Hidden Taxes: How Much do You Really Pay?
by Bryan Riley, Eric V. Schlecht, and Dr. John Berthoud on 08/29/2001
28 Pages
Despite all the attention given to federal income taxes, they represent only 42 percent of the total tax burden Americans carry each year. There is at least $657.5 billion in additional “hidden” taxes—$2,642 per person—that is not visible to the taxpayers. If more Americans realized that their total tax burden equaled 56 percent of annual personal consumption spending, there might be a second Revolution.
Unlike sales taxes that appear on a cash register receipt, hidden taxes are those charges that are not expressly clear to the taxpayer. One example is fuel. The average price of a gallon of gas last August was $1.49 and 43 cents of that amount represented taxes. That 37% tax rate does not appear on your receipt. In recent years fuel taxes have become the fastest-growing federal tax imposed on middle-income Americans, amounting to $220 a person.
“Sin” taxes are also great sources of revenue. For instance, tax revenues from liquor are many times higher than the total profits of distillers. Nearly half the cost of a six-pack of beer is tax, and cigarette taxes alone will generate $45 billion through fiscal year 2005.
There are also hidden taxes on a litany of products and services ranging from inoculations to firearms to travel expenses. Almost half the cost of an $80 hotel room is tax as is 40 percent of a $159 airline ticket. And the typical monthly utility bill includes 25% tax. With the rise in telecommunications subsidies and Internet commerce, Americans will be feeling—but not necessarily seeing—even more of a tax bite.
Not all taxes are hidden in the cost of goods and services. Some are even more surreptitious. Payroll taxes, including income tax withholding, “employer share,” and unemployment and workers’ compensation taxes not only mask the true burden of paying taxes but also raise the cost of hiring workers, which in turn actually lowers wages and conceivably threatens jobs.
Payroll taxes have increased dramatically since 1937. Today over 90 percent of American workers pay more in payroll taxes (including the “employer share”) than they do in income taxes. Just since 1977, the payroll tax rate has grown by nearly one-third. And when combined with other mandated labor costs such as unemployment insurance and workers’ compensation taxes, the resulting burden actually raises the cost of hiring workers, lowers wages, and can even eliminate jobs.
When taxes are not visible, Americans are unable to evaluate whether they’re getting their money’s worth from the government. While not every hidden tax is responsible for every inequity contained in our current tax code, hidden taxes do contribute significantly to the most complex and inherently unfair system of taxation ever placed upon the American public.
Tax overhaul is imperative, but the fundamental focus of any reform must be on visibility. That’s because a hidden tax is an unknown tax, and an unknown tax is one that cannot be evaluated and judged by those who pay it. In the end, the consumer is left to wonder, How much tax did I really pay?
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