Policy Paper No. 111 |
April 1, 1999 |
By April 15, most Americans will have grudgingly filed their 1998 income
taxes. But despite all the attention given to income taxes at this time of the
year, they are just a fraction of the total taxes Americans bear. In fact,
personal income taxes represent much less than half (42 percent) of Americans'
tax burden.1
This paper identifies $657.5 billion in additional "hidden" taxes, or $2,462
in hidden taxes per person.2 These hidden taxes violate a basic
principle of taxation -- that taxes should be visible to the people who pay
them. If people don't accurately perceive how much government policies cost
them, then how can they make informed decisions in our democratic process?
Some taxes are inadvertently hidden, but others are consciously designed that
way to disguise the cost of government. It's easy to see why: the total U.S. tax
burden is equal to 42 percent of annual personal consumption
spending.3 If Americans recognized this high level of taxation, there
might well be a second American Revolution.
| ||
Personal Consumption Spending |
Taxes |
Taxes as a Percent of Personal Spending |
$5.49 trillion |
$2.29 trillion |
41.6% |
Americans are subject to numerous different taxes. The many types and levels
of taxation help explain why taxes are so steep: giving governments more ways to
tax usually encourages higher tax burdens.4 Figure 1 shows the
relative magnitude of different U.S. taxes.
Figure 1. U.S. Tax Revenue5
How Many Taxes are Hidden?
For the purposes of this paper, a hidden tax is one that is not explicitly
clear to the taxpayer. For example, sales taxes generally are not considered to
be hidden taxes,
| ||
Hidden Tax |
Cost (Billions) |
Cost/Person |
Corporate Income Tax |
$215.3 |
$806 |
Fuel Taxes |
$58.9 |
$220 |
Other Excise Taxes and "Sin" Taxes |
$29.0 |
$109 |
Employer Share of Payroll Taxes |
$230.2 |
$862 |
Workers' Compensation Taxes |
$13.2 |
$49 |
Unemployment Taxes |
$28.2 |
$106 |
Import Taxes |
$18.7 |
$70 |
Hotel-Room Taxes |
$6.7 |
$25 |
Airline Taxes |
$4.0 |
$15 |
State/Local Utility Taxes |
$16.0 |
$60 |
Implicit telecommunications and electricity taxes |
$11.0 |
$41 |
Severance Taxes |
$4.6 |
$17 |
Insurance Premium Taxes |
$9.0 |
$34 |
Licenses (occupation, corporate, utility, alcohol, and amusement) |
$12.6 |
$47 |
Total |
$657.5 |
$2,462 |
because the costs are clearly indicated on cash register receipts. Many
regulations, mandates, and other government policies have been described as
hidden taxes because of the costs they impose on Americans. However, this paper
focuses primarily on tax policy, not a broader definition of hidden
taxes.7 Table 2 graphically demonstrates the impact of several hidden
taxes.
In 1997, federal, state, and local governments collected over $215 billion in
corporate income taxes, or the equivalent of $806 a person.8 Many
individuals believe that figure represents $215 billion that the rest of us
don't have to pay. Some critics claim that corporations should pay even more in
taxes.
On the surface, taxing corporations instead of people may sound appealing.
However, it's not that simple, since corporations are people working as a
legal entity. In addition, when the government imposes corporate income taxes,
the potential responses include:
- Raising prices
- Lowering payments to stockholders
- Reducing employee compensation and capital investment
Under any of the three options, Americans end up paying the tax either
through lower wages if they work for a corporation, poorer performance if they
own a mutual fund, or higher prices when they buy a product.9 But
this tax burden doesn't show up on any pay slip or price tag.
Hidden corporate taxes impose an even greater burden because they represent double-taxation. When a company earns a profit, it pays taxes on that money. When it pays its stockholders a dividend, that same money is taxed again. This double-taxation discourages much-needed investment. Harvard economist Dale Jorgensen calculates that double-taxation reduces our national wealth by about a trillion dollars.10
Everyone who owns a mutual fund or IRA, or who participates in a 401(k) or
typical pension plan, is penalized by this double-taxation. Even relatively
low-income Americans increasingly rely on stocks for a portion of their savings.
According to the Federal Reserve Bank, from 1989 to 1995 the share of stocks as
a percent of total assets doubled for families with incomes under
$25,000.11
Gas and Other Transportation
Taxes
How much does a gallon of gasoline cost? Many Americans might be surprised by
the answer, because the price to actually produce and deliver the product is
much lower than the amount posted at the pump.
According to the American Petroleum Institute, the average price for a gallon
of gasoline as of July 1998 was $1.38 per gallon. However, this statistic is
highly misleading: 41 cents of the price consisted of gasoline
taxes.12 In other words, gas taxes inflated the price of gasoline by
37 percent.
Unlike sales taxes, gas taxes don't appear anywhere on the receipt after you
fill up. Lucky motorists may find the state and federal tax rate in small print
somewhere on the gasoline pump. But since the total amount they pay is hidden,
most Americans don't recognize the tax burden when they buy their gas, and they
certainly have no idea of the annual cost of gas taxes.
As Table 3 shows, gas taxes haven't always been so high. While the pre-tax
price of gas fell sharply between 1980 and 1996, this decline coincided with an
increase in gas taxes that resulted in the final retail price of gas remaining
virtually unchanged.
| |||||||||
Year |
Service Station Price Excluding Taxes |
State & Federal Taxes |
Service Station Price Including Taxes | ||||||
1980 |
|
|
| ||||||
1985 |
|
|
| ||||||
1990 |
|
|
| ||||||
1991 |
|
|
| ||||||
1992 |
|
|
| ||||||
1993 |
|
|
| ||||||
1994 |
|
|
| ||||||
1995 |
|
|
| ||||||
1996 |
|
|
| ||||||
Change |
-22% |
+195% |
+3% |
When you buy a gallon of gasoline, the government receives the largest chunk
of your money. According to one report, for a dollar's worth of gasoline, 34
cents are accounted for by exploration and production, refining takes up 6
cents, wholesalers get a nickel, and the service station owner gets 12 cents. As
Figure 2 shows, taxes take up the rest.
Figure 2. Where Your Gasoline Dollar Goes14
Stephen Moore of the Cato Institute concludes that in recent years gas taxes have been the fastest-growing federal tax imposed on middle-income Americans.15 Last year the federal government discarded the scheduled reduction in taxes of 4.4 cents per gallon.16
Fuel taxes cost Americans $58.9 billion, or $220 a person.
The gas tax is just one example of an excise tax. Unlike retail sales taxes,
which are clear to consumers, excise taxes are imposed on producers. As a
result, the final cost of excise taxes is often hidden from consumers. These
taxes lower consumption of the taxed product and increase consumption of other
products. Because they distort people's spending decisions, excise taxes can be
a particularly costly way for governments to raise money.
In general, most experts believe that tax policy should be neutral --it
should neither favor nor discriminate against specific goods or services. While
policymakers often follow this advice, a notable exception to this rule is
provided by taxes on items that the government decides are unhealthy, like
products containing alcohol and tobacco. These "sin" taxes provide a major
source of excise tax revenue. Since consumers of these products often lack the
political clout to counter the attractive revenue stream available to taxing
authorities, sin taxes have been an especially attractive tool to finance
government spending. Some examples of sin taxes follow.
Beer Taxes:
Many taxes are raised during wartime but never returned to their original
level. For example, the federal government hiked beer taxes to help pay for the
Korean War. The taxes were maintained after the war, and then doubled in 1991.
