A Consumer Guide to Taxes: How Much Do You Really Pay in Taxes?

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Most Americans complain that taxes are taking a larger bite out of their incomes than ever before. During the month of April, tax‐​filing time, they complain most bitterly.

This study calculates how much additional money middle‐​income workers must earn to purchase various goods and services–a new car, a computer, or a year’s college tuition for their children–after all taxes are fully taken into account. For instance, a wage earner in an average‐​tax state must earn $17,038 to purchase a $10,000 car. That means that the worker pays $7,038 in income, payroll, and sales taxes on a $10,000 car. The study finds that in some high‐​tax states, such as California and New York, the “true” price to consumers of goods and services is twice the retail price because of taxes. Self‐​employed workers, who must pay a self‐​employment tax, routinely must also earn double the retail price of an item to have the after‐​tax income to buy it. That is the “rule of two on taxes.”

George Nastas III and Stephen Moore

George Nastas is a marketing and financial consultant in Haslett, Michigan. Stephen Moore is director of fiscal policy studies at the Cato Institute.