April 15 is just around the corner, and tax time always leads to a discussion of who is paying their “fair share” of taxes and who is not. Such a discussion comes in two flavors. For most liberals, the discussion focuses on the fact that — no matter what share of taxes they actually pay — the “rich” are not paying their fair share of taxes. For most conservatives, however, the discussion revolves around the idea that everyone not actually on welfare is paying more than their fair share of taxes.
“Fair” is a loaded and relative concept. But let’s consider one definition of a fair share: one household putting into the system the same amount of money as the system spends per household. This is also known as “putting in what you cost,” or “an even share,” and should be familiar to anyone that has ever split the check at lunch. Although at lunch, unlike in government, inability to pay is not considered OK for those who have just eaten their fill of the communal meal.
Calculating the cost of government attributable to any specific individual would be really quite hard, but calculating the average cost attributable to an average individual is quite easy. What the following analysis lacks in resolution, it makes up for in simplicity and it should serve as a lesson in the form our government has taken.
The federal budget for 2005 was $2.4 trillion ($2,400,000,000,000.00). The federal government did not collect that much in taxes, of course, and so borrowed the remainder, but the effect of such deficit spending is to increase the cost of borrowing for the private sector. Government borrowing is thus a form of indirect taxation reflected in interest rates, so we may safely count all the budget expenditure as a tax cost.
There are around 110 million households in the United States. It is for their alleged benefit that the $2.4 trillion was spent. Each household may thus count as their even share of the cost of federal government approximately $21,800 per year. (I used “households” in this calculation, rather than people, because I am so generous as to believe that children should not be held responsible for a share of the cost of government.)
Those households that pay less than $21,800 in taxes are therefore leeches, who fail to pay their share of the cost of our beneficial, necessary, and not-in-any-way bloated federal government. Likewise, those households that pay more than $21,800 per year in taxes are suckers, who carry more than their even share of the costs and are thus being parasitized by the leeches. The effect of taxation is to divide all the citizenry into either leeches or suckers.
In this calculation, as in real life, the tax burden falls on households. Some people entertain the fiction that corporations pay a share of our taxes, but this cannot be true. A corporation that fails to earn enough revenue to cover its costs goes out of business. Any corporation still in business has thus found a way to successfully pass the cost of corporate taxation onto its customers. You may think the government is sticking it to Megacorp, but Megacorp then just sticks it to you to make ends meet.
Likewise, you might think that the rich pay more in taxes, per dollar of income, than do the non-rich. But the rich do not accumulate wealth by taking losses. The cost of taxation has been figured into their businesses as well. When they pay, we all pay eventually, through price increases and other means. If you believe that it is possible to tax a corporation or a rich business owner without this cost eventually flowing through our highly liquid economy into the costs of your needs and wants, then you are a child that believes it is possible to drain the water from only one end of the bathtub.
That was fun to say, but the point is that this effect makes the statistical tax contribution of any group of wage earners very easy to calculate. Around 19% to 22% of the cost of everything is actually you paying somebody else’s federal taxes, and them paying yours. In any nation in which tax law remains relatively stable for a few years, an equilibrium is reached, so all that actually matters is the size of the national tax burden divided by the size of the national economy. We all set our lives up to cover this cost and it is therefore shared to a surprisingly even degree. Only the unemployed avoid this net.
So, if we take the 22% figure to be the total embedded costs of federal taxation, we can figure that, for a household to contribute $21,800 in taxes (it’s even share), it would need to earn about $100,000 per year. This is the leech versus sucker demarcation point (LvSDP). If your household earns less, you are a leech. If it earns more, you are a sucker.
So how many leeches are there? Only around 14% of households earn more than $100,000 per year. So America is pretty much a nation of leeches: 86% leeches, having their federal tax tab subsidized by the 14% that are suckers.
To be fair, though, we should probably count allegedly non-taxed employee benefits in figuring the LvSDP, since the expenditure of these funds on an employee’s behalf contributes to the federal budget via the embedded effective tax rate of 22% that I just described. According to the General Accounting Office, benefits account for one quarter of total compensation on average. The LvSDP for an employee receiving average benefits is then about $75,000 per year. But even if we were to assume full benefits for all the nation’s employed, then this would still mean we are a 75% leech nation, sponging off the misfortune and wealth of the 25% that are suckers.
Now, most of the leeches do not wish to be so. But one of the depressing facts of our time is that America’s federal government has grown so large, so expensive and so disproportionate to the means of her average citizens, that even a family earning $70,000 per year cannot fully cover their even share of federal spending. And remember, it is Congress that has made you a leech; I am merely the taxonomist that described you. Withhold your angry emails.
Also, bear in mind that most of the leeches do not receive $21,800 worth of annual benefit from their federal government, despite being made leeches by owing this amount. Thus, many leeches are, simultaneously, suckers.
On the other hand, Congressmen earn an annual salary of $165,000 per year, proving that some suckers can also be leeches.
But all in all, the vast majority of the American people can add to their list of complaints about our national government the fact that it has made them into little leeches, who — at best — can hope only to one day become giant suckers.