According to the consulting firm of DRI/McGraw Hill, 43 percent of the cost of
each six-pack comes from taxes, versus a 30 percent tax component for most other
consumer goods. Therefore, if not for taxes, a $5.00 six-pack would cost just
$2.85. Adam Thierer of the Heritage Foundation observes that beer taxes tend to
be regressive, with about two-thirds of the beer sold in America bought by
households earning less than $45,000.17
Figure 3. Hidden Taxes in a Bottle of Beer
Tobacco products are portrayed even more negatively than alcoholic beverages,
so taxing users of these products is correspondingly popular with government
officials. However, like other sin taxes, tobacco taxes are also very
regressive. The Joint Economic Committee concludes that at the federal level,
two-thirds of cigarette taxes come from smokers who earn less than $40,000 per
year. According to the Tax Foundation, the recent 15 cents per-pack tax hike
left smokers earning less than $15,000 a year with 34 percent of the tax
burden.19
The federal tax on a pack of cigarettes is scheduled to increase to 34 cents
per pack in the year 2000 and 39 cents per pack in 2002, with much higher taxes
currently under consideration. State taxes vary from 2.5 cents to a dollar per
pack. Cigars are subject to a federal tax of up to 12.75 percent, chewing
tobacco is taxed at 12 cents per pound, and pipe tobacco is taxed at 67.5 cents
per pound. The Clinton Administration's FY2000 budget projects $34 billion in
tobacco tax revenue from FY 2000 to FY 2005.20
Appendix 1 shows each state's excise tax rate for gasoline, cigarettes,
distilled spirits, wine, and beer.
The federal government levies several other excise taxes, including:
Vaccination Taxes:
The government imposes a 75 cent per dose excise tax on vaccines for DPT
(diphtheria, pertussis, tetanus), DT (diphtheria, tetanus), MMR (measles, mumps,
or rubella), polio, HIB (haemophilus influenza type B), Hepatitis B, and
varicella (chickenpox).21
Firearms Taxes:
The government imposes a 10 percent excise tax on pistols and revolvers, an
11 percent tax on other firearms, and an 11 percent tax on shells and
cartridges.22
Phone Taxes:
A federal excise tax on telephone services cost $4.5 billion and universal service subsidies an additional $1.0 billion in 1997. On top of this amount, governments historically have subsidized universal service through regulations that boost phone bills for some users in order to subsidize others. One study put the cost of this hidden tax at $5 billion.23
| |
"General" Revenue |
|
Alcohol |
$7,257 |
Tobacco |
$5,873 |
Telephone |
$4,543 |
Ozone Depleting Chemicals |
$130 |
Transportation Fuels |
$7,107 |
Other |
$2,921 |
"Trust Fund" Revenue |
|
Highway |
$23,867 |
Airport and Airway |
$4,007 |
Black Lung Disability |
$614 |
Inland Waterway |
$96 |
Superfund |
$71 |
Oil Spill Liability |
$1 |
Aquatic Resources |
$316 |
Leaking Underground Storage Tank |
$23 |
Vaccine Injury Compensation |
$115 |
Total excise taxes |
$56,924 |
Sen. John McCain (R-AZ) has introduced legislation to repeal the phone excise tax.25 However, as discussed below, much steeper taxes are in the works to financenew telecommunications subsidies. On the positive side, deregulation is leading toward replacement of "implicit" hidden telecommunications regulatory subsidies with "explicit" tax-financed subsidies. Making the subsidy explicit to taxpayers will increase pressure to control taxes. As Table 4 indicates, combined federal excise tax revenue alone comes to $57 billion.
Examples of How Taxes are Hidden in the
Price of Goods
Americans for Tax Reform (ATR) has calculated several examples of how taxes
affect the purchase price of several goods and services. The ATR figures include
the impact of all taxes -- not just certain hidden taxes -- on prices. According
to ATR:
- Taxes account for 35 cents of the cost of a $1.14 loaf of bread.
- 18 cents of a 50-cent can of soda go toward taxes.
- 72 percent of the cost of a 750 ml bottle of liquor goes toward taxes.
- Taxes for an $80 hotel room average 43 percent.
- Taxes account for $63.60 of a $159 airline ticket.
- A $153.09 monthly utility bill consists of $39.35 in taxes.
- Over half the cost of a $1.33 gallon of gasoline is due to taxes.26
A 1992 Cato Institute study looked at taxes somewhat differently, calculating
how much someone needed to earn to have enough after-tax dollars to purchase
several products. The study concluded that a typical worker needed to earn
$17,038 to buy a $10,000 car, and $2,556 to purchase a $1,500
computer.27
State and federal governments have indirectly taxed some telecommunications
users and subsidized others for years. The government first imposed
telecommunications taxes to help finance the Spanish-American War. Today, the
impact of these taxes can be significant: according to the cellular industry, a
combination of fees and mandates force consumers to pay 20 to 30 percent more
than the actual cost of providing cellular service.28
For many years, the cost of telecommunications subsidies was hidden in
Americans' phone bills. As part of the move to deregulate the industry, the 1996
Telecommunications Act was supposed to make these costs explicit. However, it
also opened the door to a big increase in telecommunications taxes. The Act
stated:
Consumers in all regions of the Nation, including low-income consumers and those in rural, insular, and high cost areas, should have access to telecommunications and information services . . . that are reasonably comparable to those services provided in urban areas and that are available at rates that are reasonably comparable to rates charged for similar services in urban areas. . . . Elementary and secondary schools and classrooms, health care providers, and libraries should have access to advanced telecommunications services.29In other words, the Act suggested that residents in low-cost areas should continue to pay more to subsidize service for Americans who choose to live in high-cost areas, and it authorized additional support for schools, libraries, and rural health care providers.
Subsidizing rural customers is not necessarily good policy. Kent Lassman of
Citizens for a Sound Economy explains:
Ted Turner owns a 160,000-acre ranch in Montana. For $8.45 million, Turner recently purchased 44,000 acres in Nebraska to bring his holdings in the Cornhusker State to more than 96,500 acres. With more than 15,000 bison grazing on his land in Montana, Nebraska and New Mexico, Turner-the-Rancher can afford a few of life's luxuries --yet he does not pay the full cost of telephone service.30Even if it makes sense to subsidize high-cost users, financing those subsidies by taxing telecommunications services does not. As Stephen Entin pointed out, "[T]he government provides universal access to food by giving needy people food stamps and welfare checks. This assistance is funded out of general federal revenues, not by an excise tax on groceries or a mandated 'contribution' by food stores to a 'Food Fund.'"31
FCC Commissioner Harold Furchgott-Roth estimated that the total cost of
federal universal access policies could require a 10 percent tax on interstate
services on top of the preexisting 3 percent tax.32 Many rural states
want an even bigger subsidy.
As NTU President John Berthoud observed: "[B]efore one dime is taken, at a
minimum, taxpayers should have the ability to address elected officials on the
topic, and then later hold them accountable. It violates any and all basic
tenets of democratic representation to allow unelected officials to levy taxes
on the American public."33
"Explicit" Costs?
While the 1996 Act was supposed to make taxes and subsidies more explicit,
from the government's perspective, providing such clear information also would
increase opposition to government subsidies. Therefore it was not particularly
surprising when several companies complained that although the FCC wanted them
to fund new universal service programs, they were not supposed to inform their
customers of the cost. Randall Coleman of the Cellular Telecommunications
Industry Association argued, "They don't want us to call it a tax. But that's
exactly what it is."34
Sprint Corporation commented: "[A]lthough the Commission did not prohibit
carriers from passing through their USF (Universal Service Fund) costs to end
users, the Commission did bar carriers from labeling any USF cost recovery
charge on their bills a 'USF surcharge'(emphasis added)."35
Many Americans might prefer to see the reduced cost of service reflected on
their phone bills instead of used to offset new government spending. FCC
Chairman Reed Hundt admitted that higher subsidies translates to higher prices:
"It's a very small additional subsidy. . . . It will be contributed by
communications companies. Will they pass it onto somebody? Yes, they'll pass it
on to everyone in America in insignificant ways down to . . . pennies a day. It
will be a collective action by all of America."36
When tax day comes around each year, many Americans are happy to get a check
from the federal government, even though they're just getting back their own
money --without interest.
Since income tax payments are withheld from their paychecks, the true burden
of paying taxes is much less visible to them. This principle of tax collection
is similar to the advice offered by many financial planners to have money
automatically deducted from your paycheck for investments, since you don't miss
the money as much that way. As David Brinkley commented:
Congress and the president learned, to their pleasure, what automobile salesmen had learned long before: that installment buyers could be induced to pay more because they looked not at the total debt but only at the monthly payments. And in this case there was, for government, the added psychological advantage that people were paying their taxes with not much resistance because they were paying with money they had never even seen.37Withholding increased the burden on taxpayers in two ways. First, money that previously could have been gaining interest in the bank or invested in the economy now was preemptively taken by the government. Second, making income tax costs less visible in turn made tax increases much more feasible.
