Every day is a tax day in America. Yes, a lot of confusion with tax forms, quick trips to the mailbox, and a lot of headaches associated with keeping up with taxation requirements. Every American citizen is subject to local, state and federal taxation. Nonetheless, there’s still a huge group of people who do not know anything solid about taxes. Here are 6 things every American citizen should be aware of when it comes to taxation.
1. Taxes are Expensive
According to research, taxes (at all levels), eat up about a quarter of the GDP (gross domestic product) every year. GDP refers to the entire total economic production value of a national annually. That’s about $4.8 trillion dollars. It’s no doubt, not a trivial amount, and most informed taxpayers will understand this all too well. Based on information from the Tax Foundation, the average American citizen will work over three months each year to pay their share of taxes for the year. This means that up to 31% of all the money you make annually going to paying taxes. That’s a whole lot, you agree?
2. Different States, Different Taxes
A significant proportion of American taxpayers still do not know that different states have different local and state codes. Each state and its local authorities will structure a tax system that’s best in line with its needs. States such as New York, California, and Wisconsin have greater tax burdens as compared to others. For instance, the taxation level in New York is nearly double that in Wyoming. Just so you know, it helps to do a little research to determine whether you’re paying more in your state that other Americans are paying in their states!
3. Government Doesn’t Collect Enough Money from Taxation
Although the American government and various local and federal authorities collect a significant proportion of the GDP in taxes, it’s just never enough. That means the federal spending is more than federal taxation. However, it’s important to note that in recent years, the federal spending levels have trickled down especially due to reforms in the budget. But the federal deficit is predicted to rise in the future decades, as a result of overspending. If you were perhaps wondering why the government owes China about $1.3 trillion, then you have your answer.
4. Taxes Affect the Performance of the Economy
There’s no doubt that taxes affect the performance of the economy. Based on studies from multiple sources, there are proven negative effects of taxation on investment and economic growth. For instance, people often think about the tax rate when considering where to relocate their family or business. That means locations with seemingly ‘unattractive’ tax rates could lose potential investment opportunities.
5. It’s Expensive to Comply with Taxation Requirements
Americans spend over $168 billion every year trying to file returns and comply with tax laws. And that’s before you even consider the money and time spent complying with local and federal taxes. The full cost of compliance for businesses and individual taxpayers is massive. Thus, tax compliance is a very expensive affair!
6. Where Does All the Money Go to?
Over half of all money collected from taxation goes to Medicare and social security. About 19% goes to income security and other benefits while national defense soaks about a whopping 17%. The remaining percentage is divided up amongst other areas such as education, transportation, etc.
This article emphasizes how taxes impact on your savings, work, and investment. It also highlights just how much of your money goes out to various authorities at the local, state and federal levels. It’s a great starting point especially if you’re looking to bolster your tax education.