As people scramble to beat the tax deadline this year, they might, in a moment of existential fancy, wonder how much they actually pay in taxes. Not only income taxes, mind you, but all taxes. It is often difficult to tell because so many taxes (e.g., sales and utilities) are paid out in small amounts, over time, and because few people bother to save the receipts.
I am now one of the few. To get a better idea just how much an individual pays in taxes, I conducted an experiment during 2003. I collected everything that listed a tax on it. This included my paycheck stubs, sales receipts, and phone, utility and cable bills. Keep in mind that I’m in my early thirties, earned just under $40,000 last year, am not married, and have no children. I rent an apartment, so I do not pay property taxes directly.
The table below displays the total amount I paid in taxes, broken down by type. Income taxes take the biggest bite, with FICA (Social Security and Medicare) taxes running a not too distant second. In total, I paid $9,434.72 for 2003, or 23.9 percent of my income. That’s more than one dollar in five sent to state, local, or federal governments. Here’s a breakdown of the taxes I paid in 2003:
The total of $9,434.72 is a low ball estimate because it excludes some very important taxes. The gasoline tax is not listed on gasoline receipts, and was thus excluded from this study. The price of regulations does not appear on any receipt, yet a study by researchers W. Mark Crain and Thomas D. Hopkins shows that the burden regulations impose on American households is quite high. If those two were included, my real tax burden could easily be as high as 30 percent.
It’s also illuminating to break down the individual tax bills, and see just how many levels of government have their hands in the till. For utilities I pay a state, local, and school tax on both the electric and gas portions of my bill. On my cable bill I pay a sales tax, franchise fee, and regulatory fee. On my long-distance telephone bill I pay a city sales tax, a county sales tax, a state sales tax, a carrier universal service charge, a carrier property tax, and federal excise tax.
My local telephone bill takes the cake with a federal access charge, a federal universal service fund charge, a federal charge for service provider portability, a 9-1-1 emergency surcharge, a school infrastructure tax, federal tax, and one more state/local tax for good measure. Is it any wonder people are switching in droves to cell phones?
WHAT DO I GET for all the taxes that I pay? I get the protection of the police, fire department, and military, for one. I also get to use the roads, although the gas tax pays for roads and, as noted above, the gas tax is not included in my tax bill.
Since I’m not 65, I receive no Social Security or Medicare. Since I am not poor, I receive neither welfare nor Medicaid. I have no children, so public schools are of little benefit. Nor do I receive any farm subsidies, corporate welfare, or National Endowment for the Arts grants. In short, much of my income goes to government programs that do not directly benefit me.
While few would dispute that government must perform some functions, it is reasonable to ask how many of those functions are necessary. Society would not fall apart if we did away with corporate welfare, the National Endowment for the Arts, the Corporation for Public Broadcasting, or farm subsidies.
Then there is the issue of fairness: As a group, seniors are the most affluent in our society. Why should a worker be required to pay for the retirement and health care of those seniors who are not indigent? And even for those services that are necessary, we need to ask what we are getting for our money. For example, we’ve spent more and more tax money on education over the last 30 years, but we have little to show for it.
Thanks largely to the Bush tax cuts the tax burden has declined in recent years. According to the Tax Foundation, Tax Freedom Day — the day when Americans have earned enough money to pay their total annual tax bill — came on April 11 this year. That’s down from May 2 in 2000. That means, according to their calculations, that after three successive tax cuts, government is taking more than one dollar in four of our income.