Who is it that really and truly pays taxes - Friday, July 6, 2012
For those of you who don’t like my political views, this piece is completely a-political. It is written so people can understand the effects on everyone that taxes have and how many taxes on the “wealthy” are actually paid by average and even poor Americans.
Who is it that really and truly pays all those taxes, and I mean all, every penny? That includes all payroll taxes, income taxes, FICA, unemployment taxes, sales or value added taxes, real estate taxes, and all those hidden taxes on practically everything. I'm sure you heard all those comments about 51% of Americans paying no income taxes at all, mostly those with low incomes. The Washington ruling elite, their bureaucrats and the wealthiest Americans would like you to believe that, but it is patently untrue. In actual fact, those who pay no income taxes pay a larger portion of their disposable income to the government than those who do pay income taxes. Statistically, the more income above the minimum required for basic necessities one has, the smaller the percentage taxes take out of total income.
Politicians like to use class warfare in their rhetoric about income tax rates for "the wealthy." Unfortunately, those same politicians have built an income taxing system that is extremely complex and that provides endless exemptions and deductions (the infamous tax loopholes) for their friends and supporters. These "loopholes" are finagled by lobbyists for an immense range of beneficiaries. How often do you hear about wealthy individuals or companies who pay virtually no income taxes? Remember GE last year? If you are wealthy enough, you can buy exemptions from almost any tax for a tiny part of that amount in campaign donations or even slipped "under the table" to the right people. Still. that doesn't change anything about who actually pays those income taxes as described in the next paragraph.
Corporations, businesses, professionals, any person or organization that provides goods or services, do not actually pay any of these taxes. They merely pass these costs down to the end users or consumers. The only time they actually pay taxes is when they buy something as an individual consumer. This means that the entire cost of government is borne by those same end users and consumers. At 32% of GDP as it was in 2007, 32¢ of each and every dollar spent by every consumer was tax. This applies to rich and poor alike. Since 2007, liberal Democrat spending aided by Obama’s efforts, has upped that to 44% of GDP. That has increased taxes on everyone by 37.5%, more than a third. The estimates the CBO made as to the cost of Obamacare is pathetic. As usual, it will probably cost more than four times the CBO estimate, should it be implemented. This cost will raise the tax portion of everything to at least 50%, another raise in the taxes paid by everyone of 13.64%.. This means that by 2014, the taxes paid by everyone will have increased by 56.25% in just 7 years.
Let’s follow some tax dollars and see who actually pays—where the tax debt ends up. The figures reported have been taken from the actual financial statements of real companies. The names have been changed to prevent law suits.
EXAMPLE, STEP 1: XYZ Mining in Arizona digs copper ore out of the ground in several Arizona copper mines. They refine the ore and sell it to copper users. In 2010 their sales were nearly a $billion. Their net earnings before taxes were $211 million, or 21.1% of sales. Federal income taxes on those earnings were $47 million. Taxes other than income taxes were $22 million. These included state and local taxes, franchise taxes, and federal direct mining taxes. Payroll taxes, including both portions of FICA were $67 million. The total tax portion of XYZ’s expenses were $136 million or 13.6% of total sales. Out of every $1,000 worth of copper sold, $136 was for taxes that the purchaser of the copper actually paid for. XYZ simply passed that tax burden on to those who bought their copper, a fabricator or manufacturer.
STEP 2: ABC fabricating of Texas bought the raw copper ingots from XYZ and produced copper pipe among many other products. A financial analysis similar to XYZ shows that for every $1,000 worth of pipe sold, $227 was for taxes. Factoring in the portion of the taxes XYZ paid, adds $42 to that amount for a total of $269 out of the $1,000 of sales. This amount is simply passed on down the chain to the purchaser of the pipe, a contractor.
STEP 3: A building contractor in Dallas bought some of this pipe for a major building project. A financial analysis similar to XYZ and ABC shows that for every $1,000 worth of pipe used and priced in the project, $296 was for taxes. Factoring in the portion of the taxes XYZ and ABC paid, adds $84 to that amount for a total of $380 out of the $1,000 of the contract price. This amount is simply passed on down the chain to the purchaser of the pipe, a building owner.
STEP 4: The building owner leases space in the building to a group of dentists. Their financial analysis shows that for every $1,000 of the building lease income attributable to the extensive copper piping in their suite, $198 was for taxes. Factoring in the portion of the previous taxes paid adds $123 to that amount for a total of $321 out of each $1,000 of the rent paid by the dentists. This amount is simply passed on down the chain to the dentists who lease the space.
STEP 5: The group of dentists have many patients that pay for their dental services. Their financial analysis shows that for every $1,000 of the patient fees they receive, $321 was for taxes. Factoring in the portion of the previous taxes paid adds $140 to that amount for a total of $461 out of each $1,000 of the fees paid by the patients. This amount, the entire tax burden applied to each of the 5 steps combined, is actually paid by the end user, the patient who is at the end of the chain, the final or end user.
Conclusion: It is always the end user of any product or service that actually pays every penny of all taxes. This tax burden falls on rich and poor alike and, as in the above example, currently averages about $46 out of every $100 spent by every individual, regardless of income or wealth status. That percentage can be accurately calculated another way. Currently, our federal government consumes about 41% of our GNP. Add to that approximately 5% consumed by state and local governments. It’s funny how that adds up to the same $46 out of every $100 spent by every individual, regardless of income or wealth status.
