In the early 2000’s I lived in Minneapolis. I had a friend
who had a yard sign that read, “Happy to Pay for A Better Minnesota”. I liked
this sign. It signaled that, yes, taxes are a thing, but we enjoy a benefit from
the way that they make our community better. It makes sense to me.
I don’t see the following as a partisan political essay.
Rather, I’d like to think that it is a call to responsible citizenship. See
what you think.
Taxes are interesting to me. Sure, we’d all like to pay
less. When you get that payroll check it would be nice to get the whole gross
pay amount. You’ve got bills to pay and a life to live. Still, if you join a
social group, like a church or a club, you can expect to have to contribute
something to the life of the group. I send monthly contributions to Minnesota
Public Radio, Wisconsin Public Radio, the ACLU, and a variety of theatrical
groups that I want to support. That’s my choice.
Taxes, on the other hand, feel out of my control. They’re
not, of course. We vote for people who have ideological beliefs about
increasing or decreasing our tax burden. You do have control. That control is
important. Your emotional response to paying taxes is predicated on your
understanding of the purpose of those taxes. It’s really easy to forget why
those taxes exist and how they make your life better. More prosperous. Safer.
How they make your neighbors’ lives better even when they don’t necessarily impact
you directly. Want your schools to be better equipped and to have better
teachers? That comes from your taxes. Want your streets plowed and your water
systems to be safe and reliable. Taxes. Want your local fire department to be
well equipped? Taxes. You can complain about how effectively they accomplish
these tasks, and if they are doing a bad job, you should advocate for better
policies, but at the heart of it you wouldn’t have these things if you didn’t
pay for it.
One of the really dominant features of the current political
moment is the idea that we need to go back to a “better” America. It’s an
attractive message. Leaving aside that the America of the mid-twentieth century
was mostly better for a particular slice of the country (think white
middle-class property owners) it is probably objectively true that our economic
reality in 1975 was better than it is now. I wouldn’t want to be thirty-five
years old today and looking to acquire property and a stable financial life. It’s
worth noting that the economy of the mid-twentieth century was built on a very
different tax structure. From 1930 to 1980 America was a place that reaped the
benefits of a booming economy and a robust corporate world by asking that world
to contribute substantially to the society as a whole.
Enter Ronald Reagan and the trickle down economic message.
From 1980 until now the gap between the middle class and the corporate
oligarchical world has widened in a deafening waterfall. In 1970, 62% of
households were classified as middle income. By 2018, that number had dropped
to 43%. Meanwhile, upper income households increased from 29% to 48%. Keep in
mind, the 2018 figure for middle income households reflects a household income
of $86,000 or less. More than I make, but most of you would probably see it as
just enough.
Okay, here’s a bit of deep dive but the facts are important.
I’m no economist, and you may be able to correct some of my observations and
assumptions. It would be appreciated. What you will find in the following is an
exploration of what I pay in taxes and what those taxes get used for. My
purpose here is to remind you that most of what happens with your taxes is
probably good.
In 1953, corporate income tax as a share of the total
federal revenues collected was about 30%. Today it is under 15%. The individual
income tax as a percentage of total federal revenues has gradually increased,
starting at around 40% in 1950 and increasing to about 50% in 2022.
To be fair, the progressive nature of tax brackets means
that most of the revenue from individual income tax payments comes from the top
income brackets, and the introduction of the S Corp tax treatment means that
some corporate taxes have drifted to the individual tax category.
https://taxpolicycenter.org/briefing-book/what-are-sources-revenue-federal-government
Let’s take a look at what’s going on with taxes. I’m going
to use my personal situation as a starting point. I’m a little atypical in that
I don’t make much money. The median income in 2023 was about $80,000. After a
variety of calculations, my income tends to sit around $30,000. My tax burden
is, therefore, probably less than yours. On the other hand, I guess I would
count my blessings if I had more income and paid more taxes. Whatever.
