Capital Punishment

When you hear Capital Punishment, you a probably thinking about the death penalty. Well I am going to talk about the other certainty of life, taxes. The tax burden in the US is not the heftiest in the world, but that does not mean it is small. It is most of it you just don’t see, but you pay it none the less. A good chunk of your taxes are paid before you have the chance to feel the money, in payroll deductions. So how much are you really paying? The average tax burden in 2008 was 28.2%¹³. What does this mean? In short nearly 1/3 of what you earn goes to taxes, lets see how.

Say you want to buy a new TV. You find a nice flat screen at a local retailer, just what you where looking for. It cost $999.99 dollars for the TV, but you know you have to account for sales tax, thinking it will only minimize the overall increase of your purchase you get it. But how much did it really cost you? How much Tax did you just pay to get this new TV? Well it was not just sales tax, it was not just taxes at all. Lets look at what it REALLY cost, and how much tax you really just paid to get this treat!

First and foremost you have to account for sales tax, the National Average Sales tax is 5.422%^1.

$999.99 x 5.422% = $1054.22

So that is that right, well no. It going to cost you $1054.22 to walk out of the store with your new TV, but how much did you have to earn (Net) to be able to spend that much (Gross)? I’m going to show you what it does cost you not only in dollars, but time or hours.

The GDP for the US is $48,000². The US Federal Income Tax on $48,000 is 17.06%³, for Single. I’m using single, since married filing jointly would have a higher GDP, and for ease to show you the true cost. So in order for you to be able to spend $1054.22 Gross after Federal Income Tax, you would have to Net $1234.07. Already you have now paid $234.08 over the marked price for your $999.99 TV(23.4%), and we are just getting started! With a GDP of $48,000 and assuming the average work week of 40 hours, you would have to work 43 Hours 20 Minutes to pay the marked price of you TV. After accounting for Sales Tax and Federal Income Tax, you now have to work 53 Hours 28 Minutes or10 Hours 8 minutes more, that’s more than a full work day just to cover sales and Federal income tax!

But where else can taxes be in your purchase? Well most states are not going to let the Federal Government have a monopoly on income tax, no way we can have that, so 41 states impose their own income tax with a national average of 9.7⁴%! That now means you need to Net $1353.78! That is now 58 hours 40 minutes of work for the average American, 15 hours 20 minutes over the sticker price (26.1% over the marked price).

So now we have figure out what you need to earn to be able to pay for the TV, wrong we are still going. What’s next? You plan on retiring right, we all do and what will be waiting for us than, we hope? Social Security. The idea is you pay in today as an investment, that money is put into a trust, matures and when you retire you start to draw on your investment, and live the rest of your life happily with social security to help you. Well it is true except for the investment part, and trust part, and the part the money will be sitting their waiting for you. How does it work, well first you pay into it at 7.65% of taxable income, which your employer matches. Now instead of this money being invested, it is now going to pay those who have already invested before you. In the private world we call this practice a pyramid scheme or now infamously a Ponzi scheme. New investors pay the old investors. Bernie Madoff went to jail for a $50 Billion Ponzi scheme¹², the Social Security one is at $53 Trillion dollars¹¹ of promised money it does not have! So how much does this Social Security add to your new TV? Add on another $103.56 to the $1353.78 for a new Net total of $1457.34 or 63 Hours 9 minutes of your time! We are now at an increase over the marked price by 31.38%! We will get more into Social Security at another time.

Okay were are done figuring out what you need to earn to get your $999.99 TV. Nope, try again! As I’m sure you are aware 47 Million American have no Health Insurance, but there is a ~96.1% you are not an illegal alien⁵ or choose not to have health insurance^6.The average per person annual premium is $6714.00⁷or 13.9% of Net^.Figuring this into your new cost, you now need to Net $1661.19 meaning 71 hours 59 minutes of work for the average American (39.8% over the marked value or 28 hours 39 minutes extra)! Hold on a sec, why does Health insurance cost more than taxes if the tax rate is higher(13.9% - 17.01%)? That is because you needed to earn that amount first ($1457.34) to be able to buy your TV, and health insurance is not taxed, so it is NOT factored in with the taxes it comes out before taxes. So to support the tax burden, it needs to be factored AFTER taxes when working it this way, as with FICA!

