SensibleTaxReform Blog

2. Do You Know How Much You Pay in Taxes?

Americans pay a bewildering array of taxes. We pay them at the local, the state and the federal levels. However, few taxpayers  know how much they actually pay in taxes overall.

Types of Taxes That We Pay

State and local taxes are collectively called municipal taxes. The primary municipal taxes that apply to individuals include:

• Income taxes,
• Sales taxes,
• Excise taxes,
• Property taxes and
• Inheritance or estate taxes.

Any of them can be collected at either the state or local levels.

Our federal taxes are even more diverse–and complicated: The most important federal taxes are:

• Income taxes,
• Social Security taxes,
• Medicare taxes,
• Estate taxes,
• Excise taxes and
• Import duties.

We do not, however, pay a federal sales or other form of consumption tax. Sales taxes  are only collected at the state or local level.

Difficulties of Calculating How Much We Pay Individually in Taxes

Most of our taxes (whether federal, state or local) are paid incrementally, rather than all at one time. That makes it much more difficult to calculate our total tax burden:

• Income taxes are collected from us every time that we receive our pay.
• The same is true of Social Security and Medicare taxes.
• Sales taxes are collected when we purchase taxable goods or services.
• Similarly, excise taxes are paid whenever we buy such goods as gasoline, alcohol or tobacco.
• We pay import duties every time that we purchase dutiable items, such as clothing  and some foods.
• Property taxes are generally due only once or twice a year, but people who have mortgages commonly have property taxes collected monthly and then escrowed until the actual payments are due.
• Estate and inheritance taxes are triggered at the death of the owner of an estate–a taxation on wealth transfer. However, they are paid later, often much later, than the time of death.

Only when we prepare our annual federal tax returns are any of us likely to give much consideration to the total amount of taxes that we pay. However, making even a rough estimate is a monumental task. Few of us make the effort. Do you know how much you pay in taxes? Have you ever estimated the total?

Calculating Total Taxes Paid in the Entire Economy

While it is very difficult for us to calculate our own total personal tax burden, it is much easier for the federal government to calculate it on a national basis. Each taxing entity, whether Uncle Sam or state and local municipalities, tabulates and reports its own annual tax receipts. The federal government also calculates our gross domestic product (GDP) annually. Once the total of taxes collected by all taxing authorities throughout the country (T) is tabulated, it can be divided by the GDP of that year to yield the national average tax rate (NATR):

(T ÷ GDP) * 100 = NATR

As will be shown in the next post, the American NATR has been about 24% in recent years. That means that on the average we pay about one fourth of our total income in taxes–a sobering statistic. However, just how burdensome is that relative to other major countries in the world? That will be discussed in the next post.

Tags: #tax reform

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