Sunday, July 8, 2012

A Case Study On Federal Taxes

The Supreme Court’s determination that the mandate under the Affordable Health Care Act is in fact a “tax” has rekindled the debate over our tax code. And whether you are a multi-millionaire or an unskilled laborer making minimum wage you share one common belief…that we pay the federal government waaaaaaayyyy too much in tax. 
Like most Americans we felt the same way.  Like most Americans we were uncertain as to the marginal tax bracket we were in, and we didn’t know what our effective tax rate was…i.e. ultimate percentage we paid in taxes after all the legal deductions were factored in. 
So we decided to take a look. 
Keep in mind that we are only talking about federal income taxes…the taxes your accountant computes and files under Form 1040.  This is the number that conservatives find appalling…a threat to our liberty…and the funding mechanism for Obama’s socialist ideology.  This is the number Republicans have vowed never, ever to raise, even if it means defaulting on our financial obligations.
Before we get into the taxes, you need a little background to put things into perspective.
We are typical empty nesters.  We enjoy a modest middle class income.  We live in the suburbs of a Midwestern city with a population of 300,000.  We enjoy a modest middle class income, take a couple weeks vacation each year and have a positive balance in our savings account.  We live in a quiet condominium development were units similar to ours have recently sold for 180,000 to 210,000.  Our taxes are not prepared by some high priced downtown accounting firm but by the local H&R Block office; who charges less than $300 to organize the taxable responsibilities of our vast estate.  In other words we are a middle class America as you can get.
We reviewed our tax returns for the last three years.  Our accountant first deducted all the permissible pre-tax deductions for our retirement and health insurance.  Then they deducted our standard exemption, mortgage interest, charitable contributions as well as the proper allowances for property taxes and other taxes we had previously paid.  Pretty straight forward!
Bottom line…for the past three years we paid our federal taxes at an average rate of 10.33%.  After all the legal deductions were factored in we paid the federal government 10 cents for every dollar we earned.
So what did we get for our 10 cents?
We are protected by the best trained most technologically advanced military in the world thanks to the Department of Defense.  The air we breathe and the water we drink is clean thanks to the EPA.  When we go to the grocery we can choose from thousands of items and know that they are all safe for consumption thanks to the FDA.  Our two sons fly constantly on business.  The airplanes they fly and the skies they circumvent are all kept safe by the FAA.  The money in our checking and savings accounts is secure thanks to the FDIC.  Many of our nieces and nephews receive a “free” education thanks in part to the Department of Education.  When vacationing we travel across interstates funded by the Department of Transportation.  Our travels are made easier because of a consistent system of laws regulated by the Department of Commerce and the Department of Justice.   And we are able to enjoy these benefits because thanks to Medicare our finances were not decimated by the tsunami of medical expenses incurred by our now departed mother.  We get a lot more for our 10 cents, but you get the picture.
Yes, we do pay a lot more than federal income tax for the privilege of living in this country.  Sales tax, gas tax, property tax, state and local taxes and plethora of additional taxes and fees reduce our take home pay.  But our focus here is on federal income tax, which Republicans are loathe to pay and feverish to reduce.  But if they succeed in lowering federal taxes, we can promise you that each of these other taxes will be increased to make up the difference.  Because the freedoms and benefits of living in this country are not free; they come with a price tag. 
Republicans are constantly whining about how big government and outrageously excessive federal income taxes are turning us into a socialist country. Frankly, that's BS.  First of all, nobody pays the published tax rates.  By the time you factor in even the most modest of deductions your tax burden is cut in half.  Second, let’s stop the nonsense about these excessive taxes turning us into some sort of socialist country.  We ARE a socialist country and have been for quite some time.  And 99.9% of Americans, including conservatives, not only use the “socialist” programs funded by the federal government; they will stage an armed revolt if you try to take those programs away.
The problem with federal taxes is not the amount of taxes paid but in the fairness by which the code is administered and the way the money is spent.  Our focus should be on the fairness and the disbursement and not on ridiculous claims about how high taxes are hurting the country. 
Because from our personal prospective, paying 10.33% cents on the dollar to live in this country is a bargain.        
 
        
 

       
       

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