I know that no one likes taxes, and it would be a major coup to have 100 people agree on what is the best taxation method, but we’ve truly gone through the looking glass folks.

Tax Types

Generally, you can tax anything or any activity, but most taxes center around the big three, real property, sales/consumption, or income. When you start looking at the things that are taxed, one is hard pressed to come up with a list of things that isn’t taxed somehow. Take toilet paper for instance? Here is a list (off the top of my head) of taxes that are already included in the cost of toilet paper already:

  • Tree grower pays taxes on the land for production.
  • Tree hauler pays tag on vehicle, and fuel tax to move trees to the plant.
  • Plant pays all kinds of taxes, including real estate taxes, personal property tax, utility taxes, payroll taxes, etc.
  • Trucker again pays tag on vehicle, and fuel tax to move toilet paper to warehouse.
  • Warehouse also pays all kinds of taxes, including real estate taxes, personal property tax, etc. etc.
  • Trucker pays yet again tag and fuel taxes to move toilet paper to the store for you to buy.
  • Retail store pays all the same taxes as the warehouse and the plant.
  • You pay tax on your income to pay for the toilet paper and sales tax on the toilet paper.

Whew! And those are the DIRECT taxes involved in the production. Every supplier along the way pays many of the same taxes. And NOW some pencil head in Nebraska says that we should consider a 10 cent per roll federal tax on toilet paper to pay for sewer improvements.

Wrong Idea

Nobody (except the anarchists among us) doesn’t agree that the government has to collect taxes to provide services. There are some serious disagreements in the country as to which services government should provide, and those are healthy debates for a different forum. And I wouldn’t disagree that a user fee, so to speak, for a government service is a very efficient and “fair” way to raise taxes. The problem is that user fees for sewer services already exist. Every person in a city with sewer service pays monthly to hook up to the city’s sewer system. If the city needs more money to pay for sewer improvements, raise their charges, lower their operating costs, or borrow the money (issue bonds). Why in God’s name does the federal government need to be involved in what is the most local of issues?

Transparency is the Key

Where taxes truly become destructive is when people don’t know they are there. I taught a class of high school seniors on the subject of taxes. I started with a simple question. What taxes do you pay? A few that had jobs, explained that taxes were taken out of their checks (not one of them could tell me how much). After that, the room became quite. So I asked: Do any of you drive? Smoke? Go to the movies? Pretty soon, the entire chalkboard was filled with taxes. Finally, at the back of the room, someone said, “Holy cow! We pay a lot of taxes!” No kidding. But the problem is they didn’t even know!

In the end, taxes distort economics. You have less of what you tax. Period. Immutable law of economics. Too often taxes are used as method of social policy (e.g. think tobacco taxes), instead of simply raising taxes and telling people what they’re used for. Unfortunately, the average American are just like those high school kids. Don’t believe me? Ask 10 people how much they paid in income taxes last year. Half of them will say, “Oh, I didn’t pay taxes last year. I got a refund!” My point exactly.

YOU are Responsible for Knowledge

Daily headlines scream about budget and financial crisis from the State House to the Out House (sorry, I couldn’t resist). If we don’t even know the numbers, how can we as citizens of this great Republic engage in the discussion? American economic education has been bottom of the barrel for a long time, and now the proverbial chickens have come home to roost. Politicians speak in terms of billions and trillions (numbers we can’t even understand) and want to tax toilet paper! It is the time we, as Americans all, take stock of our financial house. We all need to better understand our money, where it is going, and for what. It starts with knowing what is taxed. The truth is out there…

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