I received the following forwarded e-mail from a friend. Are the nuumbers contained in it correct? Do Americans really pay 50% of their income to taxes?
I don’t know how one could figure an overall rate, but some of those internal figures are clearly wrong.
For example,
FEDERAL ALONE, DIRECT INCOME TAX IS ABOUT 30% FOR THE POOREST AND LOWEST TAX BRACKET…
The lowest income Americans pay no federal income tax and less than 1% would pay 30% of adjusted income. In order of a single person to pay 30% in federal income tax, his adjusted income after deductions would have to exceed $312,000.
Property tax 5%? That would mean a household with $50,000 would be paying about $2,500 a year. Some might pay that, but I think that would be the exception rather than the rule.
The 5% property tax figure looks about right to me. Mine is about 8%.
There’s also other license fees, fishing, hunting, dogs and cats, marriage, business…
If you’d like to get really mad about taxes, figure out how much state and fed tax comes out of say $5,000 of income. Then take what is left over and use it to improve your home. First you need to buy a building permit. Then you need to hire a professional, who probably has to pay for a license of some kind. Then you need to buy building materials and pay sales tax on that. And then, when it is all done, you’ve increased the value of your home, so you now pay tax on that added value for frickin’ ever. You’re even actually paying taxes on money that you spent to pay taxes. GAH!
From the OP:
Minimum income tax rate for one who pays taxes = 15%
Social Security tax 7.5% x 2 = 15%
15% + 15% = 30%
And don’t forget to add in what you pay in state income taxes and sales taxes.
Whatever the actual income tax numbers are, they are too high–because the framers of the Constitution felt an income tax was so utterly unthinkable, considering what they’d just gone through to get out from under the jackboot of government, that they deliberately left it out of the document. Sixteenth Amendment be damned.
Thank God there’s yet ANOTHER resolution on the House floor today to scrap the unintelligible and wholly unfair income tax code, repeal the dastardly 16th, kill the IRS forever, and substitute in its place the sanity of a consumption tax that’s FAIR for everybody. (Yes, the poor still get exempted, of course. They thought of everything.) More revenue for the government, and far less stress and money and time wasted on the part of those who support said gov’t. More important, no threat of home invasion and consfiscation of all one has worked to acquire by government agents. (If Jefferson and the other Founding Fathers only knew this was happening, right now, right here in the USA, with our complacent permission, they’d be spinning so hard the sod from their graves would be showering down upon us from the sky.)
(No doubt will follow the usual chorus of replies about how great the “progressive” income tax is and what a fool anyone is to support a national sales tax. The only reason he’s a fool is that it won’t ever get passed: special interest groups getting tax breaks from members of Congress will see to that. And, Joe Citizen might not like being reminded of how much he’s paying for government vs. the value he’s getting from government every single time he buys something. But the concept of paying one’s taxes at the cash register, saving billions of dollars and billions of man-hours annually in tax preparation is sound nonetheless.)
Not a tax advisor here, but it looks like the numbers in the OP include a bit of double-dipping and over-estimation.
For example, social security and Medicare are 6.2% and 1.45% contributions, respectively. This amount is paid by both employee and employer, so the total amount is 2*(6.2+1.45) = 15.3%. The OP implies a bit more. The 15% is of your base income, of course, and not of the total including employer contributions (of which the percentage would be slightly smaller), but that’s a minor point. There’s also a legitimate argument over whether the employer’s contribution should be included as part of your income, as it’s not certain that, should FICA be abolished, your employer would automatically increase your pay; however, let’s ignore that.
The lowest level FEDERAL tax rate is 10% (down from the previous 15%), but that’s not 10% of your TOTAL income – that’s 10% of the amount you make over the minimum taxable amount. What with exemptions, and deductions, and minimum income, people in “the poorest and lowest tax bracket” aren’t paying near 15%, or even 10%, of their income in federal income tax. Hell, I’m paying about 15%, or a little less, of my income in federal taxes, and I’m far from “the poorest and lowest tax bracket.”
