Truth Before Dishonor

I would rather be right than popular

We Are Grossly Over-Taxed

Posted by John Hitchcock on 2010/01/25


I’m trying to figure out all the taxes that the citizenry has to pay. I’m sure I’ll miss most of the taxes so help is appreciated.

There’s the FICA/Medicare tax, which is over 15 percent of income. If you work for an employer, you pay half and the employer pays half (which means you make more money than you think you do, but that extra money is all federal tax).

There’s the federal income tax, which is anywhere from 0 to 35 percent of income. Actually that is inaccurate on multiple levels. If you’re a part-time minimum-wage employee (or likely even a full-time minimum-wage employee), you will get more back than you put in, so your tax is in the negative range (you get money from your neighbor and the person living 5000 miles away from you just for working). But you are still giving the federal government an interest-free loan; money that could gain you interest if you just stuck it in the bank. While the FICA/Medicare tax has a top limit on income taxed, it is above the bottom limit of the top federal income tax bracket.

There’s the state income tax, which varies state to state (and several states don’t have income taxes).

Mt Vernon, OH has a city income tax of 1.5 percent while Columbus, OH has a city income tax of 2 percent (and it’s not a sliding scale). I’ve had jobs in both locales. And my state income taxes have always been higher than my city income taxes (I’ve never had greater than 36k income in a single year, and usually under 28k).

Using a conservative estimate of 5 percent state income tax, so far this means those lowest of the top federal bracket working in Columbus, OH are paying a whopping 57 percent of their income in taxes!

Let’s not forget that those living in certain school districts pay an additional 1 percent income tax for the schools, whether they have children in school or not.

Then we have the 46-cent-per-gallon gasoline tax. That means someone living in Mt Vernon and working in Columbus and driving a 33 mpg car pays $1.40 in taxes just to commute to work every day. If that person only works 200 days a year (and it’s likely much closer to 250 days), that adds up to $280 in taxes just to be able to work, on top of the other income taxes.

Add to that the 6 percent sales tax on any non-food item bought in Ohio (and carbonated beverages are not considered food). And some states tax food as well.

And there are the railroad taxes tied to phone bills. And other “temporary” taxes tied to phone bills that have never expired, after 100 years. And there are special taxes tied to electric bills and natural gas bills and garbage-collection bills and city-water bills.

Then we have corporate profits taxes, which not only affect corporations (where they add the tax burden to the price of their goods) but also anyone who has an IRA or 401(k) or any other stocks in their retirement investment plans.

Then we have corporate inventory taxes. (See corporate profits taxes for impact.)

Then we have corporate property taxes on buildings and land. (See corporate profits taxes for impact.)

Then we have personal property taxes on homes and land.

Then we have corporate property taxes on machinery bought many years prior where the corporations paid the taxes on buying the machinery. (See corporate profits taxes for impact.)

Then we have the death tax, which can be as much as 60 percent of a decedent’s worth, already taxed multiple times. (The Bush moratorium on the death tax is about to expire, thanks to the Democrats who refused to make it permanent.)

We also have tobacco and alcohol taxes on top of the sales tax (but not everyone buys either of these items).

Understand if a corporation has to pay a total of 20 percent of its gross profits in taxes (profits tax, inventory tax, and both property taxes), the price of their goods must be increased enough to cover those taxes, which could increase the cost of a good by 2 or 3 percent. And you get to pay sales tax on the tax-inflated cost of the item.

And if you’re a renter, don’t think you don’t have to pay property taxes for the home you’re living in. It’s figured into the price of rent.

With all these taxes, hidden or otherwise, I cannot come up with a way for someone in middle-class income levels to pay less than half of their income in taxes.

(Oh, I worked for a PA company while never leaving the Columbus, OH metroplex. But I had to pay the PA tax of $15 a year for the, get this, for the privilege of working in PA!)

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9 Responses to “We Are Grossly Over-Taxed”

  1. […] the, get this, for the privilege of working in PA!) _______________________________ Cross Posted on Truth Before Dishonor Category: Culture and Society, Economics, Politics, Real life, State and Local Government, […]

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  2. Matt said

    Hah, if you think thats bad, you should see what we have to pay here in France, or worse, Sweden! At the same time, its one of those things where you get what you pay for. Here in France, people dont have the stress about worrying if they’ll have enough money for college, daycare, healthcare, etc, because those are all subsidized or reimbursed by the state. Infrastructure is generally good, with plenty of trains, nice roads, etc to get you where you need to go.

