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How Much Do Americans REALLY Pay in Taxes?

I don’t normally talk about tax issues because other than at this time of year I don’t think much about them. However, in the spirit of the just passed tax season I want to spend a little bit of time examining how much taxes REALLY hit your finances. April 15th is famous as tax day and most people focus on their federal income taxes, but if you look deeper you will quickly see that your federal tax burden is the least of your tax worries.

In fact, for a median income earner, the effective federal tax rate is around 11 percent. And that doesn’t take into account the credits you receive if you are married or have children. The same individual with a spouse and two children is only paying an effective 6 percent federal tax.

Seems hard to believe huh? So with the federal government only taking a marginal amount of your income, why does it seem as if there’s so much being taken from your paycheck? And why does it seem like there’s never enough money to pay the bills?

First off there’s state income taxes to consider. These vary widely depending on what state you live in, with some states having no individual income tax. Currently the highest individual state income tax is in California, with a maximum rate of 13.3 percent! Most states have income taxes that range from 2-6 percent.

In addition, many states impose sales taxes on many of the products you purchase. While this obviously doesn’t affect all of your income, it can have a dramatic effect. State sales taxes range from 0% in five states (Alaska, Delaware, Montana, New Hampshire and Oregon) to 7.5% in California. And if state sales taxes aren’t enough, many municipalities also have taxes. These average local taxes range from 0% in many states to a high of 4.87% in Louisiana.

Where else do you get hit? Well, everyone pays into Social Security and Medicare, which will see an additional 7.65% of your wages disappear. If you are self employed though, expect to pay 15.3% of your earnings to cover this tax as the employer normally covers half the cost of these payroll taxes.

We’re not even close to done yet though. If you drive a car (and almost all of us do), you are also paying taxes every time you fill the tank. The federal tax on gas is currently $0.184. States get in on this revenue generator as well with gasoline taxes as low as $0.08 in Alaska and as high as $0.466 in California. Even if you don’t drive you are indirectly affected by this tax as it makes all of the goods you purchase more expensive and contributes to a portion of the price of many public transportation options.

While I advocate paying off your mortgage and owning your home free and clear, you aren’t really free and clear when you own your house as you will be paying property taxes to your local municipality. Property taxes range from 0.18% in Louisiana to 1.89% in New Jersey. Property taxes are based on the value of your home, so the more expensive your home the more you’ll pay in property taxes.

Another tax you may be paying are the so called “sin taxes”. While this tax doesn’t affect everyone, it does affect many. Who doesn’t enjoy a nice glass of wine with dinner or drinks with friends after work and on the weekend from time to time. These taxes vary dramatically from state to state too. If you are a beer drinker you pay the least taxes in Wisconsin and Missouri ($0.06 per gallon) and the most in Alaska ($1.07 per gallon). Wine drinkers pay the least in Louisiana ($0.11 per gallon) and the most in Alaska ($2.50 per gallon). And those who like the hard stuff will pay the least taxes in Vermont ($0.68 per gallon) and the highest tax in Alabama ($18.78 per gallon). Those who also smoke get hit with a sin tax on that habit as well, with the lowest tax in Missouri ($0.17 per pack) and the highest in California ($0.466 per pack).

I’m still not done. You will also pay a wide variety of taxes on all your utilities from electric and water to cable, internet, landlines and cellphones. Both federal and state authorities tax these utilities and in some states you will find these taxes to be much higher than you might expect. Go take a look at some of your utility bills and tell me if I’m wrong.

The taxes I’ve talked about so far are from comprehensive, but are those that most likely affect the majority of us. Here’s a partial list of all the taxes that could be paid by U.S. citizens:

  • Accounts Receivable Tax
  • Building Permit Tax
  • Capital Gains Tax
  • CDL license Tax
  • Cigarette Tax
  • Corporate Income Tax
  • Court Fines (indirect taxes)
  • Deficit spending
  • Dog License Tax
  • Federal Income Tax
  • Federal Unemployment Tax (FUTA)
  • Fishing License Tax
  • Food License Tax
  • Fuel permit tax
  • Gasoline Tax
  • Hunting License Tax
  • Inflation
  • Inheritance Tax Interest expense (tax on the money)
  • Inventory tax IRS Interest Charges (tax on top of tax)
  • IRS Penalties (tax on top of tax)
  • Liquor Tax
  • Local Income Tax
  • Luxury Taxes
  • Marriage License Tax
  • Medicare Tax
  • Property Tax
  • Real Estate Tax
  • Septic Permit Tax
  • Service Charge Taxes
  • Social Security Tax
  • Road Usage Taxes (Truckers)
  • Sales Taxes
  • Recreational Vehicle Tax
  • Road Toll Booth Taxes
  • School Tax
  • State Income Tax
  • State Unemployment Tax (SUTA)
  • Telephone federal excise tax
  • Telephone federal universal service fee tax
  • Telephone federal, state and local surcharge taxes
  • Telephone minimum usage surcharge tax
  • Telephone recurring and non-recurring charges tax
  • Telephone state and local tax
  • Telephone usage charge tax
  • Toll Bridge Taxes
  • Toll Tunnel Taxes
  • Traffic Fines (indirect taxation)
  • Trailer Registration Tax
  • Utility Taxes
  • Vehicle License Registration Tax
  • Vehicle Sales Tax
  • Watercraft Registration Tax
  • Well Permit Tax
  • Workers Compensation Tax

So, if you’ve ever wondered where the heck all your money does, now you know where at least one third of it goes. Even though your Federal tax burden might only be 11%, the Tax Foundation estimates that the average tax payer in the U.S. pays out over 30 percent of their wages in various taxes. Other organizations estimate that for above average American earners to total tax burden can exceed 50 percent of earnings!

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