Are taxes too high?
Posted at 2:45 PM on May 11, 2010
by Bob Collins
(17 Comments)
Filed under: Economy
Today's fastest-moving story on the Internet is the study that purports to show that we really aren't paying the taxes we think we're paying, we're paying fewer taxes now than we have since 1950.
As with most swift-moving stories, there are some hard-to-fathom numbers, and truthiness depends on an individual's particular situation.
It started on the personal finance column on USA Today's Web site, citing a study from the Bureau of Economic Analysis:
Some conservative political movements such as the "Tea Party" have criticized federal spending as being out of control. While spending is up, taxes have fallen to exceptionally low levels.
Federal, state and local taxes -- including income, property, sales and other taxes -- consumed 9.2% of all personal income in 2009, the lowest rate since 1950, the Bureau of Economic Analysis reports. That rate is far below the historic average of 12% for the last half-century. The overall tax burden hit bottom in December at 8.8.% of income before rising slightly in the first three months of 2010.
According to USA Today -- there's nothing on the Bureau of Economic Analysis Web site to refer to -- the average household making the average income -- $102,000 -- paid over $3,000 less in taxes in 2009.
But the 9.2% figure is hard to swallow.
First, Social Security takes 6.2% of your income right off the top and you don't get it back until you retire, if the system is solvent at that point. The fact you may not get it back for several decades doesn't ease the bite.
That leaves 3% left to be consumed by all other taxes, if the report is to be believed, and we know that's simply not true.
The Medicare tax alone is 1.45% (the employee's share) of all wages, and it is soon to go up to 2.35%.
That leaves .75% to be consumed by all other taxes.
For an average family making $102,000. That's $765.
Do you drive a car? That's about $100, $35 of which you can deduct from your itemized deductions on your federal tax return (returning about $12 to you in all). And that doesn't include the "fees" Minnesota imposes on top of the registration "tax."
Even if we just take half of the average miles driven per year -- 7,500 -- and generously figure a car gets 30 miles per gallon. At a tax rate of 40.4 cents per gallon, that's $101 in gas taxes.
And there's still cigarette taxes, liquor taxes, homeland security taxes, and we haven't even started our federal or state income tax returns yet.
The USA Today story says one reason the tax bite is low, is because of the federal stimulus package. But that's part of the "we're taxed too much" complaint; that it's a bill that will come due in the future, not a handout without incurred debt. It also says we paid less sales tax in '09 because of the downturn in the economy.
But as with many statistical exercises like this , it's an average. A few weeks ago, we heard that over half of Americans don't pay any income taxes. Is that you? Probably not. It probably isn't the people who are complaining about high taxes, either.
As with every average, an individual's "mileage may vary."
Comments (17)
That's pretty close to the percentage my spouse and I paid last year.
I can't remember the last time I actually paid (or had withheld) income *tax*. Sure, Medicare/SS/etc., but not income tax. I'd gladly pay $500 more a year between state and federal, but I won't donate it. Call me hypocritical.
That being said, I'd like to see a much higher tax burden on the top 1%.
Bob, you are being a little obtuse here. You are excluding all the different credits that reduce tax burdens (EITC, working family tax credit, child care tax credit, mortgage interest deduction, education credits, etc.). When you start to balance out what folks actually pay after deductions and credits, I'm sure the average is correct. Some may pay more, some may pay a lot less (or none at all), and some actually come out ahead. However, on average, people are paying a lower percentage of their income to taxes.
I believe I heard it on Prairie Home Companion: Tax and spend Democrats; borrow and spend Republicans.
btw, I think social security is a separate accounting item and isn't in the general budget. If so, it may not be in the 9.2% figure (and wouldn't part of the 1950's comparison either).
"-- the average household making the average income -- $102,000 --"
There is no average family. But there is a median family. If you use the median family, I suspect the numbers will work out.
"It probably isn't the people who are complaining about high taxes, either. "
Don't be so sure. My mother complains plenty about high taxes, but she doesn't even need to file. Her income is low, and she does very little spending that is subject to sales tax. Her property taxes are extremely reasonable due to the rebate. Too much Fox News, unfortunately.
I'm not trying to be tough on my Mom here. She and Dad paid their fair share in their earning years, but I don't recall any complaining then. In fact, my Dad used to say "No one ever went broke from paying taxes". What ever happened to that attitude?
This $102,000 "average national household income" number appears, after a fairly thorough Googling, to be simply made-up and completely bogus.
The mean household income is around $60,000, and the median household income is around $45,000.
The problem is the "complaining" isn't just about high taxes. It's about spending too.
And while the anti Tea Party crowd is sending this study around today as evidence that they're wrong, it easily could be sent around as evidence that they're right, because all you'd have to do is show a graph on government and spending and -- obviously -- the two lines would not match.
That said, both sides suffer from the same disease, which is biting off small pieces of an argument instead of the actual one.
