Every year, the IRS and equivalent state organizations publish pages upon pages of tax tables. This year the federal one comprises 13 pages, but of course that only handles taxable incomes of up to $100,000. Beyond that, page 14 has a tax calculator. I've always wondered: why bother with these tax tables? Certainly addition, subtraction, and multiplication isn't too difficult relative to the other complexities of the tax code that taxpayers are expected to understand. Why not just have everyone use the tax calculator?
The tax calculation is simpler today than it used to be.
Take a look at the Instructions for Form 1040 from 1980 (pdf). Pages 32-43 contain the tax tables, and page 44 contains the tax calculation table. I notice a few differences from the tax return form we have today:
- There were 15 different tax brackets. (The highest was 70%!)
- The deduction for exemptions was not done on the Form 1040 in 1980 (pdf). Instead, it was part of the tax calculation.
- You were required to use the tax tables. If you couldn't use them because your income was too high or because you had more exemptions than were shown on the table, you had to fill out a Schedule TC to calculate your tax. (Unfortunately, I haven't been able to find a copy of 1980's Schedule TC.)
- In 1980, no one was using a computer to do their taxes. You either did it yourself using the paper form and the instructions, or you paid someone else to do it for you.
Today, we are down to 7 tax brackets. The deduction for exemptions happens right on the 1040 before the tax is calculated, which breaks this complication into separate steps. And today, the majority of those doing their taxes without a paid professional are probably using a computer.
Even today, however, the instructions require the use of the tax table for those whose taxable income is less than $100,000. I believe the reason is that, even though the tax calculation is less complicated than it used to be, it is still confusing if you aren't familiar with it. We get questions from people confused by marginal rates occasionally here on this site. The tax table eliminates the confusion; it simply says, "Your income was this? Pay that." It probably reduces the number of arithmetic errors on tax returns.
If you aren't doing your taxes by hand, you don't even know or care whether or not the software is doing a lookup on a table or calculating your tax using a formula. But for those still doing their taxes on paper, the tax table simplifies a critical formula in doing your taxes.
MOST people have incomes under $100,000. For those people, the tax tables are handy.
The "formulas" are for the (relatively) small number of people with incomes over $100,000. Most such people can "do the math," or at least hire accountants or buy tax software to do it for them.