It seems like every time you turn around, there’s another tax or an increase that takes our hard earned money out of our pockets and into the hands of the Feds. But have you ever wondered what part you play in the “big picture”? There’s a lot more to the US Tax System than just nickel and diming us to death, seemingly sucking the life out of our paychecks. In fact, the majority of the income generated by the feds comes from the income taxes we pay.
In 2004, 43% of all federal revenue came from our weekly pay, with Social Security following closely behind with 39%. Corporations took care of 10% of the feds cash flow, excise taxes were about 4%, and the remaining 4% was paid through customs, estate, gift and other miscellaneous taxes. Social Security has become the most important form of all federal revenues.
As far as federal income taxes go, there are 4 filing categories; single, head of household, married filing jointly and married filing separately. Wages and salaries, tips, investment income and business income combine to make the infamous Adjusted Gross Income (AGI). Deductions, either standard or itemized, reduce the AGI to create taxable income. Tax levels level between 10%, 15%, 25%, 28%, 33% and 35% dependant upon the AGI. Tax credits are then deducted from the tax amount to calculate the final amount owed by the taxpayer.
The corporate income tax system also uses a sort of ‘step” rate system, this time it’s 15%, 25%, 34% and 35%. Most of the time, corporations are taxed at the higher amount, saving the lesser percentages for earnings on equity investments.
Social Security and Medicare use a straight tax program of 12.4% and 2.9% respectively, with half of each amount paid by the employer and the remaining half by the employee. 2004 saw the first “cap” for Social Security, as $90,000 was now the limit for taxes paid. There is no current ceiling for Medicare.
The Federal Excise Taxes (considered to be part of consumption tax) include taxes on fuel, tobacco, alcohol, and domestic flights, with gasoline accounting for an average of 30% every year. Many of these collected taxes are placed into trust funds that can be connected to where they came from. For example, the Highway Trust Fund houses the monies collected from gasoline, diesel, and retail sales taxes from tractors, heavy trucks and trailers, as well as the annual heavy use tax.
As far as the Estate Tax goes, it’s pretty much the close sibling of the Gift Tax, for the Gift Tax was enacted so that property owners wouldn’t be able to avoid the Estate Tax by passing on their property to their heirs before dying. The first $11,000 of any “gift” is not tax deductible in one calendar year. Another worthy note is that the $11,000 gift amount is per giver, so a mom and a dad can each give such a present every year to their child.