Today, withholding is widely accepted. House Majority Leader Dick Armey
(R-TX) initially proposed elimination of withholding in his flat tax plan,
describing withholding as a "crucial, deceptive device" that permits the
government to "raise taxes to their current level without igniting a
rebellion."38 While Rep. Armey later removed this feature from his
plan, Rep. Cliff Stearns (R-FL) has introduced stand-alone legislation proposing
to eliminate withholding.39
Employer Share of Payroll
Taxes
According to the government, payroll taxes for Social Security and Medicare
are "paid equally by both employees and employers," with each paying 7.65
percent.40 While that may be true for accounting purposes, economist
Walter Williams explains how it really works:
[Y]ou probably already believe . . . that your employer pays half your Social Security. This lie may be demonstrated by pretending that you're my boss. We agree to a wage of $7.00 an hour. You deduct 50 cents an hour as my Social Security contribution and add 50 cents as the "employer contribution," making your cost to hire me $7.50 an hour. My question is: If it costs you $7.50 to hire me, what is my minimum hourly output for you to keep me on the job and stay in business? If you said $7.50 an hour, go to the head of the class, because you also know who pays all of the Social Security tax. The worker does.41Williams observes that the government maintains the myth that employers pay half of Social Security and Medicare taxes because Americans would "go ape" if they knew the true tax burden these programs impose.
The government uses payroll taxes to help finance Social Security and
Medicare spending, including Old Age and Survivors Insurance (OASI), Disability
Insurance (DI), and Hospital Insurance (HI, or Medicare Part A). When the
government first imposed these taxes during the 1930s, the rate was a combined 2
percent for earnings up to $3,000 per year. The 1998 combined rate was 15.3
percent: 12.4 percent for OASDI for the first $68,400 of wage income, and 2.9
percent for HI for all labor income.42
Payroll taxes have increased dramatically since 1937. According to the
Institute for Policy Innovation, over 90 percent of American workers pay more in
payroll taxes (including the "employer's share") than they do in income taxes.
Table 5 illustrates the rise in payroll tax rates in recent years. Since 1977,
the payroll tax rate has grown by nearly one-third, from 11.7 percent to 15.3
percent --and that doesn't include the big increase in the wage base subject to
payroll taxes.
| ||||||||||
Year |
OASDI Tax Rate (Percent) |
HI Tax Rate (Percent) |
Combined Rate (Percent) |
HI Tax Base |
Maximum HI Tax | |||||
1977 |
9.9 |
1.8 |
11.7 |
$16,500 |
$297 | |||||
1978 |
10.1 |
2.2 |
12.1 |
$17,700 |
$389 | |||||
1979 |
10.16 |
2.1 |
12.26 |
$22,900 |
$481 | |||||
1980 |
10.16 |
2.1 |
12.26 |
$25,900 |
$544 | |||||
1981 |
10.7 |
2.6 |
13.3 |
$29,700 |
$772 | |||||
1982 |
10.8 |
2.6 |
13.4 |
$32,400 |
$842 | |||||
1983 |
10.8 |
2.6 |
13.4 |
$35,700 |
$928 | |||||
1984 |
11.4 |
2.6 |
14 |
$37,800 |
$983 | |||||
1985 |
11.4 |
2.7 |
14.1 |
$39,600 |
$1,069 | |||||
1986 |
11.4 |
2.9 |
14.3 |
$42,000 |
$1,218 | |||||
1987 |
11.4 |
2.9 |
14.3 |
$43,800 |
$1,270 | |||||
1988 |
12.12 |
2.9 |
15.02 |
$45,000 |
$1,305 | |||||
1989 |
12.12 |
2.9 |
15.02 |
$48,000 |
$1,392 | |||||
1990 |
12.4 |
2.9 |
15.3 |
$51,300 |
$1,488 | |||||
1991 |
12.4 |
2.9 |
15.3 |
\1\$125,000 |
$3,625 | |||||
1992 |
12.4 |
2.9 |
15.3 |
$130,200 |
$3,776 | |||||
1993 |
12.4 |
2.9 |
15.3 |
$135,000 |
$3,915 | |||||
1994 |
12.4 |
2.9 |
15.3 |
\2\none |
No limit | |||||
1995 |
12.4 |
2.9 |
15.3 |
None |
No limit | |||||
1996 |
12.4 |
2.9 |
15.3 |
None |
No limit | |||||
1997 |
12.4 |
2.9 |
15.3 |
None |
No limit | |||||
1998 |
12.4 |
2.9 |
15.3 |
None |
No limit | |||||
\1\ Prior to 1991, the upper limit on taxable earnings was the same as for Social Security. The Omnibus Budget Reconciliation Act of 1990 (OBRA 1990) raised the limit in 1991 to $125,000. Under automatic indexing provisions, the maximum was increased to $130,200 in 1992 and $135,000 in 1993. \2\ The Omnibus Budget Reconciliation Act of 1993 eliminated the indexing provision entirely beginning in 1994. |
The government collected $502.7 billion in Social Security and Medicare
payroll taxes in 1997. Deducting the amount paid by self-employed workers, which
is not hidden, leaves a rough estimate of $460.5 billion in combined employer
and employee taxes. The hidden portion of this comes to $230.2 billion, or $862
per person.45
Unemployment and Workers'
Compensation Taxes
Around the same time the government instituted Social Security, it mandated
that states set up unemployment insurance programs. Unemployment insurance,
along with mandatory workers' compensation insurance for on-the-job injuries, is
a hidden tax that lowers employees' wages.
Since unemployment insurance is mandatory, workers who stay employed help
finance payments to frequent job-changers. As George Leef observed, "[T]hose
workers who seek and hold steady jobs are being compelled to subsidize the
unemployment of workers who choose employment which is apt to be
sporadic."46
Unemployment insurance can also extend the amount of time people stay out of
work. According to Harvard University's Martin Feldstein, "For those who are
already unemployed, it (unemployment insurance) greatly reduces and often almost
eliminates the cost of increasing the period of unemployment."47
The Impact of Hidden Labor Taxes:
A recent Cato Institute study documented the impact that hidden labor taxes
have on America's workforce. The report found that while an average full-time
manufacturing worker earns about $27,200, it costs employers $31,000 to hire the
worker due to workers' compensation, unemployment insurance, and the employer's
share of Social Security and Medicare taxes. As the study points out, this money
otherwise would have gone to the employee.
| ||
Cost | Percent of Total | |
Total compensation |
$19.76 |
100.0 |
Wages and salaries |
14.30 |
72.4 |
Total benefits |
5.47 |
27.7 |
|
1.30 |
6.6 |
|
0.51 |
2.6 |
|
1.25 |
6.3 |
|
0.75 |
3.8 |
|
1.63 |
8.2 |
|
1.15 |
5.8 |
|
0.13 |
0.7 |
|
0.35 |
1.8 |
|
0.03 |
0.2 |
After deducting income and payroll taxes from his paycheck, the worker keeps
just $22,400. The total "tax wedge" from labor taxes is $8,600, or 28 percent of
the amount the employer pays. The amount rises to 36 percent for employees
earning $60,000, nearly half of which does not appear on the pay
stub.49
The average burden imposed by unemployment insurance and workers'
compensation taxes is $1,618 per employee.50 Appendix 2 shows the
burden for each state. Table 6 gives a breakdown of employee compensation costs.
Since mandated benefits raise the cost of hiring workers, they destroy jobs and lower wages. An analysis of federal labor laws, Social Security, and unemployment compensation laws from 1934 to 1940 found that these policies boosted the median unemployment rate to 17.2 percent from 6.7 percent.51
Americans pay $18.7 billion in taxes on imported products, or $70 per person.
As Table 7 shows, these taxes hit a broad range of products.
