≡ Menu

Do You Pay More in Taxes Than Housing, Food, and Clothing?

{ 74 comments }

Do you pay more in taxes than housing, food, and clothing?This will be a short one because we’re on vacation in Mexico. It’s an exciting time in Washington DC. The House Republicans and our fearless leader are trying to push through a sweeping tax reform. I’ve been hearing a lot about this, but I don’t have time to dig into the details today. From what I understand, the tax reform will benefit the wealthy most and everyone else gets some crumbs. The national debt would balloon, but we’ll kick that ball down the road. Anyway, I heard on the radio that Americans pay more taxes than housing, food, and clothing combined. Let’s see if that’s true and which camp the RB40 household is in.

*Take my poll at the end of the post!

Americans pay more in taxes than housing, food, and clothing   

This is from MarketWatch.

In 2016, Americans will likely spend roughly $1.6 trillion on food, $2.1 trillion on housing and $360 billion on clothing, totaling about $4.1 trillion. Meanwhile, their total tax bill will be about $4.9 trillion ($3.34 trillion in federal taxes and $1.6 trillion state and local taxes).

Collectively, we pay more in taxes than housing, food, and clothing combined. That is surprising to me. I know that tax is the biggest expenditure we have, but I didn’t think it eclipsed housing, food, and clothing. However, collective data can be misleading. After all, 45% of Americans pay no federal income tax. I’m pretty sure they spend more on housing, food, and clothing than tax. What about the RB40 household? Where do we fall?

RB40 Household

Okay, let’s take a look at our data from 2016.

*We do not have sales tax in Oregon.

Right off the bat, our housing expense is already more than our taxes. We have a lot of deductions, though.

  • In 2016, we saved $56,100 in our tax advantaged accounts. This includes maxing out our 401k, Roth IRA, and adding to RB40Jr’s college savings account.
  • We got $1,000 child tax credit.
  • The rentals had depreciation deduction and lowered our taxable income.
  • We could deduct state and local taxes when we calculate the federal tax.
  • Home mortgage interest deduction.
  • Charitable donation.

We made good use of the deductions. Unfortunately, the tax reform will most likely kill some of these off. It would really suck for the middle class if they lower the 401k maximum contribution. That’s a huge deduction for us.

As for expenses, our housing costs about $1,575 every month. That’s just the mortgage and HOA fee. (Not including property tax.) That’s actually pretty reasonable for the West Coast. We could do a lot better if we move to a cheaper location, though.

So, it was a NO for us. We did not pay more in tax than housing, food, and clothing combined. Now that I think about it, our tax was actually very reasonable in 2016. I just don’t see how the tax reform would help us, but maybe we’ll be pleasantly surprised. You never know until you actually do taxes yourself. Oh yeah, business tax would be lower. That would be helpful for the blog income.

What about you? Take the poll below and let us know which camp you’re in. What’s your feeling about the sweeping tax reform?

Do you pay more in taxes than housing, food, and clothing combined?

View Results

Loading ... Loading ...
Get update via email:
Sign up to receive new articles via email
We hate spam just as much as you
{ 74 comments… add one }
  • Ernie Zelinski November 2, 2017, 12:59 am

    You must be kidding. Yes I do. For 2015 I paid $107,117 in Income Tax. For 2016, I paid $77,778 in Income Tax. It appears that my Income Tax bill for 2017 will be a touch over $100,000. Keep in mind that these figures are just Income Tax to the Federal and Provincial Governments. These figures don’t include municipal property taxes, provincial sales taxes, and federal GST.

    Perhaps I should crank up my spending big time so my housing, food, and clothing expenditures combined exceed what I pay in taxes.

    • Mr. Tako November 2, 2017, 8:47 am

      I’m in the same boat too… no question! We pay way more in taxes than we do in Food, Clothing, or Housing.

      The main reason is all of our investment income on top of Mrs. Tako’s salary. We easily make around $50k in dividends and then another $100k or so in capital gains. It throws our income level well into higher tax brackets.

      No fun!

