The Overall Tax Rate

A while back, I did some rough calculations and determined the average overall tax rate (ie. total taxes paid divided by total income recieved) for an average American is about 50%. This weekend I read an article where the author was comparing overall tax rates in various countries throughout the world. He used 50% as the overall tax rate in the USA. Unless he and I made the same mistakes, I guess my estimate was fairly accurate. Half of all the money we make goes to taxes. That includes income taxes, sales taxes, property taxes, excise taxes and all the other open or hidden taxes.50%, half, we keep half and the various government agencies take the other half.

Along about the same time that I did my calculation, I read an article that was discussing the plight of one town in Ohio. They had a Ford plant that was closing and when it did, the tax revenues that were collected in the town were going to go down. The city government said that in order to "maintain city services", they were going to have to come up with a way to offset the decrease in tax revenue. To do that, they proposed to raise the local sales tax by one and one half percent.

This past weekend, I read an article that said that the decrease in sales of tobacco products, brought about by the tax supported campaign to get people to stop using tobacco, was resulting in a decrease in tobacco tax revenue. The article pointed out that something had to be done to offset the lost revenue. While no specific solution was offered, the implication seemed to be that other tax revenue sources would have to be found to offset the loss.

Similarly, I have recently read at least two articles that discussed that higher fuel cost would result in people buying less fuel. Lower fuel sales would result in less fuel tax revenue. Governmemt agencies that would be affected were said to be scrambling to figure out a way to offset the loss in tax revenue.

Back in 1980, I went throught a divorce. Suddenly, I had less income and about the same number of bills. I did try to increase my income, but mostly, I had to immediately reduce my spending. No where in any of the articles about loss of tax revenues did I see anyone talk about reducing spending. Apparently, reduction of government tax funded spending is unthinkable.

When the sales tax is raised in that Ohio town, the effective tax rate on those people will become 1.5 percent higher. If the tax on tobacco is shifted off onto some other "vice" like fast food, the tax rate on all those non-smoking McDonald's customers will be increased. When the government figures out how to tax fuel by the mile instead of the gallon, many of those people who have opted for fuel efficient vehicles will have their tax rate increased.

With overall taxes currently at 50%, and the trend in government spending increasing and tax rates increasing, where does it all end? Will we eventually get to a tax rate of 100%? Will every penny you earn go to pay some government tax and you will have nothing left to buy food, pay your mortgage, or go to the movies? Obviously not. But where is the break point? How much is too much? Where between 50% and 100% is the proverbal straw that broke the camel's back?