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Many American’s perception of the taxes they pay is seriously distorted. Many seem to believe that withholding from their pay is the taxes they actually pay or that taxes due at year end reflect higher taxes rather than likely under withholding.
A major misunderstanding is that the tax bracket they are in represents their real tax rate. I know taxes are complicated, but not that complicated.
I conducted a simple exercise. Using several AI tools I calculate the 2026 federal income tax for a household with two young children earning the US median income.
I used $82,500 household income. The estimated federal income tax owed was about $1,200 or an effective tax rate of 1.454%
I bet if you asked someone at that income level their perception of income taxes would not match the reality.
Sure it’s just one example, but the United States has one of the lowest overall tax burdens among developed (OECD) countries, typically ranking near the bottom—around 31st–32nd out of 38 OECD members—when measured by total tax revenue as a percentage of GDP. Most countries use a VAT in addition to income taxes.
Given the fiscal state of the Country, one could make a logical argument for higher taxes-but I wouldn’t suggest it, most people feel they pay too much already.
Good example, Mr. Q., and good to give perspective on the tax system. And no doubt but that there are taxpayers in the situation you described. But tweak it slightly – single person instead of a family, married couple with two salaries and no kids – and the tax burden gets considerably higher. Open question about which is more representative of the country. And I’d politely suggest that HD readers are in a different situation / stage of life too. But the main point that federal income tax is reasonably low (as compared to other nations) holds true.
I am 83 and married. Use standard deduction. Income from a pension, SS, interest and dividends and RMD. Last year our effective tax rate was 18%. Still seems like a pretty good deal by comparison.
A friend in England paid much higher taxes before retiring, including high payroll taxes, but in retirement he pays nothing for healthcare, no premiums, no out of pocket costs, it’s “free” he says. Make you wonder about the tradeoffs.
Many Americans think they can have our tax rates (or lower) and “free” healthcare.🤑
Yup, there ain’t any free. The sales tax / VAT in the UK is 20% on most things (other than food and children’s clothing). Tell an American that they have to pay that much and loads of tea go into the harbor. . . .
The tea in the harbor was actually in protest to a tax DECREASE
No free lunch, but wouldn’t it be nice not to worry about any health care bills, or child care or maybe even college costs because you paid for them gradually throughout your working life?
The older I get, the more I think that is common sense like any large insurance risk pool.
That gets us back to your main point (here and in other articles). The US has a progressive tax and health care system – mostly. Tax rates increase with income. Medicare costs increase with income / wealth withdrawals from retirement accounts. We don’t have great healthcare options for younger people who aren’t covered by work-sponsored insurance or who qualify for an assistance program of some sort.
If this was the result of a reasoned policy debate or election results, we’d say that’s our choice v. Europe’s choice. Sadly, the general sense from HD readers is that our tax / health system has been cobbled together over years without much thought. We just deal with the results.
I started working in the healthcare insurance field in 1962 as a claim reviewer and for the next 50 years I managed employer health benefits. I was on the BOD directors of four HMOs, I tried every new idea that was going to manage costs for the employer and workers. At one time promoting wellness was the solution, or giving employees choice (the worst idea), promoting second opinions popped up. None of it worked, still doesn’t and never will. Multiple systems, paying different fees, covering very different populations and shifting costs from one to the other will never work, but Americans have no interest in the truth, they rather just blame insurance companies. It’s easier. It’s like those who believe SS fiscal troubles are the result of someone stealing the trust fund money. Our lack of critical thinking has no limit.
The US is very tricky because of state and local taxes. Sales tax, property tax, state income tax – they all add up.
There are a few more taxes.
It is disingenuous to premise an article on low taxes without the full consideration.
Actually not. The taxes you mention are either dedicated to an accountable purpose via FICA or local providing direct benefit to that locals citizens. The states with the highest taxes have the highest incomes, the best rated schools and the strongest social safety net programs. Those citizens get what they pay for.
