What Percentage of My Income Do I Pay in Taxes?
So it's tax time, but the forms have all been e-shipped to the appropriate e-destinations, so I thought I would try to figure out just what percentage of my income really goes to taxes. This is not trivial.
The first thing I have to do is not count my reported non-professional gambling winnings as part of my total income, even though they get summed up into the 'total income' entry on my 1040, because only later do the gambling losses get subtracted out.
Then, even though there is an IRS line that says 'total tax' on a 1040, this is a lie. That number is actually before they subtract out (for me) a 'retirement savings credit' and the 'making work pay credit'.
Then there's the issue of contributions to IRAs and SEPS -- that income will get taxed eventually, but not now, and no one knows the rate at which it will be taxed.
Then there's the issue of self-employment tax; is it really a tax, or a retirement plan contribution and a payment-in-advance for Medicare?
And that's just Federal considerations.
I made what I consider liberal estimates for how much I pay in 'nuisance taxes' (taxes on my phone and utility bills, tolls, driver's license registration, etc), and for how I pay in sales taxes, and then totaled up federal taxes, state taxes, real estate taxes, sales taxes and nuisance taxes.
Here's what I get, in terms of percentages (taxed paid / total income adjusted for net gambling):
Total percentage: 23.5%
Federal tax (including SE): 8.0%
State tax: 0.7%
Real Estate tax: 11.1%
Nuisance taxes: 0.8%
Sales tax: 3.0%
What if we eliminate self-employment tax from the calculations, but add in 25% of what I contributed
to IRAs and SEPs?
Total percentage: 21.2%
One can immediately see from this why California's proposition 13 will never be repealed. Were I to be taxed on the fair market value of my house the tax bill would be astronomical, even though I gain nothing immediate from the fact that it has appreciated in value a lot since 1999.
According to this chart, the overall averaged tax burden (taxes payed / total income) in 2009 was 27%.
The first thing I have to do is not count my reported non-professional gambling winnings as part of my total income, even though they get summed up into the 'total income' entry on my 1040, because only later do the gambling losses get subtracted out.
Then, even though there is an IRS line that says 'total tax' on a 1040, this is a lie. That number is actually before they subtract out (for me) a 'retirement savings credit' and the 'making work pay credit'.
Then there's the issue of contributions to IRAs and SEPS -- that income will get taxed eventually, but not now, and no one knows the rate at which it will be taxed.
Then there's the issue of self-employment tax; is it really a tax, or a retirement plan contribution and a payment-in-advance for Medicare?
And that's just Federal considerations.
I made what I consider liberal estimates for how much I pay in 'nuisance taxes' (taxes on my phone and utility bills, tolls, driver's license registration, etc), and for how I pay in sales taxes, and then totaled up federal taxes, state taxes, real estate taxes, sales taxes and nuisance taxes.
Here's what I get, in terms of percentages (taxed paid / total income adjusted for net gambling):
Total percentage: 23.5%
Federal tax (including SE): 8.0%
State tax: 0.7%
Real Estate tax: 11.1%
Nuisance taxes: 0.8%
Sales tax: 3.0%
What if we eliminate self-employment tax from the calculations, but add in 25% of what I contributed
to IRAs and SEPs?
Total percentage: 21.2%
One can immediately see from this why California's proposition 13 will never be repealed. Were I to be taxed on the fair market value of my house the tax bill would be astronomical, even though I gain nothing immediate from the fact that it has appreciated in value a lot since 1999.
According to this chart, the overall averaged tax burden (taxes payed / total income) in 2009 was 27%.