What is your effective tax rate? The question generally is aimed at your effective income tax rate. But if you look at ALL the the taxes you pay, and divide that by your GROSS INCOME, you probably have a more realistic number.
Most anyone can compute their income tax rate. Let's say your household gross income (family of 4 with 2 children) is $100,000, and we'll assume it's all in wages. Maybe your taxable income is $74,000. After child tax credit your tax is approximately $9,000. Your tax rate is 9% based on gross income and 12% based on taxable income.
Now remember 7.15% of your wages are taxed for social security and medicare. That's another $7,150. You've now paid over $16,000 in taxes which is 16% of your gross income.
Let's say your family purchases 1000 gallons of gas during a year (20 gallons/week). In Texas that's 20 cents/gallon (
link) - another $200. Let's say you are a homeowner. Your property tax might be another $4,000. Now you are over $20,000 in taxes - Over 20% of your income.
What about your other essential purchases. Most foods are not taxed, but clothing, entertainment, services (utility bills, home repairs, etc.), and items such as hair dryers, washing machines, automobiles, and so on are all taxed. If you live in Texas, most of these purchased are taxed at just under 9%. Assuming you make $20,000 such transactions annually, that's another $1,800. Now you are up to $22,000 in taxes paid. That's now 22% of your gross income. The "income tax" is less than the other taxes you've paid. And don't forget "fees" (technically not taxes) such as vehicle registration and homeowners association dues.
You can do the same calculation using higher figures. The person making $300,000 might pay a higher percentage of income tax (unless it's from capital gains in which the percentage is lower than a person who works for the income). However, that person would pay the same amount - but lower percentage - of "other taxes" assuming they drive the same amount of miles, purchase the same amount of items, and own a similar home. Hence, the percentage of income tax paid is higher than in example 1, but the percentage of total taxes paid is probably similar or perhaps lower. Don't forget, social security tax is no longer assessed after a certain threshold is reached. Thus high wage earners pay a lesser percentage of their income to social security.
Using the example of a single parent with 2 kids earning only $25,000 is a little different. Due to EIC, they may actually receive $5,000 in refundable credits so their income tax rate is negative 20%. They actually receive an additional $0.20 for every dollar they earn. However, their SS & Medicare taxes are $1,787. If they use 1000 gallons of gas annually, they pay the same $200 in gasoline tax, and they probably can't afford the house, but assuming they haven't been foreclosed yet, their property tax is the same $4,000. All in all, despite being the recipient of $5000 of transfer payments/welfare, the other taxes net out to zero. Of course, food stamps would get them back to a negative tax rate if you think of that as a reverse tax.