Import taxes also boost the price of U.S.-made products. When interest groups
persuade Congress to protect their industry from competition at the expense of
the rest of the country, they can charge higher prices than they would be able
to maintain in a competitive marketplace.
| |
Imported Product |
Hidden Tax |
Babies' dresses, not knitted or crocheted, of cotton |
12% |
Bicycles |
11% |
Brooms (other/than whiskbrooms), wholly or in part broom corn, valued over 96 cents each |
32% |
Brussels sprouts, fresh or chilled |
12% |
Certain infant formulas |
18% |
Electric blankets |
13% |
Fishing rods and parts |
7% |
Flashlights |
18% |
Frozen blackberries |
11% |
Girdles and panty-girdles |
24% |
Hammocks, of cotton |
15% |
Nonwoven disposable hospital apparel |
4% |
Nursing nipples and pacifiers, of plastics |
3% |
Peanut butter |
143% |
Roses, fresh cut |
7% |
School supplies, of plastics |
5% |
Screwdrivers |
6% |
Table linen of man-made fibers, not knitted or crocheted |
12% |
Telephone sets |
8% |
Hotel and Car Rental Taxes:
While the phrase "no taxation without representation" strikes a chord with
many Americans, it's often politically attractive to impose a tax on those who
are unable to vote. This process, called "exporting" taxes, helps explain the
popularity of hotel and car-rental taxes in many communities. Politicians can
tax out-of-town voters to finance local projects, often at a stiff price. The
specter of room taxes ranging up to 17 percent and additional car rental taxes
can be an unwelcome surprise for American travelers.
One bed-and-breakfast owner described the problem: "Here in Massachusetts we
have a 5.7% room occupancy tax. In addition, towns are permitted to add their
own local tax, so in the same area, the tax may be different depending on the
specific town. Many people don't know this and are perturbed to find out how
much more they are paying for a $125 room." 53 Another owner
observed: "Lodging establishments tend to despise the room tax, the main reason
being that the local governments spend the funds on things other than promoting
tourism and lodging."
Nationwide, bed taxes average 11.7 percent, or $9.19 per night. Tax rates are
as high as 17 percent in Houston, and average more than $24 per night in New
York City. As of 1997, bed taxes cost $6.7 billion, or $25 a
person.54 Car rental taxes average 8.24 percent.55
Hotel and car rental taxes are becoming an especially popular tool to finance
new sports stadiums. According to one report, at least 18 cities already have
used these taxes to fund stadiums, with as many as 20 more close
behind.56 One analyst called travel taxes the "hottest trend" in
stadium financing, adding that ". . . these types of financing are sailing
through local city councils and municipalities."57
Most travelers who rent a car or stay at a hotel don't benefit from the
stadiums their taxes help finance. According to the Travel Industry Association,
only about 5 percent of travelers include attendance at a sporting event in
their activities.58
Airline Ticket Taxes:
Airline ticket taxes are currently 8 percent of the fare plus $2 per domestic flight segment. The tax rate is scheduled to change as follows:
| |
Current |
8 percent plus $2/domestic segment |
October 1, 1999 |
7.5 percent plus $2.25/domestic segment |
January 1, 2000 |
7.5 percent plus $2.50/domestic segment |
January 1, 2001 |
7.5 percent plus $2.75/domestic segment |
January 1, 2002 |
7.5 percent plus $3.00/domestic segment (the $3.00 is
indexed for inflation
thereafter) |
In addition, the tax for international departures recently was doubled to $12
per passenger and extended to apply to return flights.59 The
government imposes many other hidden costs on air transportation, including a
$3.00 per person passenger facility charge levied by local governments but
approved by the federal government. This charge costs a billion dollars, and the
Clinton Administration has proposed increasing the fee to $5.00 a
person.60
The burden that ticket taxes impose on travelers was highlighted when they
temporarily expired during budget fights between President Clinton and Congress.
When the tax was reinstated in 1996, airlines passed the cost along to
consumers. As one story reported at the time, "Major U.S. airlines have raised
domestic fares 10 percent, anticipating a 10 percent excise tax that President
Clinton is expected to sign into law today."61
Table 9 shows the impact of hidden vacation taxes for a family headed from Chicago to Orlando.
| |||
Item |
Cost (est.) |
Tax Rate |
Tax |
4 roundtrip airline tickets, Chicago to Orlando, 1 flight segment each way | $1,052 ($263 each) | Ticket price includes $19.48 tax; add $2 per segment per person |
$85.92 |
5 nights lodging | $495 | 11 percent |
$54.45 |
5 days rental car | $162.99 | 6 percent |
$9.77 |
Total Hidden Tax |
$150.14 |
Southwest Airlines Chairman Herbert D. Kelleher
recently summed up the effects of hidden taxes on his industry when he wrote:
"The Customer is only truly aware of the total
fare. If that is perceived as being too high,
the airline receives the blame and suffers the
economic consequences if the Customer chooses not to travel or to travel by
other means [emphasis in original]." Rep.
Neil Abercrombie (D-HI) has introduced legislation to repeal recent airline
ticket-tax increases.64
One side effect of inflation is that in a progressive tax system, taxpayers
will be bumped into higher tax brackets even if their real income is unchanged.
In the late 1970s, high inflation rates caused middle-class taxpayers to face
marginal tax rates far higher than Congress initially intended. To prevent
further bracket creep, in 1981 Congress voted to index federal tax rates and
exemptions for inflation.65
Unfortunately for most taxpayers, few states have taken similar precautions
to protect taxpayers from bracket creep. Only eight of the states that impose
income taxes automatically adjust their brackets, exemptions, and deductions for
inflation.66 This hidden "inflation tax" falls hardest on
lower-income taxpayers, since inflation sends them into higher tax brackets.
Those already paying the maximum rates are unaffected by bracket creep. While
the impact of bracket creep is different for each state, Ohio provides an
example of how this hidden tax works. According to a Buckeye Institute study,
the tax rate for a married couple each earning $6 an hour was ten times higher
in 1997 than it would have been if Ohio's tax code had made allowances for
inflation when it was adopted in 1972.67
Most states impose a variety of severance taxes on natural resources when
producers "sever" them from the Earth. These taxes apply to a wide array of
products, ranging from oil and gas to turpentine and timber. While the taxes are
visible to the initial producers, they are hidden from consumers who buy the
finished goods that are made from natural resources. State severance taxes cost
Americans $4.6 billion in 1997, or $17 a person.
Public utilities provided state and local governments with $16 billion in tax
revenue in 1997, or $60 per person. These taxes often are hidden from consumers.
According to the Edison Electric Institute (EEI), one state imposes taxes that
add 25 percent to electricity bills, but then prohibits a separate line-item on
bills that would inform customers of their tax burden.68 EEI also
calculates that utilities pay a total of $25.8 billion in taxes of all kinds.
Utility regulations also force some electricity users to pay higher prices to
subsidize other users. The U.S. Department of Energy estimates that these
subsidies cost about $6 billion.69 As with telecommunications
deregulation, energy deregulation should provide the opportunity to make these
taxes more explicit and therefore possibly lower.
State taxes on insurance premiums cost Americans $9.0 billion in 1997. These
taxes average $34 per person, a cost that often is hidden in the price of
insurance.
Most states impose a broad range of licensing requirements on different
segments of the economy. One of the more prevalent examples is the use of
occupational licensing. The rationale for these licenses is usually to protect
consumers' health and safety, but in reality they are often just hidden taxes
that restrict competition for the regulated profession.
As Nobel prize-winning economist Milton Friedman and his wife Rose commented:
"The justification [for licensure] is always the same: to protect the consumer.
However, the [real] reason is demonstrated by observing who lobbies at the state
legislatures for imposition or strengthening of licensure. The lobbyists are
invariably representatives of the occupation in question rather than its
customers."70
An example of licensing in practice is provided by the case of Monique
Landers, a high school student who opened a hair-braiding business and won an
award from the National Foundation for Teaching Entrepreneurship. But since she
didn't have a cosmetology license, the state shut her down. According to
Landers, "The (state Cosmetology) Board won't let me earn my own money, and
won't let kids like me learn how to take care of ourselves. I think owning your
own business is a way of being free. If more kids knew they could grow up to be
their own boss they would be more responsible and cause less
trouble."71
In some states, Mary Kay representatives and their counterparts from other
companies can't even help their customers apply makeup unless they first get a
cosmetology license.
These hidden taxes drive up taxes for consumers, but they also limit
opportunities to enter many professions. Several studies have concluded that
licensing is especially detrimental to individuals from minority groups.
