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HD contains numerous articles and comments about taxes, many of which talk about avoiding or minimizing those taxes. There are some like FICA that are certain. But income taxes are far more complicated and I guess you could say flexible.
I have the impression that Americans are unique in complaining about taxes, in part because they don’t see the connection between taxes and what they provide, at least not as much as many Europeans do.
The United States is not a high tax country, in the lower one third in taxation as a matter of fact.
Many people I talk with confuse the tax brackets with the taxes they actually pay. I had one friend complain about the withholding taken from a bonus, assuming the withholding percentage of 20% was the taxes he would pay.
What really matters is a person’s effective tax rate. Have you ever calculated your federal effective tax rate?
In 2024 mine was 18% which actually surprised me because it felt much higher.
Should we be complaining?
Already filed my taxes. TurboTax calculates the effective tax rate. Ours was 7.43%. Our “spending” income was 52K. That is why I decided we needed to spend more this year and thus we pulled the trigger on a week in Barbados staying in a nicer hotel than we usually do. 12 K of “income” was to pay taxes due to a large Roth conversion. Unfortunately I under converted by 10K despite posting, and had confirmed, on HD the maximum income to stay in the 12% maximum tax rate. I had already thrown out my calculation sheet. Man am I kicking myself!
Our Federal tax rate as a percentage of AGI was 12.6% for 2025.
Including State taxes, the total tax burden was 15.04% of AGI.
I can’t complain about that.
AGI calculation, for non-US peeps:
How to calculate AGI
I always thought the US had very low tax rates…18% doesn’t seem that low considering I pay 21% which includes all healthcare premiums with no deductibles or co-pays.
The lower 50% income wise have an average effective tax rate of 3.7%
I created my own effective tax rate. I call it Dan’s Effective Tax Rate. It differs from the real rate, by including all income, such as non taxable Social Security, tax free interest, dividends, and capital gains. This method results in a very low tax rate.
Regarding the conversation you had about the guys bonus check. I can’t even guess the number of times I had that conversation with a client who had gambling winnings or an early distribution from a 401k, or similar. “How come that’s on there (the tax return), I paid taxes when they gave it to me”
Actually, I thought that’s the way the real effective rate is supposed to be calculated. Tax credits factored in too.
It’s actually based on dividing your tax liability by your taxable income. So the non taxed SS, long term capital gains and qualified dividends that may not be taxable for many folks, are not included in the calculation. The standard or itemized deduction also reduces taxable income. I add all that stuff back in.
In some respects, while taxes are the fuel for keeping things running (generally), I tend to believe there is far more angst over the way the money is purportedly used. Can’t say the volumous tax code thrills many taxpayers either. But like others, I have yet to submit my proposed tax code for consideration. To many, this is what taxes feel like:
Line 1: How much did you make last year? ___________
Line 2: Tax due – copy the amount from Line 1 here. ____________
Submit the amount from Line 2 to the address provided below.
GW, I think your comment, angst over the way the money is purportedly used, is right on. We’ve all heard stories about the $300 hammer, or the $1000 toilet seat. No doubt there is plenty of waste occurring, but hopefully not as much as we think there is. At least I hope not🤔
Every society has used taxes of some type. Even the Bible tells people to pay their taxes.
The code is indeed too complicated and too long. I suspect there will never be agreement on how all the money is used. But what I might object to others see desirable.
I’d like to see a flat rate income tax plus a VAT, but the people like Dan would not have a business. 😢 Imagine the vested interests who would be opposed, yikes‼️
Like the ‘post card’ tax return of 2017, which was actually worse than the 1040 it replaced, the ‘special interests’ would have a flat tax so carved up with exceptions and exclusions that tax preparers would end up with more job security than ever. One beautiful piece of paper, 🤣🤣🤣🤣🤣🤣🤣