Taxes, how much we pay

I know this isn’t the place to talk about taxes, there are plenty of sites that do that already but I’d like to tell readers about something that happened during my trip to Indiana University at Bloomington last week. To get to the university I had to take a car ride from Indianapolis to Bloomington. For those of you have never been, Bloomington it is a very quaint university town with more varieties of restaurants per square foot than I’ve seen in most major centers. Sometimes I think there is more choice in this little town than we have in Seattle. But back to the story. My driver was a lady, somewhere in her late 30s, who I could tell loved to talk to her passengers. I had about 50 mins to kill so I though I might as well keep myself occupied. It turns out that she was a very angry person, one of those many Americans today who have failed in recent years to active the American dream. In fact by the sounds of it, her dream had gone into reverse. She was angry with the system and especially the government and in many respects I had to agree with her. At the same time she was also a little misinformed on a number of topics.  The one particular case I want to mention was her statement that her tax bill was 50% of her income which she was particularly angry about. I found that difficult to believe, so that evening I decided to figure out how much I actually paid in taxes. The only items I missed out were the gas tax and road tax, mainly because I hardly use my car these days and the road tax is quite small (about $5 per month). Here are the relevant percentages I extracted from my pay cheque:

Health Insurance 1.85% + 8% Employer contribution
Pension 23.5%
Social Security 4.1%
Medicare 1.4%
Federal Tax. 8.5%
Property Tax 3.2%
State Income Tax 0%
Retail Tax 9.8%

A couple of points. There is no state income tax in Washington State and I put a lot into my 401k. The big surprise is the level of taxation. If I add up the tax components we get:

Total Tax Percentage on Gross Income: 27% (I don’t include pension of health care as a tax since they are my choice).

I will get the social security and medicare back when I retire so that isn’t money I permanently ‘loose’ to the government. If we take these out I am left with 21.5%

I was surprised, given the fuss people make about their ‘high’ taxes, I was expecting something much higher, say around 35% to 40%, but in fact what I find is, by Western standards, a very modest tax rate. For this relatively small amount I get in return:

1. Liberty and freedom of expression
2. Probably the best military machine in the world
3. The best higher education system in the world
4. The best R&D machine in the world
5. Roads, including the interstate
6. A police force, law courts and prisons
7. Fire brigade
8. High school education
9. Wonderful state and federal parks
10. Environmental protection and monitoring
11. Comprehensive weather forecasting
12. NASA !
13. Social security
14. A health service when I retire
15 Food stamps for the hungry
16. Public libraries
17. Museums
18. Public Radio and TV (Masterpiece Theater!)
19. FBI/CIA
20. Student college scholarships and loans
21. Clean water
22. ……and many others I have left out

Not a bad deal really.

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3 Responses to Taxes, how much we pay

  1. MozInOz says:

    One thing I like is that in the USA/UK/Oz surveys regularly find that the overwhelming majority would rather pay more tax, get better services, and have a more equal distribution of wealth. They also believe they pay more tax, receive fewer services and live in a more egalitarian society than they actually do. They’re quite dramatically wrong in the US, but still significantly wrong in other countries.

  2. hsauro says:

    Thanks for your comment. It is odd that I have to include things like clean water or environmental protection. We are so used to them that people don’t think of them anymore but we have them because of taxes. Many of the things I listed are now under threat particularly environmental protection which the GOP want to eliminate altogether. I’ve lived in the US for 11 years and the UK for more years than that. The point I was trying to make was that my tax bill in the US actually quite low compared to what I paid in the UK, it isn’t ‘high’ as many people in the US think. I was quite surprised how low my federal tax bill was. People here don’t quite realize what a good deal they get from their government. I would prefer to see taxes rise a little so that we can protect the things I’ve listed.

    On other points, the US higher educational system is very productive, more productive then most other higher educational system in the world. Just go by the number of citations and the impact US science has. I would consider that the scientific and technological output of the US as one of its defining aspects. Granted they get a lot of their output from foreigners who emigrate to the US but in return the country also provide the resources.

    As for the 47% you computed that ‘s my fault, In the 27% I didn’t include health or pension because these expenditures are *my* choice to make, I don’t have to pay into a pension or have health care. The 27% therefore reflects the payments I must make, namely taxes. Now some of these taxes I also get back, eg the social security and medicare. Health care here is very expensive compared to other advanced countries (Again, something most Americans don’t realize).

  3. MozInOz says:

    I’m surprised at some of the things in your list of what you get, and also by your tax maths. I get that retail tax is only on your spent income, and property tax presumably on your house(s), but the rest of it would be easier if you split out what’s actually going into the 27% total figure. When I add up everything down to and including federal tax I get 47%? Also, in most advanced countries the health insurance would count as tax, but it would also be less than half what you’re paying so it’s hard to compare.

    With the “what you get” list, most of those are available in every advanced country and some are available in every country. I think 3, 13, 14 are debatable, mostly because of the caveat “(primarily available to the rich)” that applies to them. From what I know 10 and 21 are only true for some areas or for non-colloquial definitions of the terms. If your social security system worked food stamps wouldn’t be necessary, so I think they count as an admission of failure. 2 and 19 are negatives. 5, 8, 10 and 21 are problematic unless you think that having anything at all, no matter how awful, is a win. I mean, sure, if you’re in Afghanistan or somewhere that the infrastructure is actively being attacked by military forces, but I didn’t think that was the case in the USA.

    Have you spent much time in other countries? Your list reads a bit like the internal propaganda in the US, rather than coming from someone who has living in a variety of countries and is reflecting on that.

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