Somehow I don’t think the HD community writ large, is part of the less informed segment of the electorate you describe.
That said, a version of the last sentence in your article could read something like:
“Given the fiscal state of the country, one could make a logical argument for eliminating waste, fraud, and abuse before discussing higher taxes—but I wouldn’t suggest it; that would require government to solve the spending problem before asking taxpayers to solve the revenue problem”
Waste, fraud and abuse exist but that card is overplayed. Not enough to make a big impact given federal spending is $19-20 billion a day.
Dick, not sure if you were trying to be funny with this response. I did get a good laugh so well done if so. If not, you countered your own argument in your second sentence when you cite the spending levels. Makes Costco spending look pretty good eh?
Now pile on the waste, fraud, abuse and let’s add ineptitude for good measure at the state and municipal levels….well, nothing else needs to be said here.
Not trying to be funny. Just trying to keep things in perspective. In my view there is no more inefficiency in government than in any large organization and most workers do a reasonable job. However, as in a non-profit organization, in government there is less motivation to be efficient because the income stream is guaranteed and no profit need be generated.
Most of the major fraud created such as with Medicare is by our fellow Americans. Even SNAP fraud is rarely by beneficiaries, but by criminal organizations.
A society of 340 million is not going to eliminate it, but we can put more effort into oversight.
When you say “there is no more inefficiency in government than in any large organization” that clarifies where you are coming from.
We’ll just have to disagree.
If the average corporation in America was run like a government entity, we’d all be in the poor house and have no appreciable wealth from the capital markets.
It comes down not to the workers being any different, they are all human. The fault rests where it always does: bad management. There is not enough energy, intellect or integrity being put into efficiency or accountability in government. Low government management standards (all levels) to prevent waste and fraud etc. are NOT widely accepted in the private sector, full stop. There is more natural economic accountability for poorly run corporations and their executives over time. Some state level incompetence may arguably rival the Federal level these days. That waste adds up for average citizens bearing the tax burdens in aggregate.
The government (at any level) can’t tax its way out of this morass.
Yes, we will have to agree to disagree. My expedience is that both the massive bureaucracy of SS and Medicare operate very well given the complexity and dealing with tens of millions of people. Their websites are excellent. I’ve been paid every month for 17 years, my COLAs are calculated correctly, my tax withholding is reported to the IRS. A request for pre approval for a Medicare claim was processed in three days. Fraud is regularly caught and reported to Congress although the payment model makes it take too long to identify, but then people don’t want a pre approval process for claims.
If corporations were so efficient they wouldn’t suddenly discover they didn’t need a few thousand workers to function or for that matter go out of business.
I would have to agree that in my experience with Medicare some years ago on my parent’s behalf, I found it surprisingly easy to deal with. On a more limited basis same with Social Security for them.
That does not automatically make them efficient by default however in order to provide that level of service.
All that said, your article is not about Social Security or Medicare, it is about taxes and only one (federal) portion of the broader tax load picture at that. When you focus an article on taxes, all aspects of government efficiency with the public’s funds are fair game when contemplating more taxes. S.S. and Medicare are but two pixels in a much broader picture of morbid mediocrity.
Reference corporations: you highlight two positives: 1) the ability to right size private sector organizations to changing business conditions or enhanced technology or LEAN based efficiencies (or maybe correct inefficiency that set in through poor management and needs to be cleaned up) ….without having to go to the Supreme Court to do it. 2) For businesses that fail due to inefficiency or not evolving fast enough, natural selection culls the herd- healthy for the overall economy. Not so with government agencies…..unfortunately- unhealthy for the overall economy.
My spreadsheet shows that our combined federal and state taxes last year (not counting property taxes) was 15.12% of our W-2 wages and only 12.02% of gross wages.
