The Government and your Wallet

Posted on Posted in Taxes

This is a Public Service Announcement for most Americans who don’t realize taxes are their largest expense.  That’s because the government has become an expert in collecting and disguising taxes.  Tax Freedom Day arrived on April 17th this year, which ironically, was the same day Federal Income Taxes were due.  The average American paid 29.2% of their income in total Federal, State and Local taxes.

The Sneak Attack

The Government picking our pockets.
Image by Steven Depolo

Whether it’s called an excise, assessment, fee, duty, levy, license, permit, toll, penalty, fine or even a mandate, it’s still a tax.  The dozens of carefully crafted names for taxes try to disguise the fact the Government forces you to pay.

Hiding taxes by adding them to utility bills is a common method of disguise.  Another common method is adding them to everyone’s paychecks and taking out the money before anyone realizes it’s gone.  There are even taxes hidden within other taxes, as is the case with assessments added to property taxes.

This week, the Supreme Court ruled the Federal Government can force people to buy health insurance from a private insurer, because it is essentially a tax.  Immediately after the ruling, the Government launched a campaign to tell voters it’s not a tax, it’s a benefit.  This benefit will cost the uninsured the greater of $695 or 2.5% of income.  I would assume most people who are uninsured can’t afford the extra $695 per year.  For those who have health insurance, the costs will be going up.

The Class Attack

Long before the mythical days of Robin Hood, there has been class warfare.  In a just nation, the tax burden should be spread among the citizenry, with the wealthy shouldering a larger burden than the impoverished.  That is why we have progressive income tax rates.  Politicians who are rallying to “Tax the Rich”, are disregarding the fact the rich already pay most of the taxes.  They know this appeals to the populous and are pandering for votes.  Meanwhile, they are cutting back-room deals with the rich, to solicit campaign contributions and help them skirt their taxes.

  • Top 1% of earners paid 36.73% of income tax collected
  • Top 5% of earners paid 58.66% of income tax collected
  • Bottom 50% of earners paid 2.25% of income tax collected

Source: National Taxpayers Union

The Panic Attack

All levels of government are masters of using a crisis to force tax increases.  Like any entity, they are supposed to manage reserves and fund liabilities to ensure they can meet their future obligations.  But, they don’t.  They operate in complete denial of bond interest and pension liabilities, until the deficits become a crisis.  Then, they raise taxes and the cycle continues.  If taxes can’t be raised, it all blows up.

This week, the City of Stockton, CA sought bankruptcy protection.  This makes it the largest city by population in the U.S. to declare bankruptcy.  There were many contributing causes for the bankruptcy, including dwindling revenue and accounting errors.  But, the biggest contributors to the deficit were employee retirement benefits and interest on municipal bonds.  The City of Stockton pays more on health care for retired employees than for its current employees.  Retired employees will take a huge cut in their benefits under bankruptcy.

The Bottom Line

The bottom line is that the government is like a kid in a candy store, only with our wallet.  They will never act responsibly until they are held accountable by the voters.  Right now, that’s not happening fast enough for my tastes.

“We contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle.”

Sir Winston Churchill – Prime Minister of the U.K.

Recommended Reading

Len Penzo – Why you will Never get Rich working for ‘The Man’
Millionaire Nurse Blog – Teaser Headlines: Don’t Fall for Them
Invest it Wisely – How Much do you Pay in Payroll and Income Taxes?

18 thoughts on “The Government and your Wallet

  1. Though many of us criticize various things governments do, I tend to think governments pretty well mirror the citizenry’s desires. Those taxes are all being spent on something. Choose any one of those somethings to take away and a significant group of formerly aggrieved taxpayers will squawk like mad.

