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Taxes — how much do poor people pay?

A View From the Edge

Poor people probably pay about 25% or more of their earning in tax. In America, and most of Europe, the lowest 10% of the population pay disproportionately more tax than the richest 90%, family by family, taxpayer by taxpayer. How is that possible I can hear you ask?

You see, there’s direct tax and indirect tax and, sometimes, hidden tax burdens on the poorest people. Let’s take those one step at a time. Let’s assume that of a single poorer person’s annual wage at $9/hour (if they are lucky), they make — before tax — $18,000 a year plus or minus overtime, deductions, etc. Let’s just use that number. Oops, take out $2,400 in tax for New York State residents. So now you have $15,520 to spend.

Direct tax is relatively simple: If you earn a salary or wage, tax is either deducted before you get your portion or tax is paid later when you fill out your taxes. The rate seems low but… remember to buy a car, let’s say $10,000 even with cash, you probably had to earn $12,000 or more to afford it. Other direct tax is when you buy, for example, a pair of shoes (a necessity for most Americans) and you are charged state and local tax on the purchase. So that $50 pair of shoes actually costs you, for example, maybe $56.

Let’s assume you buy tax-free food and spend, on a NYS average, $1,900 a year per person. Now you have $13,620 left. Now let’s assume you have essentials like electricity bills, gas (or oil) bills, house or apartment rent, transportation (gas, insurance, payments)… all taxable at 4% per purchase. The average New Yorker spends on these essentials 75% of their lower wage gross incomes, or $11,640 for which you will also pay $465 in collected tax, so your remainder is down to $3,415 before you even think of buying that pair of shoes. Oh, and did I mention home insurance or medical insurance? Even with the ACA (another $100 or so a month per person), you’re getting down there.

But what’s not revealed in the above is that you’ve actually paid even more indirect tax. It works like this… Let’s say you rent an apartment. The landlord has to pay all the local taxes, school, property, insurance. He doesn’t simply divide that up as part of your monthly rent that is due, he has to finance it, so he marks up his outgoings by the rate he gets charged by the bank or credit cards. 

So, while you may not be paying tax on the rental cost of the apartment, you are paying maybe 10% more for the property tax and school tax that the owner has to finance. Doesn’t sound like much? Maybe it could be as much as $10 in every $100 you pay for in rent. And that happens with the car you buy on time, and the ATM fee you are charged and even the food you buy because the supermarket pays all sorts of property tax… what? You thought lettuce was completely tax free?

And then there’s even more hidden tax. A company wants to make a car. They have to buy components from various companies. All those companies pay tax. All those companies buy raw materials from other companies that also pay tax. 

Then there’s the transportation of all the ingredients (diesel fuel, heavily taxed) and the companies that run those transport companies (taxed), delivering to warehouses (property taxes), and so on. An estimate from the OMB in 2017 showed that as much as 22% of the final cost of manufactured goods was related to these taxes — financing these taxes included — passed along and then taxed and taxed again. 

Look, if I add $1 in tax for something I sell, the next person up the chain has to refund me, yes, and then finance that payment and also charges the next guy sales tax on the aggregate of what he’s had to cost his product for.

Want proof? Why is wholesale always cheaper? Why is buying direct from the manufacturer cheaper? Less mouths to feed — including the taxman.

 

Writer Peter Riva, a former resident of Amenia Union, now lives and pays his taxes in New Mexico.

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