Recently, I had a post about “Dumb Taxes”, which is a term author Keith Cunningham used to talk about penalties or setbacks you experience by doing dumb things. One subscriber thought I was talking about actual taxes – like income taxes.
I thought I would post the facts about income taxes in the US and some thoughts on the matter.
We all need to pay taxes to pay for things we collectively use and need – like roads, schools, and defense. Elected officials decide who pays taxes, who gets the money, and where it goes. So, it stands to reason that if all people pay taxes, they would care about which elected officials they vote for and what those officials do. If someone pays no tax, they would not care about policy the way someone who pays a lot does. And if someone is not a payer of taxes, but a receiver of benefits, it stands to reason that they would vote for whoever will continue their benefits or give them even more.
A tax is an incentive. Just like paying a 10-cent deposit on a bottle gives me an incentive to return it to the store to get my 10 cents back, paying tax is an incentive to try to pay less and to care how it is spent, and receiving benefits gives me an incentive to continue receiving them.
Generally, when you tax something, and the higher you tax it, the less of it you get. Like income.
Does that make sense? Do we all agree on the above?
Ohhhkaaay.
We hear a lot of talk about certain groups paying their fair share. Again, politics is all about who pays and who gets.
So now let’s look at the facts about our federal income tax.
The average American worker pays low tax compared to the average worker in other countries. Here’s a list –
United States 31.8%
Ireland 40.8%
Sweden 47.8%
France 51.5%
Belguim 56.1%
Wow! Imagine living in Belgium, and 56% of your pay goes to the government. I think at some point, the incentive to work at all, or work much, is greatly reduced. Sure, there is probably free this or that, but you have no choice.
(It is my observation that the government does not spend money efficiently at all, because they are spending OPM – “Other People’s Money”. That’s another subject.)
Ok, so let’s look at the rates American workers actually pay, and the share of income taxes paid in different earning groups.
First, let’s look at the taxes paid by Americans in terms of the percent of their income that they pay for each decile of income earners.
(The second decile pays negative income tax, meaning they collect benefits instead of paying anything.)
Bottom 10% .1%
10-20% -4.8%
20-30% 2.8%
30-40% 7.6%
40-50% 10.1%
50-60% 12.1%
60-70% 14.4%
70-80% 16.9%
80-90% 20%
Top 10% 27%
Top .1% 33.4%
Now let’s look at the share of total income taxes paid.
Bottom 50% 3%
Top 25-50% 8.4%
Top 10-25% 13.4%
Top 5-10% 10.2%
Top 2-5% 19.9
Top 1% 45.8%
This is only federal income taxes. In addition, taxpayers pay state income tax. The states with the highest income tax rates are California at 13.3%, Hawaii at 11%, and New York at 10.9%. Florida, Tennessee, New Hampshire, South Dakota, Alaska, Nevada,Wyoming, and Texas have no state income tax, though they may have other kinds of taxes that are high, like property taxes, gas taxes, sales taxes, etc.
Then there is sales tax, which you pay when you spend your money. Louisiana has the highest with 10.1%, and Tennessee with 9.61%. Some states charge higher-income people more like the federal government does. For example, in California, lower-income people pay 1%, and higher-income people pay 13.3%.
Then there are property taxes on real estate and cars….
The last thing I would say is that politicians, in an effort to solve all our problems and win votes, spend much more than we pay in taxes. This is irresponsible and poor leadership. It has been going on for decades and has left us in a huge hole. We don’t seem to want to vote for anyone who wants to cut programs, benefits, and cut spending – so politicians never say it and never do it. We can not delay gratification. We owe about 34 trillion in debt that we pay interest on. This year, the interest is over 1 trillion, which is 14% of federal spending and growing.
So those are the facts. I make no other comments on the matter here. This is Think Daily. It’s something to think about.
Did you learn anything today? What are you thinking about?
Tell me with the orange button!
Good post. I think you could have been more effective by giving an example on how you calculated the 2 percentages and making it incredibly simple and incrediblt transparent. Our politicians use statics every day – and shap them to make them or their cause look good by manipulating or misrepresenting the data. Thank you.
I’ve always know this. It used to be taught in schools. People also assume we’re the only county with a welfare system which is not true. Taxes and death, both are inevitable.
I appreciate your daily post. I think this one only tells part of the story. First, as a comparison to other countries, every other country on the list provides universal health care. Second, you mention sales tax, but it is important to note that for some lower income people sales tax makes up a significant portion of income. Third, no one escapes payroll taxes, flat rate, capped for higher income people. Fourth, you ignore wealth. At the highest wealth levels, people borrow against their assets, take little salary, and consequently pay small tax bills. Lastly, there are lower income people who receive money from the government, but higher income people get large breaks on their tax bills. Examples, deducting business expenses, deducting capital expenses, 529 savings for college, deduction of mortgage and loan interest, the list goes on. I don’t advocate for discontinuing any of these. It’s worthwhile to point out that if they didn’t exist percentages would change. For the ultimate deep dive into this topic, not just the US, consider reading Capital in the 21st Century by Thomas Piketty. It is a dense and long read, but gets into the fine details. Cheers!