The Firefly Challenge: Prove 40% tax rate!

Great Debates
1

Lately, there’s been a run of posts claiming that the average American is subject to an overall tax rate in excess of 40%.

Prove it, and the duck comes down and gives you $50.

Constraints: ‘typical’, for purposes of this challenge, means median income, median number of children, and otherwise most prevalent circumstances with respect to family structure, homeownership, consuming and travel habits, etc.

‘Taxes’ is all-inclusive: income, sales, gasoline, property, social security/medicare, what have you. But if taxes paid by one person (whether or not the person is of flesh and blood) are attributed to another, proportional income of the one person must be attributed to the other as well.

Right of rebuttal and counter-rebuttal is assumed; I’d be happy to abide by the decision of a judging panel of respected posters if we can get volunteers.

2

After Federal tax, state tax, social security tax, disability insurance, medical/dental insurance (not technically a “tax”, but virtually one), and possible one or two others, my paycheque is almost 30% lighter.

I don’t keep track of sales tax or the various taxes on gasoline, so I don’t know that percentage.

Still, 30% is a lot.

3

If Joe Average is single, owns a home(will call it’s worth 100k), makes about $40,000 a year (Ibbotson figure,) drives 15,000 miles a year in a sport ute, if his household belongings are valued at half the worth of the house, and their replacement rate is 10%, if he buys or leases a new car on average every five years, I’d be interested.

If he drinks or smokes its a cinch.

Does Joe Average sound ok?

4

And those are…?

[By the way, you mentioned “average” in your first paragraph, and then switched to “median”. Which is it?]

5

Lib: ‘average’ is regarded by statisticians as a term that can refer to any one of several specific kinds of averages, including mean, geometric mean, median, mode, midrange, various weighted averages, whatever’s appropriate.

If you’re trying to find out what’s true for the bulk of people, then a median or mode is more appropriate than a mean.

Scylla - you tell me. If smokers are more prevalent than nonsmokers, go with smokers. If single people are more common than marrieds, go with single people.

Johnny - private insurance doesn’t count.

6

Sorry to be dense.

The alleged claims are about “the average American”, implying, I think, an individual. Then you mention family things, like “number of children”, “family structure”, etc. So, do you mean something like the average head of a household? Or, excuse me, the median head of a household? Or what?

Once we know what you mean, are we then to track down the median for every minute aspect of that American’s life, find the median factors among the thousands of disparate state and local tax codes, and then argue with you until the cows come home about whether things like license fees count?

For fifty lousy dollars?

7

Well I do not know about the typical American. I tried using the general numbers for taxes around here (gas tax is lower than in other areas, property tax is lower etc.) and using what I believe is the median income for Atlanta and assuming that the family has a modest home 100K (which is a small home in Atlanta) and a family of 4 with just one car (which it is almost impossible to only have one car in Atlanta) I came up with a figure of over 38% tax paid. If I assume that the family has two cars, then the number is above 40%. I imagine that GA is one of the cheaper states to live so I would venture a guess that it would be roughly the same all over.

This is all the proof I am going to give, so I do not want the money. I just want it known that I do not believe that the 40% is very far off, at least around here.

Jeffery

8

Hey, people were putting up various figures (40.3%, 47%, etc.), with absolutely no backing, which if they were going to cite it, they should have done for free.

I’m just putting in the fifty bucks to ‘put my money where my mouth is,’ so to speak. Any more than that, I’d have to clear with my wife, which might get tricky, since she thinks I’m too involved here anyway.

No, you don’t have to track down every last thing. But you do have to provide enough substantiation so that it’s clear that you’re talking about something approximating the typical adult American experience with taxation, and not some anomaly.

BTW, median household income in 1998 (the last year we’ve got the numbers for) was $38,000 and change, according to the Census Bureau.

9

I might add that homeownership is far more typical than renting. This leads to property taxes, but also to a pile of deductions, and deduction of state and local income taxes, personal property taxes (where applicable), and the like.

10

Okay. Well, does the typical adult American live in Tennessee or Massachusetts?

11

Don’t forget, when doing these calculations, to take the HIDDEN EMPLOYMENT TAXES on the average American’s paycheck into account.

That is to say, you know how an employee’s pay stub shows 7.5% of his income going to Social Security (FICA) and Medicare? Well, it turns out the Employer is required to “match” that 7.5% of his gross pay, and pay that amount to the Social Security and Medicare administrations. There’s also a 4% unemployment tax and a 1-2% State Disability Insurance tax in many states. So if an employee’s “gross pay” is, say, $10,000, his employer is actually paying a total of about $11,400 for his services – the extra $1400 being money that could/might otherwise be going into the employee’s pocket.

The truth, as always, is more complicated than that.

12

Do we also include the marked up taxes that are part of the purchase price of the goods we buy? Before the sales tax, that is?

13

Here’s some numbers from Canada, which are overall about 7% higher than the U.S. across the board, as I recall.

Let’s see - my gross pay last month was $4570. After-tax takehome pay was $2960.

Of that $2960, I pay $133 in property tax on the house, leaving $2827. Of that, about $1000 made it into the bank. The other $1827 went to car payments, house payments, groceries, etc. $100 or so went to gas, with a 27% tax. $27. There’s a 7% sales tax on the other $1727, or another $120.89

So far, I’ve paid $1890.89 in tax on $4570, or about 41.3%.

HOWEVER, my employer had to make matching payments on my Social Insurance and UI deductions, which is a hidden tax on me. (if he didn’t have to, I’d make that much more). Add another $134.

Now, looking at my bills, there are several taxes on my utilities, amounting to $35.

