Think you pay too much in taxes?

Maybe we only pay too much in comparison with those who pay too little.

Wealth for the Common Good has released a new report, “Shifting Responsibility: How 50 Years of Tax Cuts Have Benefited America’s Wealthiest Taxpayers.” It details how, over the last half-century, America’s highest earners have seen their tax outlays drop by as much as two-thirds while the tax outlay for middle-class Americans has slightly increased. The report also details an Economic Tax Recovery Plan that would raise $450 billion in revenue by ending unfair tax benefits for the wealthiest Americans. 
The Key Statistics
• Between 1960 to 2004, the top 0.1 percent of U.S. taxpayers — the wealthiest one in one thousand — have seen the share of their income paid in total federal taxes drop from 60 to 33.6 percent.
• America’s highest income-earners — the top 400 — have seen the share of their income they pay in federal income tax alone plummet from 51.2 percent in 1955 to 16.6 percent in 2007, the most recent year with top 400 statistics available.
• If the top 400 of 2007 paid as much of their incomes in personal income tax as the top 400 of 1955, the federal treasury would have collected $47.7 billion more in revenue from just these 400 taxpayers.
• In 2007, if the top 0.1 percent of taxpayers — Americans with incomes that averaged $7,126,395 — had paid total federal taxes at the same rate as the top 0.1 percent paid these taxes in 1960, the federal treasury would have collected an additional $281.2 billion in revenue.
• Tax cuts for the wealthy between 2001-2008 cost the U.S. Treasury $700 billion, with all of these billions added directly to the national debt. Retaining these tax cuts will cost $826 billion over the next decade.1
• In 1960, the middle 20 percent of U.S. taxpayers paid 15.9 percent of their incomes in total federal taxes. That total included not just income taxes, but payroll and other federal taxes as well. These same Americans, according to the most recent figures, are now paying 16.1 percent of their incomes in total federal taxes.
• Federal taxes, even after three decades of tax cuts for America’s most affluent, remain somewhat progressive. The higher the income, the higher the tax rate. But state and local taxes remain decidedly regressive. This offsets, to a significant extent, our residual federal tax progressivity. Taxpayers in America’s middle fifth paid 9.4 percent of their 2007 incomes in total state and local taxes. Top 1 percent taxpayers that year saw only 5.2 percent of their incomes go to state and local taxes.

Photo from alancleaver_2000's photostream at Flickr.

Go ahead, raise my taxes

I doubt there's a single working person who hasn't looked at his/her paycheck and thought what a difference it would make to be able to take home gross rather than net pay. I know I have.

But I also don't much feel like going door to door, collecting enough money to pay for our police and fire departments, basic human services for my elderly neighbors, and road repair for the state highways.

Taxes are to the business of government as salary is to the business of families. We've got to have them. Massachusetts is nowhere near the most tax-burdened state, just as the U.S. is nowhere near the most tax-burdened country.

That said, I am far from a fan of the House of Representatives' proposed sales tax increase. The Senate Ways and Means budget does not include any new revenue sources and therefore their proposed budget cuts are even more severe than the House's, which passed an increase in sales tax from 5% to 6.5%. I think the Senate is waiting for public outcry to "force their hand" on the same. But sales taxes place a greater burden on working and poor households than on families with more disposable income.

There's a growing consensus in the progressive movement to accept whatever tax increase we can get as a way of eliminating the most devastating budget cuts, and the sales tax seems most likely to pass.

An income tax increase would be far fairer-- if you make more, you pay more. Would I like it? No. But don't worry, folks-- we're not going to get it, because our legislators are too concerned that they wouldn't get re-elected. They know that the public in general does not have the information we need about sources of revenue and that we're going to react in a kneejerk and totally understandable way about having any more taxes taken out of our paychecks.

I had a meeting a month ago with State Rep. Ben Swan about budget line items of particular concern to the elderly. We talked about possible new sources of revenue. When I mentioned an income tax increase, Rep. Swan said that the will (in the Legislature) just wasn't there.

"Remember, next year is an election year," he said.

It wasn't until several days later that it hit me-- given that legislators serve only two years, it's always an election year either this year or next year! (But don't get me wrong, I don't think four year terms would solve this problem.)

Yes, there's waste in government, and we as taxpayers deserve a since effort on our legislators' parts to eliminate it. But it's not going to keep our state from resembling a third world country if we don't find new revenue sources.

SalesTax; between a rock and a hard place

So the Massachusetts House of Representatives has just passed an apparently veto-proof increase in our sales tax, from 5% to 6.25. It's not law yet, but certainly seems to have smooth sailing ahead. See today's Boston Globe.

