Today features another guest post from Bradd. This time he encourages us to think about the true cost of goods we buy. It may have you thinking twice before you pick up that sale item this holiday season.
With the end of the year and the Christmas shopping season coming up, I’ve been thinking recently about taxes and the prices of goods. And a new coat. Maybe I’m looking to buy a $100 coat and I want to know, “How much does it cost?”
That sounds like a trick question: a $100 coat costs $100, right? Well, OK, plus sales tax, a $100 coat costs about $107. So let me put it this way instead: How much money do I have to earn to be able to give the cashier $107 so that I can buy that coat?
Taxes: The Forgotten Expense
The Tax Foundation estimates that in 2009 in the U.S. the average combined personal income and Social Security tax burden amounts to about 28.2% after you take deductions and everything into account.
So, to get $107 the average person needs to earn about $147. That is, a coat with a price tag of $100 actually costs about 50% more than that.
In Europe, income and sales taxes tend to be a bit higher than in the U.S. It’s not unusual for Europeans to pay 20% in sales taxes and 45% or more in income, pension and health taxes. So, even someone earned the same in Europe as in the U.S. and the price of the coat was exactly the same ($100), because of the sales tax they would need about $120 to buy the coat and would have to earn about $218 to get the $120.
What Does It Mean For You?
So when you’re running around holiday shopping this year, or if you’re on vacation abroad sometime this winter, and find yourself at a store remarking on how cheap things seem this year due to all the recession sales, try to remember that the price tag is just the beginning. In reality, most things are much more expensive than they seem.