Oh and it still has not stopped! I have not included other costs, such as Dental, Union dues, or other costs. But I think you get the point now. So if you are part of a union and pay dues, or have a more expansive health and dental coverage, or have IRA, 401K, or other retirement annuities payments, you will have to work even more!

At this point this is where we stand

Cost Hours you need to work

Marked Cost: $999.99 43.32

Sales Tax $54.22 2.34

Fed. Income Tax: $179.85 7.79

State Income Tax: $119.71 5.16

FICA (SS): $103.56 4.48

Health Insurance: $203.85 8.83

Total Cost YOU: $1661.19

But wait, theirs more taxes! You think Uncle Sam has taken enough, well he doesn’t, so lets get some more! Now that the Government has sucked you dry, their never ending need for more money won’t stop them from taxing though. Well the retail chain is a business, the make money that is their goal, well there is a special tax for that the Corporate Tax at 39.3%⁸. The average profit margin for a retail store is get this, 2%, maybe, meaning they will make $20.00 on your $1000 TV. And of this $20.00, the Federal Government will take $7.86. The average price difference from cost to retail is 15%⁹. The retail store spent $850 to buy the TV from the manufacture with a similar profit margin, than spent $180 on Payroll and costs, which also have their own taxes like gasoline, commerce, and tariffs. So figuring the Retailer and Manufacturer profit margins (8.3% for the manufacturer¹⁰) $20.00 and $73.95 for a total of $93.95. Of that $93.95 at least $36.92 will be paid in taxes. Your TV for $999.99 resulted in a profit of about 10%, meaning the other 90% is payroll, transportation, tariffs, ect costs, that are once again taxed, and I’m not even going to figure that, but will use the average we have seen in taxes of about 15%, adding yet another about $135.00 is taxes involved in this TV.

The final totals

TV: $999.99

Taxes $629.26

Profit: $57.03

So think about it like this. You go to buy this TV you are not paying any of these taxes or premiums in your paycheck, but rather at the point of purchase and you have to write one check to the store, and another to the government for taxes. How would you respond if you were told in order to buy this TV you also need to pay the Government $661.21. You would be outraged, and say HELL NO!

Now we routinely here about these evil corporations who earn so much and give so little. Here is a common example to show who the real villain is, it is not business, it is the Governments uncontrollable appetite for spending, and taking all they can from where they can to do it, and hiding as much of the reality of it from you as possible. But the average tax burden is 28.2% why does it cost 39.8% more? This is because most people also pay premiums on things like health insurance and such. In this example we were showing how much you would have to work and spend to buy a product with common deductions from your payroll. This still does not factor in other necessities you also have to pay for. The overall tax burden on you for this product was 31.38%, fairly close to the average ....US.... tax burden. Part of the error factor is I used state averages for tax, not populations average which results in a slightly higher percentage.

So where do these tax dollar go, that is coming soon, but I’ll leave you wit this, part of the money that you just spent on your new TV went to nothing but paper, at a cost of $45.35¹³or 1 hour 58 minutes of work. This money will go only to pay interest on the National Debt¹⁴, much of which is owned by foreign nations.

1: http://www.retirementliving.com/RLtaxes.html

2: https://www.cia.gov/library/publications/the-world-factbook/geos/us.html

3: http://www.moneychimp.com/features/tax_brackets.htm

4: http://www.retirementliving.com/RLtaxes.html

5:http://www.heartland.org/policybot/results/456/Uninsured_Immigrants_Burden_the_Health_Care_System.html

6. http://www.cato-at-liberty.org/2009/06/24/how-many-uninsured-are-there/

7. http://economix.blogs.nytimes.com/2008/11/14/why-does-us-health-care-cost-so-much-part-i/

8:http://www.taxfoundation.org/publications/show/22917.html

9:http://www.schwab.com/public/schwab/research_strategies/market_insight/financial_goals/tax/calculate_the_cost_before_you_sell.html

10: http://contrarianedge.com/?p=79

11:http://www.cnn.com/2008/US/03/26/beck.deficit/index.html

12: http://www.forbes.com/2008/12/12/madoff-ponzi-hedge-pf-ii-in_rl_1212croesus_inl.html