    At the same time, tax rates are quite low across the board in the US compared to what they used to be (at least income tax wise). Income taxes in 2009 range from 10% to 35% – compare that to almost anytime before 1980 where the upper tax bracket generally above 70%, and for a while it was closer to 90%. This is why we had money back then to improve our infrastructure, build the interstate system, send men to the moon, improve our defense, etc. That stuff isnt free, and until people realize this, then we’ll be stuck with bridges falling down, the general downfall of US research and science world leadership, the weakening of our armed forces, etc.

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  3. Matt, you ignore the fact the JFK tax cuts resulted in increased tax revenue. You also ignore the fact the Reagan tax cuts resulted in increased tax revenue. You also ignore the fact the GWB tax cuts resulted in increased tax revenue. Why is that?

    And income tax rates tell a lie, and I believe intentionally so. There are far too many hidden taxes which cause the cost of doing business to be governmentally inflated and the cost of purchase to be greatly governmentally inflated.

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  4. Matt said

    Not sure what tax revenues have to do with your complaint that we’re over-taxed… anyway, dont know where you’re getting your numbers from, but according to this http://www.whitehouse.gov/omb/budget/fy2008/pdf/hist.pdf tax revenue as a percentage of GDP decreased after Reagan’s and GWB’s tax cuts.

    But you haven’t refuted my point that tax rates are lower now than they’ve been at almost any time in the last 60ish years. Yet, people survived just fine paying taxes just fine through those years. And I would add that it was during those times that America was the most prosperous – building the interstate system, improving national parks, sending men to space and the moon, becoming a world leader in science and technology with our national labs, etc.

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  5. tax revenue as a percentage of GDP decreased after Reagan’s and GWB’s tax cuts.

    No kidding. Now you’re playing games. If we have an economic expansion, GNP expands. Your point would have value in a static world but since the world is not static, your point has no value. Tax revenue as a whole went up. The piece of the pie got bigger as the pie got bigger, but the percentage of the pie that piece of the pie consisted of got smaller. That means the people and the government benefited, but the people benefited more.

    But you haven’t refuted my point that tax rates are lower now than they’ve been at almost any time in the last 60ish years.

    You are ignoring everything else and focusing in on Federal Income Tax while I am focusing in on the “every tax”. Thus, you are again playing games. 30 years ago, state sales tax was 4 percent but today it’s 6 percent. 30 years ago, schools didn’t have any state income tax add-ons but today many do. 30 years ago, I was paying 57 cents a gallon for gasoline but today I spend 46 cents a gallon in tax alone. And diesel fuel has a higher tax rate. And road-use tax for truckers has gone up markedly. 30 years ago, the Medicare tax was part of the FICA tax but now it’s been broken out and made its own tax. 30 years ago, the FICA tax was no where near the 15.2 percent it is today.

    Property tax rates have climbed markedly. Cigarette tax rates have sky-rocketed. Alcohol tax rates have sky-rocketed. Phone companies and cable companies have special taxes they have to “pay.” There are special taxes for the airline industry and the hospitality industry. And let’s not forget about the special rail taxes.

    And let’s not forget that a great many Federal Income Tax loopholes were closed as the Federal Income Tax rates came down. 30 years ago, a tax payer could take a standard deduction AND deduct all charitable contributions at the same time but today all charitable contributions are part of the standard deduction. If you want to take the deduction for charity, you have to itemize and lose your standard deduction. And since state income taxes are based on your 1040, the larger percentage of your income available for federal taxation has also become available for state taxation.

    And remember, no corporation pays a single cent in taxes despite the appearance they do. All those taxes are passed on to the end-user (a person and not an entity) in the form of higher prices. And of course the tax-produced higher price requires a higher cost in sales tax. Can you say “compound taxation”? Our corporate taxes are among the highest in the industrialized world, severely increasing the cost of doing business. But, like I said, corporations don’t pay. They pass-on to the end-user.

