How Much Do We Pay in Taxes?

How Much Do We Pay in Taxes?

The amount that we pay in taxes is hidden from us by dividing it into various streams; we pay income taxes, sales tax, employment tax, social security tax, snack tax, sin tax, and special taxes on special goods.  It is enlightening to realize how much we pay in taxes.  As an example, I will consider a home owner making $100,000 per year living in Los Angeles (my home city).  (This is approximately the salary of a maintenance man, a school administrator, or an experienced blue collar worker.)

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Estimated income taxes for this person are approximately $32,000 ($18,000 for federal income tax, $6,000 for state income tax, and $8,000 for FICA) [1].  FICA is a tax used to fund Social Security and Medicare.  Our earner’s after tax income has dropped to approximately $68,000 per year with income taxes alone.

Our homeowner must pay property taxes, which is 1 percent of the assessed property value.  A two bedroom / two bathroom house in Valencia, CA (a suburb of Los Angeles; a great place to live but not affluent) costs approximately $550,000 [2].  Thus, our homeowner will be paying approximately $5,500 per year in property taxes.

California collects a 7.5% sales tax on any new vehicle.  If our sample person purchases a $30,000 vehicle every five years, then he pays approximately another $500 in vehicle sales tax per year.

Health insurance, now mandated by the government, was deemed a tax by the Supreme Court (and therefore constitutional) [5].  A Bronze plan by Kaiser Permanent (a most modest health care plan offered through Covered California, California’s implementation of the Affordable Care Act) costs approximately $12000 per year [6].

Sales tax in Los Angeles is approximately 9%.  However, a great deal of food is not taxed.  Hot foods and foods served at a restaurant are taxed, while cold foods and packaged foods are not [7].  If we permit our example person to purchase $10,000 of cold food per year, then the sales tax paid on the remaining expenditures is $2500.

There are many more taxes for our person to pay: Alternative Minimum Tax, Waste Management Tax, vehicle registration fees, gasoline tax, sin tax, marriage license fee, federal and state inheritance tax, telephone taxes, taxes on air transportation, television cable and satellite tax, and many others [8].  Even without accounting for these taxes, though, our example person pays over half of every dollar he owns on taxes!

If our person were an employee rather than a business owner, then the employer would be required to pay many taxes on behalf of the employee.  For example, the employer would be required to pay for unemployment tax, workman’s compensation insurance, and OSHA standards.  The employer may pay for health insurance rather than the employee.  From a different reference point, these are additional taxes paid by the employee.

Imagine you were a founder of the country; think of all of the services you would like the government to provide: national defense, roads, education, etc.  Now ask yourself, “How much would I be willing to pay for those services?”  I have conducted such a survey; my (extremely informal) survey of both liberals and conservatives ranges between 10% and 30%.  We pay over 20% more than even our most liberal desires.  Notably, during the 9/12/2012 and the 9/22/2012 Republican debates, no republican candidate would specify a limit to the taxes that he/she would impose when asked directly for that limit [9,10].

The sample person I chose is certainly not impoverished, but he/she also isn’t wealthy.  At a salary of $100,000 per year, it would have taken our person much of his life to purchase the home he/she now owns.  With a 30 year mortgage, the total cost of the home (including interest on a loan) would be approximately $1.5 million.  One might imagine that the additional costs of any children’s educations and his/her retirement would leave little for vacations, home appliances, and other indulgences.  And yet, we require this person to give over half of what he/she earns to the government.  One would hope that the government would impose this burden with extreme care and that government officials would spend tax dollars sparingly in hopes to let people retain as much of their earned wealth as possible.  A quick look at any government budget shows that this is not the case [11].

 

[1]  https://smartasset.com/taxes/income-taxes#Wm9EkhEuGs

[2]  https://www.redfin.com/zipcode/91355  (accessed in April of 2018)

[3]  http://www.sandiegouniontribune.com/business/energy-green/sd-fi-california-gastax-20170413-story.html

[4]  https://www.carinsurance.com/Articles/average-miles-driven-per-year-by-state.aspx

[5]  https://www.cnn.com/2012/07/05/politics/scotus-health-care-tax/index.html

[6]  apply.coveredca.com (accessed in April of 2018)

[7]  https://www.salestaxsupport.com/blogs/state/california/is-food-taxable-in-california/

[8]  https://www.balancedpolitics.org/editorials/100_taxes_you_pay.htm

[9]  https://youtu.be/8DsMX3yboWQ?t=2624

[10]  http://transcripts.cnn.com/TRANSCRIPTS/1109/12/se.06.html

[11]  https://ndworkblog.wordpress.com/2018/04/02/federal-and-family-budgets/

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2 thoughts on “How Much Do We Pay in Taxes?

  1. I once calculated that $.51 of every dollar that came into our home went to taxes. I’m glad you verified this.
    Taxes would not hurt so much if the government entities were not always in the red, overspending, increasing spending constantly, and giving themselves raises in their income (paid by our taxes).
    Thank you for making taxes so clear.

    Like

  2. A comment from a reader:
    The latest CA assault—gas tax—is worth adding to the tally. When you add the hidden cap and trade fee of $0.15 per gallon to the posted tax of $0.77 per gallon, the average driver will pay $700 per year.

    Like

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