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Last August, in the midst of a growing debate about taxes in the United States, I decided I’d had enough. I was sick and tired of the histrionics from both sides of the political fence, and I wanted to find the facts. I spent twelve hours researching the federal budget and the U.S. tax system, and in the end wrote two articles:
I didn’t have any political agenda in mind; I just wanted to know the facts. What I discovered is that there are a hell of a lot of numbers involved with taxes, and plenty of conflicting information from a variety of sources. Based on my research, I concluded that at the federal level at least, our tax rates are low when compared to both our own past and to other countries. (You can see the 2010 federal income tax brackets at Five Cent Nickel.)
On Tuesday, USA Today shared a fun toy that basically takes all of my wordy research and converts it into a simple interactive tax-rate calculator. You put in how much you earned in any given year, and the calculator shows your effective tax rate and where your tax dollars go.
Here’s how USA Today describes the calculator:
Tax rates and federal spending priorities have fluctuated quite a bit over the years. This interactive graphic makes it easy to chart both. Simply enter a salary and see how much goes to federal taxes and how that money gets spent. Then, look back in time to see how that income compares with he past when adjusted for inflation, and what the tax rates and spending priorities used to be.
For instance, here’s a breakdown for three income levels: $25,000, $50,000 (roughly the U.S. median household income), and $100,000.
Click on any image to open a larger version in a new window.
It’s also fun to see how much different folks at different income levels pay. If you earn $10,000, you have an effective tax rate of 8%, though that’s been increasing with time. If you earn a $1,000,000 a year, you have an effective tax rate of 35%, though that’s been falling with time. Is this good? Bad? Just right? I don’t know, but it’s interesting to see.
This really is a great educational toy, and I highly recommend you spend five or ten minutes exploring it. It’s probably the most fun you’ll have with taxes this year!
This article is about News, Taxes, Tools Thursday, 4th February 2010 (by J.D. Roth)
February 4th, 2010 at 2:17 pm
Gadzooks! That is amazing. Now, I think I should be able to play with the categories myself and give things some tweeks here and there. Just imagine if the American people could decide what we wanted to spend our tax dollars on. My top box would be education. Can’t wait to send this to my husband!
February 4th, 2010 at 2:33 pm
I know this calculator can’t calculate state taxes, property taxes, sales taxes, or indirect taxes paid because of taxes on corporations, but there is one flaw in it. That is that it only counts your part of social security and medicare. Your employer also contributes to that, which is a hidden tax. It is an interesting calculator, but I think it under-represents our actual taxes paid.
February 4th, 2010 at 2:45 pm
Shiny! I totally want to use this in my public finance class. Thanks!
February 4th, 2010 at 2:47 pm
This is a very cool tool! Thanks for sharing this, J.D.
Very interesting in particular to see the breakdown of what your tax dollars get spent on…
February 4th, 2010 at 2:50 pm
The calculator seems a bit misleading to me. One of the complaints about taxes is that our tax code is so complex. The only people who fit that graph fill out the 1040EZ, which is what %age of filers?
It’s interesting, but as I said a big part of the problem is the complexity. Not only the code, but of spending. You see ‘Department of Education’ and think “Education is important!” without realizing that includes a lot of stinker programs. You don’t think “nuclear weapons” when you see ‘Department of Energy’. So until and unless you break it up, it doesn’t mean much.
I think we would all be better if services were more local. Why is the Federal Government involved in the Department of Education? Why aren’t states taking care of schools? It would be easier as a taxpayer to keep my eyes on my state and district budgets than a bloated federal budget. It would also be easier to agree on priorities if things were more localized.
Don’t lay off federal workers, just break them up between the states and have the states keep the money to spend rather than pass it to the Fed. From that point states can make the changes they want.
February 4th, 2010 at 2:51 pm
Looks like the tax bills assume you are single and take the standard deduction. THey add income tax, social security and medicare contributions.
