Two Different Perspectives on Taxes

[stephenandrew]

I am in the process of completing my 2008 Income Taxes, and I decided to look at my my total tax burden (federal income tax, state income tax, FICA/Medicare, and Propert Taxes) relative to my gross income (earned income, investment income---excludes capital gains/losses (all big losses this year) as all of our stocks/bonds are held in tax deferred accounts). My wife and I are employees, do not own a business, own a home (are paying it off anyway), and have two children. Nothing very fancy/complicated with our tax returns. Our biggest reductions to our income (for tax purposes) are our 401(k) contrinbutions and HSA contributions.

The total of the taxes refereced above represents 28.2% of our gross income, or 33.3% of our adjusted gross income (AGI). I was surprised at the amount---I frankly thought it was pretty high and, for lack of a beter word, kind of punitive, so I showed it to my wife. I couldn't help but laugh---she looked at the same numbers and said, "Oh is that all---taxes really should be raised if that's all we have to pay."

Not sure who is right (I hate to admit it, but normally she is about most things), but it reinforced to me that two reasonable (I think) people can see the same facts and have two vastly different reactions.

 

[dex]

I think you missed a few:
Sales tax
Corporate paid taxes embedded in the things you buy
Transfer taxes on the stock/bond trades you make

Let's just say your Adjusted Gross income is 100K
100K
-34K Taxes above
-16K After Tax Savings
50K Disposable income
20K Mortgage - est 1% taxes paid by lender included = 200

30K all other spending - 6% sales tax; 20% embedded corp taxes (includes Federal corp taxes and corp paid payroll - no local taxes) taxes = 7,800 apx

8K total disposable income taxes

$42K Total taxes paid - ballpark at least

Let me know if I'm close.

After you do the calulations you might be closer to 50% in taxes - let us know your wife's reaction to that.

 

[TromboneAl]

Good observation. Reminds me of the part of the Woody Allen movie:

Q. How often do you have sex?
Man: Hardly ever; about two times a week.
Woman: All the time; about two times a week.

 

[Rustic23]

You left out fees, like car registration, state income tax, property tax, and excise taxes on things like phone bills. I am sure there are more.

 

[freebird5825]

Remember: one man's ceiling is another man's floor. - Paul Simon

 

[landonew]

You left out fees, like car registration, state income tax, property tax, and excise taxes on things like phone bills. I am sure there are more.

For people in the top 25% annual income, the number is estimated at about 54.4 cents out of every Dollar you earn actually goes to uncle sam (or a state/local equivalent).

How much tax do we really pay?


Its really pathetic if you think about ALL the double taxation that goes on.

 

[Bestwifeever]

Those percentages are about what I have in our budget for taxes (fed, state, property) so I hope we're in your ballpark.

Taxes have become invisible to me, without a "whoa that's high" or "wow, how cheap" factor any more. Like health insurance, I guess, it is what it is.

 

[FIREd]

I added up all the taxes (at least the ones I could easily identify) that I paid over the past year:

Federal income taxes + State income taxes + FICA + Sales taxes (8.5% on Everything, food included) + Gas taxes (fed + state + local) + Property taxes + Car registration fees + Airfare taxes.

I am sure there are also taxes imbedded in things like insurance premiums, electric bills, phone bills, mortgage payments, etc... but since I don't know what they are, I skipped over those as well as corporate taxes, customs taxes, etc... embedded in products I buy.

Total: 24.2% of gross income last year.

 

[Rustic23]

Firedreamer, did you include the portion of FICA that your employer paid? Some people say you should not, but if you were self employed you would.

 

[FIREd]

Firedreamer, did you include the portion of FICA that your employer paid? Some people say you should not, but if you were self employed you would.

No, I included only the portion I paid from my gross income. My employer paid the other half.

But if you want me to include taxes that my employer pays on my behalf, then I think that it would only be fair to include in my gross income all other benefits and compensations my employer also pays for (premiums for medical insurance, disability insurance, life insurance, as well as paid time off etc...).

In that case total taxes paid represented about 25.9% of gross compensation last year.

 

[Bikerdude]

When I was w*rking we used to celebrate "Tax Freedom Day" (TFD) that at that time fell during the first week of May. It meant that all money earned from Jan 1 until TFD went to pay taxes of one form or another. I believe TFD is now at the end of May or into June.

 

[Rustic23]

Fair enough. I think you may pay taxes on some of those benefits, but I am not a tax expert, and your percentage will certainly change with income. Example, we are living on savings and a small pension. Our Fed tax was only 4% of our gross income, and we payed no FICA.

 

[dex]

I am sure there are also taxes imbedded in things like insurance premiums, electric bills, phone bills, mortgage payments, etc...

Yes there are.
If you buy something or a service from any form of commercial entity there are embedded taxes.

 

[Texarkandy]

Fed Income Tax, FICA, Property Tax on a fairly large house (no State income tax in Texas), 1 child = 26% of gross for us. (just worked it out - had all the w-2's etc beside me)

could be a bit more excepting that as a teacher DW doesn't pay into SS - of course there's sales tax here of 8.5%, gas tax, etc, etc.

 

[ERD50]

-she looked at the same numbers and said, "Oh is that all---taxes really should be raised if that's all we have to pay."

This is the most interesting comment to me.

Why should any tax level be considered appropriate based just on the amount or % collected?

Shouldn't the Q be:

1) How much do they NEED to accomplish the things we want them to do?

2) What should my share of that be?

Like wise, when people say the "rich" should be taxed more, because they can "afford it", I think it is off the mark. Don't base taxes on what can be afforded, base them on need.

When you go to a store, do they change the price on you based on what you can afford? $10 gas for a Lexus, $2 gas for a Focus?