According to Dan Hogan, "The reliance of licensing laws on academic credentials
--which are less frequently possessed by the poor, minorities, women, and the
elderly --has a deeply pernicious and discriminating effect, especially when
evidence does not exist that these credentials are positively correlated with
competence."72
Total state licensing, including occupational and corporate licensing, cost
$12.6 billion in 1997, the equivalent of $47 a person.
Use of the Internet is booming, and along with it online sales of goods and services. According to the U.S. Commerce Department:
- Fewer than 40 million people around the world were connected to the Internet during 1996. By the end of 1997, more than 100 million people were using the Internet.
- As of December 1996, about 627,000 Internet domain names had been registered. By the end of 1997, the number of domain names had more than doubled to reach 1.5 million.
- Traffic on the Internet has been doubling every 100 days.73
This development has not escaped the eye of state taxing authorities. As the Chairman of California's Tax Board noted:
Instead of applying traditional legal concepts to the taxation of electronic commerce, state tax bureaucrats are becoming legal contortionists in an attempt to tax Internet sales. The resulting confusion among prospective Internet merchants and service providers could substantially impede the development of electronic commerce.74Some states tax access to Internet service providers like America Online, an especially questionable practice since the providers may be located in another state.
A recent Commerce Department report gave several principles for Internet
taxation: "The application of existing taxation on commerce conducted over the
Internet should be consistent with the established principles of international
taxation, should be neutral with respect to other forms of commerce, should
avoid inconsistent national tax jurisdictions and double taxation, and should be
simple to administer and easy to understand."75
Last year Congress approved the Internet Tax Freedom Act. This law retricts
multiple taxation of internet commerce by state and local governments and
imposes a three-year moratorium on new state or local taxation of internet
access.76 Sen. Bob Smith (R-NH) has introduced legislation to extend
these moratoriums indefinitely.
While the above hidden taxes have been described in dollar terms, there are
many policies buried in the Tax Code that serve as hidden taxes by forcing
people to pay higher-than-normal marginal tax rates -- the rate paid on an
additional dollar of income. The U.S. Joint Committee on Taxation (JCT) recently
reported on 22 provisions that can make a taxpayer's marginal tax rate differ
from the statutory rates of 15, 28, 31, 36, and 39.6 percent.
The JCT concluded that two taxpayers with similar incomes can face very
different marginal tax rates. For example, older Americans can face marginal tax
rates of greater than 90 percent. All told, the JCT found that 33.2 million
taxpayers face effective marginal tax rates that differ from the statutory
rate.77
The Social Security earnings test provides an example of how effective
marginal tax rates can differ from statutory marginal tax rates. Up to half of
Social Security retirement benefits are taxable for taxpayers with modified
adjusted gross income between $25,000 and $34,000 ($32,000 - 44,000 if married
filing jointly). In other words, once reaching $25,000, an additional dollar of
income adds 50 cents of Social Security benefits to taxable income. This
provision makes the effective tax rate 50 percent higher than the statutory
rate. Appendix 3 gives a complete list of the measures identified by the JCT
that alter marginal tax rates.
William Gale of the Brookings Institution concluded that some of these
provisions should be repealed:
The personal income tax contains several "take-back" provisions. These taxes are imposed even when a taxpayer is complying perfectly with the law but ends up with what the law has deemed "too many" deductions or "too little" taxable income. These items represent hidden taxes, they distort incentives, they raise little revenue, and, most crucially, they create unnecessary complexity. They should simply be repealed.78Gale identified four features in particular for possible repeal: phaseouts of personal exemptions, limitations on itemized deductions, taxes on excess pension accumulations and payouts, and the individual alternative minimum tax (AMT).
To simplify these numerous and complex phaseouts, the American Institute of
Certified Public Accountants (AICPA) has proposed combining many of them into
just three schedules.79
Empowering Voters with
Information
Hidden taxes cost the average American at least $657.5 billion --much more if
the cost of income-tax withholding is included. When taxes are not visible,
Americans are unable to evaluate whether they're getting their money's worth
from the government. As a result, hidden taxes help to boost the size of
government.
Commenting on hidden telecommunications taxes, American Enterprise Institute
fellow James Glassman put his finger on the problem: "The idea here is an old
one: People can't rebel if they're kept in the dark."80
In addition to increasing the size of government, hidden taxes are an
especially harmful way to raise money. Hidden taxes distort the prices that
Americans face, causing them to over-consume some products and under-consume
others. As a result, hidden taxes inflict more economic damage than broad-based,
visible taxes.
There is some good news. While hidden taxes are significant in the United
States, they could be even higher. For example, America is one of the few
countries without a value-added tax (VAT), a type of hidden sales tax. In
addition, the move to deregulate the telecommunication and utility industries
will help make taxes for those services much clearer to consumers.
And even though governments have an incentive to hide the cost of taxes,
there are opportunities to make taxes more visible even without government
action. Many utility companies now include the cost of taxes as a line item on
their monthly billing statements. More companies could take similar steps to
itemize the cost of taxes --gas stations, for example, could more prominently
display the cost of taxes or even tell consumers their tax bill every time they
fill up.81
According to a survey by the Fund for Stockowners Rights, only 154 major
companies --15 percent of all corporations --disclosed the total direct and
hidden taxes they paid in their annual reports.82 This can prevent
taxpayers from understanding that the overall burden of taxation on the economy
matters as much, if not more than, who pays the taxes. And in an age when
millions of Americans are joining the ranks of individual investors, such
information is critical to understanding the bottom line. Perhaps more companies
will provide facts to shareholders on the taxes they pay in the near future.
On the payroll side, the Mackinac Center for Public Policy has developed a
"Right to Know Payroll Form" that employers can distribute with their paychecks.
The form shows the hidden cost of policies including the "employer's share" of
payroll taxes and the cost of mandated workers' compensation and unemployment
insurance.83 As Joe Lehman from the Mackinac Center commented, "The
Right to Know Payroll Form isn't anti-government or pro-government. It's just
giving people information. Still, it's perfectly possible that a worker can look
at these numbers, see what government costs him, and conclude that he's getting
a good deal. This is all just information. It doesn't tell you what conclusions
to draw."84
Communities are much stronger when they consist of a well-informed citizenry.
Working to bring more hidden taxes into the open would give Americans the
information they need to make wise choices about the role of government in the
United States.
