You aren’t taxed too much…

It *is* true that taxes used to take a smaller bite out of your income.  And you are right, it isn’t fair.  But you are NOT being taxed too much!  Tax rates used to be higher! 

“Wait a minute!” I hear you say.  “I’m confused.  How could taxes be taking more of my money now, but taxes used to be higher?”

Yes it is true: even at a higher tax rates we had in the past, taxes took less of your income.

Let’s do the math, shall we?

Let’s say 20 years ago you made the median income of about $44,000 a year.  Your taxes (income and FICA) took less than $12,000, and that is before you shielded any income with things like mortgage payments, kids and any of the standard deductions and exemptions.  Call it about $10,000.  That left you with $34k to live off of.

So now it is 20 years later, and your income is the median, which is $46000.  Your taxes (income and FICA) took a little over $10,000, and that is before you shielded any income with things like mortgage payments, kids and any of the standard deductions and exemptions.  Call it about $8,000.  That left you with $38k to live off of.

“Waitaminnute.  I smell a rat.  You said taxes were taking more of my income, but the numbers say that I’m paying less in taxes!  What’s up with that?”

Well, yes, $8,000 is less than $10,000.  But it is a larger percentage of your disposable income.  20 yeas ago you had a disposable income.  But because wages haven’t kept up with the costs of things like healthcare, college, gas, groceries, and telecommunications.  (How much did you pay your ISP back in 1990, or your cell phone provider?  How much did you spend on text messaging?)

Yes, some of the items are discretionary.  But health care isn’t, nor is college, or gas (at least not yet).  And even a lot of the extras in telecommunication are required in order for you to be part of the 21st century.

Since the cost of living has outstripped your income growth, you have less and less disposable income.  And here come the taxes, and suddenly there isn’t anything left.

So what can you do about it besides complain that prices have gone up?

Take a look at the graph:

Your wage growth hasn’t kept up with the wage growth of those in the top 10%.  They have been benefitting disproportionately from the economic growth.  You haven’t gotten much of a raise.  They have.  But the cost of living rises regardless.

You aren’t taxed too much…

…you are being paid too little.

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