Over the past five weeks, we have been discussing tax issues related to wealth management in a series of blogs, part of ThinkAdvisor’s annual 23 Days of Tax Planning Advice: 2016. In this post, we will conclude with a few statistics on how taxes affect many of our clients.
Tax Freedom Day
Each year, it takes a certain number of days for Americans to earn enough money to pay all federal, state and local taxes, reaching what is called Tax Freedom Day. The Tax Foundation assigns each state a ranking of 1-50, where ‘1’ is best (i.e., the fewest number of days to Tax Freedom Day, or TFD) and ‘50’ the worst.
Here are the five best- and worst-ranked states in 2015. Alabama and Tennessee tied for fourth and Connecticut and New Jersey tied for last (i.e., worst).
Who Bears the Income Tax Burden?
Who bears the greatest income tax burden in the United States? Many of our clients.
Taxes consume a significant portion of income for those who have achieved some measure of success. (See Closing Tax ‘Loopholes’ Would Choke the Middle Class.)
The chart below contains 2013 data on federal income taxes paid according to income group. Over 97% of the federal income tax was paid by the top 50% of wage earners.
Moreover, the top 10% of earners paid slightly under 70% of the individual income tax burden.
Many affluent individuals own a nice home (or more than one).
Here are the states with the highest and lowest average effective tax rate on owner-occupied houses in 2014. A higher ranking here equates to a larger tax burden.
As advisors, it is important to be familiar with various aspects of the U.S. Tax Code. Given the size of the national debt and annual deficits, I suspect taxes will become an even more important topic of conversation in the years ahead, especially as the government seeks less conspicuous methods of taxing Americans.
One way to familiarize yourself with tax issues is through the Tax Foundation’s annual report, Tax Foundation Facts & Figures.
Until next time, thanks for reading and have a great week!