Making tax talk
less taxing

Julius Caesar’s soothsayer got it wrong. It’s not the ides of March to beware. It’s the ides of April — today, April 15, income tax day.

Nothing is more certain than death and taxes unless you also include tax misconceptions that politicians love to exploit.

For many, today is a day to rush around with last-minute filing but also to celebrate impending or already received refunds and to decry how the rich get away with paying less than their fair share.

Truth is we shouldn’t be celebrating refunds. They’re nothing more than interest-free loans we make to the federal government.

If you don’t pay all your federal income tax on time, the government socks you with penalties and interest. But if the government takes too much money from you, all it will do is give you back the extra — no penalties, no interest, no fairness.

Federal income tax takes by far the greatest percentage of a typical Marion County resident’s income — something like 11.3%, depending on your precise tax bracket and deductions.

But because of refunds, it’s not nearly as unpopular as the tax that actually takes the smallest percentage of our income — property taxes, which for a typical Marion County homeowner take something like 1.3%.

The difference is that most people pay property taxes all at once or in two installments rather than have it deducted every week or two and maybe get a refund in the end.

Politicians have managed to put such emphasis on cutting property taxes that people tend to ignore far more burdensome things like the sales tax, which takes something like 1.9% of our income; the state income tax, which takes around 4.5%; and Social Security and Medicare taxes, which take around 7.6%.

Politicians still manage to focus a lot of attention on federal income tax, resulting in many voters believing that the bigger your income, the less likely you are to pay. That simply isn’t true.

Federal income tax is by far the most progressive tax we pay. While there are some taxpayers, like our president, who use loopholes to lessen their tax burden, people with the biggest incomes on average pay by far the biggest percentage of their income. And the percentage of income paid declines in a fairly straight line from the most affluent taxpayers down to the least.

That’s most definitely not true for Social Security and Medicare taxes. They’re actually a somewhat regressive tax because once a taxpayer gets over a certain amount of income, that income no longer is subject to much of the tax. High-earning taxpayers end up paying a far lesser percentage of income than a typical taxpayer does.

While the federal income tax, despite political rhetoric, actually hits higher income taxpayers harder than lower income ones, the state income tax doesn’t.

It’s far less progressive, with essentially only three tax brackets, meaning middle- and high-income taxpayers pay largely the same rate.

Yet we constantly hear that we want to move to state income tax things that now are paid for through far less fair taxes, like the relatively tiny property tax and the absolutely regressive sales tax.

Sales tax is popular only because, like income tax, many don’t see a single bill for it. It’s siphoned out of our wallets multiple times every day. And it applies mainly to things that everybody, rich or poor, buy at about the same rate. So, it takes a far greater percentage of a less affluent taxpayer’s income than it does of a more affluent taxpayer’s income.

The smallest tax, the property tax, isn’t supposed to tax income at all. It’s supposed to tax wealth. And it does — sometimes.

For residents and business owners, tax is based on the fair market value of certain types of property they own. But it ignores things the wealthy have, like stock holdings and bank accounts. And for farmers it isn’t based on property value but the earning potential of that property, making it more of an earnings tax than a wealth tax.

If you think there are loopholes in federal income taxes, you’d be astounded if you itemized all the loopholes in property taxes.

Troubling as all these taxes might be, there’s an even worse type of tax — the hidden tax imposed by municipalities that sell electricity and other utilities to residents.

Many cities, like Marion, intentionally overcharge for electricity and sometimes for other utilities, using the excess to reduce property taxes. But utility surcharges are the single most regressive “tax” we pay.

Not only are they like sales taxes, in that the more affluent and less affluent use roughly the same amount of electricity. In truth, the less affluent are likely to use dramatically more because they can’t afford to retrofit older homes with more efficient windows and insulation and have to rely on such things as space heaters and window air conditioners because they can’t afford new, more efficient central heat and air.

Several readers marveled last week at how much three financially challenged families Judd Weil profiled were paying in utility bills.

It’s not at all unusual for a less affluent family to be paying much more than an affluent family, with municipalities using the excess to reduce property taxes, largely to the benefit of affluent taxpayers. That’s regressive in the extreme and something that all residents should be willing to question in coming months as municipalites prepare their budgets for next year.

Today isn’t so much tax filing day as it is close to Tax Freedom Day — the date on which a typical American will have earned enough to pay the whole year’s worth of taxes except the utility “tax”.

Government workers love holidays. Maybe this is a holiday we should try to move earlier into the year.

— ERIC MEYER