Tax Freedom Day – An Oxymoron
Kirt's Cogitations™ #229

<Previous                     Next>

Tax Freedom Day – An Oxymoron

I am not exactly a happy camper right now. Neither are millions of other Americans this time of year when income tax preparation is necessary and payment (or possibly a refund) is due. Being both a fulltime employee of a major RFIC manufacturing corporation and the owner/operator of a sideline company (RF Cafe), you can bet I pay more than my fair share of taxes. Still, according to many people both in and out of government, it is not enough.

“Tax freedom will come three days later in 2006 than it did in 2005,” said Tax Foundation President Scott A. Hodge, “and fully 10 days later than in 2003 and 2004 when a combination of slow income growth and tax cuts caused Tax Freedom Day to arrive comparatively early, on April 16.” In the state of North Carolina, where I live, Tax Freedom Day arrives on April 26, 2007. That is the day on which the average taxpayer has paid the portion in taxes exacted from his yearly earnings. That works out to a little over 31%, and includes all forms of taxes paid - federal, state, Social Security, sales, property, etc. North Carolina falls about in the middle of the pack of 50 states for overall tax burden.

Melanie tracks our finances for personal (my fulltime job as an RF applications engineer) and business (RF Cafe) incomes and outgoes using Quicken, and she does our taxes using TurboTax. She records everything in minute detail, so we know exactly what we have paid in sales taxes on purchases where the tax is separately printed, as well on “hidden” taxes like for the purchase of gasoline. Based on that, we figure we paid about 38% of our earnings in some form of tax. So, our personal tax freedom day falls a little later than the average.

This means that with a total net household income of $100,000, we would be paying a full $38,000 in taxes (it was actually a little higher than that, but I will not give specific numbers). You are most likely paying similar amounts. It is gut-wrenching and indeed infuriating to ponder the amount I have paid in taxes in 2006 alone, only to be told over and over again that taxes need to be raised. Having never collected Welfare or unemployment, nor claimed bankruptcy, nor had my kids in a public school, nor availed myself or my family of any public service other than the protection of police, firefighters, and the military, it REALLY perturbs me to be told I have not paid “my fair share,” especially considering I work at least 60-70 hours each and every week. I need to contribute more, evidently, to pay for clean needles for junkies, midnight basketball programs, and handouts to people who are able but unwilling to work and care for themselves.

The value of your time taken to prepare the returns, and the time spread out over each year spent tracking and maintaining records in support of your claims is not accounted for, either. And now on to another tax rub – the Social Security system.

Most working people know that on top of federal and state income tax, there is also an employment tax (aka Social Security, plus Medicare) pulled from their paychecks. The employment tax is 6.2% of everything you make – right off the top, before any deductions of any sort. For 2006, that rate applies up to the first $94,200 you earn. What many are not aware of, however, is that the employer is responsible for submitting an equal amount, another 6.2%, on your behalf. When you are self-employed, you are responsible for paying the entire 12.4% for every dime you net. So, on top of all other income taxes, RF Cafe pays $12.40 to the Social Security Administration (SSA) for every $100 netted.

Now, you might be tempted to argue that Social Security is a form of retirement fund, so I should not be complaining because it will all come back some day. I recently received from the SSA a statement saying that based on my lifetime earnings, the amount I can expect at age 70 (of course the age will be pushed out significantly by the time I become eligible in 22 years) is $2,532 per month. According to that report, I (+ employer contribution) have paid $167,524. That is for about 30 years of working a “real” job.

In my next 22 years, I hope to earn at least as much as in my first 30, so assume a total lifetime Social Security payment of, say, $350,000. Now, divide that by the $2,532 per month payout and that is 138 months, or about 12 years. I will be 82 years old at that point. That figure does not include any interest or appreciation whatsoever, only what I actually paid in. It also does not account for devaluation of that $2,532 due to inflation – those are today's dollars.

“Sure,” you might say, “but you will probably live way longer than that and will therefore collect more than you have contributed.” Maybe, but it is doubtful. My family genes are faded and full of holes. My father and mother both died at age 52 (both smokers, I must admit, whereas I have never smoked). Still, the odds based on both sides of my family are that I will never even see year 70. Here is where the robbery of the Social Security system is really unjust.

When I die, Melanie will be entitled to receive either her Social Security (which is very small) or mine, but not both! That means one of our lifetime contributions will be completely surrendered to the government. Her payment for my Social Security will be only $1,910 per month after she reaches retirement age (she is three years younger than me). When we both die, nothing gets paid out – not a dime to our two children. The government keeps it all.

Is Social Security a sucky system or what? If that same money were invested in a mandatory but private savings account, the benefits would be fully accrued to my family rather than be utterly lost to the government. What a scam!!!