How Taxes Touch Us Everyday

A couple of weeks ago, we all celebrated Tax Day on April 15 by spending large amounts of time and money in preparing, filing, and paying our income taxes.  Now while income taxes are heavy on you mind currently of the year, or perhaps in the fall if you file and extension, and you think of taxes when you write the check to the county to pay for your property tax, do you ever think of how taxes impact your life every day?

When I get up in the morning, the first thing I do is check my cell phone.  I use it as my alarm clock.  But have you noticed when you go into the cell company to get that great plan with the unlimited data, text, and talk for $70 that your monthly bill is much higher?  Taxes average another 15-18% of you monthly cell bill.  Some of these were designed and go to things you do not directly use like telecommunications equipment in areas you do not live.  Some are for special purposes.  Chicago has an extra cell phone tax that was originally used to help Chicago attract the Olympic Games.  Chicago did not get the Olympics, but residents there still pay the tax.

The Chicago tax brings up an interesting point about taxes.  Sometimes, taxes that were originally designed for a purpose, continue long after the reason for the tax in the first place has stopped.  Pennsylvania put in a tax in 1889 to help rebuild the city of Johnstown after a devastating flood.  In a few years they raised tens of millions of dollars and rebuilt the city.  Yet the tax remains today. 

You may next turn on the TV to see the news while you toast your bagel.  Cable or satellite TV is fraught with another 15% or so in taxes on top of the regular bill.  Perhaps that may be a reason why many people are moving away from that expense.  As you toast your bagel, if you are in New York City, there is an additional 8 cent tax if you purchase the bagel already sliced compared to if you buy the bagel whole and decide to slice it yourself. 

You get in your car and drive to the office, but you must stop at the filling station on the way.  Federal gas excise tax is 18.4 cents per gallon and 24.4 cents per gallon on diesel fuel.  Then you add state taxes to the mix.  These average 28.7 cents more per gallon of gasoline.  If you live in Pennsylvania the highest gas taxed state, expect to have 59 cents of each gallon go to state gas tax. If you are lucky and live in Alaska, your rate is only 9 cents per gallon more. 

Then say you have lunch at a restaurant with co-workers.  The farmer and rancher who produced the food had to pay property taxes and if they are profitable, income taxes.  Then this is shipped by truck which the trucking company is paying property, wage, and fuel taxes.  The company that bakes the bread or cuts the meat is paying taxes on its people, property, and profits as well.  All this comes to the price of the sandwich you purchase, and you pay more sales tax on this as well.  In some states like Colorado, restaurant food is taxed higher than grocery store food. 

This brings up another interesting point.  Corporations do not pay taxes.  They build the tax into their final product and charge it to the consumer.  Some politicians who want to charge taxes as high as 75-95% on corporate profits seem to lack basic economic knowledge of this reality. 

If you were in California and wanted fresh fruit as a snack, you can purchase this at some vending machines.  But there is an extra 33% tax to purchase fruit at a vending machine compared to a grocery store.  This shows a principle that some taxes are started when one group of people want to gain an advantage over another.  In this case the grocery store lobby was successful in protecting their interest over vending machines. 

Let’s say you were in Philadelphia when buying your lunch and wanted a Coke with the meal.  Philadelphia has a tax of 10 cents per ounce on sugary drinks.  Your 12-ounce soda is costing $1.20 more.  Now has this tax curbed sugary drink consumption in Philadelphia?  Probably not as much as you think.  Residents there will travel to New Jersey which does not have this tax to purchase their soda.  This brings up two truths.  First, people will modify their behavior to avoid taxes.  I remember as a kid how my dad would try to avoid buying gas in Illinois since the tax was so much higher there than Missouri or Indiana.  Second, taxes are often sold the public to influence societal behavior are really hidden ways just to generate revenue.  Philadelphia did not care about how much soda people consume.  They just want the tax revenue. 

At the end of the day, as you are frustrated with all the taxes you have paid so far, you decide to go to happy hour at the neighborhood bar.  Now if you have beer or wine, you tax is much cheaper than if you have liquor.  Liquor has tremendous taxes from the Federal and State government.  These are taxed at $13.50/gallon or about $2.50 per fifth on the Federal side.  State taxes can go up as high as another $7 per fifth.  If you stay with beer, only about 40% of the cost goes to taxes.  If you are celebrating in Minnesota and buy champagne, you have an extra surtax there.  Perhaps that is why beer and wine are consumed more there. 

So, after you have been inundated with all these taxes every day of your life, be aware of some of the more oddball ones that are there.If you take a tethered hot air balloon ride in Kansas, you must pay an entertainment tax.But if the rope is cut, there is no entertainment tax since this is now treated as transportation.