Today Uncle Sam's messenger delivered my W-2 Form to my desk. All U.S. income earners receive this each January for tax filing purposes. There's an American saying that two things are certain - death and taxes. If you look at this form, you will understand the truth of the statement because we're taxed at incredible rates. Higher earners, like me, contribute more and fall into higher tax brackets. I also pay more because I'm single, with no children to claim as deductions. Last year, I cut my work schedule down to 80%. I wrote about it here, and this resulted in a 20% decrease in my salary. I thought this would push me into a lower tax scale, but nope it pretty much remained the same. Over 30% of my earnings went to Uncle Sam. What does he do with it?
This remains a mystery to me and most Americans. The breakdown for me, based off a salary of approximately $120,000 USD is as follows:
Federal Income Withholdings: $24,315.91!!!
Virginia State Income Tax: $6,494.99
Social Security: $7,254.00 (this is our system for pensioners)
Medicare Tax: $1,759.79 (public health insurance for the elderly)
Even as a lawyer, I don't understand anything about the U.S. Tax Code. This is one of the most complicated laws ever written, and there's constant demand for reform to make the language more understandable for ordinary people. It's almost 70,000 pages in its current form, containing close to 4,000,000 words. According to this article, the U.S. Tax Code is seven times the length of Leo Tolstoy's "War and Peace." Can you imagine it? Tax attorneys are highly specialized and earn high legal salaries, which they deserve for spending their days weeding through this mind-numbing and complicated piece of legislation. I have an investment broker friend who prepares my tax filings each year, and he always finds ways for me to do write-offs which usually result in a tax refund of around $1,500.
I complain about this high tax rate partly as a joke. I don't mind that I pay more into the system than others. I agree that higher earners should contribute more. I think in Russia there's a flat tax system, where all contribute equally regardless of their salary. Is that right? For what purpose does the Russian Federation use your hard-earned money? In America, people who make less than $10,000 don't have to file any tax returns.
A lot of this money goes to infrastructure, and if you've ever traveled in the U.S. you will understand it's good here. There are decent roads almost everywhere, allowing Americans to be a very mobile nation. Trains and metros outside of large cities aren't well developed, but there's really no need for it when people can easily move around in their cars. The rest of the money goes to support the elderly, pension and public programs, national defense, and I have no idea what else.
Just last night, all of New York City was shut down in anticipation of a blizzard. This was an unprecedented measure, where even the infamous NYC Metro was closed, travel on all roads forbidden, trains inoperable, etc. If you were caught driving during the black-out period, a $300 fine would be imposed. An army of plow trucks were unleased in the city to remove snow so that a traffic apocalypse didn't happen. I guess the American view of "it's better to be safe than sorry" is quite different from Russia at times. I've read in the news many times that massive traffic jams occur in Moscow during heavy snows, hours and hours of back-ups. People stuck in traffic for days. How can it happen for a country that is constantly faced with this type of weather?
I don't know which tax system is better really. Paying into the system to support a nation's infrastructure is just a part of life for everyone. In America and Europe, it seems we contribute a lot more than others. So, we can see no place is perfect. There are pros and cons to living in any country. :)