| |||||
Gas Tax (Cents per Gallon) |
Cigarette Tax (Cents per Pack) |
Spirits Tax (Dollars per Gallon) |
Table Wine Tax (Dollars per Gallon) |
Beer Tax (Dollars per Gallon) | |
Alabama |
16 |
16.5 |
58% (b) |
.05/1.7 (c) |
0.53 |
Alaska |
8 |
100 |
5.60 |
0.85 |
0.35 |
Arizona |
18 |
58 |
3.00 |
0.84 |
0.16 |
Arkansas |
18.5 |
31.5 |
2.50 |
0.75 |
0.23 |
California |
18 |
37 |
3.30 |
0.20 |
0.20 |
Colorado |
22 |
20 |
2.28 |
.35/.32 (c) (d) |
0.08 |
Connecticut |
32 |
50 |
4.50 |
0.60 |
0.19 |
Delaware |
23 |
24 |
3.75 |
0.97 |
0.16 |
District of Columbia |
20 |
65 |
1.50 |
0.30 |
0.09 |
Florida |
4 |
33.9 |
6.50 |
2.25 |
0.48 |
Georgia |
7.5 |
12 |
3.79 |
1.51 |
0.48 |
Hawaii |
16 |
100 |
5.98 |
1.38 |
0.93 |
Idaho |
25 |
28 |
(b) |
0.45 |
0.15 |
Illinois |
19 |
44 |
2.00 |
0.23 |
0.07 |
Indiana |
15 |
31 |
2.68 |
0.47 |
0.12 |
Iowa |
20 |
36 |
(b) |
1.75 |
0.19 |
Kansas |
18 |
24 |
2.50 |
0.30 |
0.18 |
Kentucky |
15 |
3 |
1.92 |
0.50 |
0.08 |
Louisiana |
20 |
20 |
2.50 |
0.11 |
0.32 |
Maine |
19 |
74 |
(b) |
0.60 |
0.35 |
Maryland |
23.5 |
36 |
1.50 |
0.40 |
0.09 |
Massachusetts |
21 |
76 |
4.05 |
0.55 |
0.11 |
Michigan |
19 |
75 |
13.85% (b) |
0.51 |
0.20 |
Minnesota |
20 |
48 |
5.03 |
0.30 |
0.15 |
Mississippi |
18 |
18 |
2.50 (b) |
0.35 |
0.43 |
Missouri |
17 |
17 |
2.00 |
0.36 |
0.06 |
Montana |
27 |
18 |
26% (b) |
1.02 |
0.14 |
Nebraska |
23.5 (a) |
34 |
3.00 |
0.75 |
0.23 |
Nevada |
23 |
35 |
2.05 |
0.40 |
0.09 |
New Hampshire |
18 |
37 |
(b) |
0.30 |
0.30 |
New Jersey |
10.5 |
40 |
4.40 |
0.70 |
0.12 |
New Mexico |
17 |
21 |
6.06 |
1.70 |
0.41 |
New York |
8 |
56 |
6.43 |
0.19 |
0.16 (i) |
North Carolina |
21.6 (a) |
5 |
28% (b) |
0.79 |
(f) |
North Dakota |
20 |
44 |
2.50 |
0.50 |
0.16 |
Ohio |
22 |
24 |
2.25 (b) |
0.32 |
0.18 |
Oklahoma |
16 |
23 |
5.56 |
0.72 |
0.40 |
Oregon |
24 |
68 |
(b) |
0.67 |
0.08 |
Pennsylvania |
12 |
31 |
18% (b) |
(e) |
0.08 |
Rhode Island |
28 |
61 |
3.75 |
0.6 |
0.10 |
South Carolina |
16 |
7 |
2.72 (g) |
1.28 (g) |
.77 (g) |
South Dakota |
21 |
33 |
3.93 |
0.93 |
0.27 |
Tennessee |
20 |
13 |
4.00 |
1.10 |
0.13 |
Texas |
20 |
41 |
2.40 |
0.20 |
0.20 |
Utah |
24.5 |
51.5 |
13% (b) |
13% (b) |
0.36 |
Vermont |
19 |
44 |
25% (b) |
0.55 |
0.27 |
Virginia |
17.5 |
2.5 |
20% (b) |
1.51 |
0.26 |
Washington |
23 |
82.5 |
17.6% (b) |
0.87 |
0.15 (h) |
West Virginia |
20.5 |
17 |
5% (b) |
1.00 |
0.18 |
Wisconsin |
25.4 (a) |
44 |
3.25 |
0.25 |
0.07 |
Wyoming |
13 |
12 |
(b) |
(b) |
0.02 |
Source: Tax Foundation, Facts and Figures on Government Finance. (a) Indexed for inflation. Nebraska's indexed rate is revised quarterly. North Carolina's indexed rate is revised every six months. Wisconsin's indexed rate is revised every April 1. (b) Control states. (c) Rates represent native wine/non-native wine. (d) Effective July 31, 1997, the annual surcharge for native wine will use an annual graduated rate: 5 cents per liter for the first 9,000 liters, 3 cents per liter for the next 36,000 liters, and 1 cent per liter for all additional amounts. (e) 0.5 cents per unit of proof per wine gallon. (f) .48387 per gallon in barrels holding at least 7.75 gallons. .53376 per gallon in barrels holding less than 7.75 gallons. (g) 9% surtax. (h) Plus $4.78 per barrel beginning July 1, 1997. (i) Rate reduced to 13.5 cents on January 1, 1999. |
Average Manufacturing Wage Worker | |||
State Unemployment Insurance Tax Burden |
Workers' Compensation Contribution |
Combined Burden | |
Alabama |
$72 |
$1,485 |
$1,557 |
Alaska |
$532 |
$1,153 |
$1,685 |
Arizona |
$119 |
$1,047 |
$1,166 |
Arkansas |
$180 |
$1,017 |
$1,197 |
California |
$266 |
$1,311 |
$1,577 |
Colorado |
$120 |
$1,496 |
$1,616 |
Connecticut |
$480 |
$1,507 |
$1,987 |
Delaware |
$221 |
$1,303 |
$1,524 |
Dist. of Col. |
$279 |
N/A |
N/A |
Florida |
$112 |
$1,716 |
$1,828 |
Georgia |
$111 |
$1,439 |
$1,550 |
Hawaii |
$520 |
$2,470 |
$2,990 |
Idaho |
$378 |
$971 |
$1,349 |
Illinois |
$243 |
$1,292 |
$1,535 |
Indiana |
$91 |
$685 |
$776 |
Iowa |
$152 |
$868 |
$1,020 |
Kansas |
$72 |
$1,371 |
$1,443 |
Kentucky |
$160 |
$1,534 |
$1,694 |
Louisiana |
$131 |
$2,154 |
$2,285 |
Maine |
$259 |
$2,239 |
$2,498 |
Maryland |
$204 |
$830 |
$1,034 |
Massachusetts |
$400 |
$1,567 |
$1,967 |
Michigan |
$409 |
$1,632 |
$2,041 |
Minnesota |
$212 |
$1,248 |
$1,460 |
Mississippi |
$98 |
$1,159 |
$1,257 |
Missouri |
$160 |
$1,450 |
$1,610 |
Montana |
$192 |
$1,934 |
$2,126 |
Nebraska |
$56 |
$1,055 |
$1,111 |
Nevada |
$258 |
N/A |
$258 |
New Hampshire |
$80 |
$1,692 |
$1,772 |
New Jersey |
$465 |
$1,227 |
$1,692 |
New Mexico |
$199 |
$1,847 |
$2,046 |
New York |
$308 |
$1,923 |
$2,231 |
North Carolina |
$36 |
$982 |
$1,018 |
North Dakota |
$128 |
N/A |
N/A |
Ohio |
$207 |
N/A |
N/A |
Oklahoma |
$100 |
$2,002 |
$2,102 |
Oregon |
$420 |
$968 |
$1,388 |
Pennsylvania |
$336 |
$1,640 |
$1,976 |
Rhode Island |
$651 |
$2,258 |
$2,909 |
South Carolina |
$140 |
$783 |
$923 |
South Dakota |
$35 |
$1,224 |
$1,259 |
Tennessee |
$126 |
$1,221 |
$1,347 |
Texas |
$135 |
$1,716 |
$1,851 |
Utah |
$142 |
$930 |
$1,072 |
Vermont |
$208 |
$1,436 |
$1,644 |
Virginia |
$96 |
$612 |
$708 |
Washington |
$426 |
N/A |
N/A |
West Virginia |
$240 |
N/A |
N/A |
Wisconsin |
$210 |
$982 |
$1,192 |
Wyoming |
$183 |
N/A |
N/A |
U.S. Average |
$223 |
$1,395 |
$1,618 |
Source: Dean Stansel, "The Hidden Burden of Taxation: How the Government Reduces Take-Home Pay," Cato Institute Policy Analysis No. 302, April 15, 1998. |
| |||
Provision |
Tax Rate |
Applicable AGI Range |
Taxpayers Affected (Millions) |
Phaseout of exclusion of Social Security benefits |
1.5 times the statutory rate for first tier |
Single: $25,000-various \1\ |
5 |
Joint: $32,000-various \1\ |
|||
1.85 times the statutory rate for second tier |
Single: $34,000-various \1\ |
||
Joint: $44,000-various \1\ |
|||
"`Pease"' limitation on itemized deductions |
1.03 times the statutory rate |
$124,500-various |
4.5 |
7.5-percent floor on medical deduction |
1.075 times the statutory rate |
Any taxpayer itemizing medical deductions |
4.5 |
2-percent floor on miscellaneous deductions |
1.02 times the statutory rate |
Any taxpayer itemizing miscellaneous deductions |
8.8 |
10-percent floor on casualty loss |
1.10 times the statutory rate |
Any taxpayer itemizing deductions for casualty loss |
0.2 |
Phaseout of personal exemption |
The statutory rate multiplied by 1.0 plus 0.0216 for each exemption |
Single: $124,500-$247,000 |
1.4 |
Head/househ.: $155,650-$278,150 |
|||
Joint: $186,800-$309,300 |
|||
Phase-in of earned income credit |
No children: statutory rate minus 7.65 percentage points |
$0-$4,460 \2\ |
4.4 |
One child: statutory rate minus 43 percentage points |
$0-$6,690 \2\ |
||
Two children: statutory rate minus 40 percentage points |
$0-$9,390 \2\ |
||
Phaseout of earned income credit |
No children: statutory rate plus 7.65 percentage points |
$5,570-$10,030 \2\,\3\ |
11.7 |
One child: statutory rate plus 15.98 percentage points |
$12,260-$26,473 \2\,\3\ |
||
Two children: statutory rate plus 21.06 percentage points |
$12,260-$30,095 \2\, \3\ |
||
Phaseout of child credits |
Statutory rate plus 5 percentage points |
Single: $75,000-various \3\ |
0.6 |
Joint: $110,000 \3\ |
