How Taxes are Hidden from the Public


By Arthur Middleton Hughes

President Obama has repeatedly asked the Congress to
increase taxes on “the rich” which he refers to as “Millionaires and
Billionaires” at some times, and “people earning more than $200,000 per year”
at others.  The fact is that Federal,
state and local taxes have grown steadily in real terms year by year. By 2011
they amount to $4.4 trillion — $14,322 per capita or $36,201 per household per
year. This is 34% of the GDP in 2011.
State and local taxes exceeded federal taxes by about $2.4 trillion
dollars in 2011.

 Most people are unaware of how much they are currently
paying in taxes today.  For various
reasons, the true level of taxes is kept well hidden from the taxpayers so the
voters cannot see them or understand them. Some of the methods commonly used

  • Absorb
    the tax
    in the cost of private goods and services. Examples of this are
    import duties and excise taxes. No voter ever knows how much of the cost of a
    bottle of French wine, or an Irish sweater is taken up by taxes. Nor do they
    know how much of the cost of a fifth of Kentucky Whiskey goes to the
  • Hide the
    in a larger event. Estate (death) taxes, paid when someone dies, are
    made more palatable for the heirs by the fact that at the same time they are
    receiving a large amount of often unexpected income. Almost $19 billion was
    collected in 2010 in this way.
  • Hide the
    that people pay for services by using public income to finance some
    activities. The bill for interest on the public debt was $414 billion in 2010.
    Few object to making this payment, since it is a national responsibility.
    However, of that amount, $130 billion is paid to the Federal Reserve System
    which holds some of the debt. The Fed turns around and pays it back to the
    Treasury. The Treasury can then use this $130 billion to pay for other
    government operations. It might not be as easy to raise this money in some
    other way.
  • Make
    false promises
    : tell the taxpayer that this is a temporary tax.  The tax levels that exist today were created
    during World War II. From 1940 to 1943 federal tax receipts increased from $8.7
    Billion to $39.3 Billion per year. The war was popular, and people understood
    that they had to do their share to back up our troops abroad. There was a clear
    understanding at the time these war taxes were temporary, and would be reduced
    in peacetime. They never were. The wartime levels served as a base for further
    expansion in the years ahead. In later years, of course, people had forgotten
    all about the arguments used to establish the high tax levels in the first
    place.  Another example of the same
    principle was the Budget Reconciliation Act of 1990 which included a tax
    increase of about $35 billion dollars a year. The stated purpose of the tax
    increase was to reduce the budget deficit. In fact, spending increased, and the
    budget deficit was larger after the tax increase than before.
  • Pretend
    that the taxes are contributions
    or insurance. Social Security taxes –
    almost as large as individual income taxes — are called
    “contributions”, and are often discussed as if they were an insurance
    fund being contributed to by current workers for their old age. In fact, they
    are taxes being used to transfer income from young people to older more wealthy
  • Levy the
    tax on an unpopular institution or group.
    Many politicians try to hide the
    effect of taxes by pointing out that they are only levied on “the rich,
    who can easily afford it”, or on “corporations, which must do their
    share.” In fact, of course, corporate taxes are paid by ordinary people in
    the price of the goods that they buy from the corporations. Taxes levied on the
    rich usually contain a component that is taken from the middle class as well,
    although this is seldom mentioned.
  • Take the
    tax money away
    before the individual ever sees it. Withholding income by
    employers is the most powerful single way of extracting taxes from the people
    without their objection.
  • Break up
    the taxes into a lot of little taxes
    . Every year, every individual pays
    more than thirty different federal and state taxes which, altogether, come to 34%
    of the GDP. Individually, however, many of the taxes are small and not noticed:
    telephone taxes, utility taxes, airline ticket taxes, license fees, gasoline
    taxes, liquor taxes, tariffs, etc. If all the taxes were lumped together into
    one single annual figure, so that a person with an income of $30,000 had to pay
    a single tax bill of $13,200, the public would rise up in anger.
  • Start the
    tax with a very small amount
    . It will not be noticed when you gradually
    increase the amount. Social Security and unemployment compensation were sold to
    the public as taking only 1% of a worker’s salary. It was hard to object to
    that. By 2010, Social Security now takes more than 16% of worker’s salaries
    (half from the workers and half from the employer). It was raised, little by
    little, year by year, together with the benefits. If it had been advertised as
    taking 16% in the beginning, it would never have been adopted.
  • Raise the
    money by going into debt
    . Who owes the national debt? Very few people take
    it seriously, or personally. Most people feel that they themselves do not owe
    it. Once the money has been borrowed, however, they do feel that they should
    pay the interest. This is an easy method for politicians to get the public to
    accept large spending programs, and to pay for them. The public debt today is $
    14.6 trillion of which $10.0 is held by the public (mostly foreigners) and $4.6
    is held by the Federal Reserve and other Federal Government agencies.
  • Raise revenue
    by inflating the money supply
    . Every year, the Federal Reserve inflates the
    currency to help pay for Federal spending programs. This is actually a tax on
    everybody, because, as a result, the money in people’s wallets and bank
    accounts loses value by the amount of the inflation. Inflation, in modest
    amounts, is an ideal taxation method, because the public does not understand
    it, or see it. The public feels it, of course, but does not attribute it to the
    politicians who are creating the spending programs.

The Tea Party is anxious to reduce the federal deficit by
reducing spending, not by increasing taxes.
They are pushing to get a new President and a new Congress that will
focus on the deficit, the debt and the spending level. While this is going on,
it is important that the public also watches what is happening with the
taxes.  Various Congressmen and Senators,
who created these hidden taxes in the first place, will be using these tricks
to appear to reduce the debt and the deficit while continuing spending at
current levels.

About Arthur Middleton Hughes

Arthur is currently Vice President of The Database Marketing Institute based in Fort Lauderdale, FL. Arthur is the author of 11 books, the latest of which is Strategic Database Marketing 4th Edition (McGraw-Hill 2012). A BA graduate of Princeton with an MPA in Economics and Public Affairs, Arthur taught economics at he University of Maryland for 32 years. He is an Austrian Economist.
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