The Tax Pain of 2017
Like most of you, this week I am dealing with filing my taxes for 2016. I am not a U.S. citizen, but like most of you reading this today, I also file and pay income taxes each year. As a self-employed individual, in addition to the income tax, I pay an additional tax, the self-employed tax, that most of you do not have to deal with. Imagine that, an immigrant paying taxes! Yes, it happens more often than most care to admit. Even the undocumented immigrants contribute to the tax base of the United States. What is worse, and much to my chagrin, as a Mexican citizen, my taxes will help pay for Trump’s wall.
However, today’s post is about the pain of paying taxes.
For 2016, my total tax liability is $34,313. Of that amount, $19,477 is for personal income taxes and the rest, $14,836 is the self-employment tax. Self-employment tax is the Medicare/Medicaid and social security tax you all pay; however, your employers generally pay half of the tax while the rest is paid by you. Texas teachers pay nothing towards the social security tax because they are covered by a Texas teacher plan.
I underestimated my tax liability for 2016 so I’m on the hook for almost $10,000 that I am short. I’ll be making monthly payments to make up that amount.
But here is the most disheartening thing about the whole thing for me. If my income remains the same for 2017, for each dollar that I pay towards the $10,000, I must set aside almost 33 cents towards what I anticipate my taxes to be for 2017, in addition to my original estimate.
Look at it this way, as a self-employed individual, I can somewhat control my income by how many jobs I am willing to take on. For this year, I must increase my income by $10,000 to pay off what I owe in taxes for 2016. But, because I am increasing my income by $10,000, I am also increasing my tax liability by about $3,260, in addition to what I would normally be liable for.
So, for me, it is not about $10,000 but rather it is about making another $15,000 in 2017. You see, as my income increases, so does my tax liability. To satisfy the $10,000, I owe for 2016, I must make $15,000 more money in 2017. The first $10,000 goes towards what I owe and $4,890 goes towards that taxes I will owe on the additional amount for 2017.
It is a vicious circle of paying taxes on money that I am using to pay taxes.
Want to know the most disheartening thing? An individual who earned $72,363 in 2016 working for a company paid $5,772.20 for social security and Medicare/Medicaid. The employer paid the rest. I paid almost $15,000 on a salary slightly higher than the $72,363. The income tax for the individual was $6,699. We both have similar deductions. Where I am paying $34,313, the other individual is paying $12,471.20.
The difference has nothing to do with my citizenship. It has to do with a tax system that encourages dishonesty, manipulation and discourages working for one’s self. These figures do not include the corporate taxes that I also must pay.
Donald Trump has promised to pass legislation to remedy the exorbitant taxes forced upon workers in the country. Unfortunately, like almost all of Trump’s other promises, substantial tax reform is unlikely to pass through the Republican-controlled congress. Yes, the Republican president is unlikely to pass tax reform, although his party is in control of both houses of congress.
The sad truth is that there are only two ways for Trump to pass legislation offering tax relief to the taxpayers of the country. The first is to offer cuts on the tax rates for corporate and personal taxpayers. Whether it is a ten percent cut or more, any tax rate cuts will have to be offset by an increase in the country’s deficit. The Republicans will not allow that.
The second option is to impose a new tax scheme, like a value-added tax (VAT) on products or the border adjustment tax (BAT) that Trump has previously floated. Neither of the two tax schemes will be acceptable to the Republicans. A value-added tax on products is feared by the Republicans as a tempting cookie jar to future governments that can be used to impose additional benefits by simply increasing the tax. The Democrats look at a VAT tax as regressive and thus they oppose it as well.
The border adjustment tax is opposed by the Republicans because it would impact their largest base, businesses who see the BAT tax as detrimental to their bottom lines.
Put aside for the moment on whether Donald Trump can be blamed on the lack of tax relief and consider that the tax system is unlikely to change because of inherent self-serving interests that continuously discourages small business entrepreneurs while encouraging child deductions and other schemes that make a simple tax return a complicated matter that few truly understand. Of course, there is much cheating included. Too bad that I can’t cheat because although many cheat on their taxes, I can be deported if I were to be caught cheating.