The Insane Tax Burden of Average Americans

I recently drove to visit my granddaughter and daughter in Florida and spent an evening in Knoxville, TN. I was stunned at the 9 ¼% sales tax I paid on a meal and a $12.00 rape the visitor tax on a $40 a night room. The jolt began me wondering about how much actual tax we, as Americans, pay each year. We sometimes forget the hidden taxes we pay as a matter of course in conducting our daily business, such as the excise tax on a gallon of gasoline.

I live in Nashville, Indiana where I pay a greater amount of tax on my monthly water bill than I do for the actual water. Last month I was charged $31.47 for the amount of water used and $51.48 in a sewer usage tax. The insanity of such a situation is self-evident. So, I decided to calculate, approximately, the amount of tax, both hidden and evident, an average middle class family of four pays in the state of Indiana over the course of a year.

According to the latest census the average household income in the US is $47,000 per year and an average household consists of a family of four (plus a decimal child, which we will ignore since partial children only serve to bloody the floor).

Let’s begin with actual income tax charges. In the State of Indiana citizens pay a federal income tax, a state income tax and a county income tax. The present federal tax rate for $40K plus a year is 25%. Thus, a family of four taking standard exemptions and filing as married filing jointly pays a federal income tax of $8,500. Indiana’s income tax rate is 3.4%; thus, the state income tax totals $1462. The Indiana County tax for Brown County, Indiana is .014875% for a tax total of $639.63. Total raw income tax due in Indiana for a family of four is $10,601.63.

Now, the same family must pay a 6.2% FICA tax that totals $2914. Thus the accumulated total of straight income taxes becomes $13, 515.63. But, we are far from done paying tax. Sales tax in Indiana is a flat 7%. The average family of four spends $8600 per year on food, says the GAO. Thus, 7% of $8600 equals $602, bringing our tax expenditure total to $14,117.63.

Now a modern middle class family of four must have two vehicles in order to operate. Vehicles at an average $25,000 purchase price entail a $1750 per vehicle, or $3500 total sales tax, which we can amortize over a 60 month loan for a total $700 per year, for an annual tax total at this point of $14,817.63. In Indiana the state charges an annual excise tax plus a fee for automobile registration. The excise tax is on a sliding scale but two new cars over a five year period will average approximately $225 per vehicle per year, for a tax total at this stage of $15,267.63.

The average household vehicle averages 15,000 miles per year. If the vehicle averages 25mpg it will use 600 gallons of gasoline. For a middle class family of four with two vehicles the total usage becomes 1200 gallons of gasoline a year. The average excise tax on a gallon of gasoline in Indiana is $.184 federal and $.317 state for a total of $.501 tax per gallon or a total tax expense of $601.20, raising our tax expense total to $15,868.83.

We are not yet finished, not by a long shot. The average cost of clothing in the US is $624 per child, slightly higher for adults. The sales tax on this amount is $174.72, for a tax expense total of $16043.55.

Finally, Indiana has a property tax of .014% on privately owned real estate and recently passed a 2% cap on rental property and 3% cap on business property. If an average family of four owns a house valued at the national average of $187,000 their annual property tax bill is presently $2618, for an expense total of $18,661.55. If they rent, the tax bill they pay increases to $3740, unless their landlord is an exceptionally generous individual who just loves sheltering people for the Christian love of it, which brings the rental family’s total tax expense to $19,783.55. Most obviously, businesses will pass on the 3% property tax to their customers but the actual cost to a family is impossible to calculate.

Given these figures, we see that a family of four making the average househould income of $47,000 a year pays $18,661.55 in tax if they own their house in Indiana and $19,783.55 if they rent. This means their actual disposable income is $28, 338.45 or $27,216.45, respectively, which translates into a tax burden of 39.7% and 42% respectively.

I understand that by finagling deductions and some creative bookkeeping these tax bills could be reduced by a few thousand dollars. Even so, something is seriously out of kilter here.