Taxes are one of those issues where our personal needs and desires are often different from what we know is good for the state and the country. I look at the difference between my gross and take-home pay and am not happy. Yet I know states have to have revenue in order to fund local aid to cities and towns and services such as the Department of Public Health and the State Police, at a time when revenue is down-- people are buying less, and fewer people have jobs. So what's fair?

Sales tax is a flat rate tax-- the rate remains the same whether you are buying a car or a set of dishes. But sales taxes are more burdensome on middle and low-income people than on those who have higher incomes, because, while the tax rate is the same, upper income people have far more disposable income.

Income tax is generally considered a progressive tax-- that is, if you have more, you pay more. Local property taxes are also considered progressive but are often considered unfair because of the disparities in the evaluation process from city to city.

My personal least favorite tax is the one not considered a tax at all, and that's increasing state (and local) fees for Registry of Motor Vehicle Services, fishing and hunting licenses, etc. Former Massachusetts Governor Mitt Romney was a master of the hidden tax.

How does Massachusetts compare to other states in terms of sales and income tax? Not the worst, but not great either. If sales tax goes to 6.25%, only twelve other states will have a sales tax equal to or higher than we will. Federation of Tax Administrators.

We fare better with our 5.3% income tax. While 8 states have no income tax at all, 23 states charge at least some of their residents (at the upper end) more in income tax than Massachusetts.

Then there's the gas tax. Everyone who has a car lived through last year's $4+ a gallon last year, and it wasn't easy. You can read a pro-gas tax editorial here.

Massachusetts has a $3.5 billion budget gap. Which tax or combination thereof is likely to solve our budget problems? A one percent sales tax increase will raise $750 million. A one percent income tax increase will raise about $1.2 billion. Then there's alcohol/cigarette taxes. But I can guarantee you there will be no income tax increase this year, because next year is an election year for our representatives and senators.

By the way, our federal income tax is the third lowest in the world!-- probably a surprise to most people. From MoneyCentral:

Tax burdens around the world

Country Single, no kids Married, 2 kids Country Single, no kids Married, 2 kids Australia 28.3% 16.0% Korea 17.3% 16.2% Austria 47.4% 35.5% Luxembourg 35.3% 12.2% Belgium 55.4% 40.3% Mexico 18.2% 18.2% Canada 31.6% 21.5% Netherlands 38.6% 29.1% Czech Republic 43.8% 27.1% New Zealand 20.5% 14.5% Denmark 41.4% 29.6% Norway 37.3% 29.6% Finland 44.6% 38.4% Poland 43.6% 42.1% France 50.1% 41.7% Portugal 36.2% 26.6% Germany 51.8% 35.7% Slovak Republic 38.3% 23.2% Greece 38.8% 39.2% Spain 39.0% 33.4% Hungary 50.5% 39.9% Sweden 47.9% 42.4% Iceland 29.0% 11.0% Switzerland 29.5% 18.6% Ireland 25.7% 8.1% Turkey 42.7% 42.7% Italy 45.4% 35.2% United Kingdom 33.5% 27.1% Japan 27.7% 24.9% United States 29.1% 11.9%

Source: OECD, 2005 data

So what do YOU think?

Massachusetts versus New Hampshire

MASSACHUSETTS
Sales Taxes
State Sales Tax: 5% (food; prescription drugs; fuel costs; gas, oil, electricity; clothing costing up to $175, are exempt). For a complete list, click here.
Gasoline Tax: 23.5 cents/gallon
Diesel Fuel Tax: 23.5 cents/gallon
Cigarette Tax: $1.51/pack of 20

Personal Income Taxes
Tax Rate Range: Flat rate of 5.3% of federal adjusted gross income
Personal Exemptions: Single - $4,125; Married - $8,250;
Dependents - $1,000
Standard Deduction: None
Medical/Dental Deduction: Federal amount
Federal Income Tax Deduction: None
Retirement Income Taxes: Social Security, civil service, state/local government pensions are exempt. Pension income from other state or local governments that do not tax pension income from Massachusetts public employees is exempt from Massachusetts taxable income.
Retired Military Pay: Not taxed.
Military Disability Retired Pay:
Disability Portion - Length of Service Pay; Member on September 24, 1975 - No tax; Not Member on September 24, 1975 - Taxed, unless combat incurred. Retired Pay - Based solely on disability: Member on September 24, 1975 - No tax; Not Member on September 24, 1975 - Taxed, unless all pay based on disability and disability resulted from armed conflict, extra-hazardous service, simulated war, or an instrumentality of war.
VA Disability Dependency and Indemnity Compensation: Not subject to federal or state taxes
Military SBP/SSBP/RCSBP/RSFPP: Generally subject to state taxes for those states with income tax. Check with state department of revenue office.

