How many times in your life have you heard “life isn’t fair!”? Either you heard yourself exclaiming it in a moment of distress or perhaps you had a punishing parent tell it to you in an attempt to teach you a lesson. Life isn’t fair, and the dialectic of that phrase is that most of us seek fairness in not only our individual lives but also socially and economically. The drive for justice and fairness is innately placed deep in most Americans. Now more than ever Americans are feeling political unrest. Dr. Mitch explains; “Since societal anger is escalating, we can infer that the pain of living in society has been escalating. This pain is the source of political unrest, which is escalating in our country and the world due to treatment or conditions that are perceived as unfair”.

The United States Census reports that the official poverty rate in 2021 was 11.6% or 37.9 million people. To say that people are feeling social and economic strain would be an understatement. A large part of why people feel this way is due to not being paid liveable wages. Especially since the pandemic hit people are taking second jobs and creating “side hustles” just to get by. The middle class is disappearing and the unrest is palpable. With the middle class disappearing the separation between the poor and the wealthy is that much more evident. One major reason why this division is occurring is in our taxation system. Our system is currently designed to keep the rich wealthy and the poor getting poorer.

Taxes. Many believe money is the root of all evil. However, the world needs roots. We know living tax-free is not a solution, however, a fair tax system should be implemented to help even the score. Taxes are widely misunderstood and confusing for a lot of people. Because of this taxes can be incredibly sneaky and there are a plethora of ways that Americans are taxed unfairly.

Taxes are something a lot of people wished they knew more about. It often feels like an impossible task. Most Americans know that taxes play a vital role in our system but can’t help feeling that in some way or another we are also getting screwed by that very system. It’s like when you go to get an oil change as someone who knows nothing about vehicles. You may go in for car maintenance or repair with the understanding that you know nothing about cars and that you might be overcharged for not only the oil change but maybe even sold something you didn’t actually need. You simply don’t have the knowledge to be able to counter whatever the repairman is saying. This is how many people feel when it comes to taxes.

History of Taxes

Taxes have been around almost as long as humans have. The oldest known tax system occurred over 6,000 years ago in Babylonia to finance a war. Since then the United States has been utilizing a tax system that has been rooted in unfairness and targets the poor and middle class.

Declaration of Independence

On July 4, 1776, the Continental Congress adopted the Declaration of Independence. The Declaration of Independence explains that “We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness”. This is a pertinent part of American history and the taxation system because our tax system does not currently treat all people equally. Some people are born into affluent families and inherit wealth, success, and business. Some are born into homelessness. People are not all inherently born equal. Each person that lives in the United States has a completely different human experience and has different advantages and disadvantages. Therefore to honor that portion of the Declaration of Independence each human needs to be treated as such that evens out the playing field.

16th Amendment

The 16th amendment is widely known as the amendment that changed the way the United States taxes people forever. The 16th amendment was passed in 1909 in response to the 1895 Supreme Court case Pollock V Farmers Loan and Trust CoThe 16th Amendment states; “Congress shall have the power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.” This Amendment established congress’s right to impose a federal income tax. Before the 20th century, most taxes were collected through tariffs rather than income.

Why Do We Have to Pay for Taxes?

You may be wondering what the point is in taxes anyways. You might be aware of the income tax that is taken from your paycheck and that’s it. Here are some of the most common reasons Americans pay taxes.

Government Jobs and Services

Federal taxes help pay for national things such as the president, the military, and congress. State taxes help pay for things such as governor and local roads. County and city taxes help pay for EMS, the police department, and schools.

Income Taxes

Withholdings are taken out of every employee’s paycheck. If you are a business owner or independent contractor and get paid in cash, you are expected to report those earnings to the IRS and pay a certain percentage of your wages as taxes. These taxes typically include medicare, social security, and unemployment.

Property Taxes

Are usually a percentage of tax taken from the current property value  There can often be a property tax from the county and the city.

Sales Tax

Sales tax is tax put on all retail sales in any given area. Across the United States, the percentage of sales tax taken can vary. Sometimes items such as food or clothing can be exempt from sales tax in certain places.

