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.”