I've just finished our taxes, and figure our income for 2021. I looked up the estimated median income of 2-person households in Illinois (Census Bureau estimates), and our income was 111% of that, but I also checked the median family incomes of metropolitan residents in Illinois, and our income was only 96.2% of that. So, in other words, we are very close to the median incomes for our part of the country (and probably lower than persons with similar educational levels).
Our sources of income
66.6% Most of my income comes from my employment as a professor at UIS.
24% I also inherited some money, which I invest in a hedge fund, and I have a small income from that, although I usually don’t touch that money, and just let it grow. I have a few other small investments that yield a few dividends or interest payments.
8%. I also inherited half ownership of a house in California, and my sister and I (we each own half of the property) derive some rental income from that.
1.4%. My wife has worked a little in some restaurants owned by her friends when they were short-handed, and has earned some income from that.
Keep in mind, we only earn 68% of our income through our labor, and the other 32% of our income is derived from assets we inherited from grandparents and an uncle. For middle-class and upper-class Europeans-Americans, this is common, but it's uncommon for Black and Hispanic and American Indian households.
0%. My family has a business, but that business has not done much in 2021 or 2020, during the pandemic. We had expenses associated with keeping the business license active, and earned a trivial amount of money as well. The expenses were only about $300, and our income from the business was slightly less than that, so this year our business wasn’t a significant part of our household finances. In past years we have earned almost 40% of our household income through this business, but as it is a family business, and we mainly ran it to earn money to pay for expenses related to our sons, we distributed the business income mainly to them, and didn’t claim much of it for ourselves. But, this year, the business didn’t get us any income.
TAXES
Local property taxes are our largest tax burden, but we are glad to pay, as these taxes maintain the infrastructure around our property; the salaries of police and fire protection workers are covered through local taxes, and a significant percentage of local property taxes fund K-12 education, community college education, libraries, and parks. I think property taxes on second homes or rental properties (such as we have in California) should be fairly high, because landlords shouldn't be able to get rich of property investments. Property taxes on rental properties should be set up so that landlords have incentives to maintain and improve the properties they rent out, and property ownership should give people a safe investment against inflation (if rents can be linked to consumer price indices), but since landlords don't really produce anything, they should not get wealthy from owning property. I'm for very low property taxes on primary residences, as property taxes tend to be slightly regressive (a heavier burden on residents with low incomes compared to residents with high incomes).
5.5% of our income went to pay property taxes in California.
5.8% of our income went to pay property taxes in Illinois.
I don’t keep track of local and state sales taxes. Every time we buy gasoline, we pay taxes on fuel, to pay for roads and transport infrastructure. When we travel, we pay restaurant, motel, and sales taxes (in 2021, this included taxes paid in Indiana, Missouri, Iowa, Nebraska, Wyoming, and Idaho). We never pay any sales taxes in Oregon (no sales taxes there), but in Illinois we pay taxes on groceries (very low), and regular things like soap, paper, and so forth (much higher). My guess on our total sales tax expenditure is an educated guess, as I do keep track of our spending, and have a fair estimation of the taxes we have paid when purchasing things:
1.2% of our income went to sales taxes.
Our state income taxes in Illinois pay mainly for healthcare, K-12 education for children in Illinois, public universities and community colleges, social services, child protection, and human services. There is also a small portion that pays for corrections, infrastructure, and state services. A tiny bit pays for environmental protection, parks, and things like that. I’m happy to pay state taxes. I think families such as ours, who have incomes very close to the median household income for married couples, ought to pay slightly more than we do.
4.4% of our income went to Illinois through income taxes.
Our federal income taxes are split about 50/50 between payments for military and veterans services, and everything else. The everything else is mostly Medicaid, but there are also contributions to NASA, the Foreign Service, low-income housing, food support for the poor, federal transportation infrastructure, medical research, and so forth.
5.3% of our income went to federal income taxes. It seems to me we should have paid closer to 9%, but I won’t complain too much.
Our Medicare payroll taxes only are taken from our wage/salary incomes, as we don’t need to pay for Medicare out of our income on our business, our property, or our investments. Medicare will be our health insurance when we reach 65 years of age, if we live so long. I will also have supplemental health insurance as a retired state worker.
We paid 1.1% of our income to Medicare.
Most Americans also pay 6.2% of their income into a Social Security pension scheme, but I do not, because I work for the state, and will have a state retirement plan. However, this means that I have about 6% of my income taken out of my pay and placed into my retirement plan, and the state of Illinois is supposed to also put a matching amount into that fund. This retirement account contribution is deducted from my income, just as social security taxes paid by other workers is removed from their adjusted gross income. My wife, however, did pay into Social Security. Both she and I have paid thousands of dollars into Social Security, but because we have worked as state employees for most of our lives, and only paid into Social Security for five or six years, we are unlikely to ever qualify to receive any Social Security benefits.
