by Howard Stephenson
The typical Utah family pays 28% of its income in federal, state, and local taxes according to an annual study conducted by the Taxpayers Association. The study is based on the earnings and spending of a typical Utah family and includes taxes directly paid by the typical family such as income, sales, and property taxes as well as indirect taxes paid by employers.
The Taxpayers Association study is based on a family with an adjusted gross income of $53,151, the median household income for a Utah family in 2001. The family lives in a home with a market value of $147,600.
Specific taxes as a percent of total income and total taxes
The typical Utah family pays numerous taxes and fees, which can be categorized into seven major groups. The following table shows the breakdown of major taxes as a percent of total taxes and total income.
Employment or payroll taxes, the largest single group of taxes, are those taxes paid by the employer including workers compensation, unemployment insurance as well as the employer’s share of Social Security and Medicare. In 2001, employment taxes comprised 7.6% of total income. Slightly more than one quarter (27.1%) of the typical Utah family’s taxes were in this category.
|Tax Category||Percent of Total Income||Percent of Total Taxes|
|Federal Income Tax||13.6%||3.8%|
|State Income Tax||12.0%||3.4%|
|Sales and Excise Taxes||10.7%||3.0%|
Note: total income is determined by adding the family’s adjusted gross income and the employer’s contribution to Social Security, Medicare, Worker Compensation and Unemployment Compensation
The clock illustration below demonstrates how much of a typical Utah family’s work day goes towards taxes and various items in a typical Utah family budget.
Social Security and Medicare
Employees are required to pay 6.2% of wages toward Social Security and 1.45% of wages towards Medicare. This amount is matched by employers and is included in the employment taxes category. The employee-paid portion of Social Security and Medicare taxes comprised one-quarter of all taxes and 7.1% of total income.
Federal Income Tax
The typical Utah family’s federal income tax was 3.8% of total income, much less than it was only a couple of years ago due to the introduction of the child tax credit. In 2001, this amount was $600 per child. Without the child tax credit, the federal income tax burden for the typical Utah family would have been 7.0% of total income, and the total tax burden would have amounted to 31% of total income instead of 28%.
State and Local Taxes
State and local taxes, including state income taxes, state and local sales taxes, auto taxes, and property taxes, comprise 34.3% of total taxes and 9.7% of total income. Of the state and local taxes, the state income tax is the largest at 3.4% of total income followed by sales and excise taxes (3.0%), property taxes (1.8%) and auto taxes (1.5%). Auto taxes include state and federal gas taxes, the fee-in-lieu of property taxes, and several fees.
Indirect or hidden taxes, are not included in this study. These are taxes imposed initially on businesses, but ultimately passed on to investors, employees, or customers. According to a study of fiscal year 2000 tax payments by the Utah State Tax Commission, Utah businesses pay 42% of all property taxes, 34% of all sales taxes, 10% of all state income taxes, and 100% of severance taxes and unemployment insurance taxes. When all major state and local taxes are combined, Utah businesses paid 29% and households paid 71%. However, most economists agree that businesses don’t actually pay taxes, they merely collect taxes and pass these costs on to customers in the form of higher prices, workers in the form of lower wages, or shareholders in the form of lower profits.
Determining exactly how these taxes are passed on to a typical Utah family is difficult, especially since some business taxes are paid by out-of-state shareholders and customers of Utah companies. On the other hand, Utah consumers pay taxes levied on businesses by other states when they purchase goods and services from out-of-state companies.
Nevertheless, if the portion of state and local taxes paid by businesses were passed on to house-holds, the state and local portion of the Utah family’s burden would be four percentage points higher, raising it to 32% instead of 28% . Since state and local taxes tend to be regressive, a disproportionate share of this increase would be borne by lower income households.
The impact of federal hidden taxes is more difficult to calculate and not available for this study, but some analysts believe that if the hidden taxes that result from federal business taxes were added to the state and local hidden taxes, the Eugene and Eunice family tax burden would jump from 32% of income to 35% or more.