Quite Taxing
April 8, 2010
I came across what appeared to be a simple explanation of how much I’m taxed as a proportion of my income . . . in other words, how much one pays out in taxes, divided by how much one makes in income:
How to Calculate Your Effective Tax Rate
The United States and many other countries use a progressive income tax system, whereby the amount you are taxed increases with the amount of money you earn. This results in the existence of a set of tax brackets, which denote different tax rates for different income levels. For instance, in the US, an individual making $20,000 in 2009 will pay 10% on their first $8,350 in income and 15% on the remaining $11,650. In the end, on their $20,000 in income, that person will have paid taxes at a rate somewhere between 10% and 15%. That rate is called their effective tax rate.
That makes it sound so easy. This must be how I calculate the taxes I pay. But I seem to recall a lot more that comes out of my pocket at different times of the year.
Hmmmm . . .
Unfortunately, this explanation is mislabeled . . . this is ONLY your effective Federal Income Tax rate. What this doesn’t include are: payroll taxes, state income taxes, city/local income taxes, property taxes (including those paid by your landlord on your behalf if you rent), sales taxes, permitting fees, parking taxes, telecommunication taxes, airport taxes, gas taxes, capital gains taxes/alternative minimum taxes (both of these maybe included in above, though), sin taxes, luxury taxes, state and local fees, among many, many others.
With states in desperate need of funds, many new fees and taxes are on the way, along with increases in the rates of many.
Further, the explanation starts off talking about how the U.S. tax system is a “progressive tax system,” which is misleading as well. The Federal Income Tax is “progressive,” where 97+% of the Federal Income Tax revenue comes from those earning greater than the average income, while most of the rest is “regressive” . . . meaning it impacts poor people disproportionately more than people with higher incomes.
All-in, the average American pays out 40 cents for every dollar earned to taxes. The benefits are widely dispersed, with the average person above the poverty line spending $1.70 for ever $1.00 they earn, while that figure is $0.70 for every $1.00 earned for those above the poverty line.
No one likes to pay taxes, of course. When asked in surveys, every income level feels it is overtaxed or taxed enough. Many groups feel other groups are not carrying enough of the burden, but everyone feels that increased needs for tax revenues should be paid by someone else; and most everyone seems to be quite clear that it should NOT be them.
That’s what makes the following fact most troubling. What’s not counted in any of the above taxes is your share of the estimated $80 trillion in unfunded promises made by the U.S. government for which there is no plan as to how to raise that money. It includes the $13.5 trillion national debt, along with the underfunded Social Security and Medicare funds. Spread among the populace, that burden comes to $258,000 for every American alive today . . . and that’s what we’d need to have on-hand today to earn enough interest to cover those expenses as they come due.
With everyone already thinking they pay enough taxes . . . with everyone planning their futures based on keeping what they make now and having the retirement income and healthcare benefits of today’s retirees, who’s going to shoulder this huge (and growing) burden?
