ARTICLE

They Take More than Half

Federal, State, Sales, Excise, and Property Taxes Add Up

FEBRUARY 01, 2003 by DANIEL KLEIN, ALLAN RAISH

Daniel Klein teaches economics at Santa Clara University. Allan Raish is a tax consultant and CPA living in Santa Clara, California.

*Rates are incremental and apply to taxable income (income after deductions and exemptions).

**California taxes may be deductible on next year’s federal tax calculation.

If a college teacher living in California who earns $75,000 per year publishes an article in Ideas on Liberty, and FEE pays him $100, how much do the federal and state governments take? How much does he get to keep?

Here is the pertinent information about the direct takings of such earnings:

2002 Federal Tax Brackets and Rates*

Single Person                     Married Couple

Income and Rates                Income and Rates

Up to $6,000     10%           Up to $12,000   10%

to $27,950        15%           to $46,700         15%

to $67,700        27%           to $112,850       27%

to $141,250      30%           to $171,950       30%

to $307,050      35%           to $307,050       35%

above that         38.6%        above that          38.6%

Federal “Payroll” Taxes—Social Security & Medicare

If you have an employer you pay 7.65 percent and your employer pays 7.65 percent of the first $84,900 of earnings. (And your wages reflect that burden.) Each pays 1.45 percent of everything over $84,900.

If you are self-employed, you pay 15.3 percent of the first $84,900 of earnings and 2.9 percent of everything over $84,900.

2001 California Tax Brackets and Rates***

Single Person                     Married Couple

Income and Rates                Income and Rates

Up to $5,700     1%             Up to $11,500   1%

to $13,600        2%             To $27,300       2%

to $21,500        4%             to $43,000         4%

to $29,900        6%             to $59,700         6%

to $37,700        8%             to $75,500         8%

(2002 brackets and rates were not available at time of publication.)

The Tax Bite at the Margin

The payment from FEE would be counted as “self-employed” earnings, so the college teacher would have to pay 15.3 percent in levies supposedly for Social Security and Medicare. After deductions and exemptions, his taxable income is in the range of $55,000.

If he’s married, here’s what happens to the $100 payment: Governments take $48.30 and he keeps $51.70.

If he is single, governments take $51.60, and he keeps $48.40.

Furthermore, out of the retained portion he pays sales taxes (about 9 percent in Santa Clara County, California), property taxes (on the condominium he owns), and excise taxes (on the alcohol, gasoline, and telephone services he buys, for example).

Of the additional $100 he receives from FEE, all told, governments will take over 55 percent.

“ . . . The land of the free, and the home . . . of the . . . brave.”

Though FEE usually pays its authors, we instructed it not to pay us for this article. We care for FEE not as much as we care for ourselves, but a lot more than we care for the federal and California governments. Better that FEE have the money than the governments, even if it means fewer dollars for us.

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