A copy of the US tax code. (left)
Taxes. Who doesn’t love to gripe about how high or how unfair our taxes are in the United States? The problem, however, doesn’t just lie in how much we are taxed (too much) but also the reason why we are taxed – and those reasons are not always what you think.
The government devotes a significant amount of effort into fooling you to believe that you are not paying as much in taxes as you truly are, not to mention obscuring how much everyone else is paying (or not paying as the case may be) in taxes. If you had any doubt as to the web of tax code complexity, one only needs to look at the number of pages in just our Federal Income Tax Rules — a staggering 73,608 pages as of 2012 (according to the Cato Institute). Yes, you read that right - 73,608 pages.
Now, compare that number to the mere 400 pages it took in 1913; surely this suggests our basic method of obtaining money (working and investing) has drastically changed in the past 100 years, Thus, we need more laws to fairly capture that — right?
Just consider this: due to the sheer complexity of the federal income tax, complete with deductions, credits, penalties, exemptions, different schedules, filing status’ and other variables, no one is sure of what anyone else is paying. Worse yet, in order to comply with our current federal income tax, Americans can expect virtually no privacy. Your business has no privacy. There is a price tag attached to everything, and everyone, in your life. Then there’s the rising cost of compliance by spending time filing, or paying someone to file, your returns. Even then, are you ever sure that you did it 100% correctly?
Often heard is the story of how Al Capone was brought down. Everyone assumed he was guilty of racketeering, extortion, and murder — but there was no solid evidence that would result in a conviction in a court of law. In the end, the District Attorney’s office turned to the IRS and caught him on tax evasion. That story is always told as if it’s karma or a badge of honor by the justice system for being creative instead of what it truly is: the scary reality that if you can’t honestly convict someone of a crime, you can always fall back on the convoluted and invasive income tax code to arrest them. Are you really sure of every return you’ve filed in the past seven years? Are you truly confident in its accuracy?
And that’s just one form of taxation the government levies. Other ways the government taxes the individual:
- State income tax
- Local income tax
- Employee social security tax (your employer pays the other half)
- Employee Medicare tax (your employer pays the other half)
- Property taxes
- Road toll charges
- State sales tax
- Driver’s license renewal fee
- TV Cable/Satellite fees & taxes
- Federal telephone surtax, excise tax, and universal surcharge
- Federal inheritance tax
- Gas/electric bill fees & taxes
- Water/sewer fees & taxes
- Car Registrations
- and the list goes on and on
Between the complicated big taxes, the myriad of small taxes, and the literally endless list of fees (which are taxes) — does anyone here actually know what exact dollar amount they are paying in total? How about specific amounts to the federal, state, and local governments? Is your Medicare tax higher or lower than your state income tax? How about an idea of what your neighbors pay?
Couldn’t come up with an exact figure for any of it? Neither could I and the government likes it that way. Politicians love complexity in the system because it confuses Americans into assuming their tax liability is correct. Furthermore, they want you to think someone else is getting away with not paying their fair share (the rich?) and we should raise their taxes – but remember, you are also getting away with something, so you should continue to vote for them. They play this game from the very poor to the very rich and no one is immune. So that percentage of income tax you think you pay is, in reality, a small portion of the overall tax burden you contribute to on a daily basis.
When all is taken into account, the average American pays nearly 30% of their total income in taxes through all the various income, sales, and other taxes levied by the federal, state, and local governments. That means if you started working on January 1st, you would not start earning money for yourself till nearly the end of April. (http://taxfoundation.org/tax-topics/tax-freedom-day) You pay more for government than you do on housing, food, clothing, and gasoline combined.
You may have noticed that the federal income tax only makes up about 1/3 of that 30%, or about 10% of the total. If it weren’t for all the deductions and credits, this would be much higher and the average American family would be paying something more akin to 35-45% in total taxes — which naturally would have a horribly deadening effect upon our economy. This is well known by politicians and is the reason behind why they put these deductions there in the first place. So the real question becomes not why they are putting the deductions in place but why are our tax rates so high that we need these deductions and credits to function? The answer is simple: to fool you and let them continue to hike your taxes up higher and higher in vague and confusing ways to continue the ever-expanding government of dependence.
Not mad enough? Part 2 will cover the abuse of our tax code and why congress imposes all these taxes — and it’s not always just about the money.