Wednesday, April 15, 2009

Tax Day Tally

Dear Secretary Geithner,

April 15 CalendarToday is tax day, though I paid my taxes a week or so ago.

Each year, April 15 gives me pause, since I am forced to actually look at my finances and think about the money I send on to the government. Most years I get a refund for amounts I've overpaid. Getting a big pile of money is generally a happy thing, and I tend to focus more on what I'll do with that stack o' cash than the money that I've already paid.

However, this year I had the dubious privilege of writing a check. And as I wrote that check, I began to think a bit harder about the sum total of the taxes I pay. And not just the complexities of the tax code, such as the difference between marginal and effective tax rates, which we've talked about before.

I started with my Federal and State (Illinois) income tax, thinking that would be a pretty big dent in my family's finances. I was a bit surprised, as we only paid about 16.8% of our total income to income taxes. Not bad!

My Income Tax Rates
Then, I realized that this was not the end of my tax payments. Indeed, every time I make a purchase, I pay 10.25% in various sales taxes: Illinois takes 6.25%, Cook County takes 2.75%, and Chicago takes an additional 1.25%*. That's nearly as much as the amount I pay in income tax! Yikes! Thankfully, I'm not a homeowner, or I'd be paying property taxes too!

My Sales Tax
But then, Mr. Geithner, I started thinking about all those tax dollars and the things that are accomplished with them. Besides paying for Blagojevich to take his family to Florida for a last fling before he goes to jail, my tax dollars help build roads, provide health insurance to poor people, and make sure my peanut butter stays free of salmonella. I'm pretty sure at least three of those are good things.

Salmonella Peanut ButterYou know what I realized? I realized that the taxes I'm paying this year don't come close to paying for all the things that my government does. Chicago, Cook County, Illinois, and the USA are all dealing with the fact that they've spent more than they 'earned,' and they are now looking for ways to close that "budget gap." Illinois is likely to raise the state income tax to 4.5%. The Federal government will probably just sell more T-bills to China.

And all of that money will need to be paid back someday. So eventually, I bet we'll have to raise taxes to cover that as well. Let's just call this a "Future Tax." Here's what it looks like, split out per person.

Personal Debt
Oh, my! That's a lot of money! I'm not sure where the government is going to get all that. I sure don't want to foot that bill, though I suppose I already am in some form or fashion. Perhaps this is why there's such outcry against taxes this year, in the form of "Tea Parties" and the like.

Mr. Geithner, I really hope you can come up with a plan to help pay down some of this debt. Our country can't live on credit cards borrowed money forever. And the amount I'm paying in taxes have to do other stuff besides pay interest, like pay the Navy to fight pirates.

And, as the House of Representative's own Harry Reid says, our taxes are voluntary anyway:

So, I guess my point in all this is that while you guys in government have managed to keep our income taxes pretty low, it would be nice if you kept the other, less visible taxes low as well.

And as a helpful reminder, don't forget to file your taxes today! I've heard you've had troubles with that in the past!



P.S. If anyone is interested, the research and sources for debt and such can all be found here and here. It isn't pretty, but you can at least follow it back to the source. Consider this a footnote.

*The sales tax is reduced quite a bit for buying food. But it's even higher than 10.25% when buying gas, alcohol, and cigarettes (glad I'm not a smoker!). Oh, and Chicago has an extra tax on bottled water, extra taxes on fast food in the downtown area (aka tourist tax), extra taxes on parking downtown (parking!?), and an extra amusement tax at many of the popular attractions, like Navy Pier.


brd said...

Love the explanation of the voluntary system. Reid cleared that right up.

Ah. Tax day. Such a joy.

cadh 8 said...

Yes, it is amazing how many ways we pay taxes. At what point does it become double and triple taxation? But it is also amazing what we get for our money. FREE education, libraries, rec centers, roads, safety, clean drinking water, a level of protection from everything from snake oil salesmen to China's inferior products, and really much more. I am GLAD the government does this for us. But I would like to see a cost benefit analysis of the amount of money that goes to the government vs. the value of these necessary services. Because I fear that with the wasted money we could build our own libraries and hire our own security guards and even build our own roads and we may come out ahead.
Ahh, the beauty of government. Can't live with 'em, can't live without 'em.

And I feel your pain. Being self employed for the past 3 tax seasons before this one left me writing lots of big checks. It makes you really think about this whole taxation thing. THis year I got a refund though, thanks to a new job where someone else pays half of social security. Yea!