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Tuesday, May 10, 2011

What Pecentage Of Americans Pay Taxes?

This statistic is commonly quoted and incredibly misleading. The fake statistic is "51% of Americans pay zero Federal income taxes".

They are only referring to 1040 income taxes. They are not referring to the payroll tax (Social Security and Medicare tax). Everyone who works on-the-books pays Social Security and Medicare taxes.

Via the "Earned Income Tax Credit", some very-low-wage earners get a full or partial refund of payroll taxes. However, this refers to the employee-paid portion and not the employer-paid portion.

Some taxes are paid by the employer and not the employee. Those taxes still come from the pool of money that would otherwise be available for salary. For example, unemployment insurance tax is paid by the employer, but not the employee. Salaries are lower by the cost of the unemployment tax. Unemployment taxes are collected by states and not the Federal government, but state unemployment insurance law is influenced by Federal law.

There also is the inflation tax, paid by everyone who uses FRNs as money. Even if you have credit card debt and no savings, the inflation tax still hurts you. Your salary doesn't keep pace with inflation and the 20%+ credit card interest rate is much closer to true inflation compared to what insiders pay to borrow (typically 6% or less).

When you buy gasoline, a large component of the price is tax. When you buy alcohol and cigarettes, taxes are a large component of the price. There are many hidden Federal taxes, in addition to the Federal income tax. Unlike the income tax, most of these hidden taxes are regressive.

The worst tax is the hidden "non-free market tax". Suppose your salary is $10/hr, but in a really free market you would earn $30/hr. You're paying a 66% non-free market tax. You never see that money. Some of that wealth is destroyed by inefficiency. The rest disappears as higher profits for insiders.

The non-free market tax affects prices when you buy things. For example, expensive health insurance is caused by the Federal law that artificially restricts the supply of doctors, by limiting the number of slots in State-licensed medical schools.

There are many indirect taxes that a typical slave pays. Most of these taxes are hidden. The non-free-market tax is the biggest tax and best-hidden tax. It is misleading to say that 51% of the people pay no Federal income tax. There are many other hidden and indirect taxes.


DC said...

Good post. As an example I noticed a new charge on my electric bill called the "economic transition charge". I thought to my self WTF is that? After some research I discovered it is a new state tax to cover part of the projected state budget deficit.

It is very clever for a government to place small taxes on all goods and services instead of large taxes on a single voting block. It is the mark of an experienced thief.

Scott said...

Thanks for bringing this up, it really ticks me off when "we need moar tax" argumenters ignore actual taxes paid and focus on some specific tax.

I also assert that people who don't admit FICA is 15% of your salary are too dumb to vote. A lot of people want to claim that "the employer pays it so it's not a tax you pay". It's a tax on your income that is paid to government, what else would it be. If the "employer share" was 1000% of your income these same sheeple would stupidly proclaim "the US has no taxes".

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