Real tax burden
My bottom line on taxes is that we pay an exhorbitant amount of income tax from our paychecks here in the United States. In fact, we pay one of the highest percentages of taxes in the world. This is particularly so when you compare the political-economic structure of the countries whose percentages exceed ours, and layer on the fact they all have some sort of universal healthcare (read: tax-funded). Specifically, these countries (largely) are openly socialist-influenced, and (largely) have single-payer tax-funded healthcare.
I maintain that the United States economic system has not been Capitialistic for a very long time (if ever). This may sound extreme, but if our tax system is any indication, we are a long ways toward Socialist. Here are the numbers:
We’re all in the 40% tax bracket. An analysis of income tax brackets, including federal, state, payroll taxes, and deductions puts the average tax payer paying 40% of their income in taxes (pre take home).
We pay another 22% surcharge on what’s left. Most first-world countries openly levy a VAT (value-added tax) on their citizens. We don’t call it that, but we levy several layers of sales taxes on our citizens: State sales taxes, consumption taxes (gasoline, tobacco, airlines, etc), highway tolls. Additionally, the products we buy are produced by companies that pay these same consumption taxes (I’m not even talking about business income taxes). These companies pass these taxes along to us in the price of the goods they sell. Add it all up and find we pay 22% in these embedded taxes–this on after-tax income.
Wait, there’s more. . .We pay for our own healthcare. Depending on your exact healthcare situation, employer paid benefit, self-insured, medical savings plan, traditional 80/20 health insurance, your actual annual cost will vary. But when comparing national tax percentages, this must be accounted for as many (most) first world countries pay for their citizens’ healthcare from the taxes their citizens pay. If we take the lower costs from employer-paid plans (remember this is money paid on your behalf by the company) we have average annual costs of $14,202 (premium, deductible, and other out-of-pockets) per family. (The Hidden costs of Health care) The costs are even higher for smaller firms, and individually purchased plans. This does not account for the medical cost (or lack thereof) for the uninsured, but at what cost and what risk? There would be a good analysis: The long term cost of foregoing medical treatment in terms of life expectancy versus the risk of financial ruin in the face of a catastrophic medical event.
Let’s run the numbers. If we look at a family household income of $100,00 (not unreasonable ), and then an individual earning $45,000.
A family income ostensibly of $100,000.
- Take homepay (less 40%) $60,000.
- Less Healthcare costs (the conservative numbers, and assuming a tax-deductible threshold) $45798.
- Then the embedded taxes on after-tax income (money we use to buy stuff)
- $35,722 left.
- Real Tax Rate: 64.28%.
For an individual earning $45,000:
- Less 40%: $27,000
- Less healthcare ($6191): $20,809
- Less embedded taxes: $16,231
- Real Tax Rate: 63.93%
Note: Neither of these calculations account for the several other taxes and tax-like costs we incur: e.g., ad valorem taxes, property taxes, public utility fees, universal coverage fees (i.e., in your phone & utility bills)
Discussions regarding what we actually pay in taxes in the United States are patently deceiving. The tax code is so skewed. The sheer number of different types of taxes we pay is staggering. The different metrics we can use to describe taxes is mesmerizing. Every one seems to be able to arrive at the conclusion they want through selective attention and willful ignorance.
Resources: Some of these conclusions support mine, some don’t. But none synthesize all the analyses which I’ve included above:
- Embedded taxes change Fair Tax equation
- The Hidden burden of taxation
- Effective Tax rates
- The Hidden costs of Health care
- 12 Countries with the highest and lowest taxes
- Tax Misery and reform index
- the new poor tax
- The flat tax is already a reality
- Your real tax rate: 40%
- Health Insurance: Premiums and Increases
Please comment below. What’s your take on this?
Find me on Twitter