Feel like you are working ‘round the clock for nothing? You may be right. And the culprit? The hundreds of taxes you pay every year for the privilege of working.
It is no secret that Americans work more than almost any other nationality. Ask someone how work is going and they’re likely to reply that they’re tired and burnt out. Yet, many still aren’t taking their paid time off. Ever wonder why?
At least one motivation is to make more money. The concept is simple enough. Work more, earn more, buy more.
But in spite all of this work, most Americans spend one third of their week simply trying to make enough to pay their taxes. That means for every hour you work, you work 20 minutes just to pay the IRS. Just like the former governor of New Mexico, Gary Johnson pointed out, it can feel like your money is getting wasted in the process:
“People don’t realize that the federal Department of Education gives each state 11 cents out of every school dollar that every state spends. But it comes with 15 cents worth of strings attached. Federal government says you need to do A, B, C and D and here’s 11 cents. Well, to do A, B, C and D it costs you 15 cents.”
Couple the large cut the government gets on every dollar earned with the sheer volume of taxes we pay, and it becomes obvious why so many people feel overwhelmed by tax policies.
Feel Like You Are Always Paying Your Taxes? You Are!
The variety and nuance of the taxes we pay is mind-boggling. The most obvious culprit is the federal, state, and city income tax you pay on every dollar you earn. Then, there is the sales tax you pay on every product or service you buy. And, the legions of other taxes, tariffs, and duties on just about every financial transaction you take part in. If you feel overwhelmed by that complexity, you are not alone.
In general, taxes fall into three main categories: income, property, and goods and services.
- Income Tax: A few of the taxes that are included under this category are payroll taxes like FICA, capital gains taxes both long- and short- term, and taxes on dividends and interest. They’re also the taxes that you pay out of every paycheck. Generally, they are levied on both the payor and the payee.
- Property Tax: The second type of tax is the one most Americans are well familiar with: taxes on real estate and personal property. Again, these are not uniform across the country but you are probably familiar with paying an annual tax on your car or your home.
- Sales Tax: The third type is of more immediate effect on pocketbooks: sales taxes, again not uniform nationally. Sales taxes are also arguably the most burdensome and regressive because they represent such a disproportionate amount of disposable funds to low-income people. Necessities such as food and gas are often taxed; and then, products like cigarettes, alcohol, even sugary drinks are further taxes thanks to their status as “sin products.” Many argue that these are a form of social engineering by the government to deter specific types of behavior.
The Uncertain Certainty of Taxes
Our tax code is so complex--and its credits, deductions and exemptions so convoluted--that the vast majority of us are stumped when it comes to threading our way through them. With enough resources, you can hire a team of experts to parse it out. But what about people without the means to pay somebody?
The same logic applies to other taxes. For example, corporations can hire expert lawyers and accountants to section out their holdings and leverage their business transactions for tax credit, so that in the end, they pay very little. In other words, while the rest of us are paying 30+% of our income back in taxes, some corporations (like Facebook, for instance) end up paying about 10% of theirs.
And, it’s no accident that clever attorneys and accountants are expensive: they more than pay for themselves for those who can afford them. It takes a whole lot of book learning to be able to worm your way through a 74,600+ page document.
So where does that leave our small business owners? It’s hard enough to develop a product, bring it to market, produce it consistently and continue to innovate. Add to that a complicated tax code and it is easy to see why so many people shy away from entrepreneurship in the first place.
After eight years as a special education teacher at Riker’s Island and in the South Bronx, I know firsthand that the fear of filing forms was the number one obstacle in getting my kids to start selling legal products. It was hard to ignore the appeal of ever-present cash businesses with no paperwork--in other words, the drug industry.
The Bigger Picture
Of course taxes are painful to every earner--business owner or worker. While the IRS continually cutting its budget for doing things like collecting back taxes or discovering tax fraud, our country finds itself unable to collect even those revenues that are owed. Is the answer in a flat tax? Many would argue yes. Is one likely? Perhaps not considering the interests that are entrenched in seeing the current system perpetuated.
But what is more disturbing is that the government has been unable to balance its budget in decades, resulting in today’s national debt of $20 trillion (plus the other $74 trillion in off-balance sheet debt). If the government cannot collect enough via taxes to cover its expenses, then it has two choices: create more paper money or borrow money to pay is bills. Either way, it’s our future generations who are on the hook for that unfunded spending.