Taxes Are Inevitable But Bearable

For people who dread filling out their income tax returns even more than paying the taxes, part of January’s chill every year is the appearance of Form 1040 and its many schedules in the mailbox.

Taxes may be the price we pay for living in a civilized society, as the adage has it, but how high does the price have to be? One group, Americans for Tax Reform, calculated that in 1996, July 3 was the first day of the year that Americans could work for themselves; for the first 184 days of the year, all their efforts went toward paying the cost of taxes and regulation.

The “government work days” included 51 days for state and local impositions, 40 for the cost of complying with federal regulations, 31 for Social Security and Medicare, 16 days for defense, 14 days to pay interest on the national debt and 32 days for everything else the federal government does.

That’s not entirely fair. Some regulations are useless or even harmful, but many of them simply codify actions that prudent individuals and businesses would be taking anyway. If the Federal Aviation Administration ceased to exist, airlines would not cancel immediately all safety programs (though they might decide it was not essential to instruct every passenger how to fasten and release seat belts). The prospect of negligence lawsuits, if nothing more high-minded, would figure into their calculations.

Americans for Tax Reform estimates the total cost of regulation at $1 trillion, but there’s no way to figure how much of that staggering bill covers policies and procedures that wouldn’t exist except because the government requires them.

Another way to look at taxes is to calculate how large a share of the typical family budget they take.

You may remember that Bob Dole was hammered during the presidential campaign for saying that Americans pay more in taxes than for food, clothing and shelter combined. But he was right.

In 1996, according to the Tax Foundation, the average American household spent $19,292 on food, clothing and shelter, while the estimated total tax burden was $21,883.

One difference between these figures and those of, for instance, the Bureau of Labor Statistics is that the foundation includes the taxes that people pay indirectly, such as the corporate income tax and the employer’s share of Social Security and Medicare. That is fair because, ultimately, individuals pay all taxes. And the foundation counts taxes as taxes, even if they are associated with food or housing. That also is fair; property taxes are a significant share of rent or mortgage payments.

The burden of taxes on an average family is much greater than it used to be. A typical family budget 40 years ago included 19.9 percent for federal taxes and 7.8 percent for state and local taxes. In 1996, the estimated tax bill was 26.7 percent for federal taxes and 11.7 percent for state and local taxes.

Granted, people are earning more than they did back then. But they haven’t benefited as much as they should have, with food dropping from 18.6 percent of the family budget to 9.2 percent and clothing, housing and transportation all taking a smaller share. Saving is down, too. Only medical spending is up, from 3.8 percent to 10.5 percent.

It is worth remembering that in the ‘50s, the average family with two incomes was paying only $84 a year to Social Security. That’s in actual dollars, not adjusted for inflation. In 1996, it was $3,899.

Total taxes (adjusted to 1996 dollars) were $6,665 in 1956 compared with almost $22,000 last year.

Are Americans better off as a result of paying three times as much in taxes as their parents did?

Not obviously.

But are Americans better off, in regard to taxes, than people in other countries?

A survey in the Economist suggests that they are. The Economist did its own calculations of “tax freedom day” for different countries. Its measure was more restrictive than the one I started with, and it gives the United States credit for tax freedom starting on April 11. Japan’s “tax freedom day” is only a day later, and the only country whose day is earlier is Singapore, which lays claim to March 4.

The European economies carry a greater tax burden - for example, Britain, May 9; Germany, May 23; France, June 12; and Sweden, July 3.

And many have levels of unemployment that haven’t been seen in the United States since the Great Depression. They look with envy toward the United States’ powerful job-creation machine.

Despite that, attempts to cut back the “cradle-to-grave” welfare state are being bitterly resisted. That’s not the direction the United States should be heading.

We don’t really mind paying taxes. But we’re paying enough.

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