An Honest Tax Analysis of a W2

by Albert Meyer, Collin County Libertarian Party member and president of Bastiat Capital

Your average tax rate is more like 31%, and not 14% that a superficial analysis might initially show

Below is an example of a W2, obtained from the following website: taxpayer in question paid Federal withholding taxes of $6,835.00 which represents an average tax rate of 13.67% on $50,000 (ignore the $48,500 for the purpose of this exercise).How can anyone earning $50,000 object to paying an average tax rate of 13.67%? This is how Washington misleads us. There are at least three other tax payments that deserve scrutiny.There is the $1,535 payment for State taxes, which raises the average tax rate to 16.74%.Our taxpayer lives in Pennsylvania where there is an indirect tax of 6.0% payable in the form of a sales tax. Depending on local municipalities, the total tax rate can be as high as 8%.Assuming our taxpayer makes $15,000 worth of purchases that are subject to the 6.0% tax rate. She would be paying $900 in sales taxes. This would raise the average tax rate to 18.54%.We have only scratched the surface. Notice that our unfortunate taxpayer made a $3,100 contribution to Social Security and another $725 to Medicare for a total of $3,825, which translates into an average tax rate of 7.65%. This taxpayer’s employer also contributed $3,825 to the Social Security Administration on behalf of this employee. This money was earned by the taxpayer, but very few employees realize this fact.To be fair, we need to add the $3,825 to the $50,000 and that would give our taxpayer gross compensation of $53,825.Now, let’s calculate the average tax rate of our unfortunate taxpayer. First, we add the Federal taxes ($6,835), plus the State taxes ($1,535), plus the employee’s Social Security contribution ($3,825) and finally the employer’s Social Security contribution ($3,825). In total, these taxes amount to $16,020 for an average tax rate of 29.76% ($16,020/53,825). Excluding the State taxes lowers the average rate for Federal tax purposes to 26.91% ($14,485/53,825). One can’t avoid the sales taxes, which we calculated above at $900.Inclusive of State taxes and a reasonable estimate of sales taxes, this taxpayer is handing over 31.4% of her modest earnings of $53,825 to revenue collections bureaucrats at Federal and state level.  Excluding sales taxes and State taxes, the average Federal tax rate for this taxpayer is 29.7%.Those who argue that $7,650, or 14.21% (7,650/53,825; or 15.3% based on the $50,000 amount), of these taxes are being set aside for her retirement has to keep in mind that the website shows that the Social Security Administration’s unfunded liabilities pertaining to social security participants amount to $93.503 trillion (adding a million dollars every 35 seconds). In addition, the next time you get your Statement of Benefits from the Social Security Administration take note of this warning:

“Congress has made some changes to the law in the past and can do so at any time. The law governing benefit amounts may change because, by 2033, the payroll taxes collected will be enough to pay only about 77 percent of scheduled benefits.”

In plain English: Good luck if you think you are ever going to collect on these promised benefits.The employee’s Social Security taxes are subject to an open-ended contract, to be manipulated by politicians to suit their agendas.Why can’t we have a choice to pay these taxes to an insurance company offering us essentially the same terms as the Social Security Administration, but embodied in a cast iron enforceable legal contract?It can’t be done, because Congress decided to place our contributions in the general fund and use it to fight wars, and for other dubious causes. If the contributions were places in a separate Trust Fund and invested in the same way that an insurance company would have done, the Administration would not be looking at an unfunded liability of $93.503 trillion. Congress decided that contributions from current taxpayers are more than sufficient to fund the payments that need to be made to current retirees. Hence, there was and is no need to set funds aside. In the private sector, this type of arrangement is called a Ponzi scheme and is wholly illegal… and unsustainable.

4 thoughts on “An Honest Tax Analysis of a W2”

  1. Just one problem with this analysis is that it completely leaves out tax credits possibly available at that income level plus it leaves out all possible deductions that lower the taxable income amount. I’m not a happy to pay taxes guy, but the title of this started off with “An Honest”. Granted it didn’t start its title with “A Completely Honest”…

  2. You need to include an averaged amount people are charged in taxes that come in gasoline purchases and car registrations and drivers license fees and all those fees and surcharges on every months electricity, water, refuse, and phone bills, plus any fines imposed for whatever reason the gov’t comes up with. Add those costs in and the tax rate is over 50% for sure. And those extras I mention don’t even scratch the surface of all the extras there are that are imposed and collected. And one huge one not even mentioned was property taxes. Add it up and it’s way over 50%. Probably closer to 75% of income is allocated to taxes forced upon us at the point of a gun. An IRS gun and a judicial system with dedicated departments entirely devoted to not only enforcing their draconian measures but devoted entirely to “having each others backs” in this draconian system. The enforcers are supported wholeheartedly by their judicial partners in crime and nowhere is the fair and balanced measures spouted about from both ever seen by any individual. The gov’t taxes you, they bring suit against you in their system, they use language and definitions that bastardize the common meaning of most words and terms in order to confuse and trick the individual who is also usually represented in those courts by a representative who is biased against their client and whose loyalty is first to the court and association they are members of. How is any individual supposed to be fairly represented, get a fair trial and if they actually do win their case, receive fair compensation from those out to get them at all costs and from every direction from the outset? The whole system is built up to deceive you into believing you have fairness when dealing with the gov’t. Then you deal with them and learn otherwise. Learn the truth and how to begin to fight for what is yours at Learn the methods used to trick you and deceive you. It is free, it only costs you your time to read. Learn the truth.

  3. A great topic for the next “Freakenomics”. There’s always a spin that’s applied to the facts and always unintended consequences of every good or bad act.Now, if we can all just come together and refuse to pay our federal taxes – together, everyone of us, just refuse to write that check. Then we might get somewhere trying to dismantle the largest legal Ponzi scheme ever created in the history of man.

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