Among the sneakiest things the government has done was institute a withholding tax system, and make some taxes "employer taxes".
The withholding system makes taxes invisible to most citizens. When one asks a taxpayer how much they will pay this year, the most common answer is a smiling declaration of how big a refund is coming. Most of us have no idea how much we actually paid in taxes – even though it is written on our pay stubs. And most taxpayers also have no understanding of the fact that if they ARE getting a refund, it is because they gave the government an interest-free loan in the amount of that refund.
Let’s take just one example to analyze how much we actually paid this year. We will use an average salary of $35,000. A worker making $35,000 will pay $2,677.50 in Social Security and Medicare taxes, which are not subject to refund no matter what deductions he has. He will pay $1,074.50 in Pennsylvania state income tax. He will pay $31.50 in state unemployment tax. If he is lucky enough to live in a low-tax municipality, he will pay $350.00 in local income taxes, but if he lives in Philadelphia, he will pay $1,375.50. He will also pay $1.00 per week in Local Services Tax, or $52.00 each year.
So the payroll tax burden, before the federal income tax, on an individual in Pennsylvania who makes just $35,000 lies between $4,185.50 and $5,211.00. But since every one of these taxes is collected through payroll deduction, most of us don’t really pay attention. And that inattention is exactly why the government likes the withholding system.
But that is only part of the tax puzzle. The employer side must by calculated as well. This side is truly invisible to most employees because it never appears on a paycheck.
It works like this. When a business decides to hire an employee, the business owner figures out how much he can afford in a salary package. Part of that package is the tax burden the business will incur by hiring that employee.
If the business can afford a package of $38,000, it can only give $35,000 of that in salary because it will need to give the government $2,677.50 in employer Social Security and Medicare taxes, $434.00 in federal unemployment taxes, and between $175.48 and $1,133.70 in state unemployment tax.
So an employer must pay from $38,286.98 to $39,245.20 – without counting the accounting costs of doing all the government’s paperwork, or the cost of health care or regulations, to give an employee $35,000 in salary.
If we add those numbers together, the payroll taxes – without federal income tax – for one worker who makes $35,000 a year are between a possible low of $7,482.48 and a possible high of $9,456.20. And every penny of it is withheld ahead of time.
If we really want to hold government accountable for its spending, the best first step is to eliminate withholding, so every American has to actually write the checks. When people are aware of how much they are really paying, they will be much more likely to begin asking what they are paying for.