Quick Study: Taxes, Taxes, Taxes

Hard times mean a hard look at taxes—how much we pay, who skates through loopholes and more. Learn about the impact on your return.

By Brian Mockenhaupt

From Reader's Digest

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Where the Money Comes From

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One Family's Burden

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1794: Gulp! President George Washington sends federal troops to Pennsylvania to suppress farmers rebelling against a whiskey tax.

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1935: During the Great Depression, the Social Security Act levies a 1% tax on the first $3,000 of earnings.

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Flash Points

• Who takes the hit? Candidate Obama pledged to shift more of the tax burden to the richest Americans, in part by reversing President Bush's tax cuts. His plan targeted those earning more than $250,000; everyone else would get a tax cut. But the recession intervened, putting the tax hike for the wealthy temporarily on hold and changing the discussion to which tax structure will help us get out of a giant economic rut. Research by one of President Obama's own advisers estimated that every dollar in tax cuts equals $3 in economic growth. For now, most people with an income below $500,000 are likely to get at least a small tax cut.
  
  
• More middle-class families walloped by the alternative minimum tax (AMT) In 1969, Congress closed a loophole that had allowed 155 very rich households to hide most of their income in tax shelters. But the resulting AMT didn't adjust for salary inflation; today, it can affect families making less than $100,000. Getting rid of what amounts to a legislative goof should be easy. It's not, says James Horney of the Center on Budget and Policy Priorities, because the government has counted future AMT revenue on its books: "Absent tax reform, getting rid of the AMT is very expensive." Every year, Congress ends up passing a "patch." For 2008, you're probably safe if you make less than $200,000.
  
  
• More sales taxes With an eye on the $3 billion that could be siphoned from currently tax-free online sales, New York State recently drew ire by taxing items shipped there by amazon.com. As strapped states look to sales taxes to help plug shortfalls, expect concerns about the uneven impact of such "regressive" taxes: "People with lower incomes have to spend most of it to stay alive. People who bring in $10 million a year don't spend $10 million," Lee Farris, of United for a Fair Economy, has said.
  

For 2007
Individual income taxes: 50.4%
Payroll taxes (FICA): 31.4%
Business income taxes: 14.6%
Excise and other taxes (tobacco, gas, etc.): 3.6%
Total tax revenue for 2007 = $2,709,798,000,000

One Family's Burden
How much a typical family in Philadelphia earning $50,000 paid the tax man in 2007.

Federal taxes: $6,007 (41%)
Sales tax: $803 (5%)
Property tax: $4,235 (29%)
State/local income tax: $3,361 (23%)
Auto tax: $231 (2%)
Total = $14,637 or 29.3% of income

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