|||
Partial phaseout of dependent care credit |
Statutory tax rate plus 2.4 percentage points (generally 17.4 percent) |
$10,000-$28,001 |
1.6 |
Phaseout of eligibility for deductible IRA |
Between 1.0 and 1.2 times statutory rate \4\ |
Single: $30,000-$40,000 |
1.5 |
Joint: $50,000-$60,000 |
|||
Phaseout of eligibility for Roth IRA |
Single: between 1.0 and 1.133 times the statutory rate \4\ |
Single: $95,000-$110,000 |
Not available |
Joint: between 1.0 and 1.2 times the statutory rate \4\ |
Joint: $150,000-$160,000 |
||
Phaseout of eligibility for education IRA |
Greater than statutory rate by a percentage determined by the 5 percent or 3.3 percent phaseout rate and the interest rate |
Single: $95,000-$110,000 |
Not available |
Joint: $150,000-$160,000 |
|||
Phaseout of HOPE credit |
Single: statutory rate plus 15 percentage points for each $1,500 in credits |
Single: $40,000-$50,000 \3\ |
1.2 (includes lifetime learning credit) |
Joint: statutory rate plus 7.5 percentage points for each $1,500 in credits |
Joint: $80,000-$100,000 \3\ |
||
Phaseout of Lifetime learning credit |
Single: statutory rate plus 15 percentage points for each $1,500 in credits |
Single: $40,000-$50,000 \3\ |
Included in estimate of HOPE credit |
Joint: statutory rate plus 7.5 percentage points for each $1,500 in credits |
Joint: $80,000-$100,000 \3\ |
||
Phaseout of deductibility of interest on qualified student loans |
1.167 times statutory rate (for maximum deduction available in 2001) |
Single: $40,000-$55,000 \3\ Joint: $60,000-$75,000 \3\ |
0.3 |
Phaseout of exclusion of interest from education savings bonds |
Single: (1 + exclusion amount/$15,000) times statutory rate |
Single: $52,250-$67,250 \3\ |
Not available |
Married: (1 + exclusion amount/$30,000) times statutory rate |
Head/househ..: $52,250-$67,250 \3\ |
||
Married: $78,350-$108,350 \3\ |
|||
Phaseout of credit for elderly and disabled |
Statutory rate plus 7.5 percentage points |
Single: $7,500-maximum of $17,500 |
0.2 |
Joint: $10,000-maximum of $20,000 |
|||
Phaseout of adoption credit and exclusion |
Credit: credit amount/$40,000 plus statutory rate |
$75,000-$115,000 \3\ |
Not available |
Exclusion: (1+ exclusion amount/$40,000) times statutory rate |
|||
Phaseout of first-time homebuyer credit for D.C. |
Single: $70,000-$90,000 \3\ |
Not available | |
Joint: $110,000-$130,000 \3\ |
|||
Phaseout of rental real estate losses under passive loss rules |
1.5 times statutory rate \5\ |
$100,000-$150,000 |
Not available |
Phaseout of rehab tax credit under passive loss rules |
1.5 times statutory rate |
$200,000-$250,000 |
Not available |
Income phase-in of recapture of subsidy of qualified mortgage bonds |
Statutory rate plus percentage points equal to the taxpayer's recapture amount divided by 5,000 |
Defined relative to area median income |
Not available |
Source: Joint Committee on Taxation.
\1\ Applicable range defined by reference to provisional income and modified AGI is used in lieu of AGI.
\2\ Assumes all income is earned income.
\3\ Income range measured by reference to modified AGI.
\4\ Phaseout affects future year tax liability. Present value of effective marginal tax rate depends on length of time the account is maintained and the interest rate.
\5\ Stated effective rate overstates lifetime effect as
provision allows suspended losses in future years.
Endnotes
1 Author's calculation from 1997 Census Bureau and BEA data. Local taxes estimated from 1995 Census data fased on the ratio of state to local government revenue, …
2 Not including withholding of income and payroll taxes from paychecks.
3 Personal consumption spending from Bureau of Economic Analysis National Income and Product Accounts, http://www.bea.doc.gov/bea/dn/pitbl.htm; state taxes from Bureau of the Census, http://www.census.gov/govs/statetax/96tax.txt; federal taxes from Office of Management and Budget, Historical Tables, Budget of the United State Government, Fiscal Year 1999; local taxes estimated from 1994 Census data based on the ratio of state to local government revenue, http://www.census.gov/govs/estimate/94stlus.txt.
4 For example, states without an income tax tend to have a lower tax burden than states that maintain an income tax on top of other taxes, and countries that impose value-added taxes in addition to income taxes tend to have a higher tax burden than those that don't. See Richard Vedder, "State and Local Taxation and Economic Growth," http://www.senate.gov/~jec/sta&loc.html.
5 Calculated from Census Bureau and Office of Management and Budget data.
6 1996 data except for 1993 Workers' Compensation from U.S. Bureau of the Census 1997 Statistical Abstract of the United States.
7 According to Americans for Tax Reform, Americans must work more than half the year on average to finance the total cost of government, including regulatory, paperwork, and other costs. See http://www.atr.org/.
8 Author's calculation from Office of Management and Budget, Historical Tables, Budget of the United State Government, Fiscal Year 1999, and population data from the U.S. Bureau of the Census.
9 For a more detailed exploration of this issue, see "The Incidence of the Corporate Income Tax," Congressional Budget Office, March 1996.
10 In Daniel Mitchell, The Flat Tax: Freedom, Fairness, Jobs, and Growth, The Heritage Foundation, 1996, p. 13.
11 Arthur B. McKinnickell, Martha Starr-McCluer, and Annika E. Sunden, "Family Finances in the U.S.: Recent Evidence from the Survey of Consumer Finances," Federal Reserve Bulletin, January 1997, p. 11.
12 Tim Barnes, "Nationwide and State-by-State Motor Fuel Taxes," American Petroleum Institute, July 1998, pp. 2-3.
13 U.S. Department of Transportation, Bureau of Transportation Statistics, National Transportation Statistics 1998, http://www.bts.gov/btsprod/nts/chp2/tbl2x13.html. (Numbers may not add exactly due to rounding.)
14 Ed Brown, "Where Your Gas Money Goes," Fortune, April 27, 1998.
15 Stephen Moore, "Give Motorists a Tax Break," Cato Institute Commentary, December 2, 1997.
16 Office of Management and Budget, Analytical Perspectives, Budget of the United States Government, Fiscal Year 2000, p. 48.
17 Adam Thierer, "Heady With the Power to Tax Beer," Washington Times, September 15, 1996.
18 "No More Increases in the Federal Excise Tax on Distilled Spirits," Distilled Spirits Council of the United States Fact Sheet, http://www.discus.health.org/nomorfet.htm.
19 "Soak the Poor?" Investor's Business Daily, April 15, 1998.
20 Office of Management and Budget, Analytical Perspectives, Budget of the United States Government, Fiscal Year 2000, p. 85.
21 Office of Management and Budget, Analytical Perspectives, Budget of the United States Government, Fiscal Year 2000.
22 Analytical Perspectives, Budget of the United States Government, Fiscal Year 1999.
23 "What is the Price of Universal Service?: Impact of Deaveraging Nationwide Urban/Rural Rates," Telecommunications Industries Analysis Project, Cambridge, Mass., 1993, cited in Wayne Leighton, "What to Do About Universal Service Subsidies: Support for High-Cost Areas," Citizens for a Sound Economy Issue Analysis Number 39, September 30, 1996.
