Jennifer Schubert-Akin: Middle-class families hit hard by taxes

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Today is Tax Day — the deadline for filing taxes on income earned in 2016.

For those of us who are not busily trying to file at the last minute, it’s a useful moment to reflect on just how much Americans pay in taxes each year.

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Jennifer Schubert-Akin

Middle-class American families face a 28 percent federal marginal income tax rate. Including state and local income taxes, this rate can exceed 33 percent.

Even taking into account lower marginal rates at lower income brackets, middle-class families pay an effective combined federal and state tax rate of roughly 25 percent of their total earned income.

Consider the case of a middle-class Colorado family earning $100,000 per year in combined income. Under current tax thresholds, this family faces $21,000 in federal income tax and nearly $5,000 in state income tax for a total combined effective income tax rate above 25 percent.

And that’s just the start. All employees face another 8 percent payroll tax bite on their earnings. This is matched by another 8 percent payroll tax paid by their employers. Economists agree the employer portion is largely funded by lower employee salaries and benefits. So adding this 8 percent employee payroll tax and a conservative share of the employer payroll tax means our middle-class family’s effective total tax rate rises to over 33 percent.

But let’s not stop there. State and local sales taxes of several percent on almost everything consumed besides housing drives up the tax burden even further. Let’s say our middle-class family spends $27,000 of its remaining $67,000 on housing and spends the remaining $40,000. In Colorado, where the average state and local sales tax rate is 7.5 percent, this family will spend $3,000 in sales tax, raising its effective total tax burden to over $36,000 or 36 percent.

Then there is property tax, which depending on the state can add several more percent to a family’s tax bill. Colorado’s relatively low property tax of 0.6 percent of value equals an average tax bite of 2 percent of income, or $2,000 for our family. Adding this property tax raises its tax burden to over 38 percent of income or $38,000.

Then we have to account for hidden taxes. The biggest of these is the gas tax. On average, Americans pay 50 cents of tax on every gallon of gas. In Colorado, the tax is 40 cents per gallon. This means the average driving family pays $400 a year in gas tax.

Other major hidden taxes on flights, cellphones, and so-called “sin” products like alcohol cost hundreds of dollars more each year. Same with the relatively new taxes on health care and insurance premiums.

In fact, it’s nearly impossible to account for all the taxes Americans pay. Tolls, permits, fees, surcharges and fines are all taxes in another name. These can easily reach thousands of dollars each year. But as a conservative estimate, let’s say all hidden taxes increase the tax burden of our typical family by $2,000 a year.

Total it all up and our middle-class family pays over 40 percent of its income each year in taxes. That’s its effective — not marginal — tax rate. That’s $40 out of every $100 earned not going to their family, community and small businesses but taxed away to be spent in far off capitals by bureaucrats on their own priorities and friends.

The Steamboat Institute’s first event on April 15, 2009, was a taxpayer rally, where average people voiced their frustration at sky-high tax rates funding out-of-control government spending. Under this tax burden it’s easy to understand why.

The new presidential administration and U.S. Congress plan to address tax reform in the coming months. For middle-class families, relief couldn’t come soon enough.

Defenders of the high-tax status quo will try to politicize reform and paint any tax relief as a tax cut for “the rich” and “the 1 percent.” But as this analysis shows, it’s middle-class American families struggling with daycare costs, affordable housing, and long commutes who have the most to gain — or lose.

Jennifer Schubert-Akin is the CEO of the Steamboat Institute.

Comments

Michael Bird 1 week, 4 days ago

Shouldn't we also look at what we receive that does NOT leave our community such as our school property tax, huge federal funds sent to YValley Hospital for uninsured care, medicaid and CHIPs payments,highway maintenance, non-local law enforcement, Airport funding, and the list goes on and on. Maybe the question should be "how much of our taxes actually do leave and do not come back ?

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Scott Wedel 1 week, 4 days ago

A middle class person or lower middle class person doesn't have the money to start with to be able to deal with affordable housing, daycare or healthcare. A tax decrease has a minor impact while a cut to government programs have major impacts.

That if you believe in those social needs then you have to go where the money is and that is the wealthy. The wealth distribution is extremely skewed so that the top 1% in the US have more than the bottom 90%.

Kansas is an example of how tax cuts can hurt more than it helps. Tax cuts have cut popular services and it has not resulted in an economic boom because skilled workers want good schools for their kids and so on.

There are plenty of ways to make government more cost effective, but simply reducing taxes doesn't mean that the economy or people's situations improve.

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Brian Kotowski 1 week, 4 days ago

Income tax distributions in 2015 (the most recent year for which I'm able to find the stats):

$0 - 24,200 account for 4.5% of total US income, pay -2.2% of federal income tax.

$24,200 - $47,300 account for 9.3% of total US income, pay -1% of federal income tax.

$47,300 - $79,500 account for 14.8% of total US income, pay 5.9% of federal income tax.

$79,500 - $134,300 account for 20% of total US income, pay 13.4% of federal income tax.

Above $134,300 account for 51.3% of total US income, pay 83.9% of federal income tax.

Those percentages as derived from the various income levels have been essentially static for 50 years. I've always been baffled how that's insufficiently progressive for the "progressives" among us.

