They Take More than Half

Federal, State, Sales, Excise, and Property Taxes Add Up


Daniel Klein teaches economics at Santa Clara University. Allan Raish is a tax consultant and CPA living in Santa Clara, California.

*Rates are incremental and apply to taxable income (income after deductions and exemptions).

**California taxes may be deductible on next year’s federal tax calculation.

If a college teacher living in California who earns $75,000 per year publishes an article in Ideas on Liberty, and FEE pays him $100, how much do the federal and state governments take? How much does he get to keep?

Here is the pertinent information about the direct takings of such earnings:

2002 Federal Tax Brackets and Rates*

Single Person                     Married Couple

Income and Rates                Income and Rates

Up to $6,000     10%           Up to $12,000   10%

to $27,950        15%           to $46,700         15%

to $67,700        27%           to $112,850       27%

to $141,250      30%           to $171,950       30%

to $307,050      35%           to $307,050       35%

above that         38.6%        above that          38.6%

Federal “Payroll” Taxes—Social Security & Medicare

If you have an employer you pay 7.65 percent and your employer pays 7.65 percent of the first $84,900 of earnings. (And your wages reflect that burden.) Each pays 1.45 percent of everything over $84,900.

If you are self-employed, you pay 15.3 percent of the first $84,900 of earnings and 2.9 percent of everything over $84,900.

2001 California Tax Brackets and Rates***

Single Person                     Married Couple

Income and Rates                Income and Rates

Up to $5,700     1%             Up to $11,500   1%

to $13,600        2%             To $27,300       2%

to $21,500        4%             to $43,000         4%

to $29,900        6%             to $59,700         6%

to $37,700        8%             to $75,500         8%

(2002 brackets and rates were not available at time of publication.)

The Tax Bite at the Margin

The payment from FEE would be counted as “self-employed” earnings, so the college teacher would have to pay 15.3 percent in levies supposedly for Social Security and Medicare. After deductions and exemptions, his taxable income is in the range of $55,000.

If he’s married, here’s what happens to the $100 payment: Governments take $48.30 and he keeps $51.70.

If he is single, governments take $51.60, and he keeps $48.40.

Furthermore, out of the retained portion he pays sales taxes (about 9 percent in Santa Clara County, California), property taxes (on the condominium he owns), and excise taxes (on the alcohol, gasoline, and telephone services he buys, for example).

Of the additional $100 he receives from FEE, all told, governments will take over 55 percent.

“ . . . The land of the free, and the home . . . of the . . . brave.”

Though FEE usually pays its authors, we instructed it not to pay us for this article. We care for FEE not as much as we care for ourselves, but a lot more than we care for the federal and California governments. Better that FEE have the money than the governments, even if it means fewer dollars for us.