    I think the disconnect between what taxpayers demand from government and how much they’re willing to pay is largely the root cause of the massive federal debt. How do politicians spread joy among constituents, in the form of government largesse, without hitting taxpayers with a higher bill? Borrow the cost from the Chinese of course! Magic! And unsustainable, as any schoolchild knows.
    Kurt @ Money Counselor recently posted..Credit Card Debt TrendsMy Profile

    1. Kurt,

      I agree with this to some extent, especially regarding entitlements. However, a huge amount of money is being siphoned out of our government by special interests. The farmers, unions, medical, military, legal, insurance, banking, aviation and most other industries all have their hand in the till.
      Bret recently posted..The Government Returns to Fiscal SanityMy Profile

    1. I agree Mich.

      They should definitely put some caps on those pensions, before it bankrupts more cities. Nobody needs or deserves a $500K pension. I would much rather see 10 cops or teachers each get $50K pensions. Once it hits bankruptcy, the retirees aren’t going to get much.
      Bret recently posted..3rd Anniversary of the Credit CARD ActMy Profile

    1. Thanks for stopping by Morgan.

      When I was conducting research for this post, I saw a chart that showed the historic tax rates in America. It’s amazing that we paid very little in taxes prior to World War I. Of course, the government does a lot more now than they used to. Still, it seems like taxes are on a continuous rise and still the government can’t balance it’s budget.

      Looking at what’s happening in Europe, I don’t think higher taxes are the answer. They have to cut waste and there is plenty of it in the government.
      Bret recently posted..The Government and your WalletMy Profile

    1. Kevin,

      With the help of our government, special interests are each creating monopolies for themselves. So, there won’t be a truly free (or fair) market as long as political influence can be purchased so easily.

      As for the floating tax havens, it’s a novel idea. As long as you don’t float too close to Somalia, it could be awesome. One person I truly admire is Sir John Templeton and he renounced his U.S. citizenship when the highest tax brackets were extreme. A lot of people are starting to do that again, including the guy who helped found Facebook. You can only tax people so much.
      Bret recently posted..Following Up on the Facebook FiascoMy Profile

  2. Since I started paying my own taxes, I don’t recall any instance where I felt like I was contented and happy while paying taxes. It just really hurts to pay large amount of taxes. Sometimes, I even feel that I am only working just to pay for tax. Geez.
    Mally recently posted..software guitar effectMy Profile

    1. Thanks for stopping by Mally.

      I don’t mind paying a reasonable amount of taxes, because I drive on the roads, went to school and enjoy my freedom and safety.

      What really kills me is how they waste our tax dollars, like it was monopoly money. Our politicians need to realize every dollar they spend is taken away from someone who could use it for their own family. Most of that money is going to wealthy special interests, not for public services. It is criminal the way the treasury is being looted and people should be put in jail.
      Bret recently posted..The Government Returns to Fiscal SanityMy Profile

  3. Did you hear about France’s plan 75% income tax for those making over $1 million? It’s no wonder why France’s rich people are immigrating.
    And as for fiscal responsibility, the government will never do that, because it requires short term pain, which the politicians will never accept because they won’t be re-elected!
    A Young Investor recently posted..Basic Investment Rules – Part 3My Profile

    1. No, I hadn’t heard about France’s 75% income tax, but it sounds like a really horrible idea to me.

      In my personal opinion, I feel a 25% maximum tax rate is about fair. That is 25% net tax, after deductions. People should be able to keep at least 75% of what they earn, even if they are super-rich.

      Who is going to take capital risks, start businesses, develop products or create jobs and industries if the government keeps their profit? Once taxes get too high, there is no incentive to invest, expand or create. The people with money either leave or go underground. Then, that tax revenue is lost forever.
      Bret recently posted..How Much Money is Enough?My Profile

    1. I’m sure they would love to have a national sales tax, like the VAT over in Europe. But, the VAT didn’t help Europe one bit and it wouldn’t help us either. They would just waste that revenue, the same as they waste the income tax. The government has a spending problem, not a revenue problem.
      Bret recently posted..Why the Middle Class is Feeling PoorMy Profile

    1. Thanks for stopping by Grace.

      In America, the top 1% own 40% of the wealth. This has risen quickly from 33% only 25 years ago. In my opinion, it will continue to rise.

      The large corporations and super-wealthy are simply buying the results they want from our government. Unless there are some substantial changes, the middle-class will be competing for a shrinking percentage of the total income in the future.
      Bret recently posted..How Large Corporations Skirt TaxesMy Profile

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