In any event, there's little to whine about: “We’re going to lower your premiums by $2500 per family per year.” ~ The Magnificent Preezy, who spewed that beneficent assurance over and over and over again from 2008 until The Most Awsome Obamacare was shoved up our rectums 2 years later. That means The Magnificent Preezy has fattened your wallet (often proximate to many rectums, for the medically untrained among us) by $17,500! So stop whining about taxes, you ungrateful serfs!!

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Scott Wedel 1 week, 4 days ago

Brian,

I'll explain why that can be "insufficiently progressive".

If you add up the costs of bare necessities such as housing, food, health insurance, car insurance, utilities and so on then the middle class have a relatively small disposable income.and pay a high amount of taxes on it.

Meanwhile, those with high incomes have much larger disposable incomes and paying a lower tax rate on their disposable income than lower income people.

Though, I am wary of increasing incomes taxes on the wealthy because if rates are too high then all sorts of tax avoidance strategies that are economically inefficient become worthwhile. It then becomes worthwhile to "invest" in money losing schemes as the tax credits becomes valuable (see Trump taking a "loss" in bankruptcy when the banks and lenders, not him, lost that money). Also, if marginal income tax rates are too high then it becomes preferable to find ways to not report income, but capital gains.

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Brian Kotowski 1 week, 4 days ago

Look kids - it's springtime, and the trolls have returned from Capistrano!

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Jim Kelley 1 week, 4 days ago

What a creative and original reply to the "Troll" there Brian....

You can do better. Are you sure you know who the troll appears to be?

I'll take Scott's diatribes, ad-nauseum any day over the same Dogmatic retorts from some around here (not you, necessarily), also ad-nauseum. At least Scott's replies attempt to bring something to the issue (sometimes nonsense!) instead of Platitudes, names, and insults. I don't agree with a lot of what Scott W. says around here but he rarely delves into personal attacks, especially to the degree he's taking it right now.

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Scott Wedel 1 week, 4 days ago

Look kids, Brian resorting to shooting the messenger because he doesn't like the message.

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Robert Huron 1 week, 4 days ago

After Trump was elected he said and I quote" On my first day or at least the first week I will repeal and replace Obamacare with my plan that covers everyone, has better benefits and costs less." The Magnificent Preezy #2 has no plan, it was total BS like most of what he has promised. A Nuclear War might just be on the horizon(wagging the dog) so he too can be a War President because he knows more than all the Generals. He will defund PBS and Planned Parenthood to come up with the money to pay for his golf vacations. So far $24 million in 2 1/2 months(about $800 million over 8 years) whereas Obama and Bush spent less than $97 million in 8 years. Remember he said he'd have no time for golf because he would be working for the American people "AT THE WHITE HOUSE." What a joke!!!! All this from a guy who hasn't paid any Federal taxes in 20 years because he is smart. You are right stop whining about taxes.

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Brian Kotowski 1 week, 4 days ago

Nicely done, Robert. You've shown how Douchebag Donnie is every bit the poser, prevaricator, and liar that his predecessor was, is, and will always be. Meet the new boss. Same as the old boss.

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Robert Huron 1 week, 4 days ago

The big difference is both Bush and Obama were decent human beings, Husbands and Fathers. He and his Royal Family have just begun to screw our Country. Your characterization of him was way too kind.

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Brian Kotowski 1 week, 4 days ago

I laud your exclusion of Shrillary from the ranks of "decent human beings." Again: nicely done.

As far as Preezy's decency, we'll have to agree to disagree.

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Eric Morris 1 week, 4 days ago

The Steamboat Institute cares more about wasting tax dollars to hit people hard in the Middle East.

By the way, as Jeff pointed out, taxes due tomorrow. Why, because Congress freed slaves in DC through compensation rather than war on April 16, 1862. One of the few good things by our taxmasters in DC.

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Dan Kuechenmeister 1 week, 4 days ago

"Despite the fact that rich people paying little in the way of income taxes makes plenty of headlines, this is the exception to the rule: The top 1% of taxpayers pay a higher effective income-tax rate than any other group (around 23%, according to a report released by the Tax Policy Center in 2014) — nearly seven times higher than those in the bottom 50%.

On average, those in the bottom 40% of the income spectrum end up getting money from the government. Meanwhile, the richest 20% of Americans, by far, pay the most in income taxes, forking over nearly 87% of all the income tax collected by Uncle Sam."

http://www.marketwatch.com/story/45-of-americans-pay-no-federal-income-tax-2016-02-24

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Scott Wedel 1 week, 4 days ago

Dan,

Though, considering 50% of US households have about 1% of the nation's household wealth and the wealthiest 10% now owns 76% then half the county is not doing well while the rich are doing well. And the richest 10% has seen their wealth double over the past 25 years while rest of population has not kept up with inflation.

The tax policies have not hurt the wealthy.

When the wealth is so heavily concentrated in a small portion of the population then it should be expected that they pay most of the tax revenues.

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Larry Desjardin 1 week, 2 days ago

Wealth statistics are highly variable, and prone to manipulation to make a political point. Since debt is negative wealth, we get the bizarre statistic of 40% of the population has 0% of the wealth, and so forth, because high debtors are included in the lower 40%. Economics/finance majors headed to Wall Street (but with their student debt) get counted as the "poor" in this model, since they have less wealth than a homeless person.

Since we don't tax wealth, other than property taxes, I don't know why we bring it up. It confuses the issue. We should be comparing earnings vs. taxes paid on those earnings, which looks like what Brian has done.

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