24 Office of Management and Budget, Historical Tables, Budget of the United State Government, Fiscal Year 1999.
25 S. 1909, introduced April 2, 1998.
26 "Taxes, Taxes, and More Taxes," Washington Times editorial, August 25, 1996; see also www.atr.org.
27 George Nastas and Stephen Moore, "A Consumer's Guide to Taxes: How Much Do You Really Pay in Taxes?," Cato Institute Briefing Paper No. 18, April 15, 1992.
28 News release, "Cellular Telecommunications Industry Association (CTIA) Hails Introduction [of] House & Senate Legislation to Repeal the 3% Federal Excise 'Tax on Talking,'" April 1, 1998.
29 Telecommunications Act of 1996, section 254.
30 Kent Lassman, "Somebody is on the Take: Universal Service at Home on the Range," Washington Times, February 16, 1998.
31 Stephen J. Entin, Institute for Research on the Economics of Taxation, "Hidden Phone Tax a Bad Way to Pay for Internet Access," IRET Congressional Advisory, December 30, 1997, p. 2.
32 The Honorable Harold Furchgott-Roth, "FCC Report to Congress on Universal Service," FCC 98-67, April 10, 1998, p. 138.
33 Statements of The Honorable James C. Miller III, Counselor, Citizens for a Sound Economy, and John E. Berthoud, Ph.D., President of the National Taxpayers Union, before the U.S. House of Representatives Committee on the Judiciary, Subcommittee on Commercial and Administrative Law, February 26, 1998.
34 In James K. Glassman, "A New Tax for the New Year," Washington Post, December 2, 1997.
35 "Comments of Sprint Corporation before the FCC," CC Docket 96-45, January 28, 1998, p. 2.
36 FCC Chairman Reed Hundt, "Notable and Quotable," Wall St. Journal, June 23, 1997, p. 18.
37 In Charlotte Twight, "Evolution of Federal Income Tax Withholding: The Machinery of Institutional Change," Cato Journal, Vol. 14 No. 3.
38 Cited in Charlotte Twight.
39 H.R. 340, introduced January 7, 1997.
40 U.S. House of Representatives, Committee on Ways and Means, 1996 Green Book, November 4, 1996.
41 Walter Williams, "Medical Benefit Fact and Fiction," Washington Times, Nov. 27, 1989, p. F3.
42 U.S. House of Representatives, Committee on Ways and Means, 1998 Green Book.
43 Gary and Aldona Robbins, "Tax Deduction for Payroll Taxes: An Analysis of the Ashcroft Proposal," IPI Quick Study, 1997, p. 1.
44 U.S. House of Representatives, Committee on Ways and Means, 1998 Green Book.
45 Estimate based on payroll tax revenue from Budget of the United States and employment data from the U.S. Small Business Administration.
46 George C. Leef, "Time to Rethink Unemployment Insurance," Mackinac Center for Public Policy Research Viewpoint on Public Issues, December 7, 1992.
47 Martin Feldstein, "Unemployment Compensation: Adverse Incentives and Distributional Anomalies," National Tax Journal, June 1974, p. 231, cited in George Leef.
48 Bureau of Labor Statistics, http://stats.bls.gov/news.release/ecec.t01.htm.
49 Source: Dean Stansel (Cato Institute), "Concealed Pay Bites," Washington Times, April 14, 1998.
50 Dean Stansel, "The Hidden Burden of Taxation: How the Government Reduces Take-Home Pay," Cato Institute Policy Analysis No. 302, April 15, 1998.
51 Richard Vedder and Lowell Gallaway, Out of Work: Unemployment and Government in 20th Century America (Oakland, CA: Independent Institute, 1992).
52 Erni Johnson, December 16, 1997, http://www.innsite.com/innkeeping/archives/9712/0035.html.
53 Bob Weinman, December 15, 1997, http://www.innsite.com/innkeeping/archives/9712/0019.html.
54 American Hotel Foundation, Impact of Tax Increases in the Lodging Industry, 1998, p. 3.
55 Travel Industry Association of America News Release, "17 Cities Sock it to Travelers to Pay for Stadiums," December 4, 1996
56 Susanna P. Barton and Sougata Mukherjee, "Tourism Taxes for Stadiums Draw Fire," Jacksonville Business Journal, April 7, 1997.
57 Marty Greenberg, director of the National Sports Law Institute at Marquette University, quoted in Barton and Mukherjee.
58 In Barton and Mukherjee.
59 Office of Management and Budget, Analytical Perspectives, Budget of the United States Government, Fiscal Year 1999.
60 Air Transport Association of America, "New Taxes Will Raise Airline Ticket Prices," ATA News, February 3, 1999.
61 Greg Groeller and Susan Miller, New York Times News Service, "Airlines Beat Clinton to Increasing Fares: President Will Reinstate Today the 10 Percent Excise Tax on Tickets," August 20, 1996.
62 Author's calculation.
63 Herbert D. Kelleher, letter to House Committee on Transportation and Infrastructure Chairman Bud Shuster, June 15, 1998.
64 Rep. Neil Abercrombie News Release, "Abercrombie Bill to Block Air Ticket Tax Raise," July 31, 1997.
65 Michael R. Baye and Dan A. Black, "Indexation and the Inflation Tax," Cato Institute Policy Analysis No. 39, July 12, 1984.
66 Federation of Tax Administrators, "State Individual Income Tax Rates," http://www.taxadmin.org/fta/rate/ind_inc.html.
67 Samuel Staley and Robert Lawson, "Ohio Keeps Poor Down with Unfair Taxes," Buckeye Institute Perspective, April 1997, p. 1.
68 Edison Electric Institute, "Why Doesn't Electricity Cost the Same Everywhere?," Electric Utility/Restructuring Issues, http://www.eei.org/Industry/structure/power3.htm.
69 U.S. Department of Energy news release, "Administration's Plan Will Bring Competition to Electricity, Savings to Consumers," March 25, 1998.
70 Milton Friedman and Rose Friedman, Free to Choose (New York: Harcourt, Brace, Jovanovich, 1979), p. 240.
71 Monique Landers, cited in Cascade Update, Cascade Policy Institute, Spring/Summer 1994, p. 2.
72 Dan B. Hogan, The Regulation of Psychotherapists, Vol. I: A Study in the Philosophy and Practice of Professional Regulation (Cambridge, Mass.: Ballinger Publishing, 1979) p. 282, and in Stanley J. Gross, "Professional Licensure and Quality: The Evidence," Cato Institute Policy Analysis No. 79, December 9, 1986, p. 27.
73 U.S. Department of Commerce, The Emerging Digital Economy, April 15, 1998
74 Dean F. Andal, California Tax Board Chairman, letter to Rep. Chris Cox (R-CA) and Ron Wyden (D-OR), March 12, 1997.
75 U.S. Department of Commerce, The Emerging Digital Economy, Chapter 3, Electronic Commerce Between Businesses, April 15, 1998.
76 Public Law 105-277, October 21, 1998. See http://www.house.gov/cox/nettax/ for details.
77 Joint Committee on Taxation, "Present Law and Analysis Relating to Individual Effective Marginal Tax Rates," February 3, 1998.
78 William G. Gale, "Tax Reform is Dead, Long Live Tax Reform," Brookings Institution Policy Brief No. 12.
79 "AICPA Legislative Simplification Proposal on Phase-Outs Based on Income Level," January 1998, http://www.aicpa.org/.
80 James K. Glassman, "A New Tax for the New Year," Washington Post, December 2, 1997.
81 On the other side of the coin, some companies may prefer to keep the cost of taxes hidden. For example, retailers trying to sell a $300 suit might not want their customers to know that the suit is actually worth much less after taxes are taken into account.
82 Fund for Stockowners Rights News Release, "1997 Company Annual Reports Highlight Heavy Tax Impacts," January 20, 1999.
83 See http://www.mackinac.org/ for more information.
84 "Showing Government's Burden," Investor's Business Daily Perspective, April 1, 1997, p. B1, http://www.mackinac.org/topics/special/special.htm.
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