WASHINGTON, April 11, 2014 − I just finished helping a couple with their 2014 federal income tax return. Both the husband and wife are teachers, around 30 years old with two small children. They described themselves as millennials who were married just after they graduated from college.
After we filed, we took a moment to add up all of the taxes they’d paid. The total shocked them. Why are we working so hard and seem to have so little? they asked.
They believed that the lifestyle they chose allowed them to earn above average income while having time to pursue a career and raise a family. Each was earning $60,000 per year for a total of $120,000 gross income. We then started to examine all of the taxes they were paying.
After some time-consuming and very complex calculations, hoping that we took advantage of every possible deduction, we came to the final numbers. Because they pay a mortgage on the modest home that they purchased right after the birth of their second child, they chose to itemize their deductions. In the end, they paid about $20,000 in federal income tax.
Then they looked at the Social Security tax. Between them they paid $7,560. I explained to them that the amount was really only half of what they paid, since their employer was required to pay another $7,560 for them.
Similarly they paid $1,780 in Medicare tax while their employer paid another $1,780 in Medicare taxes for them.
By this time they were beginning to get upset.
Since they live in New Jersey, they were required to pay rather high property taxes, and I explained to them that New Jersey has one of the highest property tax rates in the country. Property taxes on their home came to a total of $7,400. Then, of course, New Jersey has a state income tax. This amount came to $4,775.
Is there any more? they asked.
Well, yes, I said. New Jersey also has a sales tax on everything that you buy except food and clothing. Based on the numbers we had, I estimated that they paid about $4,900 in sales taxes in 2014. And there are hidden taxes that you paid every time you purchase a alcohol or a gallon of gasoline. Since the couple owned two cars, each driven about 15,000 miles per year, I estimated their taxes paid for gasoline, service and maintenance amounted to about $1,000.
All together we estimated they paid nearly $50,000 in taxes while their employer paid another $9,340 for them. They were shocked. They are not in the category of the super-rich. Nor are they part of the top 1 percent of income earners. They are two people who worked their way through college, became teachers and want to raise a family. Yet they feel they are being over-taxed.
They used to believe that together they could earn a sufficient income to provide a comfortable lifestyle for the family they were raising. But after they paid their taxes and paid on their financial obligations like student and car loans, they had nothing left for saving.
This is not right, they said. Why does the government take so much of our hard-earned income? What can the government possibly do with so much money?
Of course, I couldn’t answer those questions. I reminded them that there are periods in history where the people just said, “no more.” Starting with the tax revolts against the English before the U.S. gained independence and continuing to the tax revolt that started in California in 1978 − which eventually propelled Ronald Reagan into the White House − Americans just stood up and refused to pay any more. In 2010, the Taxed Enough Already (TEA) Party also reflected the frustration of the American taxpayer.
Every time another perceived social injustice is fixed by creating another government program transferring income away from people that earned it and giving it to people who, for whatever reason, did not earn it, taxes are raised. Our elected officials are able to do this because the tax increases seem so small when considered incrementally, while the problems they solve seem so large.
“Why are we working so hard just so others can receive almost half of what we earn?” this young couple asked. I couldn’t come up with a good answer.