      • Joe November 2, 2017, 10:35 pm

        Stop selling! And get out of dividend stocks! Just sell enough to cover what you spend. 🙂

    • retirebyforty November 2, 2017, 10:31 am

      Oh wow, that is a ton of taxes. And that’s not even all the taxes. Yikes!

    • jim November 2, 2017, 10:44 am

      “For 2015 I paid $107,117 in Income Tax.”

      Clearly not demonstrative of the average or typical tax bill.

      But Congratulations on your significantly high 6 figure income.

      • retirebyforty November 2, 2017, 11:44 am

        Ernie lives in Canada. I think their tax is higher than in the US. But, I agree. Ernie did great over the last few years.

      • Ernie Zelinski November 3, 2017, 2:03 am

        Actually, in 2015 the highest tax bracket in Alberta, Canada where I live was 39 percent. Now it is 48 percent. So if the present tax rates were in effect in 2015, I would have paid an additional $30,000 or so in 2015.

        • jim November 6, 2017, 1:13 pm

          Ah. Yeah I should have caught the reference to Provincial taxes.

  • Ms99to1percent November 2, 2017, 3:19 am

    Since we are in the 1%, we pay more in taxes than all our other expenses combined. Our tax bill is $100K+.

    But we’re not complaining. We are not tax evaders, we don’t mind paying our fair share.

    • RetireSoon November 2, 2017, 4:51 am

      Similar boat here … the number is skewed by the 1% and the .1%.

      It’s like to see the same chart for the 99%.

    • retirebyforty November 2, 2017, 10:32 am

      That’s a lot, but I agree with you. It’s better to make more and pay more taxes.
      I’m not a tax evader either, but I still enjoy complaining about it. 🙂

      • Fellow Tax Avoider November 4, 2017, 6:16 am

        Kudos to you for using the correct phraseology! I am glad you are not a tax evader (I would hate to see you go to jail). You are, on the other hand, a tax avoider. Don’t feel bad, we are all tax avoiders in this community (those who claim not to be are being dishonest with themselves). Here is a good link explaining the difference (rather than repeating my “rant” comment to Ms. ONL’s last posting):

        https://www.thebalance.com/tax-avoidance-vs-evasion-397671

  • Ember @ An Intentional Lifestyle November 2, 2017, 3:38 am

    I can’t say the exact numbers, but I’d say we are right on the border.

    We have 3 kids and get all the tax credit for that. Plus, we are a one income, so that adds to the calculation.

    A bill that hurts the middle class is not going to go over well for the president although I don’t think he is one to care too much.

    I will be getting the hubs to calculate that today! I’m interested to see where we fall.

    • retirebyforty November 2, 2017, 10:33 am

      I’m interested in your number as well. Your husband makes pretty good income (right?) so you’re probably paying more in taxes than you imagined.

    • gayle November 2, 2017, 10:55 am

      The tax cut will help the middle class ! And he does care about the country and middle class..he surely didnt even need to do this..he has all the $$ he needs, he wants to straighten up this mess we are in !!!

      • retirebyforty November 2, 2017, 11:45 am

        The thing about rich people is that they want more money. It’s not about need. Every rich head of state always get richer.
        Yes, a tax cut would help the middle class, but the rich will benefit much more.

        • Dr. Bone November 3, 2017, 8:01 pm

          As they should. The rich pay most of the taxes anyway. They should get the majority of the tax cuts since they usually get hit hardest with any increases. The ultra rich people are not the ones I am thinking about. They have plenty of ways to avoid taxes. The people that get hurt the most in taxes are the HENRY’s (High Earners Not Rich Yet). We get killed and it is beyond our “fair share”.

          • Aaron November 6, 2017, 5:11 am

            ^^This^^. I’m not sure why folks don’t seem to “get this.” The wealthy (essentially) pay more than their “fair share” of taxes. Do they use the road more than me (Mr. Middle-class), or the library? Naw.

          • retirebyforty November 6, 2017, 5:38 am

            It looks like the tax proposal won’t help the HENRYs that much. You’ll still pay plenty of taxes in the higher brackets.

