Thus we see that marginal rates even for those with relatively modest incomes are well above what most Americans think should be the maximum. Although the median family, which had an income of $54,061 in 2004, would probably be in the 15 percent federal income tax bracket, all of its earned income would also be subject to the Social Security payroll tax, which is 15.3 percent on all wages up to $94,200. Although, only half this tax is withheld from workers' paychecks, economists believe that they in effect pay the employer's share also, in the form of lower wages. A single person earning between $74,200 and $94,200 is going to pay the 28 percent federal income tax on that income plus another 15.3 percent for Social Security as well, making his marginal rate more than 43 percent. But then there are state income taxes in the vast majority of states. According to the Federation of Tax Administrators, in many of them the income at which the top rate kicks in is quite low. In California, the top rate of 9.3 percent starts at an income of just $41,447. So on the next $53,723 of his income, a single person in that state will be paying more than 50 percent in taxes. Of course, it goes without saying that taxes will affect different people differently, depending on such things as whether they have children, whether they own a house or rent, how much of their income comes from wages or "unearned" sources like interest and dividends, and the extent to which they make use of tax saving opportunities such as putting money away for retirement.
The bottom line is that people are paying a lot of taxes even if they have incomes putting them squarely in the middle class. Little wonder, then, that three-fifths of people think their federal income taxes are too high in the Tax Foundation poll. Unfortunately, taxes are going up regardless of what people think because of the vast government spending in the pipeline due to the aging of society. In the end, I think people will accept higher taxes rather than cut spending enough to prevent that necessity. |