Thursday, January 6, 2011

How much do we really pay in taxes?

If people really took the time... (I hope you will indulge me with yours)... to take the time to figure it out, they might just realize how much time is devoted to the multiple levels of government they pay for with their time and effort. Have you ever heard of the "Four Hour Work Week"? That may be how much of all our time that we spend actually working for ourselves. The other 36+ is for our best buddy... Uncle Sam.

This isn't as easy as just looking at one's pay stub. There is a myriad of taxes from things like sales tax, usage taxes, property taxes and fees, to things much harder to quantify like rules and regulations that  require individuals as well as businesses and entrepreneurs to expend time and capital to meet these requirements. In addition, there's things like insurance, bonds and even certificates. All these costs directly and indirectly impact the amount of money an individual has that they can actually spend on themselves.

I have looked through various websites to find the data to include such things as embedded taxes in the cost of products and services. The following example from CATO is very interesting but it doesn't address the embedded costs in the actual price of the a particular product So for example, if a person buys a $10,000 car in California, the additional taxes will amount to $10,186 for a total of $20,186 (this is prior to 2009). But how much has rules and regulations, government paper work, taxes, fees, bureaucratic red tape, insurance and legal liability cost to bring the price to the initial asking price of $10,000? If the car is made in the United States that percentage of the total is certainly going to be higher. What's the answer? I'm not sure... I'm working on it.

Cato Institute study

This second site gives a pretty good idea of the long list of taxes a person is faced with. It doesn't address the embedded taxes question either but it does try to give us, on average, an idea of how much of our time we spend working for the government. They even mention "inflation" but I'm not so sure they've got the true scope of what inflation takes. In any case in 2005 the average working stiff spent 54.4% of their time. They estimated it was 57.7% in 2009 and obviously rising. Just think... you'd only have to work two days a week if it wasn't for the government! Hey that's 16 hours of the week all for ourselves... but wait... there's more!

How much tax do we really pay?

The New York Times gives it a much friendlier pitch. Of course they don't address most of the taxes. Just income and they point out how much more the rich pay. Obviously steering clear of addressing all the others and certainly staying away from inflation which hits the poorest the hardest. Damn propaganda!

How much Americans really pay in taxes - The New York Times

And here's another article asking us to feel sorry for the poor rich. After all, the top 5%  pay the most, over 50% of the income taxes. What they don't discuss is that these taxes all end up in the cost of products and services... which are purchased by the rest of us... all 100%. More propaganda...

Who really pays taxes?

Tax Freedom Day - What a wonderful idea! Unfortunately not quite accurate. This takes into effect most of the taxes that individuals pay but doesn't account for imbedded taxes or inflation. And their certainly seems to be a discrepancy between the 58% above and the date they suggest. 58% would put us into August.That doesn't sound nearly as fun!

So let's look into some of those embedded costs that we don't see... I'm going to just give a couple examples to keep it relatively brief. There's many more where this came from... and I'm certainly only scratching the surface.

These could fall into a category that might be referred to as "The Broken Window Fallacy" - Government actions that incur costs and supposedly "create jobs".

Others are government rules that favor an industry like lawyers. The following videos are probably going to make more than a few angry.

Product liability "tax" from our tort legal system. The United States is the only modern country that doesn't have "loser pays" (about 1.2% of GDP or $8,000 a year for a typical family)and note when they talk about reform, they don't mention "loser pays"...their are other "reforms" that are much more lawyer friendly.

But that's not the worst of it... those greedy lawyers may have even done something else that might just cost you or a loved one.. yours or their life.

And the system that's broken just seems to keep creating more loopholes which cost each one of us. It's not just money... its our time and frustration. I'm just skimming the surface.

How about prisons? How much does locking up one of every 100 citizens do for the rest of us when most of the rest of the world is locking up one in 1000? It certainly keeps the lawyers busy!

The Financial Damage of our High Incarceration Rate
 $50 billion a year just for the prisons ($800 a year for each household)... (we won't mention all the other costs... ever spent a day on a jury?)

These are just a few examples and one can get much more creative. Farm Subsidies to Foreign Aid, the government seems to have gotten it's greedy little hands into everything and those costs are rather difficult to account for but they all result in time and energy we no longer can devote to something else. And all these costs aren't something were going to find on a tax form... their hidden in the cost of everything.

Circling back to the beginning... looking deeper into embedded costs in products...

From this article, Lawrence Vance discusses embedded taxes which Neal Boortz sights in his promotion of the Fair-Tax. "According to a Harvard study, the current tax component in our price system averages 22 percent." However, from what I can gather (I tried to look up the study) the 22% only represents the actual dollars and cents and again misses the time component and the impact of inflation on the raw materials that go into the the product. Plus at this point I couldn't say for sure if that is an average on domestically manufactured products... the labor intensity, etc. I assume it would certainly be higher for services since they tend to be much more labor intensive.

But let's just take a shot in the dark and say the true number is 35%. (adding in all those other intangibles like the ones above)

So... with to our $10,000 car in California, the real value of the car would be... $6500, the taxes $13686!! And you still have to spend your own time waiting in line getting the tags, the insurance, vehicle inspections, etc... What a deal!

The bottom line I have to come to is... buying things and working for the stuff they try and shove down our throat through the media certainly cost a great deal of our time and effort. I would have to say an accurate estimate is probably more like 66-80% of our time when we add the commute and all the other loops and hoops we jump through. And if you consider how much inflation has eaten up over the last 100 years... it very well could even be higher... and probably will be when the dollar finally sinks. You could surely arrive at a point where 90% of one's productive time is spent working for the government.

We came in shirtless... and the government is going to make sure we go out the same way.

So the next time somebody says they don't have time to make it to the End the Fed rally... just remind them that if they just stopped working for the government they'd have all the time they need! Freedom is prosperity... it's worth spending the time to get it!

Just a few more things on taxes. For those of you interested.

Slovakia has slashed their government and opened their markets. However, they still have a great deal of government burden. A new group is quantifying how much government really costs.

Buy your own State - An application for Slovakians to see how much government services cost them each year. ($1=23 SK)

This is a bit of a side bar but nevertheless interesting to note. The author suggest the US military's chunk of the budget is a great deal larger than reported.
Where does it go?

Is it time to strike?

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