Okay, so here’s my 2024 income and tax statistics. In the
interest of keeping the conversation transparent I’m giving you all the facts.
My adjusted gross income was $36,303. $21,865 of that was W2
income from the University of Wisconsin. I pulled $12,000 from 401K for some
personal projects, and the remaining $3,000 or so is income from the pub and
Airbnb income out here at The Forst. I know. It’s a bit pathetic, but I chose
this life.
From this income, I paid the following federal taxes.
- Income Tax: $2,375 (57% of total taxes and 6.5% of income)
- FICA Paid: $1,480 (35% of total taxes and 4% of income)
- Medicare Paid: $346 (8% of total taxes and 1% of income)
- Total Tax Bill: $4,201 (11.6% of income)
That’s about 11.6% of my income that goes to the Federal
Government. If you make more than I do (and god willing you do) your percentage
might be closer to 15% or maybe even as high as 20%. More on this in a few
paragraphs.
The Federal government gets its income from three primary
sources. They fall out this way.
- Federal Income Tax: 50%
- Payroll Taxes: 37%
- Corporate, Duties & Sales Tax: 13%
For individuals, we don’t really pay anything in the third
group. For individuals, then, contributions to the total Federal Budget are
about 57% in Federal Income Tax and 42% in Payroll Taxes.
Here's the thing. If we went back to the days when we were
GREAT, the category described as Corporate, Duties & Sales Tax would have
been a significantly higher percentage of the total. Mostly because
corporations contributed more significantly to the whole. In the late 60s,
corporate taxes amounted to about 3.7% of GDP. In 2022 they were 1.7%. If
corporate taxes were still in the area of 3.7% of GDP, they would be about $1
Trillion per year greater. That’s a lot of federal programming.
It’s interesting to me that I’m actually paying about the
average (as a percentage) in income tax and less in payroll tax. If you earn
more than me (but less than folks who are truly wealthy) you probably pay a
higher percentage of your total tax burden than I do in Income Tax and a lower
percentage of your total tax burden in Payroll Taxes. Honestly, I would have
thought that someone at my lower income would be paying a lower percentage of
Income Tax while paying the standard Payroll Tax. The short story, the tax
burden has shifted so that the lower 2/3s of us are paying more. Okay, this is
getting a bit nerdy and not immediately relevant. Smarter people than I might
be able to parse this information more accurately.
What I really want to talk about is where your money is
going.
Cuz, that’s your beef, right? You give them all this money,
that you earned, and what the hell are they doing with it. Here’s what I found.
The 12% to 20% of your income that you send to the IRS is
used as follows.
Government Expenditures:
- Social Security: 22%
- Medicare: 14%
Let’s start here. Social Security and Medicare. 36% of the
Federal Budget goes to this need. Grandma’s social security check (and mine
starting this month), support for folks who are disabled or otherwise have
experienced loss or trauma, Medicare for folks over 65, etc. We have a pretty
strong consensus that this is a legitimate social good. The government uses 36%
of its revenues to support these activities and I contribute 43% of my income
to that effort. A little off-balance but that’s because I don’t make much
money. Your share of Payroll Taxes as a percentage of your total Federal Tax
bill is probably lower and close to or under the 36% that the Fed is spending.
All good. Want to bitch about this?
Okay, but your real frustration is about how the rest of
your tax payments are used. Let’s look at that.
So, if you are typical, you send the Fed about 8% to 18% of
your income in Federal Income Taxes. (This is your tax bill excluding the
Payroll Tax that is used for Social Security and Medicare as described above).
The current average is 14.9%.
I’m going to make this as specific as possible. I sent
$2,375 to Washington for programs other than Social Security and Medicare.
Here’s how they are going to use it.
18% of the budget is managed through direct transfers to
states. In theory this is a good way to manage the federal budget. We might
disagree about how certain states prioritize the way these funds are used, but local
control is usually a good thing.