Business Tax

This is the tax that any given business is expected to pay. The amount is variable to the size and profit of that business.

Car Registration Fees

When you purchase a vehicle you have to pay tax for the license plate and for the title of the car. If you move into a different state you will have to pay the same use tax for a new license plate and title in the new state. The idea is to prevent a resident from going outside of the state to buy a car and therefore avoid the sales tax. Moving is extremely expensive, and some people have the desire to move and are unable due to it being too expensive. This added expense when moving with a vehicle is another example of how our taxation system targets the poor and middle class.

Hidden Taxes

Along with the list above, there are plenty of other ways the government implements hidden taxes. Due to Covid-19, the United States saw a spike in “side hustles” and people working for themselves. Side hustles gave people an opportunity to pursue their passions such as making art, content, or jewelry and being able to sell them. Many people began making content because it was work you could do from the safety of your own home. A lot of people began flipping items they thrifted or selling their clothes or beauty items on second-hand selling apps. It seemed like it was a no-harm no foul situation. However, many people don’t know that these side hustles need to be reported to the Internal Revenue Service (IRS) and you must pay taxes on them. Many people don’t understand that any and all earnings you make are expected to be reported to the IRS. Even if you got paid in cash or under the table the IRS expects that you report every single dollar. And if you don’t and the IRS audits you, you could be in some hot water.

What came as a shock to many is how confusing doing taxes were on your own and just how much one could be taxed. When you work a standard 9-5 job for an employer in the United States your paycheck will show you where your tax deductions are going. Nowhere on that paystub, it informs you that your employer matched part of your deductions. Typically an employer will match whatever deduction is taken out of your paycheck for unemployment. Once one becomes a 1099 contractor, or you are your own boss. you are expected to make all those payments. So if you thought you were paying too much in taxes before, you could be paying double as an independent contractor. For a small business or a side hustle this can be detrimental. Side hustles can be extremely lucrative and often people are even becoming millionaires from them. For most, they are simply a way to make ends meet. But being required to pay double in taxes takes a large chunk from their bottom line. This is another way the government unfairly taxes the poor and middle class.

How the Rich Stay Rich

One way the rich don’t have to pay taxes is by how they are taxed. Warren Buffet, a well-known millionaire in the United States has been filmed explaining that his secretary pays more in taxes than he does. This is because most of his money is currently in stocks and he only pays on his sold stocks which is capital gains tax (20%) and his secretary is paying income taxes (approximately 37%). The way that the rich and elite make money is very different from how lower middle-class people make money. And, they are not taxed the same. Investments otherwise known as capital gains have a maximum tax of 20% whereas income tax can be anywhere between 10 and 37%. The super-rich are never paying an equal amount of taxes as the average Joe.

It makes no sense that people who make more money aren’t taxed more. The burden is falling on lower-middle-class people who are already struggling. And we often see celebrities or other rich people getting jail time for tax evasion. Some of the 1% think paying any taxes is unacceptable. Their way of life is drastically different from everyone else. They do not struggle to pay for groceries and often those who do evade taxes are doing so out of greed. Sometimes the 1% lifestyle can no longer be obtained. This is where we see the bulk of celebrities or the rich run into problems. Instead of adjusting their lifestyle, they begin to evade taxes and get themselves into debt to maintain the lifestyle they are accustomed to. It is simply poor money management. The poor shouldn’t have to pay more in taxes just to ensure the elite can afford their second yacht.

Final Thoughts

Taxes can be extremely complex and overwhelming. As we head into tax season you might be feeling the burden and overwhelm of having to do taxes and what that might mean for you and your family’s future. We understand this burden and hope we can spark change and hope. In Doctor Mitch’s book, A Taxing Problem: The Psychologist’s Prescription for a Just Tax System he easily breaks down the how and why our taxation system is targeting the poor and middle class unfairly. When reading this book you will be offered an all-encompassing perspective on the issues of our current tax system and what solutions can be put into place. Dr. Mitch offers his unique insight and how the United States can fairly tax all Americans more equally to create a more just and fair society.