Is this true?!?

I failed to complete my homework this week. If the goal was to re-think my attitude towards taxes, I’m still just as ambivalent, confused and uncertain as I was at the start of the week. But I did begin to donate some thinking time to what I believe about paying taxes. I managed to do some poking around to help me formulate my thoughts. Or at minimum, my questions.

An inordinate amount of time was spent here where I played around comparing African countries, parts of Europe, a selection of Middle Eastern places with the taxes Americans pay. I discovered a few interesting things; e.g., the average individual income tax doesn’t vary as wildly as I might have assumed — especially not across Europe. At the same time I also learnt that there are countries with no individual income tax whatsoever. Like Oman and other Gulf States (in Oman there’s also almost no sales tax either. The country pretty much runs on the taxes that corporations have to pay, not individuals. Hhhmmmm…)

I did get a bit confused by the US tax information provided on the global tax rates website where I was busy having so much fun. The US rate averaged at 35%. This is almost exactly the same, if a bit higher, than the European average (albeit 5-10% lower than Western European countries like the UK, Germany and France). The bit that confused me is whether the 35% average includes State income tax or just Federal? If only Federal has been counted, then contrary to popular belief and loads of arguments about which system is better, many Americans pay the same as Western Europeans — about 40% (and this is WITHOUT having the national healthcare system to show for it.)

Anyway, here I am sounding all vaguely knowledgeable about things I’ve rarely stopped to consider properly (despite all the complaining about taxation in which we’re all prepared to engage).

But what I really want to know is whether this chart can possibly be true?

UntitledIn digging around to work out US tax rates, I stumbled across this piece of information and was stunned. What? Really? No wonder so many people are seriously pissed off. This is madness. I am not someone who believes the rich should pay dramatically higher tax rates, but if this chart is true, then clearly that point of view is totally besides the point.

PS After a day of seasonal parties yesterday, which started about 3:00 pm, it’s a miracle I have anything at all to say this morning, never mind about taxes. Until tomorrow, when I eagerly await another joyous financial task to pull off in the week before Christmas.

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3 thoughts on “Is this true?!?

  1. I wanted to comment on your previous post about tax to say how much I love doing my taxes each year. In fact, I take great pleasure in arranging the receipts for my expenses (I’m an independent contractor) in their envelopes throughout the year and I can hardly wait for January each year to tally the totals. I have been known to do as much tallying as I can in December before the year is even out. I have a great tax preparer and I always get a good refund. Tax returns are due April 15 each year in the U.S. and I have mine submitted in January, before I’ve even received all my 1099’s. I then get my refunds (both federal and state) in February. I didn’t end up making this comment, however, on your previous post about tax because I couldn’t find a way to make it sound anything other than smug and self-satisfied. I believe I’ve still succeeded to sound like a sanctimonious goody-goody but please know that isn’t my intended tone. I used to hate doing taxes but two years ago everything changed. Previous to this I would often end up owing but occasionally would receive a small refund. I hated taxes just the same either way. I think what changed this was two things: 1. I decided that if taxes are inevitable in my life, I had to find a way to enjoy them, and therefore 2. I sought out a tax preparer who specializes in taxes for people like me — artists whose income is varied and comes mostly from freelance work. As someone who has gone from dreading taxes to not dreading them, I wanted to share this perspective — and believe me, I know it sounds ridiculous. Also want to add that my non-dread of taxes does not imply that I agree with what the U.S. government does with them. I suspect in the future I will have a different relationship to taxes, but this is where I am right now.

  2. WOW! Thanks so much for this! If i could trigger the same change in myself we might call Counting Zeros a raging success. It sounds as if getting a really good tax preparer and the incentive of even better refunds helped to motivate but that you also developed some sort of system (the envelopes?) which helped make the chore less of a monster? and more an organizational pleasure. I never seem to be able to find that system that makes it orderly and even orderly in a semi-fun way (like learning to colour within the lines when we were kids). But getting help from experts and remembering what you stand to lose by doing it the messy chaotic way are two top tips that even I can follow … This is excellent news and great that you’ve pulled it off.

  3. In other news… here;s some perspective on that CHART above. One of my chief advisors has informed me that
    “I am not trying to justify the current tax situation, but it is interesting to understand how it came about so we don’t have unintended consequences, like lowering investment, when the tax code gets changed…

    On your income tax graph, it is not as evil as it seems. The low rates are, in part, a result of un intended consequences. Most rich and very rich people do not get their annual cash flow from what the IRS would call income. Basically the IRS calls salaries, bonuses and dividends income, they do not consider capital gains income. If an American is going to make a truly ridiculous amount of money in a year, it is rarely because they have a high salary, a high bonus or a large amount of dividends. It is because they have a big capital gain. They sold stock they owned for a while, or sold real estate or sold a business. That is why actors, professionals sports players and bankers pay 45% tax on high salaries and bonuses. While hedge fund managers, house flippers and entrepreneurs, pay 15%-22% tax (they get money from selling stocks, real estate or businesses they own, ie capital gains). The reason the US government has a dramatically lower tax rate for capital gains is that they want to encourage investment and longer terms savings. What has happened is people have abused this loop whole to pay as little tax as possible by trying to structure any source of income as a capital gain and not IRS .

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