drum up some extra income? If you do decide to use the Roth, stick with contribution withdrawals so you don’t lose money to penalties and taxes.

MONEY College

Are You Ahead of Your Peers on College Savings?

140529_FF_529_1
Happy 529 Day! Sarina Finkelstein/bravo1954—Getty Images

A new report shows that 529 accounts are growing, but that investors are shying away from stocks.

Americans have a record high college savings level of more than $230 billion, and are adding to that at a rate of about $700 million more every month in 2014, some recent studies have show.

That sounds like a lot of money—until you consider that there are more than 82 million Americans under the age of 20. So overall Americans have saved just $2,800 per youngster, and the average amount set aside annually per kid divides out to just a hair over 100 bucks.

But in a special report issued on May 29 in honor of 529 Day, Morningstar pointed out some hopeful news. At least Americans are paying less to have their college savings invested in 529 plans. The fund companies with the lowest fees now have the biggest market share, Morningstar says.

Plus, competition is forcing most 529 managers to cut their fees, says Kathryn Spica, a senior analyst at Morningstar and author of the report.

Related: College Savings Cheat Sheet: It’s As Easy As 5-2-9

That’s good for investors, since research shows that low-fee funds tend to outperform more expensive competitors over the long term.

“There are a lot of positive signs,” Spica says.

However, Morningstar also found that investors have lately been opting for more conservative investment options. And that’s not a positive for everyone.

529safetyb
SOURCE: Morningstar

Protecting assets when your children are older—or when stock valuations are high, as they are today—is sensible.

But parents saving for younger children, who thus have many years to ride out stock market corrections, would do better to invest aggressively. As the Morningstar report showed, the average 529 conservative allocation tallied an annual return of 8.4% a year from 2008 through 2013. More aggressive funds have risen faster—about 14.4% a year over the same period.

Related: How much do you need to save for college?

Additionally, in a 2012 paper, Vanguard found that over 18 years, investors who start out aggressively and smoothly taper down their equity holdings are likely to end up with significantly higher college savings. (See especially Fig. 4.) Investing $1,000 a year aggressively early on results in an average balance of $40,000 after 18 years, versus $27,000 for conservative investors.

James Dahle, a Salt Lake City area emergency physician who has started 15 529s—for his three children and 12 nieces and nephews—says that one of the main advantages of 529 plans is that investments can grow tax-free. So investors who put their 529 savings in, say, bonds, which won’t grow very much, lose out on one of the biggest advantages. “The more you earn, the more you save on taxes,” says Dahle, who blogs about his investments at WhiteCoatInvestor.com.

MONEY

Closing Out Your Old 401(k)

Q: I got a check closing out my old 401(k). Can I add it to my new 401(k) without penalty? — Matt Gould, New Cumberland, Pa.

A: Yes, and act fast.

Unless you put the money in another retirement account within 60 days of receiving the check, you’ll owe taxes on the sum, plus a 10% early-withdrawal penalty if you’re not yet 59½, says John Piershale, a financial planner in Crystal Lake, III.

Related: Will you have enough to retire?

One hitch: The old plan usually withholds 20% of your account for taxes, so when you make the deposit you’ll have to use other cash to cover that 20% shortfall.

Assuming you get this done within 60 days, you’ll get the withheld money back at tax time.

If your new 401(k) plan doesn’t accept rollovers or will make you wait too long to deposit the funds, put the money in an IRA, advises Lancaster, Pa., planner Rick Rodgers. You can always move it into a 401(k) later.

TIME

80 Years of Federal Revenue in One Chart

What’s the federal government’s largest source of income? Individual American citizens.

Income taxes—including taxes that are automatically withheld from paychecks—accounted for 47 percent of all federal revenue in 2013.

Payroll taxes, which are paid by employees and employers and are earmarked mostly for Social Security and Medicare, accounted for the second largest piece of the pie, at 34 percent. Workers and employers each contribute 6.2 percent of the employee’s wages for Social Security, and 1.45 percent of the wages for Medicare.

Corporate taxes—a 15-35 percent marginal tax rate on a company’s profits—were the third largest source of federal revenue, at about 10 percent.

 

FY2013

According to the graph below, the tax landscape for individuals has stayed relatively steady as a percentage of total federal revenue since 1944, typically sitting in the mid 40’s, and sometimes dipping down into the thirties. Income taxes reached their highest percentage (50 percent) as a piece of the overall pie in 2000 and 2001.

But the tax landscape was a lot different before World War II. In 1934, the earliest year with complete data from the White House Office of Management and Budget, individual income taxes accounted for 14 percent of the tax pie, while payroll taxes accounted for 1 percent, corporate taxes 12 percent, excise taxes 46 percent, and other taxes 27 percent.

FY1934Revenue

Income taxes were a small piece of the pie in 1934, because the tax—enacted into law in 1913 by the 16th amendment—predominantly applied to high income earners, and exemptions were high.

During WWII, exemptions were reduced and tax rates were increased to help fund the war. Coupled with overall increases in income, income taxes as a percentage of government revenue sharply increased.

According to records from the IRS, the biggest increase came in 1943-1944. Personal exemptions decreased from $1,200 to $1,000 for married couples, tax rates for the lowest earning bracket (<$2,000) rose from 19 to 23 percent, and tax rates for the highest earning bracket (>200,000), rose from 88 to 94 percent.

Although U.S. income taxes have increased, they are about average as a percentage of GDP when compared to other OECD countries.

While income taxes rose as a percentage of federal revenue from 1943-1944, corporate income taxes did the opposite, shrinking from 40 percent of the overall pie, down to 34 percent.

Also unlike income taxes, which have stayed relatively steady as a percentage of federal revenue since 1944, corporate taxes have shrunk, reaching their lowest levels as a percentage of the tax pie—6 percent—in 1983.

In comparison to other OECD countries, U.S. corporate taxes as a percent of tax revenue (2.3 percent) fall below average (3 percent).

This article was written for TIME by Kiran Dhillon of FindTheBest.

TIME Taxes

IRS Gave $1 Million in Bonuses to Employees Who Didn’t Pay Taxes

The IRS paid $1 million in bonuses to employees who owed back taxes and another $1.8 million in bonuses to workers facing disciplinary problems

The federal agency in charge of tax collection has been awarding bonuses to employees who have not been paying their taxes on time, according to a new report by J. Russell George, the Treasury inspector general for tax administration.

The report reveals that the Internal Revenue Service gave a total of $1 million in bonuses to 1,150 workers who owed back taxes between October 201o and December 2012. The IRS paid out an additional $1.8 million in bonuses to workers facing other kinds of disciplinary problems over the same period, including improper use of government credit cards, drug use, threats of violence and unemployment-benefits fraud, according to the Associated Press.

George said the bonuses don’t violate federal rules but are inconsistent with the agency’s mission to enforce tax regulations. “These awards are designed to recognize and reward IRS employees for a job well done, and that is appropriate, because the IRS should encourage good performance,” George said in a press release. “However, while not prohibited, providing awards to employees who have been disciplined for failing to pay federal taxes appears to create a conflict with the IRS’s charge of ensuring the integrity of the system of tax administration.”

Despite the apparent contradiction highlighted by bonus program, the employees of the Treasury Department, which includes the IRS, still have better tax compliance than other federal agencies. Just 1.1% of Treasury workers owed back taxes in 2011, compared with 3.2% of federal workers overall, the AP reports. The tax-delinquency rate for the general public was 8.2% that year.

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