  • Jason@WinningPersonalFinance November 2, 2017, 3:38 am

    It’s close for us but I pay more in taxes. The RE taxes are a killer for us. Oh and if the talk about lowering 401(k) contributions happens it will be a disaster for us accumulators. Taxes will go up and retirement will end up being later.

    • retirebyforty November 2, 2017, 10:34 am

      I’d hate to see lower 401k deduction as well. People already don’t save enough for retirement. Although, it won’t be a big deal for us. Mrs. RB40 will retire soon and we’re not going to stop 401k contribution at that point.

      • gayle November 2, 2017, 10:56 am

        Trump stated he is not touching the 401K deductions !

  • Apathy Ends November 2, 2017, 4:42 am

    MN has pretty high property and state income tax (especially for not being on a coast) that pushes us over the other 3 categories, but not by much.

    Sales tax is unaccounted for – 6-7% of most purchases! Would be kind of a pain to figure out – but it’s there

    • retirebyforty November 2, 2017, 10:35 am

      Your cost of living is relatively low, right?
      Housing is the problem for us on the west coast.

    • Anita November 2, 2017, 3:50 pm

      Good point about sales tax. And now in Philly we have a “beverage tax” in addition to sales tax….it never ends!

  • Ms. Frugal Asian Finance November 2, 2017, 4:53 am

    Whenever I tell my family in Vietnam that one third of our income goes to taxes in the US, they are always in shock. My parents don’t make a lot of money back in Vietnam, and they don’t have to pay list of taxes either.

    I don’t think anyone loves paying taxes or has money taken out of their pockets. If anything, it’s something we know we have to do and just come to terms with it. >_<

    • retirebyforty November 2, 2017, 10:35 am

      Wow. You guys pay a lot of taxes. You need to get some deductions. 🙂

  • Mr. Freaky Frugal November 2, 2017, 4:55 am

    I’m FIREd and have very low taxable income, so I pay much less in taxes then I pay for housing, food, and clothing. Not that Mrs. FF and I ever spent much on clothing anyway.

    I’m not for any tax reform that increases the Budget Deficit. I don’t want to kick the Federal Deficit can down the road to future generations.

    • Joe November 2, 2017, 2:02 pm

      The more money you send to Washington the more money they will spend. The deficit will continue to grow whether there is a tax cut or not.

  • ks November 2, 2017, 5:26 am

    Hmm, sales taxes were left off – they’re re built into so many things…airfare, gas, meals eaten out, etc. Even if you could itemize them all, I doubt they’d eclipse most Americans’ expenses. So how does the sum not equal its parts?

  • Mrs. Picky Pincher November 2, 2017, 6:10 am

    I was going to say, I doubt most Americans pay more in taxes than for other must-have expenses. We complain a lot about taxes, but many other counties have significantly more taxation than we do. But I do find it interesting that the people who will benefit most from these “reforms” are the wealthy individuals passing the legislation in the first place. Hmmmmm.

  • okiepennypincher November 2, 2017, 6:11 am

    Really do not know the number to be honest. I normally do not get a refund when I file. I always end up paying, which drives me crazy. Most of the people I work with get $2,000 or $3,000 back each year. Who knows if this tax reform bill will help or pass, but at this point I am willing to keep an open-mind. We will see.

  • Jeremy November 2, 2017, 6:12 am

    Our ratio of housing-food-clothes to taxes is undefined #mathjoke

  • Dave @ Married with Money November 2, 2017, 6:17 am

    I’m pretty certain at least this year we’ll pay more, and next year housing may overtake #1.

    This is a good reminder though that finding ways to reduce your taxable income through proper deductions and leveraging tax-deferred accounts can be a good goal

  • Adam and Jane November 2, 2017, 6:43 am

    Arg! So depressing! Our Federal, State & City taxes paid in 2016 is more than 2x expenses.

    Jane received a severance in 2017 so taxes will still be 2x expenses.

    Our taxes in 2018 should be 50% less and will be closer to expenses.

  • Ron Cameron November 2, 2017, 6:43 am

    Danger! Danger! Politics ahead!

