Which is better to live in states with income taxes or without them. Currently there are 7 states that has no income tax.
States that do not have income tax have higher taxes in property, sales, and gas. These states would provide fewer public services and the tuition in many colleges/university are much higher compared to other states. The only people that seem to benefit from this is higher income residents. The 1% would only pay 2.4% of what they earn while the poor will pay around 17% of what they earn. The poor will also have less public services disposed to them.
Total Tax Revenue
US taxes are relatively low compared to those in other developed countries. In 2015, taxes at all levels of US government represented 26 percent of gross domestic product (GDP), compared with an average of 33 percent for the 35 member countries of the Organisation for Economic Co-operation and Development (OECD).
Among OECD countries, only Korea, Turkey, Ireland, Chile, and Mexico collected less than the United States as a percentage of GDP. Taxes exceeded 40 percent of GDP in seven European countries, including Denmark and France, where taxes were greater than 45 percent of GDP. But those countries generally provide more extensive government services than the United States does.
Why are US taxes relatively low?
The answer is pretty simple, and already got answered in the paragraph above. Other countries offer more extensive government services than the US, which inlcude but are not limited to: Free Healthcare, Tuition Free College, no need of purchasing unemployment or disability insurance (as they are already covered by taxes), etc. All of those services are packaged and delivered by the government in most european countries, and here in the US you have to pay for those services whenever you need them.
Which option would you choose? Would you rather pay higher taxes and take advantage of free government services, or would you rather pay relatively low taxes and pay for those services whenever you need them?
With a new presidential election just around the corner, many potential candidates are beginning to outline their policies, or at least throw some ideas out there to see if they stick. Healthcare and education are big talking points this early on, but one issue always seems to float to the top: taxes.
And why wouldn’t it? It’s an easy way for politicians to tell their voters “I’m going to save you money”, which is something everyone can get behind. However, taxes are already confusing, which makes them even more so when politicians begin discussing potential changes to tax laws.
I’m not even sure how a few of the proposed tax plans would even work. For example, I like Senator Elizabeth Warren’s proposed annual federal wealth tax of 2% on $50 million or more and 3% on $1 billion and up. However, it is constitutionally questionable as it is a “direct” tax and that is “not levied in proportion to the population of each state” (“Elizabeth Warren wants a ‘wealth tax.’ It might backfire.”)
With the US federal budget deficit rising by 17% in FY 2018 (up $113 billion from FY 2017) and seems to be only rising, it will be interesting to see if this affects how people will vote in 2020. (“US budget deficit expands to $779 billion in fiscal 2018 as spending surges”)
Imagine you’re about to go house shopping for your dream house. Nice two story colonial, three bedroom, two bathrooms, beautiful cathedral ceilings with and every morning you wake up to see the sun rising over the beautiful Crotched Mountain. You’ve done the math, you can just barely afford this beautiful family home with a view and you’re just about to sign the papers when your realtor tells you about this not so amazing thing called a view tax. A view tax is a yearly tax added onto property taxes that have a view or pleasing surrounding landscape. For a man in Oxford, N.H. his beautiful views surrounding his country farm raises his homes value by about seven times. With everyone wanting a “house with a view” this gives towns an incentive to add taxes onto certain properties knowing that people will pay the extra money to have a pleasing view. This causes problems for families and households who want that dream home but are on a tight budget.
*Disclaimer* Ghetto taxes are not applied by the government. It’s not an actual tax, but I found it super interesting and relevant.
Luxury taxes are taxes on goods that aren’t necessities like expensive clothing and high-end cars. This tax is usually higher than the original sales tax. Of course, this is reasonable because a private jet isn’t an essential item.
On the other hand, there is the ghetto tax. Last semester in my global public health issues class, we learned about something called the ghetto tax. This “tax” is the increased prices of essential goods used in poor neighborhoods. It is like a convenience fee. This is usually on groceries and clothing but also on things like insurance and home mortgages. no-one-can-afford-to-be-poor In this article, they find home insurance is about $300 more in poor neighborhoods and car insurance. They find that the poor spend $50 to $1000 more on car insurance. Some of the examples given in the article really add up and can set these people back.
