Income taxes-You're paying more than you think
- Robert Frank Editor of No-Debt Living Newsletter
- 2004 12 Apr
If sending a big chunk of your paycheck to the government leaves you less than delighted, hold on to your hat and take a look at last year's income tax records. Chances are you're paying more for Social Security and Medicare than you are for federal income taxes... substantially more.
Check it out
Here's how to compare. First, take a look at your 1040 income tax form and determine how much money you actually paid in federal taxes. (If you itemized your deductions, you'll find it on line 53.)
Next, look at your W-2 wage-and-tax statement from your employer and add together the dollar amounts for Medicare and Social Security (some list these together as FICA).
If you're like me, you paid over 40 percent more into Social Security and Medicare than you did into income taxes.
"I don't think most people realize how much they pay in federal income tax," said CPA and corporate manager Bill Frisch, who serves on the No-Debt Living Newsletter board of advisors. "Whenever I ask people how much they paid in income taxes the previous year, they invariably say `I didn't pay anything, I got a refund.'
"I always love that one. They had $8,000 in taxes withheld from their income during the year and only got back $1,200, but they think they haven't paid any taxes."
The growing FICA burden
Here's what's really scary. If taxpayers are oblivious to how much they pay in federal income taxes, they're brain dead when it comes to FICA. As you look at your W-2 form, consider this: Your employer has to match your FICA payment. That means the government is receiving double that amount.
"The rate at which they tax you (for FICA) goes up regularly, plus the maximum amount of income that's subject to those taxes goes up nearly every year," said Frisch. "And no one ever says a word.
"When was the last time you saw a story in the newspaper or on the television about increases in your Social Security or Medicare tax? ...You never see them. And it's a tax increase, plain and simple."
For example, the maximum amount of "income subject to Social Security taxes" was $57,600 in 1993. By 1999 it had been raised to $72,600. And for this year's taxes it will be $76,200.
Citizens currently pay 7.65 percent taxes on that amount. That rate can be divided into two parts: a 6.2 percent Social Security tax on the first $76,200 of income, plus a 1.45 percent Medicare tax on all income (there's no income limit on Medicare). Double that amount to take into account your employer's contribution and that's 15.3 percent of your gross wages that's being sent to the federal government.
The second half may be paid directly by the employer, but guess who really gets to pay it? You and me-it's a business expense that's passed along to the consumer through higher prices.
"Why the government doesn't have enough money I'll never know," said Frisch. "Can you imagine having the money from your FICA deduction to invest in your retirement each month?"
It's time for a change
What makes this more irritating is that some economic experts are doubtful that the Social Security trust fund can survive the baby boom generation because of the huge stack of IOUs that have been left in the fund by Congress.
How did those IOUs get there? They were left in exchange for money that Congress took from the fund to help pay for growing government programs and deficit spending.
This issue, once again, emphasizes the critical importance of having Congress cut spending, reduce the size of government, and invest wisely any annual budget surplus to reduce our nation's long-term debt, including the IOUs in the Social Security trust fund.
The political pressure and momentum to accomplish that, however, must come from the American public as it realizes the cost of big government is too great. (Remember, the average person in the United States works more than four months a year to pay all his or her government taxes.) This means voters must relinquish their "what-can-the-government-do-for-me" attitude and replace it with a "what-can-I-do-for-myself-and-my-community" work ethic.
A tax reduction strategy
Look for and support local, state, and national candidates who have a track record of voting against big government and voting for paying down the federal debt and supporting traditional Christian family values. Make sure you are registered to vote now, so you can cast a vote in November.
Robert Frank is editor of No-Debt Living Newsletter, providing financial, consumer, and time-management news with a Christian perspective. For more money-saving ideas visit No-Debt Living Newsletter (www.nodebtnews.com), where you can view past articles, download a free sample issue, or subscribe. Copyright 2000 No-Debt Living, PO Box 282, Veradale, WA 99037.