Are We Being Taxed to Death?

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TaxesDuring the election season this year, there was a big deal made about how almost 50% of Americans don’t pay taxes. Endless soundbites about “the 47%” made the rounds, and there was quite a to-do about how more people should be paying taxes.

However, what some people forgot in the debate is that the number cited refers to federal income tax. While not everyone is paying federal income tax, nearly every American pays some taxes throughout the year. That’s because federal income tax isn’t the be all and end all of tax liability.

Other Taxes Americans Pay

There are plenty of other taxes paid by Americans, often in the form of state and local taxes. Indeed, the Institute on Taxation and Economic Policy points out that the bottom fifth of taxpayers pay about 12.3% of their incomes in state and local taxes. The top fifth, however, pay about 7.9% of their incomes in state and local taxes. So, even though some might not be paying federal income taxes, many of them are paying taxes on a more local level. (There are states that don’t collect income tax at all, though.)

That’s not the end, though. Even those who manage to avoid federal income tax liability still end up paying payroll taxes for the most part. And, with the payroll tax cut possibly expiring, the amount paid could go up for just about everyone. Once again, the percentage of income paid when it comes to the payroll tax differs between those considered middle class and those at the top of the income pile. Since Social Security taxes are only collected on the first $113,700 in income in 2013, as your income goes up, you pay a smaller percentage of your income toward payroll taxes.

Other taxes that many Americans end up paying include:

  • Gasoline taxes: Whenever you pay for gas, you pay taxes. You are charged a federal tax, as well as a state tax.
  • Sales taxes: Most states charge a sales tax, and many local areas also charge their own sales tax. So every time you buy something, you pay a tax.
  • Taxes on travelers: There are some states and localities that charge taxes on travelers. So, if you stay at a hotel, there might be a room tax added. And, of course, there are taxes charged when you buy airfare, and participate in other types of travel purchases.
  • Property taxes: When you own property, you generally have to pay taxes on it. This includes your home, or land that you own. In some states (like my state of Utah), you also pay a property tax on your car when you register it for a new year.

And, of course, one can’t forget federal and state estate taxes and inheritance taxes. There is also a gift tax when you give large money gifts that are beyond the scope of the exemption.

Before you decide that a large portion of the population isn’t “paying taxes,” the reality is that you are probably wrong. Your fellow Americans may not be paying federal income tax, but they are probably paying other taxes.

(Photo: Tax Credits)

{ 31 comments, please add your thoughts now! }

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31 Responses to “Are We Being Taxed to Death?”

  1. Did you know the effective income tax rate for someone making an inflation-adjusted $200,000 per year has dropped steadily over the past 50+ years, from about 48% in 1961 to about 26% today?

    • Uclalien says:

      Rather than arbitrarily choosing 1961 (when federal income taxes were at their peak) as the basis for your analysis, how about you provide the same statistics but I choose the base year? Rather than going back only 50 years, let’s go back 100 years to 1911. The results will be astoundingly different.

      Secondly, comparing tax rates today to those of the 1960s is virtually useless. The tax code has changed dramatically over that time period. Before Reagan overhauled and simplified the US tax system, the tax code allowed for an amazing number of deductions. Before then, people could drastically reduce their taxable income in any number of ways. So inflation adjusted taxable income of $200k today is totally different from 1961.

      • Yes, and all taxes were zero in Neanderthal times. Would you prefer to return to that way of life?

        You’re grasping at straws my friend. I don’t know about all taxes in total–I haven’t done the analysis. But with respect to the effective federal income tax, it’s never been lower in modern history–for everybody, but especially for those in upper tax bracket.

        • uclalien says:

          Let me start off my saying that you totally ignore my main point. Comparing effective tax rates from 1961 to today is an apples to oranges comparison.

          In 1961, despite a top marginal tax rate of 91%, many of the wealthy and super-wealthy paid no income taxes at all. It’s the reason the Alternative Minimum Tax was devised. Effective tax rates are based on taxable income. In 1961, it was far easier to lower or totally eliminate your taxable income via a slew of exemptions and/or deductions.

          Let’s try rephrasing your question though:
          Yes, and marginal tax rates were at their peak in 1961. Would you prefer to return to that way of life? (Please think about this before you answer. It’s a trap!)

