Americans loath Tax Day, and for good reason. We all remember tearing open our first paycheck with such excitement, only to see a huge chunk of it going to taxes. And it doesn’t make it easier knowing that the collected revenue is often squandered by politicians and lifelong bureaucrats who spend our hard-earned money like drunken sailors.
The outrage over income taxes is justified. But the taxes that come directly out of our paychecks—federal, state, Social Security, and Medicare—are only the ones we are aware of. The truth is that practically every time we do anything—whether it’s going out to dinner, traveling on a plane, seeing a movie, or paying a bill—we are paying taxes. Sometimes these taxes are clearly listed as line items in receipts, but other times they are covertly hidden and masked as nebulously-titled “fees.” These costs add up: Americans pay more than $650 billion in “hidden” taxes each year. In fact, income taxes make up less than half our personal tax burdens.
Don’t believe me? Next time your cell phone bill comes in the mail, take a good look at it. On average, Americans pay $130 per year just in cell phone taxes! That’s because local, state, and federal governments, as well as 911 systems and local school districts, slip hidden taxes into our cell phone bills that jack up the cost an extra 18%. In some places like Chicago and Baltimore, these taxes run as high as 35%. You’re paying a 5.82% wireless tax, and depending on where you live could also be paying state sales tax, local sales tax, state excise tax, state wireless 911, local wireless 911, state franchise tax, school district utility sales tax, and more. Often, the fees or taxes listed have important-sounding names that have nothing to do with where the money actually goes. Consumers who see line items related to 911 fees would be shocked to learn that in most areas of the country, the resulting revenue is not used to fund 911 systems or anything remotely related (in Chicago, the collected 911 fees go towards pensions for city workers). New York City residents fund the MTA system with their cell phone taxes.
Other necessary monthly costs, such as phone bills, cable bills, and rent, are full of similar taxes and fees that add up to a large chunk of change each year. But it’s not just bills that are impacted; leisure activities, all modes of transportation, and even pet ownership are inflated by hidden taxes. That’s right: Even Rover isn’t safe! If you’ve ever adopted a dog or cat, you’ve likely been stuck with pet licensing fees, which are required by law in most U.S. cities, as well as several states. They typically cost $20-40 and must be renewed annually. Given the name of the fee, one would assume the collected revenue is being used on something pet-related—perhaps to save homeless animals or provide better care in shelters. But in many municipalities, pet-licensing fees provide an easy and steady stream of revenue for city and state governments facing budget crises. Don’t want to pay the pet licensing fees? Cities will go to great lengths to ensure compliance, and if an official catches your animal without its license, many cities will fine you hundreds of dollars. In Seattle, officials purchased lists of people buying pet food at stores and mailed them threatening letters to register their animals.
I have been sounding the alarm over hidden taxes for years, and even wrote a book on the subject called “How Do I Tax Thee?: A Field Guide to the Great American Rip Off.” Often people will ask me why I get so upset over seemingly small and insignificant taxes (“It’s just $30 a year to license your dog—what’s the big deal?”). Hidden taxes are regressive by nature, having a disproportionate impact on the low-income families, and add up to a significant sum of money being siphoned out of your bank account to federal, state, and local governments to spend as they please. Money in taxes and fees tacked onto every cell phone bill, cable bill, medical bill, tuition payment, hotel stay, rent payment, restaurant bill, airline ticket, tank of gasoline, and movie ticket adds up to thousands of dollars per year for most Americans. It’s time to demand transparency to our tax system so we know exactly how much money we are sending to various levels of government. After all, if we aren’t aware we are paying a tax, we cannot oppose it. And that is, in large part, the point of hidden taxes in the first place.
Learn more about hidden taxes impacting you—and what you can do to reduce your hidden tax burden—in my interview with John Stossel on the matter.