[ Dear readers : Lightening took out our internet service for thirty-nine hours. So this post is a day and a half late. Sorry!]
I wonder if the average American has any idea how their federal, state, and local governments cost them? It was a shock to me to sit down and estimate the total cost. I’m going to demonstrate that the average American is paying over 60% and possibly over 70% for their governments.
First a little lead in to today’s story. My post on Tuesday had to do with the possibility of a sales tax on internet purchases. People are upset about and asked for help in understanding why. It seemed to me to be an extension of the sales taxes we already pay. You, dear readers, did not let me down. I want to give a special thanks to Steve Dennis, Cheryl Pass, and Larry Jackson for my edification. But, the most profound comment came from Brian at Frankenstein Government. He said: “Jim, we can not afford more taxes.” He went on to suggest that I read his post and look at the information in it. As often happens in this strange and wonderful world of the blogosphere, as Brian was entering his comment here, I was commenting on his post saying I wanted to use table he showed. And, here it is. Please take a careful look at this table produced by Heritage.org.
You can see that in 2013 the average middle class taxpayer will pay about 50% of their income for federal income tax and payroll tax and for state income tax. 50% is a lot, don’t you think? But, of course we pay a lot of other taxes , don’t we? We pay property taxes and sales taxes and taxes to cover water and sewage and we pay fees fishing and hunting licenses and we pay for license plate tags for our car each year. I’m thinking a conservative estimate for these other taxes would be 5%. That takes our average middle class taxpayer to a sub-total of 55% of their income. I say sub-total because the is a whole lot more we pay in what is called “hidden taxes”.
Hidden taxes include every cost incurred by businesses are passed on to the consumer. Businesses pay federal, state, and local taxes too. Except for what they export, you and I end up paying those costs. Businesses also have enormous cost related to government regulations. And, of course, they pass those costs on to us. There are other hidden costs we pay. For example, how much more do we pay for gasoline because the government mandates that we use gasoline mixed with ethanol? How much more do we pay for food because human and animal food is used to make ethanol? How much more do we pay for electricity because the gov mandates that utility companies use a certain amount of “renewable energy”:i.e., solar and wind generated energy? There are probably many more hidden taxes that I can’t think of right now. But, I don’t think it would be out of line to estimate that we pay from 10% to 15% of our income on these hidden taxes. Even if we use the lower estimate, our middle class taxpayer is paying 65% of his/her income to support governments.
So, is it any wonder that Americans feel their standard of living is decreasing?And, the governments want MORE! Many of our cities and states are looking for new ways to squeeze more out of us. At the federal level, ObamaCare taxes don’t really start hitting until 2014. And, yes they are talking about taxing the rich more, which because many of them are small business owners, some of that will be passed on to us. And, yes they are talking about taxing sales on the internet and taxes to support the UN. Unbelievably, with all these taxes, it is not enough for our federal government. No, they go out and borrow 40% more to spend.
Two commentors on the “internet sales tax” post said they thought this would lead to a federal VAT tax. That, my friends, is the last thing America needs. Here in Venezuela the VAT is 15%. It is a terrible burden especially for the 80% of the people who are just eking out a living. Spain just recently raised their VAT from 18% to 31%. Can you imagine?
Brian at Frankenstein Government is right. We can’t afford any more taxes! The workforce participation rate is the lowest in decades. Fifty percent of Americans pay no federal income tax. How can this go on?
I think if our average middle class American knew that 65% or more of their income was going to one level of government or another, they would revolt. At the very least, they should stop voting for Democrats. So, why aren’t Romney and Ryan using this information as a club to beat the Democrats?
I hope you will share this information with everyone you know. People need to understand what government is costing them. I’m going to put a sticky on this post and in the No. 1 position for couple of days in the hope that more people will read it.
Well, that’s what I’m thinking. What are your thoughts?