Congresswoman Alexandria Ocasio-Cortez sparked a national conversation on taxes with her proposal that will have a high progressive tax rate after and individual’s tenth million dollar earned. Many conservatives cried that her proposal was radical! However, it was how American taxes worked before President Raegan lowered income tax rates. Ocasio-Cortez holds the belief that those who make more should contribute more, as it is within their means. After earning ten million dollars there would be a progressive tax of 70%. This seems high but is actually lower than the high progressive tax rates of the 1930s and 1950s when adjusted for inflation. Her proposal is more conservative than President Eisenhower’s!
After conservative news outlets and talking heads twisted her words that she wants a 70% income tax rate for all earnings Ocasio-Cortez clarified that “It’s not on all of your income. It’s on your 10 millionth and one dollar. So after you make 10 million dollars in one year, your dollars after that start to get progressively taxed at a much higher rate.”
I agree with her progressive tax rate plan since it will allow for better funding of everything from infrastructure to education. Historically we see progressive tax rates create for a more equal distribution of resources for all citizens. It could also allow for more higher ed funding and reduce college debt by allowing students to take out smaller loans.
Since 2001 there has been more than 4,500 changes to the tax codes, with some of these adjustments working in the tax payers favor. With all these changes can come more complications for the math being done during taxes, and more room for error to be done in the numbers. Although less than 1% of tax returns get audited, there are still some cases that the IRS does catch. Even if you do end up getting audited over 75% of cases are done via email, so you never have the in person IRS inspection on your taxes. With this higher earners are more likley to get audited then middle class and lower class.
Why do people get audited? Number one reason people get audited is because of the issues done within their math. If you decide to do your taxes on your own, make sure you double and triple check your work to make sure there is zero room for error. Most people recomend either going to a specilist in taxes or getting a software for your taxes. Another way to get audited is when your taxes are nice round and neat numbers. Most forms are not simple and most expensese are not one flat number, so that is big red flag when it comes to the IRS checking taxes. When doing taxes there is not guessing at numbers and there needs to be nice precise numbers that are not rounded or estimated.
In New Hampshire we have a progressive tax system where the tax rates are adjusted by the income individuals make. As we talked about in class, a progressive tax system benefits those who have a lower income and may not benefit those with a higher income because they are required to pay a higher tax rate. After learning about progressive and regressive tax systems in class, I thought it would be interesting to find out more about proportional tax which is an income tax system where the same percentage of tax is applied to all taxpayers no matter how much their income is. It is interesting to note that sales tax is also considered a type of proportional tax because all customers are paying the same rate on goods and services. Luckily, New Hampshire does not have a sales tax but we pay for this in other ways such as having high property taxes.
An example of proportional tax is when the rate is set at 20%. Someone earning $10,000 would pay $2,000 in taxes, someone earning $50,000 would pay $10,000, and someone earning $100,000,000 would pay $200,000 in taxes. I believe a proportional tax system is more fair than a regressive or progressive tax system because everyone is being taxed equally according to their income.
Of course there are still pros and cons of a proportional tax system. Technically, it is considered a regressive tax system because the rates don’t increase as the income amounts increase. Also, people who are against proportional tax feel as if those who have a higher income should be paying a higher tax rate than the lower class.
Below is a figure which compares regressive, progressive, and proportional taxes.
As we learned in class this week, while filing taxes, you can either take the standard deduction or itemize. Itemizing is where you list out all allowable expenses that were made throughout the year for tax deduction. This would include things like property taxes, mortgage interests, and charitable donations. In previous years, about 70% took the standard deduction and about 30% itemized on their taxes. As discussed in class, the standard deduction for 2017 tax schedule for single individuals was $6,350 and for married couples was $12,700. Therefore, if you own property or have a lot of expenses throughout the year itemizing would be more beneficial to you.
According to turbotax, this year it is projected that 90% are to take the standard deduction than itemize on tax returns. This is because of the new set of rules that took effect in 2018. I’m sure we were going to talk about the new tax rules in class and compare to 2017 tax schedule, but in the new set of rules the standard deduction has doubled. So for individuals that are claiming taxes independently, the standard tax deduction is $12,000 and for couple filing taxes jointly, the standard tax deduction is $24,000. Therefore, you may get a better tax break if you take the standard deduction.