    And let’s not forget building permit fees, EPA-mandated land-studies (that can cost in the ten-digits for some endeavors and have added hidden tax burdens), and all sorts of other hidden taxes and fees. Again, all those taxes are passed on to the end-user in the form of higher prices for the goods and services, which result in higher sales tax for those higher prices for goods and services as a result of the higher taxes and new taxes.

    Your arguments don’t stand up under scrutiny.

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  6. Matt said

    No kidding. Now you’re playing games. If we have an economic expansion, GNP expands. Your point would have value in a static world but since the world is not static, your point has no value. Tax revenue as a whole went up. The piece of the pie got bigger as the pie got bigger, but the percentage of the pie that piece of the pie consisted of got smaller. That means the people and the government benefited, but the people benefited more.

    If you’re going to make an argument that tax revenues increased/decreased based on a tax cut, raw revenue numbers dont make sense. They’ll ALWAYS increase because they’re linked to the GDP – this is basic statistics (tax revenues are roughly proportional to GDP). So you need to control for the always increasing GDP, and the way to do that is to give tax numbers in % of GDP.

    You are ignoring everything else and focusing in on Federal Income Tax while I am focusing in on the “every tax”. Thus, you are again playing games. 30 years ago, state sales tax was 4 percent but today it’s 6 percent. 30 years ago, schools didn’t have any state income tax add-ons but today many do. 30 years ago, I was paying 57 cents a gallon for gasoline but today I spend 46 cents a gallon in tax alone. And diesel fuel has a higher tax rate. And road-use tax for truckers has gone up markedly. 30 years ago, the Medicare tax was part of the FICA tax but now it’s been broken out and made its own tax. 30 years ago, the FICA tax was no where near the 15.2 percent it is today.

    OK so income tax was more than halved (~70% to 30%) for the upper brackets, but sales tax went up 2% and you’re telling me we’re now overtaxed?? Not even close. Gas prices? Looking at inflation values, your $0.57/gallon then wont even buy a gallon of gas now! It works out to be roughly $1.60 in today’s dollars (and your $0.46 tax now would have been $0.16 in 1980). Anyway, IMO judging by the state of the roads in most of the US, I’d say the gas tax could stand to be higher!

    Property tax rates have climbed markedly. Cigarette tax rates have sky-rocketed. Alcohol tax rates have sky-rocketed. Phone companies and cable companies have special taxes they have to “pay.” There are special taxes for the airline industry and the hospitality industry. And let’s not forget about the special rail taxes.

    OK, so there’s sin taxes and corporate/business taxes – nothing new here…

    And remember, no corporation pays a single cent in taxes despite the appearance they do. All those taxes are passed on to the end-user (a person and not an entity) in the form of higher prices. And of course the tax-produced higher price requires a higher cost in sales tax. Can you say “compound taxation”? Our corporate taxes are among the highest in the industrialized world, severely increasing the cost of doing business. But, like I said, corporations don’t pay. They pass-on to the end-user.

    Thats kind of true in an overly simplistic way… but not really. Corporations do pay taxes. Some of the costs get passed on to the users – but most just come out of the total profits of the company. Its an operating expense like anything else. By that logic, you should be just as mad at CEOs getting paid hundreds of millions of dollars, since those costs are ‘passed on to the end-user.’

    Your arguments don’t stand up under scrutiny.

    I would say yours dont stand up under scrutiny for the simple fact that if you were right, tax revenue by the gov’t should be extremely high right now. But if you look at the link I gave in my last post, tax revenue has always bounced between 17-20% of GDP. Short story: the gov’t has been taxing the roughly same amount from us in corporate/income/sales/airport/etc taxes from us for a very long time.

    Personally, I say vote with your feet. If you dont like the taxes, move to Africa. Your taxes will be minimal; then again, so will your governmental and social support infrastructures. In my opinion – you get what you pay for…

    [I closed all the open blockquotes — JH]

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  7. Matt said

    Sorry, I fail at blockquotes… hopefully thats still semi-readable 🙂

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  8. So you need to control for the always increasing GDP, and the way to do that is to give tax numbers in % of GDP.

    GNP is not always increasing, as evidenced by the US GNP currently falling. And giving tax numbers as a percent of personal gross income is proper, not as a percentage of GNP.

