During the fiscal cliff kerfuffle the President and his
acolytes succeeded in their quest to implement the divisive class warfare
mantra of the election, i.e. impose further taxes
on the evil rich. As that election
battle proceeded a basic tax question was often raised by many taxpayers--not
just the rich: “how much is enough”? Americans
also voiced concerns and discussed fuel costs, inflation, the cost of
government and how these costs might be reduced. Nevertheless I believe that most Americans do
not realize they are paying numerous “hidden taxes” due to government.
In some discussions a 50% maximum threshold for all taxes was
mentioned (e.g. Sean Hannity-almost nightly).
Additionally the Federal Government was cited as not the only authority
with a hand in the taxpayer’s pocket. It
was pointedly noted that states, cities, and counties levied taxes… that real
estate, personal property, estate, capital gains, fuel, sales and excise taxes were
competing for pieces of our hard earned paychecks...and finally that fees,
fines and licenses existed…all of which were meaningful and on the rise.
Currently the federal government uses marginal
income tax rates ranging from 10% to 39.6% which are applied to adjusted
gross income to define our tax bills.
The states add tax
burdens ranging from a low in Alaska
of 7.0% to highs in Connecticut, New Jersey and New York of 12.3%, 12.4%, and
12.8% respectively. Hence a combination
of federal income taxes and state tax burdens--without considering the myriad
“other” taxes--place top earners very near the 50% threshold (e.g. if you earn an
adjusted gross income of $400,001 as an individual or $450,001 if filing
jointly in NY, the tax rate would be 35% + 12.8%=47.8%).
But the costs/burdens of the federal government (and state
govs.) go well beyond their tax regimens.
Our current government, in particular, has burdened us with other
meaningful costs (read hidden regressive taxes) that include energy,
regulatory, legal/litigation and more recently ObamaCare. Further hidden taxes can be cited such as
inflation, Fed interest rate policy, tariffs and waste and fraud. Together with all other taxes the combined “tax”
load on Americans, both individuals and couples, is well above the numbers
found on their federal and state income tax forms.
A Few Key Statistics
US households
(2010) Total=115,538,000; Persons per household=2.59 (US Census Bureau)
Federal Income
Tax Revenues (2011) Individual Income Taxes Collected=$8.093 trillion (US
IRS)
Number
of Passenger vehicles=254,400,000 vehicles (2007) (US Bureau of Transit Statistics) Government Regulation
Government regulatory costs, benefits, overuse/abuse, even constitutionality are often discussed with little agreement. To address these factors, the Competitive Enterprise Institute, the Small Business Administration (SBA) and the Heritage Foundation conducted extensive studies (between 2008 & 2012) that stated the costs associated with regulations ranged from $1.75 trillion to $1.80 trillion. Further regulatory costs are expected to grow rapidly since the Obama administration has added 11,327 pages of new regulations between 2009 and 2011. The growth of regulations accelerated in 2012 with the number of pages expected to exceed 4,450.
The 2008 Small Business Administration study calculated regulatory
burdens at $1.752 trillion. The study suggested
that 70% of the total or $1.236
trillion were economically driven costs, that environmental regulations
added $281 billion; tax compliance another $160 billion and homeland security startlingly
topped $75 billion in cost.
Using $1.70 trillion as a reasonable estimate of total regulatory
costs, these costs by comparison are almost double the yearly income taxes collected from individuals and
cost each adult approximately $6,960 annually.
Yet regulations also provide benefits.
Democrats insist the benefits exceed the costs in opposition to Republicans
who believe the reverse. For this
analysis one third of the annual cost per adult is believed to be unnecessary
and a hidden tax of $2,320 per adult.
ObamaCare
ObamaCare taxes became effective January 1st. Estimates of the act’s costs over ten years
run from $700
billion to $1.1
trillion or $70-110 billion per year (CBO
est.=$1.1 trillion). Yet if the past
is prologue the track record of the Congressional Budget Office or Bureau of
Economic Analysis (CBO or BEA) in estimating government program costs means
ObamaCare’s actual price will double or even triple in two or three years.
Upper
income earners will suffer the brunt of the tax increases. Individuals earning $200k+ per year or
couples taking home $250k+ will pay a 0.9% Medicare tax increase on wages above
those amounts and an added 3.8% tax on investment income. Employers (with 50+ associates) will face partially
paying for their employees insurance or remitting a $2,000 penalty for each
employee.
Health
care insurers, drug companies and medical device companies will also pay
higher taxes and fees. Most notably
medical device manufacturers will endure a 2.3% excise tax on sales. These are just three of twenty additional new
taxes/fees directly related to ObamaCare.
Administration officials and ObamaCare supporters argue that much of the
extra tax load is borne by business not individuals…but the end user (a
consumer) will ultimately pay all the taxes, penalties and fees.
Given a preliminary estimate of $1.0 trillion in cost for ObamaCare the average adult’s share per year will run $410.
Given a preliminary estimate of $1.0 trillion in cost for ObamaCare the average adult’s share per year will run $410.
Energy
Energy policy or a lack of a policy has cost individuals and
households a significant and growing percentage of their income. On Obama’s inauguration day the average price
of a gallon of gas was $1.82.
Subsequently the average price skyrocketed to over $4.00 per gallon.
Gasoline consumption per driver varies from 281
to 729 gallons per year based on a variety of assumptions/factors. Government statistics (albeit dated) indicate
that approximately 200
million+ drivers operate passenger vehicles in the US. A number of studies performed by the US
Energy Information Agency and the Department of Transportation have posited that
the average household consumes 1,100
gallons per year. Thus if an average
household contains 2 adults the gallon usage per adult equals 550 gallons.
Although oil is a fungible commodity I believe that an energy
policy aimed at real energy independence would have held a gallon of gasoline
below $2.25 a gallon (vs. $3.55 now). A
simple calculation demonstrates that current policy is levying a hidden tax on
adults of at least $750 per year.
Legal/litigation
The costs associated with civil litigation (aka torts) exploded in the 1970’s
and 1980’s. The costs and side effects of
the system soon captured the attention of economists who
recognized its economic drag. As a
consequence numerous studies have been conducted to quantify the costs/benefits and the costs of excessive/unnecessary tort actions.
Three studies are referenced with regularity. Towers Watson calculates the per person cost
of frivolous tort actions at $838
or $1,052 per adult. The Tillinghast
estimate touted by the U.S. Chamber of Commerce puts the price per person at $880
or $1,100 per adult. The Pacific
Research Institute’s study generated a stunning estimate of $2,457 per person
which translates to $3,071 per adult.
Each of these studies has been criticized for being inaccurate. Critics contend the studies are totaling the
costs of all tort litigation. In contrast
others believe the costs are understated since the fear of a tort action
negatively changes
behavior, risk taking and investing; costly factors that are very difficult
to measure and quantify.
A comparison of the U.S. civil system and similar systems in
Europe and other industrialized nations generally indicates our system is twice as expensive. Those systems require that the losing
litigant pays the winners legal fees and do not allow contingency billing to
name just two differences. In summary a
cost of $1,050 for every adult appear reasonable given the evidence highlighted
above.
Hidden taxes/costs are increasing and quite meaningful to most
American budgets today. A total of the
four discussed above equals $4,530.
These costs are not just largely hidden but are regressive in nature and
have a greater impact on low wage earners and the elderly. These costs also push many taxpayers into an
ever growing group that involuntarily tithes over 50% of their income to
government. Congress and the President could materially reduce
these costs by recognizing their existence and by legislating straight forward
solutions. Instead we get the politics
and theatrics of the fiscal cliff nonsense that accomplished little over the
past few months.
