This article we’ll be making a sharp turn away from the politics of East Asia and look at an issue that is a staple of US politics. This exciting political flash point is always some part of every election, in every region, regardless of time. I am talking, of course, about taxes. No matter your age, political views, or socioeconomic state, taxes find a way to impact you directly. So, it’s no wonder that taxes are a political constant in every election; after all, nothing is certain but death and taxes, plus we’re lucky enough to be able to choose who writes tax laws. On its face, we seem to have a pretty sweet deal.
But there are a few nagging questions that are often not asked when we’re trying to decide who to vote for. The overarching summary of these questions is how well do we understand taxes? At a basic level, we all ‘know’ what taxes are, it’s money that the government collects from us to pay for stuff. Beyond that understanding, many of us don’t have much more information and that isn’t our fault. Assuming we all had the tax law education to comprehend it, we would still need the willpower to sift through the US tax code’s 74,608 pages. Moreover, each state has its own tax code that adds sales tax and other, state-specific taxes.
As a result of the tax code’s length and complexity, political debates normally just gloss over each candidate’s tax stance in simple up, down, or neutral terms. Candidates seldom go into the detailed structure of their tax proposals because they normally can’t. But knowing how you will be taxed is just as important as knowing how much you will be taxed. So, let’s dive into the thick of it and find out how our taxes work.
While there are a myriad of taxes, on property, hotel rooms, and much more, the two easiest to understand are probably sales taxes and income taxes. We all have firsthand experience with at least one of these taxes, as well as the annoyance of seeing them pop up on receipts and pay stubs. In 2015, the average US sales tax was approximately 8.45 percent, but, because each state sets their own rate, sales tax can range from none to over 10 percent. Coupled with the average 2015 US income tax rate being approximately 30%, it can seem like taxes are out of control and in sore need of reduction.
Unfortunately, effectively reducing these taxes is more complicated than any politician will publicly say. This isn’t because of any sinister political agenda, but because of what our sales and income taxes pay for, as well as who actually collects them. Both of the above rates are combined averages of local, state, and federal taxes, and in the case of income taxes, specific taxes for programs like Medicare or Social Security. On top of the different parties involved, lowering one tax means finding money another way, through program cuts or a new tax elsewhere. In the former, what this means for you and me is lower taxes in exchange for less funding allocated for education, roads, or defense, while the latter is just moving the taxes somewhere else. All this is just in theory; in practice, changes in the economy, population, or technology can increase/decrease tax revenue without actually adjusting the official tax rate.
But we interact with more taxes than just these two. If you have a cell phone, then you’ve also paid the Universal Service Fund tax. This sales tax pays into a federal trust fund that subsidizes access to current technology in public schools, rural areas, and anywhere where cell service is expensive. Despite the average cost of cell phone plans falling over time, the average tax rate on them has been increasing at over twice the speed. These taxes are then often used to subsidize cell phone and tech companies operating in any of the above areas. In addition to the federal cell phone tax, many states have created their own Universal Service Funds, which increases the amount of taxes paid and then complicates any attempted changes going forward.
Cell phones aren’t unique when it comes to specific taxes used to pay for specific programs. A tax on plane tickets pays for the FAA’s air traffic control and for a myriad of airline subsidies, while a tax on gasoline and diesel helps pay for roads. On the whole, these taxes help pay for a wide array of necessary government programs, for example, many rural areas wouldn’t be able to afford the astronomical cost of cell service from an unsubsidized provider. But for many of us, the amount we pay in these special taxes, officially called excise taxes, has been increasing, while average wages have been stagnating. Some item specific taxes (aka sin taxes) are used to inflate the cost of vices, such as cigarettes and alcohol.
You might be wondering what can be done about the situation. I’m sure you are torn, as I am, between wanting to pay less in taxes but still have roads. Fear not, there are many possible reforms that would theoretically improve the current tax code without having to pay more tax elsewhere or cut vital government programs. But to understand these reforms, let alone implement any, we need to wade into a quagmire of partisan squabbling and contentious lobbying.
Despite what we may think about them every time our budget is busted by a forgotten sales tax, or when we see how much of this month’s pay has seemingly evaporated before you get your check, taxes are a force for good. But that doesn’t mean they couldn’t be better. As we head towards the midterm elections in 2018, we’re going to be hearing a lot of candidates argue that their tax plan, generally, is the best way to make the US tax code better. Inevitably, most of the focus will fall on sales and income taxes. Simply knowing that these taxes are complicated on their own, let alone in combination with excise taxes, lets us know the candidates actually trying to make a change from looking for easy points.
As much fun as I’m sure you’ve had reading all about the different taxes, we have reached the end of this week’s article. For those of you feeling cheated out of a fun excursion into the political firestorm surrounding federal tax reform, worry not. We’re headed straight in next week when we’ll take a look at the battle between regressive and progressive tax reform and how each could affect you.
Erb, Kelly Phillips, “Can You Pay Me Now? Cell Phone Tax Rates Continue To Increase,” Forbes, 12 October 2016. Web. Accessed: 22 August 2017. https://www.forbes.com/sites/kellyphillipserb/2016/10/12/can-you-pay-me-now-cell-phone-tax-rates-continue-to-increase/#4311c7764faa
Frankel, Matthew, “What's the average American's tax rate?,” USA Today, 10 March 2017. Web. Accessed: 22 August 2017. https://www.usatoday.com/story/money/personalfinance/2017/03/10/whats-the-average-americans-tax-rate/98734396/
“Historical Average Federal Tax Rates for All Households,” Tax Policy Center, n.d.. Web. Accessed: 22 September 2017. http://www.taxpolicycenter.org/statistics/historical-average-federal-tax-rates-all-households
McGee, Bill, “How much tax do you pay for a plane ticket?,” USA Today, 1 July 2015. Web. Accessed: 22 August 2017. https://www.usatoday.com/story/travel/columnist/mcgee/2015/07/01/airline-fees-taxes/29518427/
“United States Taxes,” Immihelp, n.d.. Web. Accessed: 22 August 2017. https://www.immihelp.com/newcomer/united-states-taxes.html
“Universal Service Fund,” Wikipedia, 6 August 2017. Web. Accessed: 22 August 2017. https://en.wikipedia.org/wiki/Universal_Service_Fund