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Friday, September 30, 2011

These taxes are Killing Me!

 The Boston Tea Party sparked the growth of the American Revolution.  The Boston Colonists objected to the Tea Act that had been passed by the British Parliament.  They believed it violated their right to only be taxed by their elected representatives.

Fast-forward 238 years and the contentious relationship between the taxed and those entities who charge taxes and increase tax rates.

The assortment of taxes we pay today – estate tax, FICA, property tax, federal income tax, and others didn’t always exist.

Back in 1909 Congress enacted the corporate income tax. Today corporate taxable income rates vary from 15% to 35%.  In 1913 a system of graduated federal income taxes was implemented by Congress to help finance World War I.  The rates started at 1% and went all the way up to 7%.

Between the years of 1913 and 1915 only 2% of the U.S. population had to pay  federal income taxes because the system taxed mainly those with large incomes.

Sales tax is known as a consumption tax. That means that it is levied at the time a purchase is made. The tax is usually a percentage of the sale price.  The seller, who then remits the tax over to a government agency, usually collects sales tax from the buyer.

Use tax – You would pay this tax if you make a purchase without paying your home state’s sales tax and you use, give away, store or consume that item in your home state.

Payroll tax – A tax that employers are required to ‘withhold’ from an employees’ wages. Employers are required to withhold state and federal income taxes plus social security and Medicare taxes from your employee’s wages.

FICA – Also known as Social Security and Medicare taxes. The current social security tax rate is 6.2%. The Medicare tax rate is 2.9% for both the employee and employer. Employers withhold 1.45% from an employee’s wages and pays a matching amount for Medicare tax.

President Franklin Roosevelt signed the Social Security Act in 1935 and Social Security taxes were first collected in January 1937, although no benefits were paid until January 1940.

Property tax - in the U.S. charged on real estate and is usually levied by local government between about 0.2% and 4% of the home value.

Capital Gains tax – A tax charged on the profit realized on the sale of a non-inventory asset. Capital gains are most commonly realized from the sale of stocks, bonds, precious metals and property.

Progressive tax – Basically the more income one earns, the higher the tax rate.  If your taxable income is between 0 and $8,500 your tax bracket is 10% but if your taxable income is over $379,150 your tax rate would be 35%.

Regressive tax – Under this system a larger percentage is taken from low-income people than those that earn higher incomes.  Examples of regressive taxes would be gas or sin taxes because they take a larger bite of the income of a lower earner.

Where does are tax money go?
Federal income taxes support the U.S. military and assorted federal programs like Social Security and healthcare.  Local taxes support police and fire departments, schools, potholes in streets among others.

I believe that the current tax system is way past out of control. There has to be a simpler way to collect what is owed and eliminate the loopholes and tax havens that are so prevalent.

What do you think? Should an entire industry exist simply so that U.S. citizens can obey the law?

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