Taxes and Tax Collection

Most people dislike paying taxes, but they see the need to fund the government. But very few people understand how much they really pay in taxes. And that is by design. The politicians and bureaucrats do not want us to know. But, I hear many say they see how much they pay when they do their state and federal taxes. But that is just the visible portion. Then there are some that are visible, but not fully grasped, such as sales tax. We see it when we pay it, but do not see the total paid, just the individual transactions. Then there are taxes that are virtually invisible. For example, politicians like to talk about corporate taxes. But corporations really do not pay taxes—they pass the cost of taxes along in their prices.

Look at this extract from my electric bill, for example. These riders are effectively taxes that the power company passes through.

Non-Bypassable Charges

Rider CE Clean Energy Projects & PPAs 3.27

Rider RPS Renewable Energy Pgm 2.00

Rider CCR Coal Ash Closure 2.70

Rider OSW Off-shore Wind 5.96

Rider PIPP Universal Service Fee 0.83

Deferred Fuel Cost Charge 3.83

Sales and Use Surcharge 0.95

If your bill has something like a “fuel fund” that is to help pay the utility bills for poorer customers. It is a tax. Yes, it goes to a good cause, but it is still a tax.

When corporations make charitable contributions and provide free or discounted services for some people, it gives them good publicity, but the prices they charge for their goods and services pay for these. They are, in everything but name, taxes. Consumers pay for them in higher prices. They often have no say in how much the corporations collect and what they do with the money.

The Internal Revenue Service (IRS) essentially makes corporations and even small mom and pop stores tax collectors. They collect sales taxes and other taxes. For example, in Williamsburg, VA, where I live, there are at least two other taxes the restaurant has to collect and pay to the state. When I buy cigars, I pay a “special” tobacco tax. These cost the stores time and money to collect and pay to the governments. Yup, they are effectively taxes as well.

Now, look at your paycheck. Social security taxes, Medicare taxes, and other small taxes. We think we pay half of the social security tax, and our employer pays the other half. Nope, we really pay it all. We would have higher salaries if the employer did not have to pay these various taxes.

Now think about all the tax accountants, tax lawyers, tax preparation companies, and tax preparation software. They are not directly taxes, but they only exist because of the tax code. And for corporations, these costs are passed along to consumers just like the taxes the corporations “pay”.

A percent here, two percent there are soon you are talking about real money. By a very rough approximation, a family making $130,000, with a taxable income of $100,000, pays about 29% of their $130,000 on federal, state, local, and sales taxes. Now, add in the Medicaid, payroll and other payroll related taxes. Then add all of those hidden taxes and fees and I suspect that the family is over 35% or more in taxes. And that is on gross income. And the family thinks they are less than 20% because they never see the entire tax bill. It is hidden from them.

So much for transparency…

And if the family has one or more IRAs, there is a sleeping dragon waiting for them. Even if the current environment does not force them to liquidate their IRAs early, they still have a heavy and, for most people, unexpectedly high tax bill facing them at around 70. If they need to liquidate an IRA early in this environment, they pay not only taxes but a very stiff penalty. CNBC says half of Americans take early withdrawal of some form.

And God help them if the family screws up their taxes, the IRS hits them with penalties and interest. But does the IRS pay interest if they make a mistake? Nope.

We pay far, far more in total taxes and tax-like charges than we realize.

And we are still wracking up huge deficits and the accompany debt and interest payments.