Who is it that really and truly pays taxes

For those of you who don’t like my political views, this piece is completely a-political. It is written so people can understand the effects on everyone that taxes have and how many taxes on the “wealthy” are actually paid by average and even poor Americans.

Who is it that really and truly pays all those taxes, and I mean all, every penny?

That includes all payroll taxes, income taxes, FICA, unemployment taxes, sales or value added taxes, real estate taxes, and all those hidden taxes on practically everything. Let’s follow some tax dollars and see who actually pays, where the tax debt ends up. The figures reported have been taken from the actual financial statements of real companies. The names have been changed to prevent law suits.

EXAMPLE, STEP 1: XYZ Mining in Arizona digs copper ore out of the ground in several Arizona copper mines. They refine the ore and sell it to copper users. In 2010 their sales were nearly a $billion. Their net earnings before taxes were $211 million, or 21.1% of sales. Federal income taxes on those earnings were $47 million. Taxes other than income taxes were $22 million. These included state and local taxes, franchise taxes, and federal direct mining taxes. Payroll taxes, including both portions of FICA were $67 million. The total tax portion of XYZ’s expenses were $136 million or 13.6% of total sales. Out of every $1,000 worth of copper sold, $136 was for taxes that the purchaser of the copper actually paid for. XYZ simply passed that tax burden on to those who bought their copper, a fabricator or manufacturer.

STEP 2: ABC fabricating of Texas bought the raw copper ingots from XYZ and produced copper pipe among many other products. A financial analysis similar to XYZ shows that for every $1,000 worth of pipe sold, $227 was for taxes. Factoring in the portion of the taxes XYZ paid, adds $42 to that amount for a total of $269 out of the $1,000 of sales. This amount is simply passed on down the chain to the purchaser of the pipe, a contractor..

STEP 3: A building contractor in Dallas bought some of this pipe for a major building project. A financial analysis similar to XYZ and ABC shows that for every $1,000 worth of pipe used and priced in the project, $296 was for taxes. Factoring in the portion of the taxes XYZ and ABC paid, adds $84 to that amount for a total of $380 out of the $1,000 of the contract price. This amount is simply passed on down the chain to the purchaser of the pipe, a building owner.

STEP 4: The building owner leases space in the building to a group of dentists. Their financial analysis shows that for every $1,000 of the building lease income attributable to the extensive copper piping in their suite, $198 was for taxes. Factoring in the portion of the previous taxes paid adds $123 to that amount for a total of $321 out of each $1,000 of the rent paid by the dentists. This amount is simply passed on down the chain to the dentists who lease the space.

STEP 5: The group of dentists have many patients that pay for their dental services. Their financial analysis shows that for every $1,000 of the patient fees they receive, $321 was for taxes. Factoring in the portion of the previous taxes paid adds $140 to that amount for a total of $461 out of each $1,000 of the fees paid by the patients. This amount, the entire tax burden applied to each of the 5 steps combined, is actually paid by the end user, the patient who is at the end of the chain, the final or end user.

Conclusion: It is always the end user of any product or service that actually pays every penny of all taxes. This tax burden falls on rich and poor alike and, as in the above example, currently averages about $46 out of every $100 spent by every individual, regardless of income or wealth status. That percentage can be accurately calculated another way. Currently, our federal government consumes about 41% of our GNP. Add to that approximately 5% consumed by state and local governments. It’s funny how that adds up to the same $46 out of every $100 spent by every individual, regardless of income or wealth status.

Raising taxes always increases the cost of absolutely everything. From gasoline to bread to apartment rent to health care, increasing taxes will always raise these prices for the consumer. By the same token, lowering taxes will always lower these prices for the consumer. These are demonstrable and proven facts from time immemorial. So, no matter how you slice it, the poor always pay a far higher portion of their needed income from any and all sources, than do those not considered among the poor. The less income one has, the more important that portion is that goes up the chain to pay all those taxes. Said another way, the loss of that $46 out of every $100 spent is much more damaging the less income one has. That $46 is far more important to a low income family trying to get by, than to a slightly wealthy family or even the one down the street making $50k per year.

EXAMPLE 1. A poor family has a total income including welfare payments of $1,600 a month. They pay no income taxes. Assuming they spend all of their income, 46% of what they spend, or $736 is taxes that were passed down the chain.

EXAMPLE 2. Another family makes about $5,000 a month. They invest $500 per month in savings and pay $225 for income taxes. They also have a mortgage payment of $1,000 each month. This leaves them with $3,275 of disposable income which they use for all household necessities, food, clothing, transportation, insurance, etc. etc. Assuming they spend it all, 46% or $1,622 is taxes that were passed down the chain. Their total taxes are $1,847 or 34.63 of their income.

EXAMPLE 3. Another family makes about $15,000 a month. They invest $3000 per month in savings and stocks, and pay $2,000 for income taxes. They also have a mortgage payment of $3,000 each month. This leaves them with $7,000 of disposable income which they use for all household necessities, food, clothing, transportation, insurance, etc. etc. Assuming they spend it all, 46% or $3,268 is taxes that were passed down the chain. Their total taxes are $5,164 or 34.43% of their income

EXAMPLE 4: Another “wealthy” family makes about $100,000 a month. They invest $40,000 per month in stocks and savings, and pay $15,000 for income taxes. They also have a mortgage payment of $10,000 each month. They make charitable donations of $5,000 per month. This leaves them with $30,000 of disposable income which they use for all household necessities, food, clothing, transportation, insurance, etc. etc. Assuming they spend it all, 46% or $13,800 is taxes that were passed down the chain. Their total taxes are $28,800 or 28.8% of their income.
Lets see, here’s the resulting tax table:

Family (monthly)... Income... Disposable... Taxes... Tax %... Left to Invest
Poor ...................................$1,600............. $1,600..........$736.....46.0%......................$0.0
Lower middle................... $5,000.............$3,525....... $1,847 ....34.63%.............. $500
Upper middle .................$15,000 ............$7,104....... $5,220.....34.43%.......... $3,000
Wealthy ........................$100,000 ........$30,000 .....$28,800.... 28.8% ..........$40,000

Who thinks this is fair?

The table below gives the same figures with the “Fair Tax” 15-25% base

Family (monthly)... Income... Diposable... Taxes... Tax %... Left to Invest
Poor $1,600 $0 0.0% $0.0
Lower middle $5,000 $750 15.0% $1,955
Upper middle $15,000 $3,250 21.7% $4,970
Wealthy $100,000 $25,000 25.0% $43,800

The table below gives the same figures with the “Fair Tax” 20-30% base

Family (monthly) Income Diposable Taxes Tax % Left to Invest
Poor $1,600 $0 0.0% $0.0
Lower middle $5,000 $1000 20.0% $1,445
Upper middle $15,000 $4,000 21.7% $4,220
Wealthy $100,000 $30,000 30.0% $38,800