February 4th, 2010 at 3:08 pm
Should read carefully before I type. That net interest number is one to keep an eye on.
February 4th, 2010 at 3:31 pm
Very interesting! Great job.
Our company is also very interested in showing people where tax dollars go, and we have put together a tool which shows how much money goes to each individual item in the budget.
See our TaxTrackr Widget:
http://www.investorguide.com/taxtrackr/
February 4th, 2010 at 3:55 pm
@ Shara: You Rebel, you! Speaking out for state’s rights. (Notice the capital “R”.) While I agree with you to a degree, you would probably still pay roughly the same in taxes, you’d just be taxed at the state level not the federal level. Bureaucracy tends to find a way to spend money no matter what. Besides, your state is the one that distributes the federal money to your local school systems. It’s just a matter of who collects it. Yes, that creates more middle men, but, again, that is bureaucracy in action.
February 4th, 2010 at 4:02 pm
I found it satisfying to figure out the effective tax on my salary (22%) and then on my earnings after I deducted my 401(k) contributions (20%). So not only am I saving for my retirement, but I’m paying a 2% lower effective tax rate to boot.
February 4th, 2010 at 4:11 pm
“the most fun you’ll have with taxes this year!” LOL!
I love tools like this. I also love looking at the national budget figures online and thinking about what I would cut.
I’m kind of leaning toward Shara’s position of shifting more responsibility back to the states. That’s really the only way we’re going to reduce the size of our federal government - as long as citizens are demanding so many services from the government.
People seem to forget that every government program that exists is there because enough people asked for it (via their congresspeople) or - in many cases - because an industry asked for it. This would be one really GOOD reason for shifting programs back to the states.
And then could we please, PLEASE, outlaw lobbying?
More on topic: I try not to think about all the taxes I pay, because ultimately, there’s nowhere else in the world I’d rather live, and it’s just part of the deal.
February 4th, 2010 at 4:14 pm
@CB
You think that makes me a Rebel (btw, I’m from UNR, NOT UNLV :P)? You should hear some of my other ideas (completely non-partisan, just want the government to work different).
It’s possible taxes would be the same, but I’d sure feel better about it (and btw, education was just an example, I think the same about most things other than interstate business and national defense). And I would feel like I have a lot more say than I do now. And there are a couple good things about keeping things local. This includes the fact that states can’t print money, so they’d watch it more closely than the Fed seems to and we’d never have to try to force Kansas and NYC into the same mold.
February 4th, 2010 at 4:59 pm
Shara: “Why is the Federal Government involved in the Department of Education? Why aren’t states taking care of schools? It would be easier as a taxpayer to keep my eyes on my state and district budgets than a bloated federal budget.”
Over 90% of K-12 spending on education is from state and local levels. 95% of the federal money for K-12 is given straight to the schools or states. Most of the federal money is spent to help subsidize poor areas or for specific things like kids with disabilities or schools that educate children of military members.
February 4th, 2010 at 5:38 pm
@chacha1
It’s lobbying until it’s your cause you want supported. Lobbying is part of free speech. I am not defending the lobbyists, but it isn’t so simple as simply banning them. But breaking up decision making into 50 state capitals would probably have a big impact. People say we need to get the “money out of Washington”, but what we need to do is get the power out of Washington. Money itself doesn’t cause problems. It is using money to buy power that gives us problems. If it weren’t as profitable to hire someone to support your interests, because the congressman can’t send so much money your way, the company/union lobbyists would go home, or at the very least be willing to spend as much money because there wouldn’t be as much reward in it.
February 4th, 2010 at 5:41 pm
@jim
Why is everyone getting hung up on my DoEd comments? I know most school spending is local. That doesn’t change the fact that we have a bloated federal bureaucracy dedicated to it.
February 4th, 2010 at 5:59 pm
I don’t think “everyone” was “hung up on” your Dept. of Ed. comment.