          You see…correlation does not imply causation. The history of mankind is one of progress. One of the beauties of human nature is that we are always striving to make our lives better. This has been the case with or without taxes. So the implication in your question that taxes are the primary driver for this improvement seems weak at best.

          In addition, I simply pointed to the fact that you chose the highest tax rate in U.S. history as your basis for comparison. People always use this time period when they want to make a point about how “low” taxes are today. But in reality, it’s just a case of confirmation bias.

  2. You didn’t mention taxes on phones, both cell and landline.

    Then there is that unique animal for businesses: taxes on expenses, in addition to taxes on income. Payroll tax is nothing but a tax on expense. Makes you wonder if the day will come when Uncle Sam taxes interest payments in the hands of the payers, as well as the recipients. Nah, too many bank lobbyists on K Street…

  3. ChrisCD says:

    To answer your question, yes it is quite obvious (or at least it should be) that we are already being taxed to death.

    cd :O)

  4. bloodbath says:

    Americans do pay a lot in taxes but I take it in stride as the cost of ‘doing business’.
    We can say down with taxation but we should instead look at what it affords us:
    Freedom – to live in a democratic society with free speech and protection from within and without the country

    A lot of nations with little or no taxes do not have those freedoms.

    • Uclalien says:

      So these freedoms only exist because we pay the government to provide them to us?

      • jim says:

        Good response!! No, these freedoms are guaranteed to us by our constitution and would exist no matter how much money our thieving politicians steal from us in the guise of taxes.

  5. mannymacho says:

    Maybe not quite taxed “to” death, but we are definitely taxed “upon” death.

  6. freeby50 says:

    Manny, by that do you refer to the estate taxes which generally only impact mult-millionares?

  7. I don’t think we forgot that nearly everyone pays some type of taxes. Some people just don’t think it is equitable that only part of us pay income tax when a whole lot more than that have income.

  8. Ben says:

    Anyone’s answer to the question hinges on their education and philosophy. If you believe that the government is more responsible and effective in managing your money than you are then you should be able to opt in for a much higher tax rate. If you do not believe the government is a responsible steward of your money then you should be able to opt for a lower tax rate.

  9. admiral58 says:

    I truly disagree with having ANY inheritance taxes. Why should that money be taxed again?

  10. Don C says:

    You’re missing the point. Yes, most people pay the other taxes listed, but many do not pay the income tax. Not sure about you, but the few cents I pay for gasoline taxes and cell phone taxes are no where near what I pay in income taxes. Yes, technically speaking they ARE paying federal taxes, but the 47%, or whatever the percent is, pay far far less in taxes than those that pay income taxes. I think if everyone paid some income taxes, they would be a bit more careful who they vote for. It’s very easy to vote for people that promise to pay you beneifts with other peoples money.

    • Shckr7 says:

      Well said, Don. Skin in the game is a good thing.

    • Michael says:

      Don, Within that 47% group, there’s plenty of working poor and retired, when considering all levels of government, who have an overall higher tax burden than people like Romney and Limbaugh. The Federal income tax is only 30% of all taxes.

  11. Uclalien says:

    I feel obligated to point out that gas taxes, sales tax, taxes on travelers, and property tax would appear to fall under the umbrella of state and local taxes, which you already provided statistics for. As a result, listing them as “Other taxes that many Americans end up paying” is probably incorrect.

  12. cubiclegeoff says:

    And it’s interesting to see where the nonpayers are:

  13. NateUVM says:

    It’s also interesting to note those states and areas that receive more in federal funds than they contribute in taxes.

    Perhaps the solution to our fiscal issues lies with first correcting this imbalance by, say, limiting what a state received to what they contributed to the federal coffers. Then we can all take a step back and, soberly, and with perhaps a bit more perspective, decide if it’s only cuts that are needed.

    Draconian? Perhaps. Facetious? Certainly. However, it just seems a little crazy that those that are receiving more benefits per capita of federal spending are complaining about too much spending. They should be made to see the glass house they live in before they start throwing their rocks.

