Americans Spend more on Taxes than Food, Clothing and Shelter
Wondering why Americans are so angry with D.C. despite the headlines insisting that the employment situation is fantastic? Just look at incomes and taxes.
According to a recent Pew Research Center Report shows, while median household income has shrunk by 13% from 2004, expenditures have risen by nearly 14%, driven almost entirely by the cost of housing. In fact lower-income families spent close to 50% of their income on rent in 2014.
In 1971 61% of all Americans lived in middle class households – today that number is just under 50%. In 1971 4% of Americans were in the highest income category, today that number is 9% and that is because over the past nearly 40 years, the higher a family’s income, the greater the income gains.
Income gains have been highly disproportionate between 1971 and 2014 with the following rates of increase:
Median income of all upper-income 47%
Median income of all middle-tier 34%
Median income for lower-tier 28%
This looks an awful lot to me like what we are seeing in the business world, where the level of complexity in the tax code and sheer volume of regulation makes it increasingly difficult for the little guys to compete with the big guys who are able to afford armies that deal with all that paperwork and find the loopholes, (or donate to a politician who can make one for them). Small companies struggle to grow, while the big ones gain more and more market share thanks to the protections afforded to them by just how expensive it is on a relative basis for the little guys to operate.
Just take a look at how the U.S. tax code has grown over the years. Even those in the IRS don’t know what the rules are at this point!
As for just how far families have come since the financial crisis, according to the Federal Reserve, 47% of all Americans would not be able to come up with $400 for an emergency without having to borrow or sell something.
Roughly 60% of the country is living paycheck to paycheck.
So where are Americans spending what they do earn?
According to the Tax Foundation, in 2016 Americans are expected to roughly spend the following:
$1.6 trillion on food
$2.1 trillion on housing
$360 billion on clothing
$4.1 trillion (Total)
Total tax bill is expected to be roughly the following:
$3.34 trillion in federal taxes
$1.6trillion state and local taxes
$4.9 trillion (Total)
This means that families will be spending 19.5% more on taxes than they do on food, housing and clothing. Let’s keep that in mind when we discuss providing “free” education and “free healthcare.”
But that tax burden isn’t exactly spread equally across the nation, according to the same analysis an estimated 45.3% of American households which is roughly 77.5 million, will pay no federal individual income tax either because:
- They have no taxable income (roughly 50%)
- They are able to take advantage of enough tax breaks to remove all tax liabilities (roughly other 50%)
So who is paying for all that government spending, outside of course of the amount being allocated to future generations through borrowing?
Top 0.1% pays over 20% of all federal income taxes.
Top 1.0% pays roughly 44% of all federal income taxes.
Top 20% pay roughly 87% of all federal income taxes.
On average, those in the bottom 40% of the income spectrum end up getting money from the government.
For those who think the rich need to pay their fair share, just how much more of the burden can be shifted and to what end? What magical thing is going to happen when say the top 20% are paying an addition 13% of federal taxes, which would make them the only ones paying taxes!
Keep in mind too, that taxes paid by the wealthy tend to fluctuate a lot more because their incomes are more volatile. That invariably leads to more and more government debt as we’ve seen governments have a nasty habit of spending any additional money that comes in, but are incapable of tightening their belts when times are tough.
Bottom Line: We need a tax code and welfare system that incentivizes income generation, that rewards working hard and doesn’t penalize those who may need assistance for a time when they try to get back on their own two feet. The tax code cannot be successfully used to rectify societal frustrations between the haves and the have-nots as inevitably, it will come to harm those that need help the most.
