Posts Tagged ‘Income tax’

INCOME TAX, n. A particularly painful form of economic sodomy inflicted upon the public during the IRS’s annual rutting season in mid-April.

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–from the revised and expanded edition of The American Heretic’s Dictionary, the best modern successor to Ambrose Bierce’s Devil’s Dictionary

American Heretic's Dictionary revised and expanded by Chaz Bufe, front cover

In Part I, we saw that the distribution of income and, especially, wealth in the U.S. is extremely inequitable, with the top 1% owning 42% of financial (nonhome) wealth, with the top .1% owning as much as the bottom 90% combined, and that the bottom 50% of the population owns essentially no wealth at all. As well, since total wealth in the U.S. is currently $81.5 trillion, average (not median–which is half above, half below) per capita wealth comes to over a quarter of a million dollars. Yet distribution of wealth is so lopsided that most people have almost no net worth.

We also saw that American workers–who have one of the highest average work weeks in the world, 47 hours–have seen their real wages decline nearly 10% since 1973, while productivity per hour worked increased by, on average, over 1.75% per year during the same period; compounded, that works out to an over 80% increase in productivity. So, American working people are producing far more than we did four decades ago, and are being paid less. Do the math, and it works out that to maintain the same average standard of living as in 1973, we should (assuming a 40-hour work week then) only be working 22 hours per week, had wage increases kept pace with productivity.

Other factors aggravate the disparities between rich and poor and between the number of hours we should be working and the number of hours we actually work.

One of those factors is taxation. Contrary to popular belief (promoted, notably, by the wealthy news models at Faux News), the poor pay more as a percentage of income than the very wealthy, who typically pay about 30% of their income as taxes.

Let’s take as an example a single person, let’s call him Bub, living here in Tucson working 40 hours per week for $10 an hour. (Wages are awful here–a number of my neighbors make under $10 an hour.) That works out to a gross income of $20,800 a year. Bub will pay 15% federal income tax on income above $9,225, and another 7.65% social security tax on the whole $20,800–if he’s self-employed, he’ll pay 15.3% social security tax. He’ll also pay 2.88% state income tax on top of his federal income taxes. So, if he’s self-employed, Bubba will be paying a combined income and social security tax rate of 33%; if he’s working for someone else, he’ll pay a rate of “only” 25% before taking the standard $6300 personal deduction. Take that out, and Bub’s income tax rate, if self-employed, effectively falls to roughly 27% if he’s self-employed, and 22% if he’s working for someone else.

Then there are other taxes. Since Bub will almost certainly be unable to save a dime, he’ll pay additional taxes on every dollar he makes (and spends). In Tucson, there’s an 8.1% sales tax, which Bub will pay on all purchases other than food and prescription drugs. He’ll also be hit, indirectly, for property taxes if he’s a renter–landlords simply bundle in property taxes with rents. Since the average U.S. household pays $2089 per year in property taxes, there goes another 10% of Bubba’s income. (To make matters worse, Bub can’t deduct a a penny of the rent he pays from his state and federal income taxes.) Then there are excise taxes. If Bub drives 15,000 miles a year and his car gets 25 miles per gallon, he’ll pay over $200 per year in combined state and federal excise taxes, another 1% of his income. And then there are the “sin” taxes levied on tobacco and alcohol. For simplicity’s sake, let’s say Bub doesn’t drink but is a tobacco addict smoking a pack a day. With the “sin” tax here of $2 per pack, there goes another $730 per year,  3.5% of Bub’s income.

Add it all up, and Bubba is paying roughly 40% of his income in taxes. Of course, the rich also pay the above taxes, but as a percentage of income they pay far less. Someone with an income of $1 million per year can live very comfortably on $100,000 per year. So, he’ll be paying only 10% of what Bub does as a percentage of income on such taxes.

This is all particularly irritating when you realize that “unearned income”  (basically capital gains) is taxed at a lower rate than “earned income.” In other words, those who work pay a higher tax rate than those who don’t. The capital gains tax for those receiving under $186,000 per year is only 15%, while the income tax rate for those earning over $37,000 is 25%, rising to 28% for those earning up to $186,000.  At an income of $400,000 the tax rate for earned income is 33%, while the tax rate for capital gains is 18.8%.

Making this still more aggravating is that many multi-billion-dollar corporate “persons” pay no taxes. Those who successfully avoided paying taxes last year include General Electric, Goodyear, Boeing, Verizon, Time Warner, Xerox, Weyerhauser . . . the list goes on.

So, while many mega-corporations pay no taxes, Bub and a great many average working Americans are paying a good 40% of their wages as taxes, not getting a hell of a lot for them, and are working far more hours than necessary as a result.

More on that in the next section, covering government waste.