Back to Quack Off
Tax Rates Are Not The Same As Tax Burdens
As ‘The Tax Buster’ who ran for Idaho’s District 18 Senate seat
in last May’s Primary, allow me to refute Rep Bunderson’s District 14
editorial: “Politicians Overstate, Oversimplify Idaho Tax Realities.”
One of my campaign
claims was that Idaho ranked as the 11th highest taxing state in
the nation regarding state and local taxes as a percentage of income. My
source was www.taxfoundation.org.
analysis relies on tax rates. But a tax rate is not the same as a tax
A tax rate is
simply a percent at which the government taxes you. For example, Idaho’s
current sales tax rate is 6%. Mathematically, it means 6/100 times the cost
of the taxable item. 6% times $100 equals $6.
A tax burden is
defined as the percentage of the sum of all of your tax dollars divided by
your pre-tax income. If I earn $50,000 as a software consultant in Idaho
and my total state and local taxes are $15,000, then my tax burden is 30%
($15,000/$50,000 times 100 = 30%).
We should be
concerned about tax burdens as a percentage of income instead of just
individual tax rates. The following example shows why:
If I earn $100,000
as a software consultant in California and my total state and local taxes
are $20,000, then my tax burden is 20% relative to income. If I earn
$50,000 for the same job in Idaho – not unrealistic, by the way – and my
state and local taxes are $15,000, then my tax burden is 30% relative to
In this example,
Bunderson’s Idaho tax rates are lower than California, but the Idaho TAX
BURDEN is higher because the Idaho income is lower. Nobody cares about tax
rates per se. Everybody cares about taxes AS A PERCENTAGE OF THEIR INCOME,
how much money they have left over after taxes.
That’s why it’s
important for legislators to understand the difference between tax rates and
tax burdens. For example, raising the Idaho sales tax on currently exempt
services such as doctor visits, lawyers, landscaping, and haircuts from zero
percent to 5% -- even after lowering the sales tax on commodities from 6% to
5% -- may appear to be a reasonable medium sales tax rate for Idaho. But
due to Idaho’s low individual income, it could dramatically raise the
average Idahoan’s tax burden. In fact, it could push Idaho from its current
Number 11 position into the nation’s Top Five highest tax burden states.
tax burdens and tax rates. The Tax Foundation found that the major
attraction for businesses is simplicity of state tax codes. In fact, of the
top ten business-friendly states, most have eliminated one of the major
three taxes: income, sales, or corporate taxes. Colorado, number one, has
all three taxes but all three are low. Colorado’s taxpayer bill of rights –
a constitutional amendment – limits tax increases to a two-thirds popular
very reason Bunderson claims politicians can’t grasp the reality of Idaho’s
tax code -- its extreme complexity -- is the main reason why the Tax
Foundation claims businesses stay away from Idaho (ranked 33rd as
tax-unfriendly to business).
That’s why our
legislators should implement free trade zones. Low tax rates stimulate
production and jobs. Demand for increased production and jobs stimulate
higher individual income. Higher individual income and low tax rates bring
in more tax revenue while retaining low tax burdens because individual
income jumps through the roof.
Welcome to free
back to top...