EDMOND — Some issues this election season are obvious. Every candidate wants to discuss their ideas on the mortgage mess, the credit crisis, the Iraq war and high gas prices. Yet there are other issues, also important, that are much less obvious. In fact, one could say they are “hidden” — like the hidden taxes we have to pay.
Each year Americans pay hundreds of billions of dollars in hidden taxes. Take, for example, the Social Security and Medicare payroll taxes. Part of the payroll tax is obvious to everyone who checks their pay stubs and sees the FICA and Medicare tax withholding. For most workers, these taxes amount to 7.65 percent of one’s earnings. According to the Social Security Administration, in 2007 workers paid a total of $424 billion in these taxes. However, many people do not realize that this is only one-half of the payroll taxes they pay.
The payroll tax system was designed to ostensibly split the tax burden between employees and employers. So, when workers pay $424 billion in payroll taxes, employers are also required to pay $424 billion, too. Most economists believe, however, that workers effectively pay both portions, including the employers’ share.
Here is what happens. If an employer is willing to pay $100 to hire a worker, the employer does not care if all $100 goes to the worker, or if only $93 goes to the worker and $7 goes to the government. From the employer’s perspective they are still paying $100 for the worker. Thus, if the employer has to pay a payroll tax they reduce the wages they are willing to pay to the worker. Effectively, the worker pays this payroll tax in the form of lower wages.
This is not the only hidden tax we pay either. According to the Congressional Budget Office, last year the federal government collected $370 billion in corporation income taxes. While many people think that faceless corporations can pay taxes, in reality only people pay taxes. So who pays the corporation income tax?
Naturally, shareholders pay some of the tax. The corporation income tax lowers corporate profits, which affects shareholders in two ways. First, lower profits mean lower dividend payments. Second, lower profits depress the value of a company’s stock, negatively affecting shareholder wealth. But these lower corporate profits also make corporations less willing to hire workers, and less willing to pay them as much.
Consequently, most economists recognize that workers also pay some of the corporation income tax, again in the form of reduced wages. In the end, both shareholders and workers share the corporate income tax burden.
These taxes never show up on a pay stub, nor do they show up on a Form 1040 … but we pay them nonetheless. They are real, they are large (to the tune of $800 billion in 2007), even if they are hidden. Essentially, 30 percent of our federal government is financed by these hidden taxes.
Now, some might not want to know that the American people have been paying $800 billion of hidden taxes each year. But this is a case where what we do not know can hurt us. These hidden taxes effectively hide the true cost of operating our federal government, essentially making it seem as if we are getting our government services at a discount. After all, we fantasize, we can get 100 percent of our government services and have to pay only 70 percent of the bill, leaving businesses to pick up the remainder.
But in reality, businesses pay nothing … the taxpayers are picking up 100 percent of the cost. Which makes me wonder if we would have the same size of government if we knew just how much we were paying for it.
We economics professors are fond of telling students to focus not just on what is seen, but also what is not seen.
Frankly, we would have better public policy if more political candidates would understand this, too.
MICKEY HEPNER is an associate professor of economics at the University of Central Oklahoma.
Opinion
What is not seen often can hurt the most
- Opinion
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OUR VIEW: Feb. 14 vote about ideas
If you read any of the letters to the editor in the past two weeks regarding Tuesday’s District 2 Edmond school board race, then you already know that this election is not about the individual candidates so much as it’s about what type of school board do Edmond residents really want governing their school district?
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What are your presidential 10 Commandments?
As we brace for the upcoming presidential campaign, we should be honest about our responsibility in the process. Before we get pushed, pulled, bribed, frightened, bullied, flattered, fooled or charmed into voting for a candidate, let’s take a mature thoughtful look at what the profile of the president should look like. In order to do that, let’s do an exercise. Sit down with a pencil and paper and draft your proposal for the Ten Commandments to be obeyed by the president. Let me share some of my suggestions.
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What would Reagan do today in Oklahoma?
As we celebrated the 101st anniversary of Ronald Reagan’s birth on Feb. 6, several of us at Oklahoma Council of Public Affairs started discussing what Reagan might do today. Here are some of the ideas we came up with.
- LETTER: School counselor says Roy ready to help all students
- LETTER: Supporter calls Duncan 'a firecracker'
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Consequences of an overregulated nation
Overreaching government regulations are costing jobs and killing our economy. They are a heavy burden on our nation and its citizens — in some cases worse than our nation’s increasingly out-of-control debt.
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LETTER: Supporter: Duncan shows passion for children’s needs
To the Editor:
The families in the Edmond Public School District are fortunate to have Kathleen Duncan as their advocate on the Edmond Board of Education. Duncan has worked tirelessly for the welfare and benefit of the Edmond schools’ students. -
LETTER: Teacher supports Duncan’s re-election
To the Editor:
On Feb. 14 patrons of District 2 have an opportunity to re-elect the current president of the Edmond School Board, Kathleen Duncan. Duncan has served as a board member for 10 years. When people move to the Oklahoma City area, they buy a home here because of the exceptional quality of Edmond Public Schools. This speaks to Duncan’s goal of “Excellence in Education for All Edmond Public School Students.” -
LETTER: Supporter: Duncan understands diverse issues
To the Editor:
Kathleen Duncan understands the diverse issues that effect our schools. She carefully studies the district’s issues and works tirelessly as an advocate for all students. Her votes as a board member have an impact for years to come and she takes that responsibility very seriously. - LETTER: Reader says incumbent's personal agenda in the way
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OUR VIEW: Feb. 14 vote about ideas
