What is the difference between a taxidermist and a tax collector? The taxidermist takes only your skin. — Mark Twain
Do you know that you’ve an invisible business partner for life? And this partner only cares about profit; you are on your own if you lose money. Before you get angry, I have one more tidbit to add; he won’t invest a dime in your business. He may be the majority partner with over 50% ownership depending on how profitable your venture is. He will hire people to make sure that you are not cheating him.
What if I ask you to lend me money for 0% return? You’ll scorn me because you can make more from your money market account. Ironically, you feel proud to have a refund check from your invisible partner who gives you whopping 0% return on your investment.
He’s not only invisible, but also invincible. There is no one better in the world with business acumen as good as his. He’s never lost money in any ventures!
Who is he? He is none other than infamous Uncle Sam.
We spend hours to look at our income and expense statements. We feel pride for living within our means. But we seldom pay attention to our payroll stub.
At the end of the year, whether you get your total from a full service accountant or just pull up some free tax software, you may be surprised to find that you are working for Uncle Sam for the first half of the year.
If  you are making between $87,800 and $180,800 then you are paying 33.65% (28% federal income tax, 4.2% Social security tax, 1.45% FICA or Medicare tax). Also, there may be 4-5% state income tax. Remember that the same dollar that you earned get taxed many times over. For example, you pay 7% sales tax when you buy stuff from your favorite store or annual car tag renewal tax or your property tax.
With the new healthcare law, you will be paying to Uncle Sam for the insurance premium unless Supreme court turns down government’s right to force individuals to buy insurance.
Uncle Sam understands that most people aren’t disciplined to pay his share of the revenue. So, he has skillfully came up with the term ‘withholding’. It is up to you to not let Uncle Sam borrow money at no interest.
[Via: Paycor Payroll Software]
Interesting Fact: Most politicians make you feel that paying taxes is a patriotic act as your country needs your money. In 1894, anyone making more than $4000 a year had to pay 2 percent tax. It may surprise you that our beloved politicians back then decided that all government officials — state and local alike — would be exempt from the new tax.Â
Government’s view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it. — President Ronald Reagan
(Photo Courtesy: Theiggsta)
Nice infographic. When you are hit by the tax-man here is some solace: try to think of any country (except city states like Hong Kong and Singapore) where you’d pay a minimum of taxes while there is still the rule of law in place to conduct good business. There are very few out there. Thus maybe we should be “happy” to live in a country with high taxes. The alternatives that we can see at this moment in the rest of the world are not encouraging.
Van, I agree with you. But, we can do even better by enacting the fair tax plan. 🙂
Theirs only two things that are certain in life death and taxes.
Most of us let the government take away from us as much as possible. We really don’t know how to protect our hard earned money from this invisible partner who never shares our loses. Such ignorance of tax laws really concerns me a lot.
I agree with you. We know more about our favorite teams than how much we pay in taxes to our government.
I had no idea that there were states that didn’t collect income tax. I’m so used to be taxed for everything – that blows my mind that every state doesn’t collect income tax.
when I lived in Ohio I paid a sales tax, a state income tax and two city income taxes; one where I lived and one where I worked.
One afternoon during my ‘airplane commute’ to the new job that was moving me to New Hampshire I stopped in the hotel gift shop for a candy bar. It was $1. I handed the clerk a dollar bill and pulled out my change looking for the 7 cents in tax.
She said, “What are you doing, sir?”
“Looking for change for the sales tax,” I said.
“Sales tax? We don’t got no stink in’ sales tax here buckaroo!” Well, maybe she was a bit more understated but that was the message.
no state income tax either.
no city income taxes.
and, by most measurements, NH has one of the best living environments in the country.
Jim, Studies after studies have shown that when our government cuts taxes, their revenue goes up. We know how to spend our money better than those politicians who we elect.
Katie, now you should move to one of these states. 🙂
Excellent infographic! Thanks for sharing.
Tawni, thank you for visiting.
Great infographic!! It’s very eye-opening when things are laid out this way; especially the bit about officials having certain tax exemptions that the standard citizen isn’t privy to…
You might have noticed that elected officials always write laws for us mere mortals, but they have their own set of privileges. They don’t contribute to social security or they have their own healthcare benefits that none of us can ever get.
Very nice post! Someone in Ontario making $87,500 without dependants would pay about $22,155 in tax, including pension and UI but not including sales taxes. That doesn’t seem much higher than the U.S. Of course that doesn’t consider the fact that incomes may be lower due to employer-paid benefits, like their share of the pension and UI contributions.
At $180,800 an Ontarioan will pay about $64,270 in tax, making for overall rate of about 35.5%.
P.S. Taxes in the U.S. still seem somewhat lower according to the withholdings section of the infographic, though you’re right, depends on the state, too. You guys also pay lower sales taxes.
On the other hand with your massive deficits you might end up paying the ultimate price down the road. If government spending can’t be reigned in either debt must continue to rise or taxes must go up significantly.
Kevin, You’v hit the nail in the head. American deficit spending is out of control. Our government keeps printing money. It’s going to bite us back soon or later. Anyone in personal finance world can understand this basic fact. Why can’t our government live within its means? A fair tax system will bring transparency.
Even though the rates are steep, the effective rate is actually much less due to deductions and credits. The truth is an average american pays much less than what is usually advertised.
MC, that is true but our tax system punishes those who work hard. Instead of giving favors to big businesses, a national sales tax would be a far better way to bring fairness for all.
It boggles the mind when you think about just how much Uncle Sam takes from our earnings. You spelled it out perfectly, and the illustrations that you posted really give a complete picture of how taxes work.
I’m hoping that, at some point, the politicians will endorse and implement the Fair Tax. This would really benefit so many taxpayers. Great post, Shilpan.
Anthony, you are brilliant. In fact, one of the reasons I wrote this article is to show current state of our outdated tax system. I am doing my research on fair tax now. I really like it. So, expect an article on that soon.
Those infographs are awesome! I love those things…I’m extremely visual so it helps me a lot!
I knew pretty much all of that but I think I’m going to share this post in my weekly roundup so some of my readers can check that out.
Thanks Shilpan!
Jason, thank you. I wanted to emphasize the fact that we work hard for our money, but we let our elected officials take control of our lives by allowing them to tax us over and over. Our founding fathers never liked taxes. This infographics depicts a true sad state of our broken tax system. Thanks for sharing this with your readers.
I love the infographics! They are popping up everywhere.
Our income taxes are due on April 30th. It is very upsetting to see how much the government takes in taxes. The more you make, the more you pay. Sad. And we live in a Province in Canada with the lowest tax rates. We have the lowest tax on goods and services and we pay the lowest income taxes, but it still adds up pretty quickly.
Agreed. After paying good bit to Uncle Sam, I am going to pay a great deal of money just in property taxes. That amount can go long way to hire more employees or to provide service at a lower cost to the consumer. 🙂
Great Info-graphic Shilpan! I think it makes your information a lot easier to understand for people who are reading, who are generally those who are looking to educate themselves on the subject.
I response to Katie’s post, surely that is too good to be true! Baring in mind that I live in the UK.
Thank you for visiting!
Great graphic, Shilpan. I suspect those states without a sales or income tax make up for it with obscene property taxes. Leviathan must be fed, after all…
Agreed. Politicians always find ways to get your money one way or another. 🙂
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