Thursday, November 08, 2007

Why We are Losing our Competitive Edge-Taxes

Watching the election process unfold this year, and hearing of the wondrous programs that are being promised to secure votes from politicians from the local to the federal levels, I can only wonder how much longer we will be able to make ends meet.

Quickly as you can, can you tell me what you pay in taxes? Can you give me a percentage of your total income? Can you give me total dollars in taxes? Could anyone? Yet taxes are your single largest expenditure day in and day out, week in and week out. Don't believe me? Then let's take one item, and see if we can determine how much in taxes we actually to purchase it. Let's make the item one gallon of gas.

Gas today is near $3 per gallon. Embedded in that price is 35.7 cents per gallon federal and state sales tax and another 3 cents in local sales tax. So on one gallon of gas, you are paying 38.7 cents in taxes, or 12.9% in taxes.

But that is not the end of the tax burden. You had to earn some money to purchase that gasoline. You would need to calculate federal, state, medicare, and social security taxes required to be able to net the $3 per gallon that you need to purchase.

If you earn $50,000 per year in the state of Georgia, and take out all the taxes, your net is around $30,426, effectively paying 39% of your income. You would need to earn $4.17 before taxes to buy the gallon of gas. Total taxes for this gallon of tax: $1.17 in income taxes and 38.7 cents in embedded taxes in the gas itself. Total so far: $1.557 Well over half the cost of the gallon of gas you see advertised at the pump.

But that is not all. Before the gas gets to the station, the company producing it has embedded taxes in the gasoline as well. Assume a federal and state corporate tax rate of 35%, which the oil company must embed or it would not produce the profit, on a wholesale cost of $2.20 per gallon and you have another 77 cents in taxes. I am not even going to go into all of the taxes paid by the employer to actually produce the gasoline, and we are already up to $2.327 in taxes on a gallon of gasoline, that you had to earn $4.17 to purchase.

Already we have a tax rate of 55.8%. Wow....would anyone have guessed that amount? Is it any wonder we do not have the ability to determine which are the most efficient ways to run our economy? Is it any wonder the government does not want to bring the true cost of taxation into the light so we can see what is going on?

It is rather clear to me that the federal government has absolutely no incentive to reduce gasoline consumption in the United States. It is one big cash cow that keeps on giving and giving. Imagine the threat that solar or wind energy presents because there is no recurring revenue stream. You purchase the solar panel or wind turbine and pay taxes once, and that is it. You continue to get power for years, while the government gets 0$ in future tax revenues. Consider the threat of individual energy independence where the government does not have the opportunity to tax the energy that you produce and consume.

The more of our income taxes take the less competitive we are going to be.



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