Too Taxing for You?
By Patrick F. Cannon
As the Republicans in the House and Senate wrangle over the final form of the so-called tax reform bill (reform takes 500 pages?), I thought I would throw out some facts that you might find of interest.
Approximately 45 percent of taxpayers pay no income tax at all. Indeed, nearly 20 percent are eligible for the earned income tax credit – in effect, they not only pay no taxes but the Federal government actually gives them money! In addition, most are also receiving food, housing and other assistance. The new tax bill would not fundamentally change any of this.
Nor is it likely to fundamentally change who actually pays the income taxes. The top earners – the reviled one percent – pay 40 percent of the total, while the top 10 percent pay 71 percent. The problem isn’t who pays the taxes – the problem is a Congress that historically doesn’t seem to care if the income and expenditure columns match.
Of course, this doesn’t mean that the lowest earners don’t pay any taxes. The payroll tax – for Social Security, Medicare, unemployment and disability insurance, etc. – is paid by everyone who gets a paycheck. The rate is currently 7.65 percent, matched by the employer. Taxable income is currently capped at $127,200. I have always thought that one way to make the fund at least partially viable would be to eliminate the cap. It wouldn’t exactly be fair, but hey, everyone likes to soak the rich, right?
Here’s one for you Illinois residents. We have the fifth highest tax burden of all the states, and the highest paid state employees at an average of nearly $60,000 a year (adjusted for cost of living). They also enjoy much better health benefits than you do (unless you too work for the State or are a member of Congress). Oh, and they have pretty nice pensions. Alas, there still isn’t enough in the pension funds to pay them without even more tax increases. Why be number 5 when you could be numero uno? Then at least we could lead the country in something.
Although it can be a bit more complicated, you can now deduct your state income and local property taxes from your Federal return. Although hard to believe, the Illinois income tax rate of 4.95 percent is not even close to the highest (thank you California); it is the total tax burden that gets us to number 5. Although it’s hard to predict what the final tax bill will look like, one version would eliminate the deduction for state income taxes and limit the real estate tax deduction to $10,000. If you’re in Wyoming, Texas, Nevada, Florida or Alaska, this would be a matter of little concern.
As a matter of interest, the average deduction for real estate taxes in Illinois is $6,500. I couldn’t find a breakdown, but I suspect the average is higher in Chicago and the so-called collar counties. In any event, for most taxpayers, the $10,000 limit would not be a problem. Again, it will be the upper middle class and the wealthy who would be most affected.
Are you sufficiently bored? I am, but let me leave you with this final thought. I’m retired and I’m not the least bit tempted to move south, but I know quite a few people who have established permanent residency in states like Florida and Texas to avoid Illinois’ high taxes. In many cases, they get to spend the good weather months in the Chicago area before heading south for the winter (six months and 1 day is the usual). And I won’t even begin to talk about the cost of doing business in Illinois. Let me close by mentioning that my son lives in Florida. He works for one of America’s major banks, which is in the process of moving all their computer operations from high tax areas to the Sunshine State. People are even moving to Wisconsin and Indiana, for God’s sake!
Copyright 2017, Patrick F. Cannon