We talk about tax brackets for income taxes ranging from 10% to 35%, but when all payments to the government are taken into account, we pay significantly more. Research by Laurence J. Kotlikoff and David Rapson in a paper called Does it Pay, at the Margin, to Work and Save [PDF] shows that most people pay about 40% of their income to the government, all things considered.
Here’s an interesting chart from the report. You can click on the report to zoom in.
This is just one example. It shows how a 30-year old single earning anywhere from $25,000 to $250,000 per year pays almost the same 40%. The small dip is due to the earned income tax credit, a credit given to low income earners with qualifying children. Charts for other ages are similar.
I’m surprised at how straight this line is. It seems to be possible that the graduated income tax marginal rates are designed to keep most people paying a total of 40%. For some more thoughts on this report, see Scott Burns’ article.
Updated April 9, 2007 and originally published February 21, 2007. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.