Monday, November 8, 2010

More on taxes

One of the things I hear Brits bag on Americans about all the time is our tax system, mostly in that we have our tax system broken down by community, where as they have, for the most part, taxes based on a federal system.

In the States, we pay city tax, county tax, state tax and federal tax on almost every purchase we make. The highest rate I remember seeing was around 23%, which is high, but not completely crazy. It’s usually in the 18-20% range. Here in the UK, and throughout Europe, we pay a VAT (Value Added Tax) on everything, which right now is 17.5%. At the beginning of the year, that will go up to 20%. You know, the recession and all. Some people think paying one tax on every purchase is easier than trying to figure out taxes based on community. Mathematically speaking, it probably is. Theoretically, paying based on community is much better for us.

The VAT is determined by the Parliament, and the citizenship doesn't have a choice on it, beyond whom they elect to represent themselves. In the states, while some tax rates are determined by the legislature, many taxes (city, county, etc) are actually determined by a ballot initiative, and the citizens of that community actually have a say in how much they pay. They tax themselves, or not, as they see fit.

The benefit to the American system, as I see it, is that we actually have a say on where our tax money goes. In the UK system, all VAT goes to the federal government, which then doles it out as it see fit. Your tax money on purchases can go to other parts of the country, and be used for projects and programs you might not necessarily agree with. In the States, a tax can be imposed for a specific project or program, such as a new road, bridge repair, or into the educations system. If you vote it in, it goes for that. There is a choice, as the community decides, not the government.

One good example of this is my hometown. At just over 3000 residents, it should actually be around 1800. The discrepancy is due to the fact that my town used to advertise nationally as a retirement community, and the population is over 60% senior citizens. Very out of whack with the national average, the seniors constitute the largest voting block in town and have a lot of power. At every election, they block every attempt for an increase in property taxes that would go to the Board of Education to buy books, repair the schools, support extracurricular activities, and all those other things that schools generally.

Some people would claim that the federal government, or the state, should be providing money for education, and not the community. Well, that already happens. Each school district in Missouri receives money from the state, which apportions federal entitlements with its own, and parcels it out to the school districts. The money from the community (property tax) is above and beyond any other entitlement. What works, to me, is that the community gets to make that decision about any extra tax money, not the government. While I wish the seniors would vote in the tax increase (they won't; they've raised and paid for their kids education, why should the pay for someone else's?), they have the right and ability not to. Any parent not happy about it has the right to move to another school district. It's called freedom of choice, and it's a good system.

So after all is said and done, Europeans can bag on Americans for the way our tax system, and state power (which have actual power and are not just geographical regions on a map), but the truth is, they don't have the same freedom in determining taxes as we do. Even as a non-socialist country, the average American pays slightly more tax on purchases than most Europeans. But we can control where our money goes, while Europeans don't.

While we pay slightly more on purchases, which adds up to a good chunk of change after awhile, the total amount of taxes gives Americans a decided advantage.

Some of the other taxes that I pay here:

Television tax:

A television license (or broadcast receiver license) is an official license required in many countries for the reception of television (and sometimes also radio) broadcasts. It is a form of hypothecation tax to fund public broadcasting, thus allowing public broadcasters to transmit programmes without, or with only supplemental, funding from radio and television commercials.
No, we don't pay television tax in the states. Sure, everyone bitches about how much cable or satellite costs, but they do the same thing here. But Americans don't have to pay just to have a television in their house. We pay by having to watch commercials.

United Kingdom -- £140/yr ($225/yr)
United States --- none

Council Tax:
Council Tax is the system of local taxation used in England,[1] Scotland[2] and Wales[3] to part fund the services provided by local government in each country. (In Northern Ireland, the form of local taxation is rates.) It was introduced in 1993 by the Local Government Finance Act 1992, as a successor to the unpopular Community Charge. The basis for the tax is residential property, with discounts for single people. As of 2008, the average annual levy on a property in England was £1,146.[4]
This is equivalent to our property tax. This is based on the valuation of property and goes to pay for police, fire, trash pickup, and other municipal services. The advantage to this system over the American property tax is that there are bands, according to income, occupancy, single residency etc. In the States, there are no discounts. You pay the assessed value and that's it, whether by country or state.

However, one advantage the American system has is that some states; and by extension, counties; don't have property taxes. I spent the majority of my adult life in states that didn't require a state tax, or where active duty military didn't have to pay unless you were a resident of that state. I can tell you that saved me a lot of money over the years. But no such system exists here. There might be some form of discount, but everyone pays.

United Kingdom --- £1300/yr ($2100/yr)
United States --- £250/yr ($400/yr) of course, I was a poor boy and never owned any property beyond my car. That was the year I lived in Arizona and the year in Missouri. The only two times I ever paid.

Road Tax:
Road tax, known by various names around the world, is a tax which has to be paid on a motor vehicle before using it on a public road.
We don't pay a road tax as such, in the states. This is rolled up into property taxes (you pay for the value of your car - again, in those states that have those taxes), and sometime there are special road taxes, but that is based on the needs of your community, not someone else's. This is mostly equivalent to licensing your car each year, but again, this is based on the state you live in.

United Kingdom --- £212/yr ($340/yr)
United States --- £20/yr ($30/yr)

Income tax:

The same basic system in both countries. You earn money, you pay taxes on it. In the UK, it is pretty much a flat tax with no deductions or itemization, while in the States; you can do all sorts of magic with your return to lower the amount you pay.

United Kingdom --- around 20% over £6000. Small refunds.
United States --- around 18% over $7500. I usually got a refund around $800 every year.

So, after almost three years here, and paying taxes in both countries, my assessment of the situation is that the United States has an advantage in how much we pay, or don't pay. The amounts paid in each country aren't that much different overall, once it's all added up. The major difference is the that Americans have more control over their taxes and where the money goes, in that we can keep more of our tax money in our own community, by popular vote, while the people of the UK have their rates dictated to them and have less control on how it is spent.

I prefer the American system in that we have more control, but as a Socialist country, the tax system in the UK governs all of the tax income, minus council tax. This gives more of a portion to everyone, but takes away from the community. It’s really a matter of choice, in the long run. The main thing I’ve taken from all of this is that I pay way too much in taxes in both countries for the services received.

Disclaimer: I kind of threw this together without checking out a lot of numbers. Hey, I'm not a journalist and I'm not getting paid. That being said, if somene has better numbers than me, let me know.

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