Monday, October 29, 2012

Taxation Summation

Have you ever ordered a milkshake at your favorite diner?  You know, the kind in the metal shaker with real whipped cream topping, the kind that is so good you ordered a kids meal so you would have room to drink the whole thing?  But before the waiter can set it down, your 3 kids are asking for a bite and your husband just wants a taste.  All of a sudden, there are 4 straws in my milkshake besides my own!  Sometimes this is how I feel about taxes.  Separately, each tax just takes a few sips of my milkshake and I'm left wondering how much of it I really got to enjoy for myself.

To be clear, I am not taking a political position here.  I have always been curious what my aggregate tax rate is when you factor in payroll taxes, property tax, sales tax and income tax.  The recent political dialogue surrounding taxation did prompt me to figure the numbers but I will simply present the numbers and leave the conclusion to each individual.

Here are the assumptions and calculations I made:
* Based on US Census Bureau data, the median gross income for a family in Denton County is $85,000. 
* Social Security (4.2% of $85,000) and medicare (1.45% of $85,000) taxes total to $4,803.  The medicare base has no limit and the social security tax base is $106,800.
* For income taxes, I assumed a four person family who takes the standard deduction.  The highest tax bracket for a married-filing-jointly couple with $58,600 adjusted gross income is 15%.  Their tax comes to $7,944.
* I assumed the family put 6% into savings and (since I am familiar with the prices of non-table items for a four person family) I guesstimated the cost of non-taxable costs like a mortgage, groceries, home insurance, etc.  This is probably the roughest figure I have but it is also the smallest and comes to $2,312 or 2.7% of gross income.
* I also assumed home ownership for this family.  The Census Bureau provided a median home value of $180,000 for Denton County.  Using an average for the municipal tax rate and ISD tax rate plus Denton County's .277357 rate, property taxes amount to $4,067.

The total federal, state, and local taxes paid by this fictitious family amount to $19,126 or 22.5 percent of their gross income.

Are you surprised by this number?
Is it higher or lower than you expected?
Is it higher or lower than you think it should be?
I did not factor in annual fees like registration or state inspection on vehicles.  Can you think of anything else I neglected in my calculation?

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