-ERD50

 

[OAG]

When I was w*rking we used to celebrate "Tax Freedom Day" (TFD) that at that time fell during the first week of May. It meant that all money earned from Jan 1 until TFD went to pay taxes of one form or another. I believe TFD is now at the end of May or into June.

2008: 23 April, 2009: Unknown but assumed to be a "couple" of days later. When it gets here you can send these: Obey! Tax Freedom Day Greeting Card from Zazzle.com

 

[eridanus]

This is the most interesting comment to me.

Why should any tax level be considered appropriate based just on the amount or % collected?

Shouldn't the Q be:

1) How much do they NEED to accomplish the things we want them to do?

2) What should my share of that be?

Like wise, when people say the "rich" should be taxed more, because they can "afford it", I think it is off the mark. Don't base taxes on what can be afforded, base them on need.

When you go to a store, do they change the price on you based on what you can afford? $10 gas for a Lexus, $2 gas for a Focus?

-ERD50

1) If we got rid of corporate taxes or the AMT or the "hidden" taxes, we'd have to raise taxes elsewhere. Or cut services. So,

a) What other taxes would you increase to compensate for the revenue loss?
b) What services would you cut?


2) Income tax is progressive for a reason. If the rich only paid on their usage or need, "fairly," then the burden would increase a lot more on the middle and lower classes.

 

[ERD50]

1) If we got rid of corporate taxes or the AMT or the "hidden" taxes, we'd have to raise taxes elsewhere. Or cut services. So,

a) What other taxes would you increase to compensate for the revenue loss?
b) What services would you cut?


2) Income tax is progressive for a reason. If the rich only paid on their usage or need, "fairly," then the burden would increase a lot more on the middle and lower classes.

I think you misunderstood. There are two issues, I was addressing the first:

1: How much total tax do we *need* to collect?

2: How do we collect it?

BTW, relative to #2, I'm totally in favor of progressive taxes. I'm not in favor of hidden taxes, for obvious reasons.

I don't think any discussion on tax revenue should *start* with what % we should take. It should start with what amount we need to collect to provide for the common good. How to collect it should be separate from that.

It would be like walking into the TV store, and rather than thinking through what size screen would work out for you, what features you need, etc, you would just say - "I've got a $1,500 credit limit, how much TV can I buy?".

-ERD50

 

[Rustic23]

eridanus
I find you post a little disturbing. 'If the rich only paid on their usage or need, "fairly," then the burden would increase a lot more on the middle and lower classes.'

This comes across as 'We can't be fair to the rich, I would have to pay more'
Capitol Monitor

The general reply to most efforts in cutting spending is 'Well that's just a small program and would not really make that much difference!'

 

[Rustic23]

ERD50
I think we are in agreement as to hidden taxes. I will not vote for any politician that talks about raising Corporate Taxes, as if we don't pay those. Either the politician is stupid or deceitful. Either way, they do not get my vote.

 

[eridanus]

eridanus
I find you post a little disturbing. 'If the rich only paid on their usage or need, "fairly," then the burden would increase a lot more on the middle and lower classes.'

This comes across as 'We can't be fair to the rich, I would have to pay more'
Capitol Monitor

The rich pay a lot of taxes. Let's have them pay less. Ok, now the government is short even MORE money. Do you intend to then raise the taxes on the middle and lower classes? What services/functions do you intend to cut?

I guarantee that what I want to cut is your sacred cow and vice versa.

 

[eridanus]

I don't think any discussion on tax revenue should *start* with what % we should take. It should start with what amount we need to collect to provide for the common good. How to collect it should be separate from that.

Fair enough.

1) We need $X to run services. What services do we actually need? What services do we want?

2) How do we get $X? What tax(es) is most beneficial to sustain/increase productivity and provide for the common good?

 

[Koolau]

For people in the top 25% annual income, the number is estimated at about 54.4 cents out of every Dollar you earn actually goes to uncle sam (or a state/local equivalent).

How much tax do we really pay?


Its really pathetic if you think about ALL the double taxation that goes on.

Double? I wish! Here in paradise, we have an excise tax which is nominally just under 5% (here on Oahu - 1/2% less on other islands). However, this tax (at various rates) is collected at all levels of the supply chain and on EVERYTHING. I've seen estimates as high as 16% by the time the consumer actually tallies up his "sales tax" equivalent. I can't confirm that, which is part of the problem, isn't it?

I suppose if that were the only state tax, it wouldn't be so bad. But we also have as high as 8.5% income tax as well as many, many other taxes, fees, assessments, etc. etc.

I always knew that the COL here would be higher than on the mainland. However, it appears that a very significant portion of that difference is actually taxation. I accept that I have to pay it to be here, but I can attest that the services here are no better (and often worse) than other, much lower tax areas. I guess you pays, yer money, etc. etc.

 

[Bikerdude]

I would vote for a tax on consumption. The more you consume the more you pay. This would include services as well as purchases. Have 5 kids, then pay five times the school tax and so on.

But, alas, this will never happen because our society is based on consumption and the families having five kids don't have any money.

The rich dodge normal taxes. Here in CT they raised the income tax on millionaires, they turn around and buy a Condo in FL and live there 6 months and a day. Viola, no income tax. The list of loop holes goes on and on.

 

[DougViages]

BikerDude - The 1st rule of Economics...

Is: Incentives Matter. Your CT neighbors have been incentivized to move to a low income tax state - Florida.

The second rule: There's no such thing as a 'free lunch'. Just like elementary physics, actions cause reactions, and for economics, resources spent in one area are ultimately taken from other areas.

Codicil: Watch for Unintended Consequences.