Keywords

tax, taxation, total tax, tax burden, West Michigan, Grand Rapids, Social Security, OASDI, Medicare, income tax, government, sales tax, use tax, income, expenditures, property tax, state, municipal, federal

Disciplines

Accounting

Mentor

Jonathan Brignall

Abstract

Have you ever thought about how much you might pay in tax each year, across all tax types? If you have, a chill probably went down your spine before you gave up thinking about it. When the subject is brought up, most people think primarily of income. The truth of the matter is that income tax is far from the only tax we pay. Throughout the year, Americans may end up also paying sales tax, property tax, fuel taxes, various sin taxes, and estate tax, just to name a few. With so many ways to be taxed, some of which we encounter almost daily, it makes you wonder how much we pay in all taxes throughout the year. This paper seeks to help citizens of West Michigan understand what taxes might affect them and how taxation changes across varying levels of income.

The American Community Survey, released by the Census Bureau, provides information about Americans' spending habits and how they change based upon geographic location and income level. This information is used to estimate the tax-related behavior of four hypothetical taxpayers at varying levels of income. From there, the taxpayers' total tax burdens can be calculated and we can see what their effective tax rates really are, for the marginal tax rates we see on their income tax returns do not come close to telling the whole story. Through this process, the majority of the taxes that affect most people can be demonstrated, and their effects can be explained. Discussion of the findings reveals how income and property taxes are larger concerns for wealthier individuals, while excise taxes like sales tax and other flat-rate taxes can have a larger effect on those with less income. As the composition of a person's taxes changes with an increase in income, the effective total tax rate increases only slightly, and larger increases are not seen unless the taxpayer is wealthy. Higher tax rates from some progressive taxes are often stifled by reduced taxable spending by those with more disposable income.

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