You singled out the Dept. of Ed. for comment. So I responded about the Dept. of Ed. I infered from what you said that you thought states weren’t primarily in control of K-12 spending.
February 4th, 2010 at 6:53 pm
Ok, my effective tax rate at $49,000 is 17%. I would have to go back to 1961 to find the same rate. Someone making $250,000 would pay an effective rate of 30%. In 1961 it was 44%. That tells me that the real tax breaks have gone to the very wealthy.
February 4th, 2010 at 7:01 pm
@JD. I’d enjoy/read the blog more if you omitted references to “hell” as an expression of speech. Overall, I have enjoyed the content.
February 5th, 2010 at 12:00 am
I don’t know, I’m looking at my W-2 right now and I’m really not sure I got my money’s worth in services for the $43,014 I paid last year (federal + state + medicare + social security).
I mean, the calculator in the link says I spent over $10,000 on “national defense” last year — I really feel like that was mostly wasted. And I spent over $5,000 on “health” for services I don’t use (and probably am not even *allowed* to use), because I’m also paying for my own health insurance.
Percentages aside, it’s a lot of money I earned that’s going towards things I don’t necessarily want and wouldn’t buy given the choice.
February 5th, 2010 at 3:21 am
“…$50,000 (roughly the U.S. median household income), …”
Wow, the median income in the US is pretty much double that of the median income in Finland. I’ve always wondered how on earth you guys can buy (as in homes/mortgages) and save so much. On top of that, you pay a lot less in taxes as well.
It makes sense now.
February 5th, 2010 at 5:27 am
@ Shara: Actually I was refering to the Confederates during the Civil War. (Maybe that should have been the lower case “r”. Oops!) One of the big issues was how much power the states had versus how much power the federal government had. If things had worked out differently,we would have seen a much different governmental structure. Off the top of my head I remember that in the Confederate Constitution, the President had one 6 year term and could not be reelected.
I know education was just an example. It’s a good one, in my opinion. I can imagine some of your other ideas. I agree that I’d like to see goverment work differently. Maybe one of us should run for office….
February 5th, 2010 at 10:07 am
@Scott,
Why do you only look as far back as 1961?
JD - you said that tax rates are at “historic lows”, but when I look at the tax chart you link to here, the farther I go back, the lower my effective tax rate would have been. There are some up-and-down fluctuation in very recent history, but as a general trend taxes for my income level have gone up over time.
February 5th, 2010 at 10:08 pm
Interesting to note that since 1995, more is spent on interest than national defense (this last up until 2000) Also, more is spent on social security and medicare combined than is spent on national defense and it has only gotten worse in the past 15 years. Huston, I think we have a problem. Get tool J.D., thanks for sharing your find with us.
February 6th, 2010 at 9:27 am
As a designer, I think that interactive tool is great. One thing I do *not* like about it, is that to the casual reader (the target audience of USA today) is that the title reads “Tracking Taxes” and then you see a chart just going sky-high over the last 70 years. I can just see a lot of folks glancing at this and freaking out. It’s really the *effective* rate that is interesting, and it’s very under-represented. By trying to combine tax rates and spending into one tool, it misleads a bit.
Thanks for sharing; love the blog.
February 6th, 2010 at 4:49 pm
#23 John said, “more is spent on interest than national defense”
Although that was true for a time, the bigger issue is that such a large percentage of the budget went to servicing the debt in the first place. Take that away and we could have been taking care of other spending obligations.
Of course, we could have been taking care of spending obligations the whole time and didn’t … which gets back to building up so much debt in the first place. Round-and-round it goes….
Maybe strict term limits would undermine some of the power structure. Keep turning over the crowd and there may be less of a chance for corruption to take root? Wishful thinking maybe?
February 6th, 2010 at 8:39 pm
@Luke Myers (#18)
JD, I’d enjoy/read the blog less if you censored your language based on the opinion of one reader.