Or should I say “Taxes” in the USA.
I’ve spent many 100’s of hours studying this. I’ve asked a few friends their opinion. Now I’d like yours…
What is the total amount we pay to the government, on all levels, local, state, federal, as a percent of our declared income from our paycheck. I’m not counting the income we’ve hidden or gifts. In other words total taxes divided by IRS earned income. It is different for everybody, and every category of people. For example it matters how much alcohol we buy, cigarettes, and gasoline. Sales tax. Property tax. There’s much more than just Income Tax, which is less than 1/2 of the total. Let’s also try to guess the average US citizen’s percent. The total taxes collected divided by all of our incomes?
For now let’s leave off Social Security FICA contributions. This amount is almost exactly 15% for everybody if you assume you’d be paid the employers portion instead of having it for your retirement. Some may argue we get this money back, but without interest. I assert since it’s mandatory, it is more like a tax than an optional retirement investment. The funds are mixed together with our federal budget. Either way we will keep this 15% separate and add it back in the end.
The Washington Post says our average federal tax is 2%. All the other taxes are much less. It’s never been lower! Do you believe this number?
It’s simple math to calculate the answer. Maybe you don’t have your paycheck handy to look at. Give me a range that you are sure of. The absolute minimum that it could be in your wildest imagination. The maximum that wouldn’t shock you. You can tell me the guess of your personal range. Then the lowest and highest amount in % for different people including your friends and coworkers.
How about marginal tax rates? This mainly applies to income tax. If you are rich you are more likely to buy luxuries which might be taxed more. Let’s assume you have a passive income of $50k. Therefore most of your earned income would be taxed at the higher marginal rate. In this case the income tax (excluding passive income) is the same as the marginal tax rate. This is only one way to look at it. I’m sorry if I’ve gotten the words wrong in this paragraph. I realize it’s complicated. I’ve composed it off the top of my head. Another way to look at it is how much of a salary raise do you get to keep? What if you work an extra hour of overtime this week? This marginal tax is much higher than your total income tax. One thing at a time, we’ll come back to this one.
Inflation and printing money is another form of indirect taxation. Borrowing to raise the federal debt. We’re not going to cover that here.
Could your total tax be 40%? 50%? There are at least 10 significant categories to estimate and add together. Still it’s 4th grade math. The data is all available online. What amount would upset you? What do you think is fair? How much of this is used to pay the interest on public debt? In Germany taxes could be up to 50%? Is America higher or lower? I believe most Europeans are aware of their true number.
Is it a secret here? Is it simple to calculate the Total-tax-for-the-average-American? How many people can estimate the correct answer? I bet almost nobody. Let’s find out. I think the range of answers, or guesses, will be quite wide.
Prize for the first correct answer! I’ll give you this same portion, after taxes, of $1 if you get it right. Minus distribution fees of course.
