Do you hate paying taxes? Of course you do. Unfortunately, they are a necessary evil if you want to live in our society. But some taxes are better than others, and some taxes we mind paying less than others. I decided to make a list of the worst taxes. This is my opinion only, so email me if you agree or disagree: firstname.lastname@example.org.
To do the rankings, I first came up with 29 different taxes (yes, I was able to come up with 29 without getting into very obscure taxes that only affect a few people). I then rated each of the taxes by the number of people they affect, their transparency, the relative $ amount they cost, and their overall fairness. For each tax, I assigned a score from 1-3, with 1 being the best, and 3 being the worst. I then added up the score for each tax and ranked them. The scores could range from 4-12, with 12 being the worst score possible. There were no 12’s, but there was an 11! Here are my top 10, starting with the least offensive tax and ending with the most offensive tax.
#10) The phase out rules for tax breaks: (9) These things are really sinister, because they are not exactly a tax, but a lie of omission. They keep people from using a tax break if they go out and get successful and make a lot of money. Essentially, this raises your effective tax rate, which makes it a tax. Politicians love these rules because they get to sell the masses on what a great idea this new tax deduction will be, but they never mention the phase out. Plus, it targets only high income earners, aka "the rich." Some examples of this are the child tax credit, the higher-education credits, ira deductions, etc… The phase out rules scored poorly due to low transparency and fairness.
#9) Lodging and resort taxes: (9) These nasty taxes are imposed at the state level on hotel rooms when you want to go visit great places like Hawaii, and they can be steep. The taxes on a hotel room in Oahu will cost you an extra 9.25% in lodging tax and up to 4.5% in sales tax for an extra 13.75% tacked on to the price of the room. Obviously, this tax scored poorly in the $ amount category. If you stayed 7 nights in a room in Honolulu for $300 per night, the taxes alone would be almost as much as staying an extra night ($289).
#8) Forced RMD taxes: (9) What is worse than paying taxes? Being forced to pay taxes. The government views pre-tax retirement savings as a huge untapped revenue source for them. Never mind that it is your money, and you should be able to decide when you need it. They want it now! So how do they get it? By forcing you to withdraw part of it every year after you turn 70.5. So not only is this a forced tax, but it is a forced tax on senior citizens, which makes it especially bad to me. This tax scored poorly on the $ amount because it is taxed at ordinary income rates, which can be high depending on your tax bracket.
#7) Vice taxes or sin taxes: (9) This is an extra tax levied on things that you love but you know are bad for you, like booze and cigarettes and now marijuana in some states. As if that isn’t bad enough, the tax is levied on the merchant, so that you won’t know you are paying it. The merchant will then raise the price of the item to cover the extra tax, which also has the convenient effect of raising the sales tax the state collects. See why this is such a sneaky tax? This tax scored low on transparency.
#6) Taxes on Social Security Benefits: (9) Ok, let me get this straight. The government collects social security taxes from you and your employer for your entire working life in order to ensure that you have an income stream in retirement. This is supposed to be a safety net for us because we have been deemed too stupid to plan for our own retirements. So then, when we retire, the government sends us a check every month, which we funded with our previous tax payments, and then they turn around and tax the money that they give you. So this is a tax on money that you paid the government as a tax that only affects senior citizens on a fixed income. Can it get any worse than that? I scored this tax low on fairness.
#5) Alternative Minimum Tax (AMT): (10) The alternative minimum tax doesn’t affect that many people each year, but when it does, it really hurts. And there is almost nothing you can do to avoid it except earn less money. So whatever you do don’t go out and get successful, because obviously that isn’t something we should reward in this country. AMT scored low on transparency, $ amount, and fairness.
#4) Obamacare Taxes: (10) These relatively new taxes were a gift from the Affordable Care Act. In a classic tax the rich scheme, it was levied only on the “highest wage earners.” You might ask what group constitutes the highest wage earners? As a single person, this means that you would earn more than $200,000 per year, and then as always, they penalize people who want to get married and make a lifelong commitment to each other by saying their maximum is $250,000 per year. How much is it? It is 0.9% on excess of earned income and 3.8% on net investment income. I scored these taxes low on fairness and $ amount, simply because at that level you are already paying 33% or more in income tax, and this simply adds to it. They passed this thing and said it was a net savings to the country, so why did additional taxes have to be included to pay for it?
#3) Social Security Taxes: (10) For those of you who work for other people, you pay 6.2% of all of your income (up to $118,500) into a system that if you are my age, probably won’t ever pay you back a dime. Then if it does, it will be taxed again. If you are lucky like me and work for yourself, you get to pay double that, or 12.4% of all your income up to the maximum into a system that will never pay you back. Do I need to explain why I hate this tax? I ranked this tax low on # of people who have to pay it and transparency because of the Ponzi scheme nature of the system.
#2) Gas Tax: (10) This is a tax that almost no one can avoid. Almost everyone drives, or pays for someone to drive them. Either way, you are paying this tax, directly or indirectly. Much like its cousin the sin tax, this tax is levied on gas stations that sell you the gasoline so that you won’t see how much it is costing you. And because the merchant passes the cost of the tax on to the consumer, it also increases your sales tax. And it is steep. For every gallon of gas in you purchase in Florida, the taxes on it are approximately $54.2 cents per gallon as of July, 2015 according to the American Petroleum Institute. At current gas prices, that is more than 25% of all the money you pay for gas that goes to the state and federal government. Needless to say, the gas tax scored low on # of people who pay, transparency, and $ amount.
#1) The only tax to score an 11 on my scale did so because it scored low on # of people who pay, $ amount, and fairness. Can you guess what it is? If you said property taxes, you are correct. Not only is this a tax in perpetuity if you want to live somewhere, but it increases almost every year no matter if you are using the services it pays for or not. It is also a regressive tax, meaning it hits lower income homeowners harder than upper income homeowners. It is also very hard to assess fairly because the value of properties can change quickly, and cities often don’t have the resources to reassess every property on an annual basis. Then in Florida you add in the debacle of Save Our Homes, where recent homebuyers are forced to pay multiple times what their neighbors who have not moved pay, and you have a wildly unfair, regressive tax that affects everyone. And if you think you are avoiding paying this tax by renting, think again. All you are doing is avoiding getting the tax deduction, because your landlord is paying the property tax from the rent that you pay!
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