Raising taxes (especially on the wealthy) increases the cost of absolutely everything. From gasoline to bread to apartment rent to health care, increasing taxes will always raise these prices for the consumer. By the same token, lowering taxes will always lower these prices for the consumer. These are demonstrable and proven facts from time immemorial. So, no matter how you slice it, the poor always pay a far higher portion of their needed income from any and all sources, than do those not considered among the poor. The less income one has, the more important that portion is that goes up the chain to pay all those taxes. Said another way, the loss of that $46 out of every $100 spent is much more damaging the less income one has. That $46 is far more important to a low income family trying to get by, than to a slightly wealthy family or even the one down the street making $50k per year.
EXAMPLE 1. A poor family has a total income including welfare payments of $1,600 a month. They pay no income taxes. Assuming they spend all of their income, 46% of what they spend, or $736 is taxes that were passed down the chain. Their total taxes are $736 or 46% of their income
EXAMPLE 2. Another family makes about $5,000 a month. They invest $500 per month in savings and pay $225 for income taxes. They also have a mortgage payment of $1,000 each month. This leaves them with $3,275 of disposable income which they use for all household necessities, food, clothing, transportation, insurance, etc. etc. Assuming they spend it all, 46% or $1,622 is taxes that were passed down the chain. Their total taxes are $1,847 or 34.63% of their income.
EXAMPLE 3. Another family makes about $15,000 a month. They invest $3000 per month in savings and stocks, and pay $2,000 for income taxes. They also have a mortgage payment of $3,000 each month. This leaves them with $7,000 of disposable income which they use for all household necessities, food, clothing, transportation, insurance, etc. etc. Assuming they spend it all, 46% or $3,268 is taxes that were passed down the chain. Their total taxes are $5,164 or 34.43% of their income
EXAMPLE 4: Another “wealthy” family makes about $100,000 a month. They invest $40,000 per month in stocks and savings, and pay $15,000 for income taxes. They also have a mortgage payment of $10,000 each month. They make charitable donations of $5,000 per month. This leaves them with $30,000 of disposable income which they use for all household necessities, food, clothing, transportation, insurance, etc. etc. Assuming they spend it all, 46% or $13,800 is taxes that were passed down the chain. Their total taxes are $28,800 or 28.8% of their income. Lets see, here’s the resulting tax table:
Family (monthly) Income Disposable Taxes Tax % Left to Invest
Poor $1,600 $1,600 $736 46.0% $0
Lower middle $5,000 $3,525 $1,847 34.63% $500
Upper middle $15,000 $7,104 $5,220 34.43% $3,000
Wealthy $100,000 $30,000 $28,800 28.8% $40,000
Who thinks this is fair?
The table below gives the same figures with the “Fair Tax” 15-25% base
Family (monthly) Income Disposable Taxes Tax % Left to Invest
Poor $1,600 $1,600 $0 0.0% $0
Lower middle $5,000 $2,295 $750 15.0% $1,955
Upper middle $15,000 $6,780 $3,250 21.7% $4,970
Wealthy $100,000 $31,200 $25,000 25.0% $43,800
The table below gives the same figures with the “Fair Tax” 20-30% base
Family (monthly) Income Disposable Taxes Tax % Left to Invest
Poor $1,600 $1,600 $0 0.0% $0
Lower middle $5,000 $2,295 $1,000 20.0% $1,445
Upper middle $15,000 $6,780 $4,000 26.7% $4,220
Wealthy $100,000 $31,200 $30,000 30.0% $38,800
It is obvious from this information and from the examination of the P&L statements from any business that business do not pay taxes, they merely collect them from their customers and pass them on to the government. They represent a substantial part of every end user purchase of goods and services completely paid for by individuals as long as they are not a business expense. In 2006 the percentage that represented tax was 32%. That figure has blossomed to 44% since liberal Democrats took over Congress and the Whitehouse. By 2014 it will swell to at least 50% thanks mostly to the Obamacare tax. While this number is growing, business profits and thus tax revenue, will shrink as the economy sinks farther and farther into the tank.
So, I repeat, who really pays the taxes? The truth of the matter is that very few members of the public understand the realities of any taxes. Every business, large or small, every professional, every taxable entity or organization—all workers—appear to pay taxes to many governments. But just who is it that actually pays these taxes? Corporations do not pay taxes. Businesses do not pay taxes. Professionals in their professions do not pay taxes. Organizations including those who are not-for-profit do not pay taxes. All of these “taxpayers” merely collect those taxes from customers or clients in the price of their products and services and then pass them onto the government just like the much more obvious sales tax. Even the so-called company paid portion of FICA taxes add to the cost of an employee and so are really taken from the employee.
What happens if lawmakers enact a windfall profits tax on the oil companies at 50% of net profits? It's really quite simple. Every dollar increase in taxes will be met with a slightly larger total increase in fuel prices at the pump to make up for the increased cost of doing business. As with all business, this cost will be passed through to the consumer or end user. That would add as much as another nickel to the price of gas at the pump. So who is paying that excess profits tax? It's the ignorant motorist who voted those self-serving oafs into office just to punish the oil companies.
