Tuesday, April 13, 2010

5 Tax Myth Article Seemed Wrong To Me

The Washington Post had this article, 5 Myths about your taxes, and it seemed somehow wrong to me.  Here's their list of 5 Tax Myths and a summary of their explanations:

1.  The poorest and the richest Americans pay no taxes. - 45% of the populations pays no federal income tax but they get taxed elsewhere (Social Security, Medicare, sales tax, and property taxes).

2.  Americans are overtaxed. - We pay what boils down to $13,000 for every American but other developed countries pay more.  *I'll definitely come back to this*

3.  Higher taxes could eliminate the federal deficit. - According to a study they cite, taxes would have to be raised 40% to reduce the deficit to 3% of GDP.

4.  Most people's tax returns are way too complicated. - Two-thirds of Americans don't itemize anything and can use a simple form.

5.  You should aim for a big tax refund. - It's your money and you shouldn't lend it for free.

I understand their points, but here's my take:

1.  Okay, 45% of taxpayers pay other kinds of taxes, but they don't pay federal income taxes.  Since this article is about federal income taxes, what does that have to do with it?  I'm not trying to be flippant, but 45% aren't paying any federal income tax...

2.  $13,000 per American with 45% of the taxpayers not paying federal income taxes means that the other 55% is picking up that tab.  That sounds like a freaking lot to me.  Also, I honestly don't care about tax rates of other countries...aren't we a country that hates to be comparable to others?

3.  Okay, so if higher tax rates won't solve the problem, how can we convince the government to stick to an actual budget?  Like every person in debt, you have to stop the constant drain before you can work your way out, right?

4.  Complicated is a matter of perspective...that's all I have to say about that.

5.  I agree but I also budget really well and plan to pay in April...I think this needs to be a personal decision.  People know themselves...if they can't put away money for taxes throughout the year, they should make sure that they pay enough or more than enough.  Just please understand that a refund is simply getting your own money back...keep that in mind when you choose what to do with it.  :-)

What do you think?


  1. My fear on the first point is what happens when a majority does not pay taxes. Will they care how the money is spent?

    Completely agree with you on number 3. I have to live within my means, why can't the government? Because their revenue stream is variable, they have to spend less than they bring in. Otherwise when the economy hits a recession, they don't have enough money.

    I like no refund, but I'm also good at managing my money (now at least). I'd rather enjoy the money throughout the year.

  2. $13k per citizen would include ALL taxes and is not just the federal income tax. So thats state, local, sales, property, excise, etc. Federal budget is about $2T which equates to around $7k per person and only a portion of that is income tax. Income taxes average around $3k per person.

  3. Jim, about half the people don't pay any federal tax, so the $13K per paying person is probably about right.

  4. MikeS, oh yeah, people who don't pay taxes complain just like everyone else. It's like people who don't vote complaining about our leadership...leaves a bad taste in my mouth.

    Jim R, let's say it's $3000 per every eligible tax payer. If 45% of those aren't actually paying any of that $3000, then wouldn't it be a lot more for the other 55% (really, just the top earners of that 55%)?

    For the fun of full disclosure, my husband and I received a refund for grad school that brought our total income tax contributions from $6800 to about $5000 (6.25% of our total income). That's it for that.

    We also paid a ton to FICA ($2600 from my paychecks alone and my husband makes more), $2200 for property taxes, and about $1000 in state sales taxes.

    So, we're definitely not the ones footing the extra bill (although I still feel taken advantage of)...this makes me feel sorry for the ones that are truly paying the rest to make up for everybody else and the fact that our government can't spend less than they earn to save our lives...

  5. My point is that the $13k figure cited by the article was ALL taxes in the USA divided by ALL people in the USA. So it doesn't have much to do with federal taxes paid by tax payer. The article was making a point about the total cost of government per capita.

    Obviously higher income earners pay more in income tax than lower income earners. So the top 55% pays more than the bottom 45% however you cut it.

    MikeS, fed. income tax bill per tax filer is closer to $9-10k average. But that is not "per person" and includes households of varying size (single, married couples, families with 6 kids) and with 1 or more incomes.

  6. I agree with your assessment. On number 3, it is a matter of voting out of office anyone who will not work to cut spending in all areas of government. On number 4, has no one heard of Turbo Tax.

  7. Mr. Not Made of Money, thanks for your agreement and yes, they've heard of Turbo Tax. That doesn't mean they still don't complain that taxes are complicated... :-)

  8. I would rather have my payroll taxes raised and lower-income households lowered in order to have a higher percentage of households also contribute to paying income taxes.

    We are a stronger, more responsible citizenry when we take part in all aspects of taxation. When you have to contribute, you are less likely to spend other people's money (or vote to spend OPM!).

  9. Jason, so shouldn't taxes be raised on Senate and House employees before anyone else? Maybe they'd take spending taxes more seriously if they contributed a bigger piece of the pie...

    Thanks for commenting!