  14. Michael says:

    According to the IRS, in 2010, there were over 4000 multi-million dollar income households who were able to zero out their Federal income tax liability. To the Republicans, this group is to be admired, while the working poor would be considered to be slithering out of their civic responsibilities.

    • jim says:

      Most of the people in this country who are able to zero out their federal income tax liability are members of the working poor.

      • Michael says:

        Jim, I’m betting that you are one of those people who believe that the rich should have a overall lower tax burden, than the working poor.

        • Don C says:

          People shop at Walmart because they wany to pay less money than some other stores. People drive to different gas stations so thay pay less in gas. People structure their affiars so they pay less in taxes. There is nothing wrong with that. I agree with your position, let’s make it fair. Everyone pays the same rate. But I guess that won’t fly either.

    • Adeline says:

      Plz provide citation. I had never seen this. Thanks.

  15. Linda says:

    I appreciate your posts that attempt to assist Middle Class Americans to get the best possible outcome within the current system. However, I want to point out that the current monetary system is really a ponzi scheme by an elite international banking system that is corrupt and has corrupted our government. Few people realize that the Federal Reserve is a private bank that creates money out of thin air and lends it to governments at compounded interest. We do not have money as a medium of value exchange but only debt. If we owned our own treasury that which we are calling the national debt would be our treasury. Please help Americans to wake up and demand Monetary Reform and get rid of the Federal Reserve and IRS. We are not free. We are debt slaves.

  16. xbalance says:

    Talking about taxes is interesting. Talking about what should be a centralized service vs. a decentralized one is the conversation I think we need to have first.

    Should health care be a centralized service?
    Should income insurance be a centralized service?

    If yes or no, how will our society change over the next 50 years as a result of that decision?

  17. TJ says:

    One might also want to consider the taxes that appear on utility bills. Some percentage of those generally go to the federal government. Drivers license fees, registration of automobiles, boats, trailers, parking meters, etc. are also a form of tax. Just calling them fees doesn’t change the fact the owners, drivers, users of utilities and so on are forced to give some of their money to the government.

    Time and time again I hear Americans say they are glad they don’t live in high tax countries. I have news for you. The US is a high tax country – in the form of hidden taxes. I believe that if one were to calculate the total tax paid by the average, median income citizen it would be much higher than expected.

    I find it interesting that we pay so much in taxes, yet have to pay for so many things those taxes are supposed to cover. Want to go hiking and park your car in a national forest? Buy a daily parking pass. Licenses for fishing have morphed into a smorgasbord of fees. The reason politicians won’t talk about a national sales tax is because it would have to be so high to cover all the hidden taxes we pay, they are afraid to go public with the percentage it would have to be. Just my two cents.

  18. MPitcher says:

    Personally, what bothers me the most is not how many taxes I pay, but how they are used by the government. As a samll business owner, I pay thousands of dollars a year in unemployment taxes. However, did you know that high school and college kids who are living at home off of Mom and Dad are still eligible to collect unemployment?

    I live near DC, so there are a lot of government workers here. My friends who are government workers say having a government job is like earning “free money” and a form of social welfare. Government employees work less hours a year then private sector employees, and gain the benefit of a large number of holidays and vacation time that the private sector does not.

    I don’t have a problem paying taxes. What I do have a problem with is the inefficient way the government uses money.

  19. Ria Walker says:

    I actually compiled a list of all the taxes we pay as individuals and businesses, and there are 172 different taxes that are levied against us by federal, state and municipal entities. Some of these are couched in the terms of “fees”, such as licensing fees, application/renewal fees, permit/inspection fees or toll road/bridge/tunnel fees, but they are all still collected by government agencies. Others are included in the price of products and services, such as the numerous fees and taxes that are tacked onto utilities like electric, gas, water, sewage, cable and phone.

  20. Michael says:

    If you look at the entire tax systems, at all levels of government, only 30% to 40% of the entire tax system is progressive or mildly progressive, while 60% to 70% of taxes are flat rate or regressive. What this means is, the overall tax burden, expressed as a percentage of income, is about the same, whether it’s $50,000 or $5,000,000. The rich are whining about their taxes, though it doesn’t eat into their standard of living, while the working poor are too busy working multiple jobs.

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