Asylum Watch 
Don’t wanna rain on anyone’s parade because I’m firmly in the camp that says big government takes far, FAR more taxes from citizens than is justified… but…
The above table does NOT exist in the its referenced location:
http://taxfoundation.org/article/facts-figures-handbook-how-does-your-state-compare-0
When I saw the 2013 federal tax rate listed at 28% that looked way to high to me. So I decided to track down the original source. And it isn’t there.
According to this table from a CNN article from January 2012 the average rate paid by the average taxpayer is 11% when all is said and done:
Taxfoundation.org has a very, very similar table in their article, but it is for 2009.
Taxes will be higher for 2013 because of the fiscal cliff… but not up to 28%.
I assume the 2013 estimates are with the payroll tax and Obamacare taxes and more. However, I am not buying your 11% figure either. That seems way too low to me.
Thanks for the link Jim. We end up paying more in taxes than we realize because we often forget about the costs which are passed on to us because of regulations and taxes which are imposed on goods and services by the government. But when you really look at it it is pretty depressing.
Depressing is right. Maybe even scary. How much more before the people revolt like Greece?
Very good work.
Your overall aggregate of 65% in total taxes for the “middle class” is close, but too kind. You give the taxman the benefit of the doubt in many taxes. One of them is the average sales tax of all 50 states which you estimate below 5% because you mix it with other consumer and state hidden taxes. The real average is around 8% (and that is not including any other consumer taxes and fees).
I would say that we are worse than France with an estimated total aggregate tax burden of around 70% for your definition of the “middle-class”, and around 75% for those upper middle classes that will hit the 36% bracket in 2013 (the upper 10% will hit 39.6% + 3.9% of Obamacare = to 43.5% – and they are packing to go to France).
We don’t want to be like France, France wants to be like us.
I can’t imagine anything more depressing than for the US to be like France.
As one who runs who own business, I am well aware of what a big chunk I’m losing right off the top.
And…the county taxes me on gross receipts — not on net income. It’s financial rape, I tell you!
Plus, because I make $24,000 a year (Isn’t that pitiful? And our investment income is less than $2000/year), Mr. AOW has to pay taxes on his Social Security Disability income of $14,400 a year. We got slammed the first year that Mr. AOW received SSDI as I thought it was non-taxable. In 2010, our net income after taxes and sky-high medical expenses was about $10,000 a year! Do the math. See how little we had left after $40,000 annual income that year! Out of that remainder, we had to pay grocery bills, utility bills, etc.
If we had owed house payment and car payments, we’d have gone under!
Sadly AOW, what happened to you and Mr. AOW demonstrates just how much government cares for people who are struggling.
Thanks for the link, Jim.
The issue of taxes depresses me greatly. The tax code is a monstrosity that allows the government to seemingly do whatever it wants to do. The sad part is, they seem to think it is fine and proper for them to take so much of our income. It needs to be repealed and replaced with something much simpler and fairer.
The tax code absolutely must be reformed; but we also need a broader tax base. That means we first need more people working and paying into the system. The Democrats seem to want fewer people paying more. That is basically what this election is about.
Wow, thanks for actually capturing more of the hidden taxes that most people never consider whenever they complain 50% of the people “don’t pay taxes” when it’s only true for income taxes. One I recommend adding is the inflation tax.
There are many people proposing repeal of the 16th amendment and all income/captital gains/interest/estate taxes along with all subsidies/deductions/exemptions and replacing the entire federal revenue stream with a flat 23%-25% sales tax. That should be sufficient to feed the federal beast alone to do what is enumerated in the Constitution as well as clear up all problems with them using tax code to dictate behaviors in every miniscule aspect of our lives. Every code change effects us all in many unintended ways.
The one example I like to use is the home mortgage interest deduction. While people were bemoaning the SCOTUS decision equating the individual mandate of the ACA with a tax, they deny that the home mortgage interest deduction essentially accomplishes the same thing, mandating that you buy a home w/ a mortgage to get your expense adjustments up above the standard deduction level or be penalized with a tax increase.