We paid 0.1% of our income to Social Security in 2021.
Adding up all the taxes we paid, it seems almost exactly one-third of our income went to local, state, and federal taxes. I estimate 33.3% of our income was paid to the public.
Personally, I think a middle-class family such as ours ought to pay about 12% to our state and local government. I think this should mainly be taken through income tax, not so much through sales or property taxes, but anyway, I would rather that we paid 0.5% in sales taxes (I approve of the gas tax and various utility and energy taxes), about 2% in property taxes (rather than the 5.8% we did pay) to Illinois, and 9% (rather than the 4.4% we did pay) to Illinois in income taxes. That would put us at a 11.5% total tax rate to Illinois (instead of the 11% I calculate we actually paid). I think middle class residents of Illinois ought to contribute about 11.5% to 12% of their income to the state, and wealthy residents should contribute 13% to 16%. A reduction in sales taxes and property taxes would lower the tax burden on residents of Illinois with lower incomes, who currently probably pay over 12% of their incomes in taxes (because sales taxes are a much higher burden to them).
Likewise, I think federal taxes, to cover the costs of ending homelessness, improving medical research, and ensuring that everyone can get good health care, should be higher. Basically, middle class families such as ours ought to pay about 9% instead of the 5.3% we paid.
So, I think I would be happy paying 37.5% of our income in taxes, if the money went to the sort of public expenditures I’d like to support (ending the use of fossil fuels, ending homelessness, improving medical care, achieving the Agenda 2030 Sustainable Development Goals around the world, etc.).
My W-2 shows me that my employer believes the insurance policy my wife and I had this year was worth $31,075. There are only two of us, so that’s a little over $15,530 for each of us. I calculate that we paid a little less than $1,000 out-of-pocket for medical and dental costs this past year. So, about $16,000 per individual in our household went to health care or health insurance paid for by my employer. I believe if we had a more efficient health care system in which everyone had medical care, the cost would decrease, because of lower administrative costs. In other words, my employer could just pay me $28,000 directly instead of paying an insurer $31,075, and giving me a benefit instead of income. But, with that $28,000 additional income coming to me, I would expect the government to tax me to get most of it as our household’s contribution to the universal health care system. So, my income would go up by about 33% because I would get paid with money rather than getting a health insurance policy through my employer (and the employer would save some money as well, paying me only 28,000 to cover health care rather than paying an insurer $31,075). I would expect my state income taxes to go up to 5.5% from the 4.3% we pay now, so Illinois would get about $2,500 of that $28,000 in additional income, and then the federal government would need to tax me at 25% instead of the 5.3% it taxed me this year in income taxes. But, my after-tax income would actually still increase, and I’d end up with about $1,750 more than I get now.
In summary. With a universal health care plan, my employer would save $3,000 in labor costs, and pass on to me a salary increase of $28,000 and stop paying insurance companies $31,000.
The state would then tax me at a higher rate and get about $2,500 more in income tax from me than it gets now, bringing my net pay increase down to $25,500. However, that additional $2,500 paid to Illinois would help my state improve the quality of life where I live, for me and for persons who are in greater need of public assistance. For example, we could ensure everyone had permanent housing, and we could provide detoxification and drug abuse recovery services, and improved mental health services.
The federal government would then also raise my taxes so it could provide a good universal health care system, and maybe even institute a sort of basic minimum income. Raising my taxes from 5.4% to 25% would take another $23,750 of that $25,500 left over from my $28,000 pay increase, but I’d get a better health care system than I have now. Instead of having $1,000 in out-of-pocket health expenses each year, my out-of-pocket expenses would drop to maybe $200 or $300. And, I’d still have $1,750 more in income than I have now. Best of all, I’d get to live in a civilized society where everyone had good health care, and perhaps there would even be some sort of a basic income or negative income tax to eliminate poverty.
Currently, my employer pays $31,000 as a benefit to give me and my wife insurance.
With a universal health care system, the employer could pay me directly $28,000, saving $3,000 in my employment costs.
My state could take $2,500 of that to help improve health services, education, and social services in the state.
The Federal government could take $23,750, which would allow a universal health care system.
I’d be left with $1,750 more income to spend (after all the increased taxes) and an additional $700 in extra spending money that I now pay for out-of-pocket medical expenses (but would no longer need to spend with a universal health care system covering those expenses).
The federal income tax of 25% rather than 5.3% I now pay, and the state income tax of 5.5% rather than the 4.4% I now pay, seem like terrible burdens, but in fact, I’d end up with nearly $2,500 more in net after-tax income I could spend on things other than medical expenses.
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