    I’m think our income taxes are pretty close to equaling the other costs, if not a little higher. Factor in the “hidden” taxes in payroll, gas, etc etc, and they would be substantially higher.

    I’m not in the 1%, but no one should be surprised when a tax cut “favors” them more when they pay astronomically more to begin with (or “does nothing” for people that pay nothing to begin with). Whenever I think of taxes (or any other policy) I ask “If we were starting civilization on a deserted island, what would be fair?” But this post wasn’t about fairness, it was about dollars and sense.

    • Joe November 2, 2017, 2:04 pm

      +1

  • Brad - MaximizeYourMoney.com November 2, 2017, 7:12 am

    We used to pay more in taxes than essentials – for sure. Now that we’ve early-retired though, we have been pretty good about managing our “income” and tax brackets. In fact we’re expecting zero income taxes this year. Still have to pay property taxes of course, but that’ll be about it.

  • Grant @ Life Prep Couple November 2, 2017, 7:13 am

    We pay way more in taxes. Way way more. Just short of double actually. We aren’t in the 1% either just a married couple with two decent jobs and sweet little girl.

    I don’t follow politics very closely but what I heard about Tax Reform sounded pretty good to me. Corporate tax rate decrease from 35% to 20%. Doubling the standard deduction amount. Doing away with lots of other deductions that people with lawyers and accountants use as “loop holes” to dramatically lower their tax burden. Perhaps none of that is accurate any more.

  • Dylan | Trail to FI November 2, 2017, 7:16 am

    Reading through all the comments, I am quite surprised to hear that so many people pay more in taxes than regular spending. I guess I didn’t realize the extent of income levels around here. I’m nowhere near it – it “pays” to be in the 15% bracket!

    Either way, I don’t think that having higher taxes than you spend is necessarily telling of any significant problem. You have control over how much you choose to spend (to a degree).

  • Lily @ The Frugal Gene November 2, 2017, 7:41 am

    Our expenses are pretty low. Our household pays $35K in taxes? Washington has no state tax but our property taxes are high. Sales tax is the same high at 10%.

    My friend went into Oregon to buy a xbox hahaha. It sounds like we are in the same ball park living expense wise – a few thousand less than our tax bill.

  • Lazy Man and Money November 2, 2017, 8:47 am

    They aren’t really related and it can be someone’s personal choice. If you have a great income and choose to live in a tiny house, the answer will be no. If you put all your income into paying for a McMansion the answer will be yes. People will be all over the map.

    I don’t waste my time thinking about which is more. It isn’t going to change either number.

    Did you include sales tax in your assessment?

  • Tom @ Dividends Diversify November 2, 2017, 8:50 am

    I live in a high tax state and a high tax county for property and sales taxes. If I totaled up all my taxes it would be by far the highest expense line on my income statement. Now I am concerned the few breaks the federal government gives me for itemized deductions on these expenses may be taken away only to increase my taxes more. I will be disappointed if that happens. It really is just a shell game either 1) I pay more, 2) Someone else pays more or 3) the federal government pays more by increasing the national debt. I get the fact that the best tax structure will spur the most economic growth and that is a great goal. I just don’t have faith that our democratic process and elected officials can get us there. I’m honored and blessed to be a US citizen, but gosh it sure is expensive.

  • Angela @ Tread Lightly, Retire Early November 2, 2017, 9:29 am

    Ouch. That’s kind of painful. But like you, we live in a booming NW city, so we pay a decent chunk in housing (though a lot less thanks to buying in 2011). 10.1% sales tax though, so this may be flipping next year, especially as I really work on shrinking our food budget. Clothes budget is already close to zero.

  • freebird November 2, 2017, 9:32 am

    I can answer this easily because my spending budget is pretty simple, it has just three items. The largest is income taxes (Federal plus CA State) which is ~4x my second largest item: apartment rent. And my rent is ~4x the third item which covers “everything else”. I guess my Federal plus State income tax is >3x rent+everything else– so YES.

    I don’t think my income taxes are too high considering that I get to live in a place where most of the world dreams of moving to. One reform I’d love to see is with respect to the Alternative Minimum Tax– each year I have to figure taxes using two separate systems, can’t they just pick one and cut my headache in half?

