More Taxes, Less Beer

How Much is Government Really Charging You?

October 31, 2018

How much of your daily life is impacted by government? I was enjoying a pint at my new favorite brewery and struck up a conversation with one of the owners. After learning I research taxes, he told me the staggering amount he contends with just to provide good beer on a small scale. He said he’d love to buy more, bigger equipment to increase capacity and the variety of beers they could offer, but due to taxes and overhead they must wait longer before doing so. After this conversation, I realized the average person doesn’t really consider just how much government impacts their lives, so I came up with the following thought experiment that anyone can do to find out. First, take $100 cash and pay for every one of your expenses with that money until it runs out. Collect receipts along the way. Total the dollar amount in sales or other taxes listed on your receipts—this is your total tax rate simply for daring to engage in life’s requisite commerce.

Combine this number with your federal income tax rate. But wait, there’s more! If you own a home, add your property tax liability per $100. If you pay capital gains taxes, and/or any other excise taxes, add that liability per $100. You’d be hard-pressed to find anything you interact with that isn’t in some way taxed or impacted by government, so this is a conservative estimate. Even so, the final number astounds most. For middle-income singles and families, the numbers range from 40 to 70 percent! Some might have trouble accepting how much of their time is spent in service to or heavily burdened by government. And those blinders make it even harder for us to see it is no different, and often worse, for businesses.

The United States is home to some 28 million small businesses—that’s one for every twelve people. Some of these small businesses are quite large, but most are not. Some business owners are extraordinarily successful, but most are just getting by like the average American. After credit card fees and operating costs, gas stations make an average profit of just 3 cents per gallon! Grocery stores, home and lawn improvement stores, and beverage manufacturers earn an average of 2 percent profits. Narrow as these profits are, they allow business owners to stay open, expand operations, and create more jobs.

While tax hikes can cut those margins even thinner, broad-based tax relief frees business owners to expand operations. With more of their own money available, business owners can invest more in research, buy better equipment, hire more workers, and even lower the prices of their goods and services.

In one of the most significant tax reforms in 30 years, the Tax Cuts and Jobs Act lowered taxes on individuals, small businesses, and corporations. In the 10 months since taking effect, there have been over 727 examples from major businesses of price cuts, utility rate reductions, pay raises, charitable donations, bonuses, benefits increases, 401(k) match increases, and business expansions. According to the non-partisan Tax Foundation, the U.S. economy will be on average about 2 percent larger than it would have been between 2018 and 2027—this represents thousands of dollars back in the pockets of the average American.

It’s amazing what can happen when government reduces how much it takes from the private sector by even just a few percentage points. So next time you’re out at a local craft brewery, buying candy from that little shop on the corner, or eating at a nice family-owned restaurant, think about how hard it is managing your own bills, and then what it must have taken to start an enterprise like the one you’re enjoying. Lower taxes mean more and better food for the hungry, more and better paying jobs for workers, and more tasty craft brews for hipsters like me.

Elliot Young is a Catalyst Policy Fellow and currently serves as a Project Analyst of Global Supply Chain at Smith and Nephew Inc, where he specializes in large dataset analytics, portfolio optimization, and project streamlining. Prior to joining Smith & Nephew, Elliot has held numerous roles in economic policy analysis, including as Research Analyst for the ALEC Center for State Fiscal Reform, and Research Manager at the Institute to Reduce Spending. Elliot earned his Bachelor’s in Economics from Rhodes College in Memphis, Tennessee. Elliot is a collector of vintage watches, and enjoys tinkering with them in his spare time. He also plays the piano, cellars craft beer, and cooks fancy meals for himself, his wife Jocelyn, and their fur-child, Nugget. He is always in search of a better cup of coffee or new favorite craft beer.
Catalyst articles by Elliot Young