February 19, 2011
American Taxation - A Primer for Internationals
Some European friends of mine asked about our tax experience. I thought other international readers might be interested, so here is my impression. Approximately half of all American adults pay the federal income tax. All American adults need to file annual statements with the Internal Revenue Service, even those who did not pay income tax (often, these people will receive a “refund” which is really another version of welfare in the cases of those who are refunded money for taxes they did not pay). Everyone who works also has federal payroll taxes (almost the same thing, but no additional annual filing needed unless you are self-employed, the money just goes to Washington). Most states also have a state income tax. Some cities have a city income tax - I've only lived in one once and still blame my realtor for not warning me - this has been on my list of questions to ask every time I've considered a move since. Most states also have a state sales tax (With the possible exception of Alaska, I believe all states have at least a sales tax or an income tax, many have both. In Alaska, many years the state pays its residents a stipend as the state makes a lot of money from the sale of oil). In states with a sales tax, the local counties and cities may add on additional local sales taxes. Then there are the property taxes. Every state has them, but the taxes on real estate are done at the county and city levels and are their primary source of funding. These can vary greatly. In most places I've lived, I've paid between $2,000 and $3,000 a year in these taxes. I once considered a job in Briarcliff, New York and discovered their property taxes were $24,000 to $30,000 a year, about the same as my mortgage payments would have been. The realtor said they liked things that way as it kept the "riff raff" out. These are the people, almost all white, who vote Democrat and think all Republicans are racists... Needless to say, I turned down that opportunity. In addition to the real estate property taxes, most states tax your vehicles. In addition to a fee for the privilege of them tracking and registering your car, most states also tax you annually based on how much your car is worth. Some states then want to tax you on other bits of property (such as computers) you own, but that's much harder to enforce so most states don't bother. The federal government also taxes our consumption of services such as phone service, internet service, cell phone service, and cable/satellite TV service. Sometimes the state and local governments add on to this. There are a few other taxes too, but these are the main ones that most Americans pay. No wonder more and more people are supporting abolishing most of these taxes (all the federal ones and some of the state taxes) and replacing them with the fair tax.