Death, Errrr, Confused By Taxes

Taxes have always had a negative connotation attached to them. It’s kind of like the government is legally stealing from our wallets. To most Americans, though, paying taxes is part of being a responsible citizen. We’re proud to pay taxes but really confused by them.

This confusion makes us angry.

You don’t know much about taxes

Sorry to inform you, but it’s true. Honestly, neither do I. The tax system in the United States was created to be as behind-the-scenes as possible so that we wouldn’t feel the burden of paying taxes. As a result, the tax system has grown into a complicated mess that stresses the crap out of Americans every spring. Unfortunately, this April tradition also leaves us with unfortunate misconceptions about taxes.

Vanessa Williamson, a tax expert at the Brookings Institution, recently published a book filled with research on how taxpayers feel about taxes. In her book, Read My Lips: Why Americans Are Proud To Pay Taxes, she finds that many of us have not only come to terms with paying taxes but feel it is our duty. To be sure, she clarifies, “It doesn’t mean that everyone is happy about their taxes to say they’re proud of being taxpayers. But people are really committed to tax-paying as a civic responsibility.”

However, what really irks the folks that complain about taxes is the little fact that close to 50 percent of working people do not pay federal income tax. Though this is a true statement, this doesn’t mean that people aren’t paying taxes. In fact, close to 80 percent of working Americans pay more in payroll taxes than in individual income tax.

The type of taxes people pay differ among different levels of income. The rich do, in fact, pay a larger portion of taxes in the form of income tax. A large share of their income also goes toward corporate and estate taxes. On the other hand, a larger percentage of lower-income folks’ earnings go toward payroll taxes and excises taxes, such as taxes on gas, alcohol and airline tickets.

Everybody pays taxes, yo

There are a couple fallacies about taxes that create unnecessary political tensions, especially with the already tense Trump administration.

Fallacy 1: “The rich don’t pay enough in taxes. They have special access to loopholes which allow them to escape the grip of the taxman.”

There is some truth to this, especially for the top of the top 1 percent. (It’s fun to reread that sentence using your best Bernie Sanders impression.) Despite this half-truth, the United States has a very progressive tax code compared to the rest of the world. Even with lower tax rates on capital gains and having deductions for charitable contributions, the top 1 percent still pay around 32 percent of their income. The bottom 20 percent pay around 4 percent, on average.

Fallacy 2: “The poor don’t pay any taxes! They also need to pay their fair share!”

As previously mentioned, a significant portion of the population do not pay federal income taxes, especially the poor. But anyone that has a legitimate job pays payroll taxes, which go to fund Medicare and Social Security. We also tend to forget about state and local sales, excise and property taxes. Even though the country is turning into a nation of renters, they, too, are paying a portion of the landlord’s property taxes.

To quote Williamson, “In the U.S., the lowest 20 percent of earners pay almost 11 percent of their incomes just in state and local taxes (which include sales, income, property, and excise taxes), about twice the percentage the top 1 percent of earners end up paying in those taxes.”

By the way, this includes illegal immigrants.

Taxes need to come into the light

Though it is in the government’s interest to make paying taxes painless by making them as hidden as possible, it has made Americans confused and often angry for no reason. The focus on income taxes and loopholes that rises from a stressful tax season have both ends of the income ladder at odds with each other.

By making taxes clearer and taking the focus off income taxes, people may be more receptive to policies that help the poor and increase the well-being of everyone in the country. What’s more, understanding that virtually everyone pays some form of taxes will make us less pissed off at our fellow Americans.

Previously posted at GenFKD.

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