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If You Make $50,000 Per Year, You Pay…. Debunked

This photo has made the rounds on social media for a couple years and I was requested to research it.

Our tax system is too convoluted to make simplistic assertions such as this.  Or, perhaps since it is so convoluted one can make assertions such as this.  The dates listed at the bottom of the picture indicate a 2012 tax receipt at WhiteHouse.gov which you can no longer access directly.  You can enter that web address in your browser or click here, but the site now defaults to 2014.  This website allows you to enter in the amount of federal income tax you paid and it will list out the percentage of it that goes to different portions of our federal budget.

I’m not a tax expert and our tax system is complicated so I’ll attempt to keep my stab at this as simple as possible.  I selected a single person earning regular income of $50,000 for the year 2014 which falls in the 25% marginal income tax bracket.  Please note the 25% only applies to the portion of one’s income above $36.9k as different income levels are taxed differently.  Social Security is a flat tax of 6.2% while the Medicare tax rate is 1.45%.  Keep in mind the employer also pays the same matching percentage on Social Security and Medicare.  The person in my example has a standard deductible (tax credit) of $6,300 (though another person’s deductions could be higher) and a personal exemption (tax credit) of $2,000 (though a married person and/or a person with dependents would be higher.)  Based on this, utilizing an online tax calculator tool, here is my best estimate on the highest possible federal taxes paid by someone earning $50,000 annually:

$50,000 less a ($6,300) standard deductible less a ($2,000) personal exemption would leave $41,700 in taxable income at the federal tax rates equates to $6,225 in federal taxes paid.  Plugging this figure into the White House tax receipt site indicates the following:

  • $1,488 for National Defense (much higher than the example.)
  • $24.28 for Response to National Disasters (lower than the example, but could be due to Hurricane Sandy in 2012.)

The calculator requests you to plug in the Social Security and Medicare figures which would be $2,585 and $605 respectively, but are matched by the employer.  Federal Unemployment Insurance is covered by a separate tax known as FUTA and is only paid by the employer.  SNAP and welfare benefits were not available on the White House calculator.  These are a very small amount in comparison to the overall budget.  But, that may change if you calculate those the same way one calculates corporate welfare.

Our corporate income tax is comparatively high at 35%.  Within this are various options for tax credits which vary between industries.  Measuring the totality of all of these credits is difficult to quantify.  For the year 2014 it is calculated corporate welfare cost the federal coffers $100 billion.  If you divide this by the approximate adult population in the United States it equates to about $406 per person.  Even if you stretched this only to the 123.14 million full-time employees in 2014, it only equates to $812 per person.

Conclusion:  False.  The amounts listed for corporate welfare are exaggerated while the other totals are either downplayed (national defense), not paid by individuals in the first place (unemployment insurance), or are matched in totals by the employer (Social Security and Medicare.)

However, let us take this a step further.  If tax credits and grants to businesses are corporate welfare, then are not tax credits and grants to individuals also types of welfare?  Individuals are treated differently within out tax structure based on a variety of criteria (e.g. single or married, children or none, head of household or not, straight income or capital gains, progressive taxation, homeowners versus non, student loans versus none, etc.)  There are plethora of tax credits available to individuals based on these variables which are comparable to the tax credits available to corporations.  If it is appropriate for us to estimate the total tax credits for corporations and call them corporate welfare then we should do the same for personal tax credits.

The whole tax structure is intentionally complex.  The government currently selects winners and losers within the markets by granting tax credits to some while withholding them from others.  This is done at both the corporate and individual levels.  Government officials pit us against each other by incentivizing us to use them as our vehicle for our fair share ahead of our own initiative.  Have you not ever wondered how a government official becomes wealthy while in office?  (For example some estimates show President Obama’s net worth has octupled between 2007 – 2012.)

I leave you with this.  Frédéric Bastiat in The Law perhaps said it best:

“The person who profits from this law will complain bitterly, defending his acquired rights. He will claim that the state is obligated to protect and encourage his particular industry; that this procedure enriches the state because the protected industry is thus able to spend more and to pay higher wages to the poor workingmen.
Do not listen to this sophistry by vested interests. The acceptance of these arguments will build legal plunder into a whole system. In fact, this has already occurred. The present-day delusion is an attempt to enrich everyone at the expense of everyone else; to make plunder universal under the pretense of organizing it.”

O’er the Land of the Tea, and the home of the brave.

Who said it?

“If, from the more wretched parts of the old world, we look at those which are in an advanced stage of improvement, we still find the greedy hand of government thrusting itself into every corner and crevice of industry, and grasping the spoil of the multitude. Invention is continually exercised, to furnish new pretenses for revenues and taxation. It watches prosperity as its prey and permits none to escape without tribute.”

Thomas Paine

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