Taxed Enough, Already!

COMMENTARY: Taxed Enough Already!
By Karen Farthing
Originally published 04:05 PM, Sunday Apr. 12, 2009
Updated 04:05 PM, Sunday Apr. 12, 2009

In honor of our Tax Day “Taxed Enough Already” (TEA) Party on the 15th, I thought that a discussion of who bears the ultimate responsibility for taxation was appropriate. Most people realize that we pay out an enormous amount of taxes, but has anyone actually thought about how much we really pay?

Let’s take income taxes, to start. As you know, the more you make, the more you pay. As a matter of fact, the top twenty five percent of wage earners in this country pay more than eighty percent of all income taxes collected. Note that these are individuals, not corporations. There is also a large percentage of the population who pay no income taxes.

Based on IRS tax data released for 2006 (the most recent data released), the top-earning 25 percent of taxpayers (AGI over $64,702) earned 68.2 percent of the nation's income, but they paid more than four out of every five dollars collected by the federal income tax (86.3 percent). The top 1 percent of taxpayers (AGI over $388,806) paid about the same amount of federal individual income taxes as the bottom 95 percent of tax returns.

That’s quite a few words to describe a relatively simple concept, so let me sketch it out.

Top 25 % (AGI over $65K)
$$$$

Bottom 75%(AGI under $65K)
$

Or, here’s a better illustration. The top 50% of wage earners (those earning more than $31,987 per year) paid over 97% of all income taxes collected, while the bottom 50% (those earning less than $31,986 per year) paid only 3%.

Top 50%
$$$$$$$$$$$$$$$$$$$$$$$$
$$$$$$$$$$$$$$$$$$$$$$$$
$$$$$$$$$$$$$$$$$$$$$$$$
$$$$$$$$$$$$$$$$$$$$$$

Bottom 50%
$$$

Your state and local income taxes follow roughly the same pattern.

If you’re anything like me, you’re probably surprised to learn where you fall on the wage earners’ scale. My husband is a police officer and I work in sales. Neither one of us makes a lot of money, but together we fall just within the top twenty five percent. We’re doing better than a lot of people, and I’m not complaining. But with five kids to raise, that money gets spent just as fast as we make it!

Now, if that’s where it stopped, I could live with that. Ours is a progressive tax structure, which means that those who earn more pay more, and those who earn less pay less.
But that isn’t where it stops. Here’s a short list (ha!) of taxes levied against us. It is by no means all inclusive.

Accounts Receivable Tax
Building Permit Tax
Business License Tax
Capital Gains Tax
CDL Tax
Cigarette Tax
Corporate Income Tax
Court Fines (indirect taxes)
Dog License Tax
Federal Income Tax
Federal Unemployment Tax (FUTA)
Fishing License Tax
Food License Tax
Fuel permit tax
Gasoline Tax (42 - 51 cents per gallon)
Hunting License Tax
Inheritance Tax
Interest Expense (tax on the money)
Inventory Tax
IRS Interest Charges (tax on top of tax)
IRS Penalties (tax on top of tax)
Liquor Tax
Local Income Tax
Luxury Taxes
Marriage License Tax
Medicare Tax
Municipal Insurance Tax (Homeowner’s or Renter’s Insurance Tax)
Occupancy Tax (Hotel Room Tax)
Property Tax
Real Estate Tax
Septic Permit Tax
Service Charge Taxes
Social Security Tax
Road Usage Taxes (Truckers)
Sales Taxes
Recreational Vehicle Tax
Road Toll Booth Taxes
School Tax
State Income Tax
State Unemployment Tax (SUTA)
Telephone federal excise tax
Telephone federal universal service fee tax
Telephone federal, state and local surcharge taxes
Telephone minimum usage surcharge tax
Telephone recurring and non-recurring charges tax
Telephone state and local tax
Telephone usage charge tax
Toll Bridge Taxes
Toll Tunnel Taxes
Traffic Fines (indirect taxation)
Trailer registration tax
Utility Taxes
Vehicle Insurance Tax
Vehicle License Registration Tax
Vehicle Sales Tax
Watercraft Registration Tax
Well Permit Tax
Workers’ Compensation Tax

I’m sure I could find a complete list somewhere, but this list was more than enough to make my point. We are taxed on just about everything. If government can require, regulate, or produce something, it can be taxed. We’re taxed when we earn, sell, buy, or die.

And then there are the taxes that we don’t even realize we’re paying, because they are included in the prices of the things we buy, or they result in reduced wages or benefits. I’m going to lapse into what my husband calls “geek speak” for a minute, but bear with me, okay?

There’s a term that economists use – incidence of taxation – to describe who ultimately bears the responsibility for paying taxes. There have been multitudes of studies using various methodologies (all with really long, complicated titles), and there is absolutely no consensus on what methodology is most accurate. So I’m not going to discuss them in depth. (If you’re an economist and you’re reading this article, feel free to e-mail me and tell me how I’m not giving a complete discussion of the incidence of taxation.) I’m going to discuss, in a general way, how taxes levied upon businesses cause the business owner to act.

Let’s assume that you own an energy company, and you produce electricity. You sell your electricity to a distributor, who sells to the end user. You are taxed by the government for every unit that you sell. The first thing you’re going to do is try to avoid the tax. You are going to employ a platoon of tax experts to find you a loophole. Those tax experts directly affect your profitability, so you have to raise your price per unit. Unfortunately, there is no loophole to be found, so you have to pay the tax. At this point, you can do one of two things – raise your price, or decrease wages/compensation to the people who work for you. You could also do both.

Since you’re the only producer of electricity for your area, you can raise your price and your distributor will pay it. The distributor then raises his price (because now he’s paying your taxes, his taxes, and his tax experts), because his end user can only get electricity from him. So, the end user assumes the responsibility for paying your tax and the distributor’s tax. And, oh yeah, he’s going to be taxed again. So the incidence of tax in this case falls on the consumer.

For the next example, let’s say that you own a factory that makes bread. You are in direct competition with a bunch of other bread makers. You sell your bread to a wholesaler, who sells his bread to a retail supermarket chain, who sells their bread to the consumer. Your utility rates just went up, so now you have to figure out what to do to keep your price competitive. It costs you more to make each loaf of bread, but you can’t raise your price too much because you would price yourself out of the bread market. You decide to raise the price of a loaf of bread just a little, and to lower the wages you pay your employees just a little, in order to make ends meet. Thankfully, your factory isn’t unionized so you can get away with this. Now, no one is happy, but at least you’re still in business. At this point, the incidence of taxation has fallen on labor, but it doesn’t stop there. Since your price went up, so did the price your wholesaler pays. Your wholesaler increases his price, and then the retailer increases his price. So, indirectly, the incidence of taxation again falls on the end user – the guy who buys your loaf of bread.

Are you seeing a pattern here?

Corporations and businesses do not pay taxes. Sure, they hand over a chunk of change to the government every quarter, but they have passed that tax responsibility on to the next entity in the chain. It then gets passed and passed and passed until the consumer pays it, and gets taxed again. Taxation is the ultimate con, because it doesn’t matter where the tax is levied – the only winner is government.

So the next time you hear someone say that corporations and businesses are greedy and need to be taxed more, remember who actually pays the tax - me and you.

Our tax structure is irrevocably broken and labyrinthine. We pay and pay and pay, and our government spends and spends and spends. Now they’ve not only spent our money, but that of the next three generations, as well. Please join all of us at our TEA Party on tax day, April 15th, and make your voice heard. Enough is enough!