    The part I’m most sensitive to is the lower tax rate on qualified dividends and long term capital gains (mostly the latter) compared to earned income. I pay less Federal tax with this system, but I admit I question the fairness of it.

  • Dan November 2, 2017, 9:55 am

    I am paying way less in taxes than those other categories but I hope to be so rich that I do pay gobs of taxes.

    In a way it could actually be better if you are just starting out as an individual stock picker if you do not use various retirement account schemes because there is quite a learning curve such that you may lose money on your first investments.

  • Caroline@moneyscrap.com November 2, 2017, 10:13 am

    Taxes are my biggest expense. Once you add federal and provincial income taxes, property taxes and HST, that is a huge chunk of cash! Even by maxing out my RRSP. You are lucky you get to write off the interest on your mortgage, we can’t do that in Canada.

  • jim November 2, 2017, 10:58 am

    The news article presents figures skewed by the high income people paying high taxes yet not having correspondingly high housing and food costs. Its an average skewed by the rich. THe median figure would be more illuminating and meaningful for the typical person.

    I highly doubt that Americans spend $1.6 trillion on food. Thats over $12k average per household. The Consumer Expenditure Survey shows an average of $7200 per household.

    The poll results here are skewed by the commentators being more frugal and higher income than typical.

  • Adam @ Minafi November 2, 2017, 11:44 am

    I wasn’t sure on my own numbers on this one, so just opened up the 2016 spreadsheet:

    It was almost dead even between these two. I paid just 5% more in taxes than I did for the rest. That’s with owning a home in Florida – so property taxes but no state tax.

    If I had lived in a state with taxes, this would’ve been more like 20% more in taxes than for these expenses.

  • Turning Point Money November 2, 2017, 4:19 pm

    We paid well over 2x. Affordable Care Act doesn’t help the tax situation for high earners.

  • Al November 2, 2017, 4:32 pm

    https://youtu.be/DnEe4oaSC88

    The opening premise is not true.

  • PhilBob November 2, 2017, 9:52 pm

    Not even close. My taxes are 2/3 of the other spending amounts. Some of that could be evened out if I got more frugal about dining out, which I probably have cut down on significantly this year.
    I am totally against the tax cuts plan (it is NOT “tax reform”). It is nothing more than tax cuts for the rich, while leaving future generations in more debt than we have now. Trickle down economics has never worked before and this time will be no different. The middle class MAY see some cuts, but the lion’s share is going to the top — no surprise.

  • FIREin' London November 3, 2017, 1:16 am

    Hi Joe,
    Well, if it is any consolation, this side of the pond I not only pay more in tax than I pay for housing, clothes and food…. but sadly I pay more in tax than my entire expenses each month.
    Yup, that’s right…. my tax bill is higher than the whole of the rest of my spending!
    This is despite all of my tax reductions that I have available to me here in the UK, and why I save so aggressively in such a tax efficient manner.
    Cheers!

  • Petra November 3, 2017, 2:07 am

    Well, I live in the Netherlands, and my taxes ARE higher than what I spend on food, clothing, housing, healthcare premium and public transport costs. But given how I do have full coverage for healthcare, plus things like a decent social security system, good public transport, good roads, and decent police and firemen… you won’t hear me complaining.

    • retirebyforty November 3, 2017, 4:05 am

      I like your system. I’d rather pay more taxes and have free access to decent healthcare. Health is so important. You need to be healthy to contribute to society.

      • Joe November 3, 2017, 5:09 am

        If you pay more in taxes is your access to healthcare really ‘free’?

        • retirebyforty November 3, 2017, 4:51 pm

          You’re right. Not free. Just access to decent healthcare would be good. The lines will be long, but you can always buy private care if you have money.

          • Stevie November 7, 2017, 8:37 am

            Which is why some researchers assert Americans don’t get much value for their taxes compared to other developed countries, as benefits are so chintzy here. Not having to support a bloated military industrial complex helps.