    OK so income tax was more than halved (~70% to 30%) for the upper brackets

    That is not accurate. First, you’re talking about Federal Income Tax, just a single tax in a multi-tier tax system. Second you’re ignoring the fact many loopholes that reduced the taxable income were removed when the tax rate was cut. A lower rate on a higher portion of income can equate to a higher overall rate, and this did occur for many people. And you’re focusing specifically at the Politics of Envy side along with your specific focus on the FIT. You ignored the FICA increases in rate and percentage of income affected. You also ignored the Medicare Tax breakout and its subsequent increases in rate in the section I excerpted.

    Property tax rates have climbed markedly. Cigarette tax rates have sky-rocketed. Alcohol tax rates have sky-rocketed. Phone companies and cable companies have special taxes they have to “pay.” There are special taxes for the airline industry and the hospitality industry. And let’s not forget about the special rail taxes.

    OK, so there’s sin taxes and corporate/business taxes – nothing new here…

    Private property is subject to property tax. That tax every homeowner pays twice a year. That isn’t part of a “sin” tax or a corporate tax. You also hand-waved the heavy-handed increases in tax rates and the new taxes created out of thin air.

    And remember, no corporation pays a single cent in taxes despite the appearance they do. All those taxes are passed on to the end-user (a person and not an entity) in the form of higher prices. And of course the tax-produced higher price requires a higher cost in sales tax. Can you say “compound taxation”? Our corporate taxes are among the highest in the industrialized world, severely increasing the cost of doing business. But, like I said, corporations don’t pay. They pass-on to the end-user.

    Thats kind of true in an overly simplistic way… but not really. Corporations do pay taxes. Some of the costs get passed on to the users – but most just come out of the total profits of the company. Its an operating expense like anything else. By that logic, you should be just as mad at CEOs getting paid hundreds of millions of dollars, since those costs are ‘passed on to the end-user.’

    ALL costs of doing business get passed on to the end-user, or to the investor. A reduced profitability will necessarily result in a lowered employment. It will also result in lower investment and lower IRA and 401(k) value, thereby hurting the individual people. And, no, I do not involve myself in Politics of Envy, so you can take that off the table right now. Do I personally believe anybody (LeBron James) is worth multi-millions a year? No, I do not. But the market says otherwise. And, absent government intervention, the market is self-correcting.

    If the cost of the good is too high, the market will not buy the good. This is not true with taxes, overall. If the tax is too high, those who stop paying the tax go to jail (unless you’re Tim Geithner or several prominent Democrat congressmen). But people do “go Galt” which means other people are hurt in lost job opportunities.

    Your arguments don’t stand up under scrutiny.

    I would say yours dont stand up under scrutiny for the simple fact that if you were right, tax revenue by the gov’t should be extremely high right now.

    You are still working on static modeling instead of dynamic modeling. And you are totally ignoring the Laffer Curve, which is a macroeconomic Bell Curve. A 100 percent tax will eventually provide zero tax revenue as all tax-producing activity grinds to a halt. A 0 percent tax will obviusly also provide zero tax revenue. And we are very much on the wrong side of the Laffer Curve.

    And Politics of Envy is very detrimental to any wealth generation by everyone. It is counter-intuitive on its face and highly destructive.

    (For every “blockquote” you need a subsequent “/blockquote” or you will end up with a long series of nested blockquotes with no close to them (except for the automatically generated “close everything” at the end).)

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  9. Matt said

    Thanks for ignoring my points and data and focusing on little nitpicky things, strawmen, etc… for example:

    GNP is not always increasing, as evidenced by the US GNP currently falling.

    Whats your point? We were talking about GWB, Reagan and JFK tax cuts. If my data is correct, none of those happened in 2009. Historically GDP is always rising!! http://www.google.com/publicdata?ds=wb-wdi&met=ny_gdp_mktp_cd&idim=country:USA&tstart=-315619200000&tunit=Y&tlen=48

    Just one example of many. I’m not going to waste my time addressing the others, since you’ll probably just bring out another series of strawmen.

    My closing points: 1) You are not anywhere close to being overtaxed. Come live in France or Sweden or a country like that to see what high taxes really are. 2) Your daughter is in the military IIRC – her salary, safety and well-being are all paid by yours and everybody else’s taxes. You want her and her brothers and sisters in arms to be safe and well equipped? Then it is your patriotic duty to pay taxes. 3) If you take pride in America, and want to see her at her best – then taxes are the only way for that to happen.

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