“In this world,” wrote Benjamin Franklin, “nothing can be said to be certain except death and taxes.”
With the April 17 federal income tax filing deadline creeping up, millions of Americans are frantically confronting that latter (but hopefully not former) inevitability.
Tax day is the deadline to settle up with the government by handing over the federal and state income taxes you still owe (or that, in some cases, are owed to you). This includes taxes from all your work income, your investments and any other earnings made throughout the year.
Let’s be honest: There’s nothing particularly pleasant about paying taxes. This is your hard-earned cash siphoned from your income — money that could go into your pocket and instead is getting snatched up by the government. And for what, exactly? Where does it all go? And what do you get in return?
It’s not like the IRS gives you a detailed receipt of how your dollars are being spent. Add local and state taxes to the mix, and that long-awaited paycheck starts to look more like fish sticks for dinner than lobster.
But then again, some degree of taxation is also pretty necessary. Without taxes, a lot of basic stuff we all need on a daily basis, like roads and schools and fire departments, simply wouldn’t be available for everyone. Many of these services come from local taxes, but a surprising number are also dependent on some level of federal funding.
Federal income taxes are considered to be “progressive,” which means the more you earn, the higher your tax rate. They collectively make up nearly half of all federal revenue, and pay for everything from education programs to highways to airport security. As you can see from the graphic below, the largest chunks go to health programs — including Medicaid — and defense spending.
Keep in mind that the humongous pot of funding for trust fund programs like Social Security and Medicare comes largely from payroll taxes, not income taxes (which is why we’re not talking about those programs here). In fiscal year 2016, which ended Sept. 30, the federal government spent just under $4 trillion (that’s with 12 zeros!) according to the Pew Research Center. And nearly 40 percent of that — almost $1.6 trillion — went just towards Social Security and Medicare alone.
But for now, let’s just focus on the other 60 percent that income taxes help pay for.
Also, remember that huge Republican tax bill that President Trump signed in December that caused such a ruckus? Well that’s going to switch things up a good deal in terms of who pays what. BUT, remember that it doesn’t go into effect until next year. So you’ll notice the changes when you fill out your 2018 taxes (in 2019). This time around, though, we’re still going by the old rules.
You can also create your own customized tax receipt here, courtesy of the National Priorities Project, a left-leaning educational group that tracks federal spending. Enter the amount you paid in taxes in 2016 to get an itemized estimate of how that money was/will be spent. The estimate is for income tax only, not payroll and excise (sales) tax.
In addition to federal taxes, residents in all but nine states also have to pay state income taxes, which vary pretty dramatically by state. Click here for specific details on what services your state income taxes pay for California, home of the highest personal income tax rate in nation.
The average single U.S. worker without kids — let’s call him Bob — earned about $52,543 in 2016, according to an extensive analysis by the Organization for Economic Co-operation and Development. The report found that Bob paid a combined $13,649 in taxes — including payroll, federal income, state and local government — or roughly 31.7 percent of his total earnings. Ouch.
Although that may sound like a lot, it’s actually a good deal less than what workers in most other wealthy nations pay (despite claims to the contrary by certain tax-bashing U.S. politicians). In fact, in its comparative analysis of 35 mostly high-income nations, the OECD report found that the the average U.S. tax burden was actually in the bottom third of the pack — 25th out of 35 — for both single workers and workers with children.
Even so, President Trump, backed by Republican leaders in Congress, pushed to overhaul America’s exceedingly complex system of taxation by cutting rates and slashing the budgets “massively” of nearly every federal program except defense-related spending.
“With lower taxes on America’s middle class and businesses, we will see a new surge of economic growth and development,” said Trump, a billionaire who has consistently refused to publicly release his own returns, and as a candidate boasted of not paying any income taxes.
It’s been more than 30 years since the last successful overhaul.