You Don’t Get What You Pay For


It’s everyones favorite time of year – income tax filing season.

A little over half of the households in the US will have an income tax liability for 2015. People who overpaid during the past year will get a refund for the overpayment (if anyone tells you he “made” money when he filed his taxes, please slap him for me) while folks like myself who still owe some taxes will be writing a check for the underpayment.

One of the Republicans Party’s favorite myths is “47% of Americans pay no income tax.” (Mitt Romney – May 17, 2012) Ummmm, no. Practically everyone who has earned income has to pay FICA taxes, better known as Social Security and Medicare taxes. While these are not called “income taxes” there is no denying that they are taxes on your income, thus they are income taxes. Therefore the real percentage of Americans escaping any income tax is closer to 10%. Republicans, knock off the class warfare BS.

The FICA tax equals roughly 15% of your earned income, only half of which shows up on your paystub. Congress cleverly hid the other half from most of us by having your employer pay it “on your behalf.” But don’t be fooled, you are the one paying this because it is a cost of employing you. If you don’t believe me, ask a self-employed friend what the FICA tax % really is.

Between “the” income tax and FICA this is what the median American household owes for 2015 assuming 90% of income is from working:

# of people                   Income             FICA               Income Tax                  Total

1 Adult                          $28,000          $3,780              $2,194                         $5,974

2 Adults                        $59,000          $7,965              $4,838                         $12,803

2 Adults, 2 Kids            $76,000          $10,260            $4,488                          $14,748

So when you include ALL income taxes you are paying about $1 out of every $5 you make to the feds. That’s double what God demands!

You must be getting some pretty good stuff for this, right? Like roads? Nope, you pay for that through taxes on gasoline. How about education for your kids? No, property taxes cover the majority of that. Police and fire protection? Uh uh, local sales taxes and fees cover that cost.

Then what the hell are you getting for the thousands that the feds force you to hand over?

You probably won’t be happy with the answer.

Over the course of 2016 the government behemoth will spend $4 trillion. But not all of that spending has the same priority, some things must get paid before others by law or to avoid economic catastrophe.

FICA taxes are earmarked for paying out Social Security and Medicare benefits. Contrary to popular belief the taxes you pay for these things are NOT deposited into an account with your name on it to be paid back when you retire at 65. The FICA taxes you pay now are paid out NOW to current retirees. And what you’re paying doesn’t even cover what the old farts are receiving. Overall Social Security and Medicare are paying out $500 billion more than FICA taxes are bringing in. That means the rest has to come out of what you are paying in regular income taxes.

Here’s how this breaks down for the different households:

# of people                      FICA               Income Tax Needed                 Total to Cover SS & MC

1 Adult                            $3,780                   $1,538                                     $5,318

2 Adults                          $7,965                   $3,076                                     $11,041

2 Adults &  2 Kids          $10,260                  $4,488                                     $14,748

If you compare this chart to the one above then something should jump out at you. The household that has 2 adults and 2 kids, the classic American family (at least according to 1960s TV), pays ALL of its taxes to old people. That’s right, everything the feds take out of your paycheck goes directly to grandma and grandpa. None of it goes to defend you from the Muslim jihad, to maintain the National Parks, or to help poor people. None of it.

Well at least you’re keeping the old codgers out of poverty, right? Actually, only a few of them. Most people over 65 are doing quite well, thank you. In fact, as a group the old coots are the wealthiest cohort in the country. You might be helping granny to buy a more nutritious meal than cat food, but more likely you’re paying for her Filet Mignon.

At least the households without any kids are paying enough in taxes to help cover the rest of the government, right?

Of course not.

The US government owes about $19 billion in debt. We have to pay interest on that debt. If the feds ever stop paying the interest then no one will lend them any more money, causing interest rates to skyrocket. If you think it’s expensive to buy a house or car when interest rates are 3%-5% then try doing it when they are 50%. It’ll be impossible. The economy will collapse and we’ll turn into Greece or Spain, but without the sunshine and nude beaches.

The federal government will pay $240 billion in interest this year, or about $740 per US citizen. That swallows up the remaining $656 the single person household pays in taxes, and all but $282 of the taxes paid by the two person household. But the family of four isn’t paying anything towards the interest, meaning the two-person household has to pick up the slack, thus the $282 also gets used to pay interest.

(Full disclosure: My wife and I collected $17,000 in interest from US government bonds this year and we used it to help pay for a second home. YOU, paid this money to me. Thanks for your contribution to my wealth! You feel better about paying taxes now, right?)

So who is paying to keep the government running? About a quarter is paid by taking out more debt. This year President Obama and Paul Ryan agreed to borrow another $600 billion in your name, or $1,850 per person. That means you get to pay even more interest next year.

The rest of the tab is picked up by Evil Rich Bastards – defined by the Democrats as anyone who makes more money than you. The top 20% of households, making roughly $100,000 a year or more, send money to the blue-hairs and pay interest just like everyone else, but they are also the ones paying enough in additional taxes to keep the government running. Without them the TSA couldn’t fondle your junk, the Army Corps of Engineers couldn’t stop you from draining the mosquito-infested swamp in your back yard, and the decade and a half long wars in Iraq and Afghanistan might have to end.

So there you have it, the FICA and income taxes paid by the average American taxpayer don’t pay for the things the government claims it does for you. The thousands and thousands of dollars taken from you provides you with no goods or services. It is simply given to someone else.

You are being ripped off!

Taxation is theft.

Wayne Middlesteadt is the author of Five Ways to Beat the Market and The Golden Age of Distance Running.

About Author

Wayne Middlesteadt is a 1986 graduate of Georgia Tech and has an MBA from Georgia State University. Currently working as a financial writer and track and field historian, his latest book is Five Ways To Beat The Market.