People tend to focus on what they see as the top line, when it’s the effective rate that actually matters. Even a married couple with two children earning $500,000 and only standard deduction has an effective income tax rate of about 19.4%
I always wonder what the “True” tax comparison is to other countries. Sure our federal may be lower (you happen to cherry pick a almost the best case lowest income scenario BTW – i.e. take the kids out of the equation and its $5600 or $9600 of single – still low in isolation) but there is a lot more than federal tax, there is also state, sometimes local, and FICA (7.65% each for employer/employee).
Honestly, I would also say that health care should be factored into the equation even though it is not a tax in the US but must be paid for where it is more socialized in other countries and is basically a transfer payment.
We may not have VAT but there is sales tax in most states.
Looking at the 2025 OECD report is interesting US tax is at 25.6% of GDP vs OECD avg of 34.1% so this would suggest US has lower taxes, although US also has a more dynamic and growing GDP so….
But on the basis of total taxes collected and where they come from, it is not so clear…..
Taxes on individual income accounts for 40% of all US tax revenue vs. 23.7% for OECD avg.
Property taxes in US are 11.3% vs 5.1% for OECD avg.
US is more favorable for corp taxes at 8.6% of tax receipts vs. 11.3% for OECD.
To the point of VAT, that accounts for 20.5% (0 for US) of all taxes collected but other consumption taxes are 16.6% for US vs 10.8% for OECD so that offsets a bit of the VAT.
It is probably rather difficult to do a true apples to apples but to use a lowest tax example, and only a single tax of many, to extrapolate across the board is misleading or lazy analysis.
Do you feel that the USA is not among the lower taxing countries?
Well, I think I answered that in my comment….it depends how you look at it. If federal income taxes were the only taxes paid then maybe it would be.
You started with “Many American’s perception of the taxes they pay is seriously distorted” and I somewhat agree with that. But then you did the math to find the lowest possible outcome and then introduced the concept of comparing to other OECD nations. I provided some counterpoint that basically equates to “Its not that simple!”
In isolation, that could be like comparing NJ (a state that loves being near the top of the list for taxes) to Delaware (a state that is perceived to be a tax-free or low-tax nirvana – closer but not really).
NJ all in individual tax burden is 9.52% vs DE of 6.28% but the weird thing is that DE income tax burden of 3.62% (4th highest in country) is higher than NJ’s 2.42% (22nd) and I will bet that NJ residents will say they pay more income tax than anyone.
It is about TOTAL taxes paid because there are so many of them to skin the cat.
I wouldn’t begin to know how to do an apples to apples comparison. One way or another, every service provided by any government has to be paid for. In the case of the US, that includes about $39,000,000,000,000 of borrowed money.
Just speaking for me, excluding Social Security and Medicare, because they have separate taxes, do I think that we pay enough income tax to cover our share of the cost of national defense, interest on the debt, veterans services, infrastructure, education, and everything else? No way. Actually, most of the income tax we do pay goes towards funding Social Security.
There are two sides to the coin – taxes AND spending. We might not be taxed enough OR we might be spending too much!
No income tax goes to funding SS. No general revenue can be used.
There is one indirect way you might refer to and that is the interest paid on Treasury bonds held by the SS trust, but that is not a true link, some other entity would receive that interest as Treasury still would have had to sell bonds to someone else.
In addition, that interest is a small portion of all interest paid at around a trillion a year.
The same is true when SS redeems bonds as with any redemption by anyone Treasury sells other bonds to cover the redemption. SS has been funded this way since 1939.
The other link is that the income tax paid on SS benefits goes into the SS Trust! But that was by design to shore up the trust years ago.
The other link is that the income tax paid on SS benefits goes into the SS Trust! But that was by design to shore up the trust years ago.
That is what I was referring to.
100%, Dick. I tried to illustrate your point in my post (https://humbledollar.com/forum/taxes-and-you/). Using numbers from actual tax returns, the taxes were so low, that some readers questioned the accuracy of the returns.
The most important line on Form 1040 is not 34 or 37, total refund or amount due. It’s line 24, your total tax.
Sorry, I didn’t remember or I would have linked to it.