Everything imported into Canada carries various duties, and all items are charged GST (then I get to pay GST AGAIN when I buy it). So many of the fixed goods I buy (car, tools, electronics, whatever) are actually taxed about 14%. I buy about $5000/yr of that stuff, so call it $450/mo. Add another 7% of this, or $31.50

So now I’ve paid out a total of $2091.39 on $4570, or 45.7%.

Now, how much extra am I paying on all the goods I buy, when the trucks that ship them have to pay taxes on gas, the companies have to pay taxes on profit, etc. ad nauseum?

Incidentally, I live in the province with the lowest taxes in the country. Those in most other provinces pay an additional 6-8% provincial sales tax on top of the 7% federal sales tax, and they pay 3-5% more in income taxes. It wouldn’t surprise me if the overall tax rate for someone in Ontario with an income of $55,000 was close to 60%.

The Fraser Institute in Canada estimates that the average Canadian is taxed right around the 50% mark. My figures seem to bear this out. I’m in a slightly higher tax bracket than ‘average’, but I’m in the lowest-taxed province.

14

Take a look at this tax study from The CATO Institute. They claim the ‘average family’ has a total tax rate of about 38%. At least at the time of this study dated April 15, 1998.

15

If you hire a maid, and pay the matching Social Security/Medicare tax of 7.65% of what you pay her, then you can claim that tax in figuring out what proportion of your money you pay in taxes. She can’t.

If you make stuff, and pay taxes on the materials or whatever, you can claim those taxes in figuring out what proportion of your money you pay in taxes. Your customers can’t.

Good question, actually. I’m not sure how to deal with that. States have vastly different systems of taxation - some of them rely heavily on income tax, others on sales tax, others on a mix of the two. Some sales-tax states tax groceries, others don’t. Some states have high income and sales taxes; some get by without either one.

The point, of course, is that posters keep citing these percentages, giving no sources. I figured it was the duty of the posters to either back it up with rigorous calculations of their own, or give their sources, so I could see if they had their numbers straight, or were full of it.

UncleBeer, you’re the first one to give me any sort of reference on this. I’ll try to read the Cato study you cited, as soon as I can stop ROFLMAO at the opening two paragraphs.

It’s making the usual ‘if the employers weren’t taxed like this, the money would go straight to the workers’ argument that always makes me think of Blanche DuBois and the kindness of strangers. The purpose, of course, being to justify attributing taxes paid by employers to the workers. And, of course, the very first paragraph:

Uhhuh. Executive compensation has been skyrocketing; no squeeze there. It’s not like corporations pay the executives out of one bucket of money, and the workers from another. Could it just have something to do with who’s got economic power and who doesn’t? (I know; I keep on cynically coming back to the question of where power resides. Rulers love people like me, as Lib recently said.)

Since I’m starting into the Cato piece already, I notice that their standard of reference keeps changing. Here it’s an “Average Manufacturing Wage Employee”, another place it’s “a median-income two-earner family”. Let’s see - employee v. two-earner family; blue-collar v. overall; how else can we mix different categories until we’re comparing apple pie with orange juice? Man, this is amazingly sloppy work.

Well, I’ll try to read the rest of the Cato stuff tonight, and critique it more fully tomorrow. :smiley:

16

I don’t know that this is true, Firefly my friend. In California the figures I’ve heard suggest that 60% of the state rents and 40% owns. I’d bet that figures varies state by state, though. Anybody know where to go find either a site or a cite for that?

-Melin

Siamese attack puppet – California

Still neglecting and overprotecting my children

17

RTF, before you rip me a new corn chute tomorrow, please keep in mind that I’m not defending that particular study. I’m as interestd as you in finding out just how much tax I pay. I merely provided a link to hoping we could end some of the speculation here.

I’ll read it more closely and see if I can find some other viewpoints. As you probably know, but if not this will give you a frame of reference, the CATO Institute is a Libertarian think tank. I do not consider my self a Libertarian, but a conservative Republican, as a further guidepost.

18

Melin, here’s some fourth quarter 1999 data from the U.S. Census Bureau on housing ownership vs. rental.

And here’s a link to the page from www.census.gov

There’s a lot more there, it’s a gov’t study after all, but I’ll let you dig out exactly what you want from this page.

19

RTF,

The percentage I posted of 47% was in a book I am reading, suprise, suprise, suprise, “Why Government Doesn’t Work” by Harry Browne. These stats are graphed from 1902 - 1994.

Before you get your undies in a bunch he received his statistics from the U.S Bureau of the Census series " All Governments—Summary of Finances"…

20

Sorry, Uncle. I hadn’t meant to slam you about the article; I’d meant to thank you for the cite, and slam the article. Reminds me that I need to read what I’ve written before hitting ‘submit’, because that’s not how it came out. My sincere apologies.

Techchick, I was unable to find a ref to “All Governments—Summary of Finances” on the Census page. I’ll keep poking around, though. And I might be able to find something in their library, if I can get a chance to duck over there in the next few days.

Here’s the Census’ page summarizing State and Local Tax Revenue. I’m still mucking around with how to handle it in a consistent manner, because off this page, the most recent Federal stats were 1994 - pretty dated, IMO, though we could go back there. Maybe the IRS site has more up-to-date numbers; won’t get time to check tonight.

Still, let’s take a rough cut. I’ve been trying for ages to find a site with the GDP figures - lots of sites have the quarterly change in GDP, but no amounts. But my recollection (from the newspapers) is that in fiscal 1998, the GDP was in the $8-8.5 trillion range. If that’s about right, and we had a $1.7 trillion balanced Federal budget, and $770 billion in overall state and local taxes, that’s 29%-31% of our GDP going to taxes.

This doesn’t mean it’s impossible that people of median income are paying 40%. But it would mean that, if they were, they’d be picking up somebody else’s slack in a serious way.