Property Taxes
Massachusetts does not provide for a general homestead exemption but does have a Homestead Act. The Homestead Act permits a homeowner who occupies a house as his/her principal residence to shield up to $500,000 in equity in that house from creditors. By simply filing a Declaration of Homestead with the appropriate Registry of Deeds, a homeowner may be able to protect his/her residence from the claim of a future creditor. The Homestead Act permits only one spouse to file for the equity protection if each has an ownership interest in the home. The protection offered to the disabled and the elderly is even more comprehensive because it allows a husband and wife who own their own home to each file for the $500,000 equity protection. Click for details.

Massachusetts also has a circuit breaker program that offers a real estate tax credit for persons age 65 and older. Certain taxpayers may be eligible to claim a refundable credit on their state income taxes for the real estate taxes paid during the tax year on the residential property they own or rent in Massachusetts that is used as their principal residence. If the credit due the taxpayer exceeds the amount of the total income tax payable for the year by the taxpayer, the excess amount of the credit will be refunded to the taxpayer without interest. For tax year 2007, the maximum credit allowed for both renters and homeowners is $900. To be eligible for the credit for the 2007 tax year; the taxpayer or spouse, if married filing jointly, must be 65 years of age or older at the close of the 2007 tax year; the taxpayer must own or rent residential property in Massachusetts and occupy the property as his or her principal residence; the taxpayer's "total income" cannot exceed $48,000 for a single filer who is not the head of a household, $60,000 for a head of house hold, or $72,000 for taxpayers filing jointly; and for homeowners, the assessed valuation as of January 1, 2007, before residential exemptions but after abatements, of the homeowner's personal residence cannot exceed $772,000. Click for details.

Inheritance and Estate Taxes
There is no inheritance tax and a limited estate tax on estates valued at $1,000,000 or more.

For further information, visit the Massachusetts Department of Revenue site.

NEW HAMPSHIRE
Sales Taxes
State Sales Tax: None. There is an 8% tax on lodging and restaurant meals and a 7% tax on two-way communications.
Gasoline Tax: 19.6 cents/gallon
Diesel Fuel Tax: 19.6 cents/gallon
Cigarette Tax: $1.08 cents/pack of 20

Personal Income Taxes
New Hampshire depends more upon real property taxes for revenue than most states since there are no general income, sales or use taxes. The state also receives substantial revenue from taxes on motor fuels, tobacco products, alcoholic beverages sold through the state liquor stores, and pari-mutuel betting. The state income tax is limited to a 5% tax on dividends and interest income of more than $2,400 ($4,800 for joint filers). A $1,200 exemption is available for residents who are 65 years of age or older.
Retirement Income: Not taxed.

Property Taxes
Local property taxes, based upon assessed valuation, are assessed, levied and collected by municipalities. To view the tax rates for each town, click here.

A state education property tax rate of $2.24 (2007) per $1,000 of total equalized valuation is assessed on all New Hampshire property owners. It will be $2.14 for tax year 2008. An elderly exemption for property taxes can be age, net income limits, including Social Security income, and net asset limits. Property taxes can be deferred but accrue interest at the rate of 5% per annum. The deferred property tax may not exceed more than 85% of the equity value of the residence. The deferral is available (if granted) by the assessing officials, to any resident property owner who is at least 65 years old. For single homeowners 65 and older who earn less than $5,000 and married couples who earn less than $6,000, $5,000 of their property's assessed value is exempt from taxes. In addition, the homeowner's other assets besides the home must be worth less than $35,000.

There is a Low & Moderate Income Homeowner's Property Tax Relief program in New Hampshire. Click here. You must own a homestead subject to the state education property tax; reside in such homestead as of April 1 of the year for which the claim for relief is made; have a total household income of (1) $20,000 or less if a single person or (2) $40,000 or less if married or head of a New Hampshire household.

Call 603-271-2687 for details on property taxes or click here for municipal tax rates.

Inheritance and Estate Taxes
New Hampshire's Legacy & Succession Tax was repealed in 2002 and is effective for deaths occurring on or after January 1, 2003. As a result there is no inheritance or estate tax.

For further information, visit the New Hampshire Department of Revenue Administration site or call 603-271-3397.

From Retirement Living