Wednesday, July 28, 2010

TAXES!!! Are we really OVER TAXED like conservatives claim?

Taxes, Taxes, Taxes.  Its that dirty five letter word that elicits grumbles and raises blood pressure.  So, lets face it, nobody likes to pay taxes but most realize that it's the price we pay to live in a democratic and free society.  Our taxes provide the lubrication for interstate and intrastate commerce by building and paving our roads and a few other intangibles tied to our national economy.  They pay for our military, national security, and law enforcement which provides for the national defense and protects the citizenry. 

Our taxes also provide for the general health and welfare of the country so that we can respond to emergencies, natural disasters, outbreaks of communicable diseases, ensure fair wage and labor standards, and even provides for universal education up to the 12th Grade.  This universal education part is probably the most important because once we passed laws for compulsory education, we became the most productive nation in the world. 

We work hard and expect a lot from our multiple levels of government (Federal, State, and Local) for the taxes we pay.  So, when I hear phrases from conservatives and tax cut advocates like "Over Taxed" and "Overly Burdensome" when referring to the taxes we pay, I have to ask:  Compared to what? 

I came across a CNN Opinion Article last night written by John Avlon, who also writes for the Daily Beast.  In it he makes several great points about Goldwater-Regan Conservatives circa 1964, and that if they were running for office today as a "Conservative" they probably wouldn't be elected to Dog Catcher for their support of "Liberal" policies like how Regan raised taxes by a Billion dollars to close a state budget gap while Governor of California.  Or how both Regan and Goldwater supported Gay Rights.  Let's not forget that Regan was an Organized Labor man, being the President of the Screen Actor's Guild for a time. 

So, when it comes to taxes and do we pay too much to the Federal Government, what exactly is too much?  I came across the web site for the Tax Foundation (which is a conservative groups) and came across a publication on their site with the Federal Tax Rates from 1913 to 2010.  One thing that jumps out is that we are paying a lot less in Federal Income Taxes than we did back in 1964.  There are two side to the issue of Tax Liability/Burden/Responsibility:  what we think we pay and what we actually pay. 

In several conversations I've had over the years with conservative friends of mine, the general perception is that we pay close to or over half of our income in taxes.  That covers Federal, State, and Local taxes.  In a short conversation/Facebook chat I had last night with a friend, he estimated that he payed about 45% of his income in taxes.  If we are just looking at Federal Income Tax for 2009-2010, the top marginal tax rate of 35% kicks-in at $373,650 of earned income.  He clarified and made sure that I included all taxes, so here we go: 

Federal Income Tax for 2010  (Tax Bracket and Earned Income - Filling as Head of Household) 

35%          $373,650 and higher 
33%          $190,550 to $373,650 
28%          $117,650 to $190,550 
25%          $  45,550 to $117,650
15%          $  11,950 to $  45,550
10%          $           0 to $  11,950

Federal Income Tax for 1964  (Tax Bracket and Earned Income - Filling as Head of Household) 
(Selected Tax Brackets and Income Levels)

77%          $200,000 and higher 
71%          $100,000 to $120,000 
61%          $  52,000 to $  60,000
39%          $  18,000 to $  20,000 

Well, you can see my point and if you want to pour over a very boring chart with lots of numbers, click on the link above to the Tax Foundation's Tax Chart from 1913 to 2010. 

For anyone that owns a home or has a home equity line of credit, you are able to deduct the lion share of the mortgage interest, so that cuts down on your taxable income.  Child Tax Credits, Primary Care Giver Health Care, etc...  The point here is that with all the available credits and deductions, a person's taxable income at the federal level is reduced even further. 

In the Commonwealth of Virginia the top marginal rate for State Income Tax is 5.75% and that kicks in at around $20,000 of earned income.  So, everyone making that much money a year or more pays the same State Income Tax Rate, and this is based off of your ADJUSTED Gross Income from your Federal Tax Return. 

Federal Gas Tax is 18.4 cents per gallon.  Then states tack on their gas tax. 

Virginia's State Sales Tax is generally around 4% or 4 cents for every dollar spent. 

Then there are Local Taxes (Personal Property and Local Sales Taxes).  In Chesapeake, you will pay $1.04 or $1.05 per $100 of assessed value on your property/house (the difference in the two rates depends on if you live in an area where they spray for mosquitoes or not).  If you own a home assessed at $200,000 you will pay something like $2,100 per year to The City of Chesapeake, which goes primarily to fund the schools, teacher salaries, and Administration. 

In Campbell County, the Personal Property Tax Rate is around $0.42 per $100 of assessed value.  That same $200,000 house in Campbell County will be taxed at around $840 per year. 

Then you pay local sales taxes, which varies from locality to locality.  And then there are the other fees and assessments the Commonwealth of Virginia and localities charge its citizens. 

The bulk of tax payers are in the 25-28% Federal Income Tax Bracket.  According to my "back of the napkin" math, taking into account all taxes and potential fees paid, a person's total tax liability/burden/responsibility is in the range of maybe 35-38%.  Compared to the 1964 Top Marginal Income Tax Rate of 77% which kicks-in at $200,000 or the 61% Income Tax Bracket at $52,000 of earned income, OUR TAXES ARE LOW

So, where is the wealth redistribution and Socialism?

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  1. Look at the corporate tax rate, transfer pricing, corporate deductions and credits, etc. and you'll see that our personal income tax subsidizes much of corporate America and capitalism. Perhaps that's where you'll find the wealth redistribution and socialism.

  2. Yeah, can't dispute that but when most people are groaning about their taxes they arn't looking much farther than what they see on their pay stub.

    By corporations shifting their tax burden onto it's customers all they are doing is making us pay their taxes while they rake in the profits.

    There are some that advocate for a total elimination of all business/corporate taxes and just raise the personal income tax and eliminate all exemptions and loopholes. Don't know if I totally embrace that but it's something that's out there.