State sales taxes in no way averages 7.5% – the average appears to be more like 5%. In addition, most states exempt food (and prescription drugs). Finally, remember that this tax applies only to money you spend purchasing items – you don’t pay sales tax on, for example, money spent on other taxes, or on rent/mortgage payments. So that 5% isn’t 5% of your total income, and implying so is disingenuous.
The fuel, property, and utility taxes seem about right, but the state income taxes seem perhaps a bit high, particularly if you’re talking about “the poorest and lowest tax bracket.” Many states have, like the feds, progressive tax brackets, as well as exemptions and deductions.
And finally, the point about manufacturers paying tax on their income is again disingenuous. Manufacturers pay tax on their profit, not their income. Of course they pay other taxes, too, and that’s a cost of business, and that gets passed on to the consumer, but the way it’s stated here is misleading. How that affects your personal tax burden is probably a debatable subject.
So what does it all add up to? How much do “the absolutely LOWEST tax bracket Americans” pay in tax? Well, they pay 15.3% FICA/Medicare – including their employer’s contribution. But they pay zero federal income tax. They might pay something like 3% state income tax, but that would vary a lot state-to-state and income-to-income. They probably pay 5% or so in property tax. That’s around 23% now. And they pay some more in sales tax, gas, tax, utility tax, etc – but only on the income they spend to purchase those things. Let’s say that’s another 2% of total income. That adds to 25% of this person’s income, still including the employer’s portion of FICA/Medicare.
Those numbers are completely bogus. One simple reason: you can deduct state taxes from your Federal income tax. If you live in a state (or non-state like mine ;)) that has a high income tax (IIRC, DC’s is about 9% on income less than $100k), that can be a substantial amount of money.
Furthermore, if you have children and modest income, the Earned Income Tax Credit will wipe out a chunk of your Federal taxes in one swoop. Remember George Bush bragging about his tax cuts by using the example of a family of four earning $40,000 would pay something like $1,000 in income tax? Well, the example is accurate, and even if that family includes all the state, property, FICA, and sales taxes in the world, their effective tax rate isn’t going to get anywhere near even 20 percent.
Lastly, the Congressional Budget Office does studies on Federal tax burden. The numbers are slightly misleading, because the taxes paid for persons in various income groups can sometimes be all over the map. For example, a single person with no children will pay several times more in Federal taxes than the hypothetical family above. People who smoke three packs each day while commuting hundreds of miles will pay more in Federal excise taxes than the Mormon who bicycles to work.
What the CBO says is that the overall Federal tax burden for each American is, in 2004, 19.6 percent. In 2001, before the tax cuts, it was 21.5 percent. The Federal tax burden for the lowest quartile of income earners is 5.2 percent, while the top one percent of earners pay 26.7 percent. Look for Table 2, halfway down.
This, of course, doesn’t include state and local taxes, but I don’t think anyone in their right mind is arguing that those taxes exceed Federal tax rates.
The recent California recall election encouraged the San Franciso chronicle to do a piece on how much taxes Californians pay compared to the rest of the nation. The result showed that we pay not nearly as much as other states:
sorry, browser errors prevent me from using the proper link button above.
And really, compare the US as a whole to other countries, such as the Scandanavian region (read: Sweden in particular) where they have much higher tax rates and excellent social programs to show for it, not $2 billion dollar stealth bombers that can’t fly in the rain. 
In 2002, total government receipts on all levels (federal, state, local and considering social insurance receipts separately but counting them in the total) from all sources amounted to 26.2% of GDP. (cite)
Huh? That report shows that you pay more than most other states, just not as much as some think you do and not as much as you used to back before Prop 13.
I am confused why everyone keeps including the employer’s matching contributon in the amount of income tax they pay. Maybe I see it differently because I do my own payroll for my own company…
If I write a $1000 paycheck out for our guy who makes about $45k a year (I do this in Quickbooks, so the deductions are automated) he ends up with $715.50. Roughly $300 or 30% (note: I am sure he gets a pretty good refund). That means as an employer, I get to “keep” $300 of this $1000. But I don’t keep it for long because when the 15th rolls around I have to give this $300 to the gov’t as my “matching contribution.”