  • Felipe November 3, 2017, 7:45 am

    I know I pay taxes for things I don’t personally, directly use. Roads – many I don’t use but truckers use them to get apples to my local Safeway. Schools – I don’t have kids, but don’t want to live in an educated world and want education for poor kids as much as rich kids. Defense – no one’s attacking where I live, and I live way inland. But, we certainly need a good defense. Healthcare – not a tax per se, but I pay my premiums and hope to never use it. Socialization of costs really helps us all. I try to think of these types of things from a 30,000 foot view.

  • Sidney November 3, 2017, 12:59 pm

    For those in the US, does the tax amount include social security and Medicare?

    • retirebyforty November 3, 2017, 2:55 pm

      Yes, the federal tax includes social security and medicare.

  • Winkle November 4, 2017, 5:22 am

    I pay more just in federal tax than I do for all other expenses combined. Frustrating.

  • Christy November 5, 2017, 4:04 pm

    Over a third of our income goes to taxes…. Our biggest expense…Approx 60k to Federal and another 22k to state, plus property and sales taxes and of course, AMT.
    We also tithe 10% to our local church, and have other deductions, union dues, insurance, 401k, etc.
    Hubby is taking early retirement so we can punch out of this crazy system, that penalizes success & critiques us for being ” rich”. If the U.S. Government wants us to continue to bring in a large income, they are going to have to motivate us with lower taxes or else it’s not worth our time…just a hamster wheel that spins faster and faster.

    • retirebyforty November 6, 2017, 1:46 pm

      That’s a lot of taxes. The state tax is so high for you.
      Do you think it will be relatively easy to adjust to lower income? The psychological factor will be pretty big for you. The tax reform doesn’t sound like it will help you much either. Good luck..

  • Laura November 5, 2017, 5:58 pm

    Like you, just housing puts us over what we pay in taxes. It would be interesting to see the income bracket breakdown of the statement that people pay more in taxes than the other expenses. Likewise, urban vs rural.

  • Stockbeard November 5, 2017, 7:49 pm

    Yes, definitely! When you have a high income and are frugal, it’s not very difficult to reach that threshold. Taxes represent more than 50% of our expenses in 2015, 2016, and 2017 so far. Meaning they are more expensive than all our other expenses combined, not only housing, food and clothing.

    • retirebyforty November 6, 2017, 1:42 pm

      That’s a lot of taxes. Will that change in Japan? The tax system there is probably progressive as well.

  • Lady Dividend November 6, 2017, 3:23 am

    Interesting post! Sadly my answer is yes, I would pay more in taxes, but I funnel a large portion of my money into registered accounts in exchange for tax breaks. I know all I’m doing is delaying paying taxes, but I feel like I’d rather have my money be put towards investments than the government.

  • Stevie November 7, 2017, 8:46 am

    When I first heard a researcher make this claim about 20 years ago I was shocked. But after adding together all the taxes, sales, payroll, income and property, I realized they were right. Even if you make a middling income. By the end of my career, it was definitely true.

  • Lin November 7, 2017, 12:48 pm

    Wow, I ran these numbers and this isn’t true at all for me. My husband and I pay about three times as much for just housing and food (clothing expenses are negligible) as we do in federal + state + payroll taxes. We’re saving in tax-advantaged accounts quite aggressively and live in a high cost of living area, so that probably accounts for a lot of it. We also have a fairly low combined income for our area (average for U.S. as a whole). I don’t really feel like we get “penalized” for making money – after all, any money we make beyond what we earn now will be taxed more, sure, but we’ll also have more in our pockets. And that probably wouldn’t be a bad thing! Hoping to follow your model, Mr. RB40 – our income’s fine now, but I’d love for more of it to be passive.

  • Kris November 8, 2017, 2:47 pm

    We pay more in taxes since our expenses are pretty low. I believe me and my wife pays about $35K in taxes(Fed and CA State) and even with our son our expenses comes up way short of that.

  • phil b. November 8, 2017, 4:08 pm

    If you’re in the highest tax bracket, then highly likely you have the “wonderful problem” of making alot more money than average.

Leave a Comment