A discussion about the net effect of taxes is pretty irrelevant without a corresponding discussion about spending.
Tyler:
You don't pay ANY income tax? What's your secret?
Want to switch?
How can you not pay income taxes? Even tax 'deductions' don't eliminate taxes - they simply drop you into a lower tax bracket.
As bsimon points out, there is a median (the number which is in the middle, regardless of how big the spread is) and there is a mean (the arithmetic average). These provide two very different pictures.
Some use the average, since it's higher; some like the mean, since it's lower. Just pick the number which makes your opinion look better.
I pay income taxes. I don't mind paying taxes. Where else is the government going to get the money to pay for the schools, the roads, the mass transit, the judicial system, emergency services, etc.?
Of course it's tax and spend - do you seriously think the government is going to tax and save? I don't want my taxes stuck in a savings account, I want them to pay for my kids' school (etc.).
If you don't like paying taxes, then you should stop using public services which require them. This is capitalism - supply & demand. If there is less demand for government services, they will provide less. oh, yeah, I guess they're providing less no matter what ...
Social Security is capped at $106,000 so our über-rich don't pay Social Security on their earnings over that amount (they do on the Medicare portion). That alone would drag down that 6.5% quite a bit as the top ten percent of Americans earn a very large share of our national income.
Bob, the numbers are correct. You're trying argue your way around them without doing your homework. I think that with very little digging you'd find that the massive transfer of wealth to the top 1% under Reagan-Bush-Clinton-Bush has grossly distorted these numbers.
The richest one percent of Americans owned 35.6% of all wealth in this country as of Dec. 31, 2010. The bottom 90% of all Americans saw their share of the wealth drop to 25%, almost all of that home equity and retirement savings. (I'll spare you the math, the next richest 9% hold the other 39.4% of all American wealth.)
Most of money made in this country isn't taxed, or is taxed lightly. You're right that YOU paid more than 9% of your income in taxes last year, but you're forgetting that working people make less and less of our gross income each year as the CEOs and shareholders suck up more and more of our money, leaving less on the table to be taxed.
Median American income, btw, is about $50,000 per household. 1.93% of all households earned over $250k last year. Obviously the folks at the very top are distorting income and taxation averages much like a black hole distorts passing rays of light. Oddly, newspapers and news orgs like MPR spend very little time sorting out these numbers and accounting for how they are distorted by the "winners" at the very top.
My math is right but my dates are off. Make that Dec. 31, 2009.
The article states that Social Security isn't included by the BEA as a tax--it is classified as insurance payments. Removing that 6% (plus the medicare, i assume) makes these numbers feel less skewed.
And that brings us back to the question I asked on Twitter at the start of the day -- does the study include just "taxes" or "fees" and other classifications.
Under this theory, the solution to our problems is simply to stop calling things "taxes."
The late Republican Minnesota Governor Elmer L. Anderson put it well: “Paying taxes is like going to a store. You don’t go to a store with the purpose of spending money. You go to obtain something you need or want. Taxes aren’t a loss of money; they are the price of essential services. … [A]s matter of fact the taxes people pay are probably the best investment they make.” When we pay our taxes we pay for things we use that make life better for us and for all of society. We pay for police, firefighters, bridges, roads and sidewalks. We pay for schools to educate our children and turn them into our future leaders, innovators and caretakers.
Think about this the next time someone tells you that we should be paying even less in taxes. Think about all the services you use every day that are paid for with your tax dollars. Think about the classrooms that have 35 kids in them. Think about the children who don’t have music or athletic programs to participate in and think about how much you enjoyed participating in those programs when you were a child. Think about all the good things, from clean drinking water to Social Security, that are made possible with your tax dollars. Then think about cutting those services, and realize how poor our lives would then be.
Bob, as Chris mentioned and you commented on, Social Security taxes aren't included in the figure as the BEA classifies them as insurance payments.
You should correct your post where you talk about SSA "takes 6.2% of your income right off the top" because it is inaccurate.
You bring up a worthy point about what we consider and define as taxes, but if that's your argument you should update the post to reflect that position. Don't cast doubt on calculations you find hard to reconcile with calculations that are hard to reconcile.
I'm certainly not going to "correct the post" as that's the entire point. Our committments -- our payments if you will -- that are required by law ARE taxes and you can't separate those committments from "taxes" in categorizing a family's personal finances just because you name them something else.
It would be like requiring someone to pay 50 cents for a pack of cigarettes and calling it a "fee" instead of a tax.
People reacting to their personal finances, aren't reacting to a category, they're reacting to the total package.
Social Security NEEDS to be part of the study and it needed to be part of the data back to 1950 because it's a critical component, especially as salary caps were lifted.
All of the required payments to government need to be considered in assessing whether we "pay too much." Otherwise it's just another survey that has no real purpose.
BTW, I figured out my taxes today. Without Social Security, 12%, not including any sales tax, fees, registration fees, Medicare etc.
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