So it’s not 60% or $600 being lost here, it’s the same $300. If it was 15% there wouldn’t be $300 coming out of his paycheck and then me passing it on to the gov’t, just $150. Just because I am “matching” contributions doesn’t mean the tax levied on his paycheck is doubled…
Maybe I just see it differently because i’m right in the midst of the cashflow of our VERY SMALL business (money comes in, paychecks and taxes go out, that’s it) but if income taxes were lowered, we wouldn’t be issuing larger paychecks - the gov’t would just be getting less of the total.
hyjyljyj, if you want to challenge or support the numbers on this thread, feel free. If you wish to attack or support policies, please start your own thread in an appropriate Forum.
Thanks,
[ /Moderator Mode ]
The fundamental problem with the email is the author probably had his 50% plus number right from the start, possibly taken from a comment the man next to him in the bar.
Then he proceeded to think up some WAGs to justify the percentage. He didn’t study the thousands of pages of tax code, do research or any math. A bunch of WAGs become a SWAG – a statistical wild ass guess.
Another example - up to 40% of the price of gas is federal and state gas tax. The state gas tax, within a few pennies, range between 8 and 30 cents a gallon. The federal tax is 18.4 cents. If you add the 30 and 18.4, and divide by .4, somebody is buying gas at less than $1.22 a gallon.
Here is another report which arrives at figures similar to those cited by manhattan, but slightly higher: 29.8% in 2002, dropping to 27.7% in 2004. The difference arises because this report divides taxes by NNP instead of GDP. If you follow the link to the full PDF report you can read their defense of that choice, as well as a lot of other interesting information about state tax burdens and tax burdens in other countries.
As for the glurge in the OP, it’s complete poppycock, littered with so many factual and mathematical errors that it isn’t even worth debunking (and I say this as a staunch anti-tax person). As intellectual discourse, it’s on a level with “If you forward this e-mail, Bill Gates will see that a dying girl gets a new kidney”.
IIRC, the Bush Administration is looking into repealing this deduction, because some states with little/no state income tax felt it was an unfair benefit for residents of states that do. It’s already being called the “Screw the Blue States” initiative in some circles.
Does anyone pay 50% of their income in taxes?
Under today’s tax system, one would most likely have to be among the highest tax brackets and have exceptionally poor tax planning advice; ie, an individual is failing to deduct state taxes, mortgage interest, etc.
It is worth noting that until Reagan, the top tax bracket was 70%. That top bracket has also been lowered from 39.6% in 2000 to 35% today, which applies to those making over $315k.
Somewhat off topic, but it floored me when I first learned that the top tax bracket before Reagan was 70% (having previously been reduced from 91% (!) during the Kennedy Administration). My question is, did anyone every really pay that much in tax? I can’t imagine what incentive anyone would have had to put in the effort to earn a salary in the top bracket if they only got pennies on the dollar.
Some of you are making a very serious mistake here. Those who make large amounts of money can afford to pay brokers, lawyers, and accountants to set up tax shelters, foreign bank accounts et cetera.
When you see a number that seems ridiculous, remember that is a tax on what they have been unable to hide from the government.
Looking at a recent paycheck statement, I see that my “visible” tax works out to about 24%. We’re married, we rent, we have just my income, and we let her ex claim my stepdaughter.
My income is somewhat above the average locally, and considerably so nationally. I can’t see how they’re justifying this 50% figure.
The thought (and I used to have my own small business & pay my employees too) is that you pay out in total cost what you think the employee is worth. The total cost you pay, to them and the gov’t, represent the marginal value to you of their services, plus your ROI.
meanwhile, the employee gets to keep only his/her takehome pay (net of the difference between taxes witheld and taxes actually owed when the return is filed).
100% of the difference is tax. People can argue about whether the tax is paid for by the business or by the worker, but it remains the case that if yoo have an employee whose salary is $1000/mo, then you are spending,say, $1200/mo to employ them, and your hiring/firing decisions are based on their value to you vs. $1200, not vs. $1000.