Medicaid & Chip: 11% - $261 of
my tax bill went to states to fund Medicaid programs and CHIP (Children Health
Insurance Program). There have been a lot of media reports about fraud in these
programs, but mostly that is a way to sell news. Estimates are that about 5% of
payments in this arena have the potential to be fraudulent, and most of that is
from illegitimate providers, not from individual recipients.
Transportation: 1.5% - $36 of my
tax bill went to transportation. Sadly underfunded. Includes support for public
transportation..
Child and Social Services: 1% -
$24. Really, this is almost nothing. God bless and good luck.
Other: 4.5% - $107. This that and
the other thing. Kind of like when you go to Target.
National Defense: 18% - That’s $428 of my tax bill. Now, I
personally think this could be lower. We don’t need to have 750 military bases
in 80 countries across the globe. I totally support the notion that we help
support democratic governments, but you and I both know that a lot of what
happens with our military is supporting corporate interests in other regions.
In addition, the way that our military budget prioritizes fancy new ways to
kill people over programs to support vets and active-duty personnel is
embarrassing. We can support our military in a more ethical way.
Public Health: 1.6% - $38 – This is the CDC, NIH, and other
programs to keep the health system in check. You probably send a whole lot more
than this to your health insurance provider, and who do you think is trying to
keep them honest.
Assistance to Individuals: 8.1% - $193 – Well, comparatively
speaking, this is a bit more money. It includes SNAP, WIC, some health,
housing, childcare, college support. Do you give money to your church. Yeah,
this is like that category.
Side note about welfare, which lives in this category as
well as in some programs that flow through the states. There is this mythology
about welfare fraud. It’s a problem, to be sure. OMB estimates that welfare
fraud is likely to be a factor in about 9% of welfare payments. The myth is
that “welfare fraud is rampant and costs taxpayers millions. FACT: For every
10,000 households participating in the Supplemental Nutrition Assistance
Program (SNAP), about 14 contained a recipient who was investigated and
determined to have committed fraud (via a 2018 report by the Congressional
Research Service).”
https://www.pbs.org/independentlens/blog/from-mothers-pensions-to-welfare-queens-debunking-myths-about-welfare/
Banking & Finance 1.5%
- $36 – Another small amount. Funds the Federal Reserve and some other
regulating entities. In a perfect work these folks would work for you.
Transportation .7% -
$16 – Direct support for roads and public transportation. It ain’t much but it
helps. Do you like driving on your roads?
Other 14% - $332 –
This is a big chunk and less specific, but imagine your own budget for your
year. How much falls into random categories?
Interest: 11% - $261 – Well, now, that’s a lot of money for
interest. Maybe if we taxed corporations like we did when we were GREAT that
number would come down.
Okay. Now look at those numbers. Maybe you pay more taxes
than I do (likely) so double, triple, the amounts accordingly. What are these
things worth? You live here. This is your country. Who do you think is going to
pay for it? If you paid no taxes and these things went away, who in your life
would suffer?
Side Rant! Here’s a thing that makes me crazy. Your REFUND
is not the same thing as your TAX BILL. This was a big deal a few years ago
when the tax rates were getting jacked around. Folks would be frustrated
because their REFUND WAS LOWER! Having a lower refund does not mean that your
tax bill has increased. It means that the difference between what you paid and
what you owe is different.
For instance, say I make $50,000 and my federal tax
liability is $6,000. If I had $7,500 withheld through payroll, I would get
$1,500 back. If I had $4,500 withheld I would owe $1,500. Either way, my tax
burden is THE SAME. It’s $6,000. Tax refunds are about planning, and honestly,
the lower your refund the better because it means you didn’t lose access to
those funds over the course of the year. Sending the fed extra money during the
year is not a good saving strategy. End of rant.
I included a couple of graphs related to those trends at the
end of this essay. In case you want more detail.
https://ccf.georgetown.edu/2025/01/10/the-truth-about-fraud-against-medicaid/