4/15/2011 5:15 PM ET|
Hidden taxes you pay every day
Government takes a cut of just about anything involving money -- and that raises the cost to you. There's the broom tax, the girdle tax, the tackle box tax . . .
Everyone knows there are federal taxes on tobacco and alcohol, but did you know the feds take a bite out of your afternoon candy bar?
Plenty of unexpected taxes raise the price of goods and services: so-called sin taxes, import duties, user fees and excise taxes on things as varied as gas guzzlers, firearms, communications services and air travel.
"Most of the hidden taxes pertain to products we buy rather than wages we earn," says Pete Sepp, executive vice president for the National Taxpayers Union, a watchdog group in Washington, D.C.
There's a tax on many of the items you think are free.
Here's just one example: The life insurance policy that your employer so generously gives you as a benefit is taxed if it is more than $50,000.
To make it easier for domestic manufacturers to compete, the government may impose tariffs on imports ranging from brooms to bicycles, making their prices artificially high.
According to the U.S. International Trade Commission, here are some items whose prices swell with import taxes:
- Bicycles: 30%
- Certain infant formula: 30%
- Flashlights: 125%
- Girdles: 20%
- Brooms: 32%
- Cotton hammocks: 14%
- Table linens: 113%
- Peanut butter: 132%
- Office or school supplies: 53%
- Golf shoes: 35%
- Cameras: 20%
Besides tariffs, Congress uses subsidies to manipulate the price of goods and produce to help American producers.. These costs are sprinkled over many products, such as candy, breakfast cereal and other packaged food.
"Who pays for these subsidies? All of us do -- when we pay our taxes that are used to pay the subsidies to domestic producers and when we purchase a Milky Way as a midafternoon pick-me-up," says Andy Pike, a tax professor at American University's law school.
That candy bar is a good example. The U.S. Government Accountability Office estimates that federal sugar subsidies cost American consumers almost $2 billion annually. U.S. Sen. Richard Lugar, R-Ind., the sponsor of legislation that would repeal government price protections for growers of sugar cane and sugar beets, says the figure could be as much as $4 billion.
Hidden taxes are everywhere
You don't even know it when you pay many federal taxes. Often, the tax does not appear on the sales slip; it's simply lumped into the price of goods. (Think of the receipt you get at the gas station, which doesn't itemize federal or state taxes.)
- If you want to take a romantic cruise down the Potomac River -- or any other U.S. waterway -- there's a tax of about $3 on anyone transported by boat.
- Here's what you pay for an airline flight: a 7.5% tax on a domestic ticket, a $3.70 tax for each segment of a flight and, since the Sept. 11 terrorist attacks, a $2.50 security charge on every segment and a variety of other fees imposed by the Department of Homeland Security. That's in addition to a $16.30 international arrival tax, a $16.30 international departure tax and a passenger-facility charge of up to $4.50.
- Fishing isn't free, either. A fisherman pays 10% of the sales price on sport-fishing equipment. Outboard motors and tackle boxes are taxed at 3%. Archers are hit, too. The federal tax on arrows is 45 cents per shaft, although certain wooden arrows are exempt. Quivers and broadhead arrows are taxed at 11%.
- Buyers of handguns pay 10% of the sales price to the feds; other firearms, along with ammunition, are taxed at 11%.
- The federal tax on a pack of cigarettes was 39 cents until Feb. 4, 2009, when it was increased to $1.01 per pack. State cigarette taxes vary, ranging from a low of 17 cents a pack in Missouri and 30 cents in Virginia to $4.35 a pack in New York and $3.46 in Rhode Island.
- A childhood DPT vaccine (diphtheria, pertussis, tetanus) has a 75-cent charge per shot, paid into a trust fund for those harmed by the shot.
- Here's one the federal government rarely collects: a 2% tax on unauthorized wagering. Yes, it's on the books, and it is directed at criminal cartels. When you bet legally, there's a 0.25% tax on every bet you place.
It's not room and board -- it's 'income'
Some things are not taxed specifically but are listed by the IRS as income -- meaning you'll pay in April:
- Thrilled that your son or daughter got a college scholarship? There may be federal taxes on some parts of the award. Room, board and pocket money are taxable, though tuition is not.
- The next time you find buried treasure, remember to report it as regular income.
- Even if you're so broke that creditors have forgiven part of your debt, you are not off the hook. The forgiven portion of your debt is "income" and may be taxable as such. Note that there are exceptions if the debt was secured by your principal residence or you declare bankruptcy or are insolvent at the time.
- You may feel lucky in Las Vegas, hit the lottery at home or have a good day at the racetrack, but all winnings are taxable as regular income.
- If you take a bribe or steal property, it's income unless you give it back before the tax year is over. Just a tip.
Why do it this way?
Every tax has a purpose -- political, practical or puritanical. Some are designed to cover the cost of services, like the 18.4-cent gas tax that pays for highway construction. The airline ticket tax helps build airport runways.
Others are meant to discourage certain types of behavior as well as raise revenue -- like the $2.14 federal tax on a bottle of 80-proof liquor and a roughly 30-cent tax on a six-pack of beer.
If you buy a gas guzzler, a tax of up to $7,700 is paid by the manufacturer (but passed along -- right on the sticker -- to you, the buyer). The federal cigarette tax increase will be used to fund health care for children not otherwise covered.
States impose excise taxes, too, to raise money for their strapped coffers. Cigarettes are a favorite target. They cost much more in New York than in Virginia because of hefty New York excise taxes, creating a market for smuggled cigarettes.
"People load up tractor-trailers (with cigarettes) and drive them to New York," said Kail Padgitt, an economist at the Tax Foundation, a nonpartisan Washington, D.C., tax policy research group.
Various hidden tax ideas have died, including one familiar in Europe, the value added tax (VAT), which involves taxing all consumer goods and services at each step of the manufacturing process. But plenty are still alive.
"People think they are overtaxed right now," says Tom Giovanetti, the president of the Institute for Policy Innovation in Texas, "and they don't know half of the story."
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