People mainly point at other government policies to put people in homes and insufficient or inadequate regulation for the housing crisis, while denying this deduction had a hand in helping to drive the housing bubble by incentivizing people to buy bigger homes with bigger mortgages, thus taking on more debt. It effectively mandates that those with means to do so participate in the mortgage market. That helped lead to the over-inflating of home prices and over-valuations by mortgage lenders above that to justify bigger mortgages. Whenever I bring it up, it meets with severe indignation from homeowners or else the deer in the headlights look where they just can’t grasp how this great thing causes them such severe harm.
I also like to call most government jobs “work for welfare”. The vast majority of them go to work all day and push papers around but don’t really build anything that creates wealth for the nation. Some even have the job of breaking things that work to replace them with other things that might or might not work. It’s all built on the broken window fallacy.
Frank, thank you for coming by and sharing your thoughts. I agree that all deductiond need to be eliminateI like the idea of a flat tac, but I doubt our democracy will ever pass one. Having said that, I don’t know what else to do but to keep trying.
All you can do is keep on trying to inform, Jim. Hopefully someday it will reach critical mass.
A lot of people get immediately get turned off at a proposed 25% sales tax because it seems so high compared to current income taxes. That’s because many can’t see how all the hidden taxes such as payroll taxes and corporate taxes add up cumulatively in each step throughout the supply-manufacturing-retail chain. Heck, I can’t even recall ever seeing educated analysts from think tanks trying to figure out the cost of hidden taxes ever document that, even though that information is readily available in annual reports of publicly traded companies. From mining companies, refining companies, sub-part manufacturers, final assembly, through retail outlets and all the trucking companies in between, all those taxes, regulations, labor costs, tax administration and lawyer costs all add up where the final retail cost of products are already at least 25% higher or more than they would be without such hidden taxes.
Just think of how many different companies that had a hand in creating the hundreds of components of your car. It’s mind-boggling. All those hidden costs will be gone and that 25% sales tax will be added on much cheaper products. The government has already taken over all industry through the tax codes and makes much more money than the meager margins legitimate companies make in profit per unit.
We should all end up paying even less because a sales tax will capture a lot more revenue from income of black market activities, like drug dealers and prostitutes, that is currently untaxed. Ever wonder why drugs are so cheap on the streets even with the premium added from all losses due to law enforcement confiscating a percentage?
It may sound way off in the distance; but what we need to do is get Romney elected and then start looking for our candidate in eight years. Mean time we must elect more Tea Party conservatives and when we make a mistake we correct it the next time around.
So the 25 percent federal income tax plus 13.3 Social Security and Medicare payroll taxes equals 38.3 percent going to federal taxes in 2012. And then there are state taxes. According to the Tax Foundation, the average state’s income tax rate for the middle-class taxpayer is 4.82 percent, which brings the total to 43.12 percent in federal and state taxes. And it’s going higher, thanks to the nearly $500 billion in tax increases for 2013 that some have called Taxmageddon. In January of next year, the federal income tax rate for middle-class taxpayers is scheduled to rise from 25 percent to 28 percent, and the payroll tax is scheduled to rise from 13.3 percent to 15.3 percent. This drives the marginal tax rate based on the aforementioned three taxes to 48.12 percent. Add in state and local property, corporate, excise, and other state and local taxes, and the percentage of each additional dollar that is taxed hovers around 50 percent. …It is outrageous that any dollar earned by a middle-class taxpayer would go as much to taxes as to supporting the taxpayer’s family. The government didn’t earn the taxpayer’s paycheck and shouldn’t be entitled to it. Oh, but this bloated, unconstitutional, bankrupt leviathan is a bargain at half the price!
Virginia! Virginia! Why?!
Serfdom wasn’t this bad. Sure, you had to give the Gentry or Lord a month or so out of the year to build some roads, bridges, or go to war but 50% of your income? — they would have rioted.
Do you mind if I steal this chart? Promise to link back.
Pleas do use the chart, Jason. I would like to see this information get to as many paople as possible.