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The time is nigh for that time of the year. Spring is coming, birds are singing, flowers blooming, and the IRS comes looking for its cut. This is when we either agonize over how much goes out, or expect a nice chunky return from state and federal – which most of the time is already spent long before it shows up in the mail. This time of year is good for a little reflection and discussion on an oft-debated topic.
What are income taxes used for?
Not roads and schools….much.
This seems to be a reflexive argument, and for the life of me I don’t where it originates. “We need income taxes to pay taxes for roads and schools”. Except that they’re not. It’s relatively simple to fact check from sources such as the Congressional Budget Office or the IRS itself.
Income taxes are not specifically earmarked for anything, they just go into the General Fund along with corporate taxes. Three-quarters of the Federal Budget is roughly taken up by the big Three: Social Security, Medicare/Medicaid, and Defense. Non-discretionary spending which never seems to get cut, except for Defense once in a while. Of the other 25%, 8% used to go for interest on the national debt, but this percentage is from 2008, it’s probably a bit higher now. And the rest, about 18%, goes to random government appropriations known as discretionary spending, like ethanol and mohair subsidies, congressional jets. Not that I’m completely anti-government-spending, I think some national parks are just swell.
Federal highways are mostly (I say mostly, because governments are infamous for redirecting allocated funds to pet projects and causes) paid from fuel taxes, and local roads from state taxes and tolls. Schools, as we’re told, are mostly paid from property taxes, and federal grants from the Department of Education.
Opting Out
I’ve written a bit on the investment return side of growing your own produce. The performance of $1 invested in cucumber seeds is an incredible, amazing thing. With all the ink spilled on strategies for getting the most credit card points and bestest insurance rates. This is one tax minimization strategy that is still perfectly legal, at least for now.
Grow a couple of tomatoes in a container, and there is no sales tax paid anywhere from seed to salad. Those vine ripened tomatoes from Florida or Chile that you pick up from the grocery store today will have paid some very small tax all along the supply chain from vine to your shopping cart, and feed other small capillary tax streams all along the way. The payroll taxes on the labor used to pick and pack them, the fuel taxes on the delivery truck, the energy taxes on the refrigeration used to cool them, on and on down the supply chain to your table. (credit where credit is due, the thought train driving this conclusion is not original, I picked it up listening to Jack Spirko at The Survival Podcast)
I’d venture to say that anyone that takes steps to be a little more personally productive in their daily needs (like Molly on Money and their bees and chickens), has a small tax footprint.
Producing for your own consumption, whether it be food or energy or utilities, unravels one more strand from the suspension bridge of taxation. So if you get livid every time you think about your tax money being wasted by government, take solace in the thought that there was nothing that nobody collected on that nice cucumber you’re slicing up for your summer salad.
Internet Shopping
Still an option, for now. I’ve used Amazon Prime for the simple reason that the 8, almost 9 percent sales tax here in Oklahoma makes it worthwhile. Amazon Prime is a feature where you fork over $80 or so bucks a year, and any qualifying item purchased from Amazon comes with free shipping. Spend a thousand bucks that year, and the sales tax is paid for. Spend another thousand, and we’re good to go. Now, eighty dollars may not seem like much, but it’s a hundred percent return if we do spend $2000/year on items like clothing, groceries (mostly coffee), medium ticket items, and of course, books.
Some of the items we’ve successfully comparison-shopped are a vacuum cleaner, a small laptop computer for our older son, Christmas gifts, CO2 detectors, and garden and household equipment.
Again, these are items generally over $100, that we might have purchased locally, but instead spent a few minutes and few mouse clicks to thwart the taxman. In fact, I proclaim that loudly whenever we manage to do this.
“Ha-ha, Take that, Taxman!” Well, OK, it’s just me that says that, Mrs. 101 is a little more practical, she just rolls her eyes and gets on with things while I do a little victory dance.
Anyways…..
I don’t much like mandatory taxes, I think they are an immoral theft of my productive time, enforced under threat of violence (anarcho-libertarian tendencies peeking out), but they are what they are. No sense getting all worked up about them, writing and calling elected officials. About all we can do to minimize their impact is to take some small incremental steps to make personal changes.
What do you think, readers, besides the usual charitable deductions, are there any unconventional measures that you are taking to minimize your tax exposure? Is involuntary taxation immoral?
The best way to fight back is to use the tax free vehicles the government provided like our Tax Free Saving Account in Canada. There is little less you can do unless you want to step into the illegal
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I thought that’s what that meant. I kept reading about the acronym TFSA on all the Canadian dividend blogs.
I would also advocate staying away from anything that is not fully compliant. Because words are important, the word to use is minimize, not @voi!d.
I’m not sure that taxation is in itself immoral, but I do think that our current system leads to immorality. On the taxed side, people are coerced at gunpoint (or threat of jail point as the case may be) to give what Christian charity should lead them to give. Then there is no impetus to give to the needy because “I pay taxes for that.”
On the recipient side, there is the expectation of obligation. We are entitled to Social Security, we say, because we paid into the system. Well, we also elected the politicians who spent all of that money and handed a big, fat IOU to our children and grandchildren. We are entitled to free health care because health care is a human right. Never mind that there ain’t no such thing as a free lunch, we are all owed this stuff!
I don’t think that either side of this equation is good for us as Christians or moral human beings. Neither indifference nor dependance is good for people. But just as we eat too much junk food because it is easy and tastes good at the time, we buy into the disfunctional economic system that we have because it seems cheaper and easier than the alternatives in the short term. And so far, we have not had to think beyond the short term. I’m not sure what will happen when the rest of the world decides that it doesn’t want to hold so much US debt and we have to pay much higher rates to borrow money.
Hey LG, thanks for the great comment. In my very simple opinion, it’s immoral in the sense that we teach our kids not to steal.
The bad joke about having paid into Social Security is that the money isn’t there anymore, the Trust Fund has already been spent. So, any future SS money will have to be borrowed, further adding to the yoke on the citizenry.
Wow…. I completely understand where you are coming from. I was wondering why your recent comment brought up the uses of our tax money…
One thing that I find so hypocritical is when people couch paying taxes in patriotism. I pay taxes because it is the law… not out of some misguided belief or even that I think this is the best use of our money.
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Shawn, I didn’t like (or get) that comment either when it was made, that it’s patriotic to pay taxes. As for the comment I made on your post, it started me thinking, and out popped this post. I find that happens just about every time I happen to visit your blog.
Wouldn’t it be awesome if you had a little box you could check on your tax form that allowed you to choose where 5% of your tax money went. We understand that there necessary evils, but I would love to have that option. Where would that 5% go I wonder?
Hello Sandy, it would indeed be awesome, the power to choose where your tax money goes. Awesomer still would be *no* taxes, and you make the choice how much and where to give, but that’s about as likely as me being able to count on a Social Security check in 20 years… or 25, depending on how high the retirement age gets raised…
I vote for no tax and give on our own, but I understand a lot of people won’t pay anything if it comes to that. More than just the tax itself, I hate it when people feel the high earners should pay a lot more than the low income folks. I am not saying that is completely wrong, but I don’t see how/why people who struggled to come up to a high earning level owe something to the low earners who think they are entitled to every luxury but somehow life cheated them out of it. (I am not saying all low income people are like that, only a minority, but whenever I hear that it drives me insane)
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Suba, although we’d like to believe that people are naturally charitable on their own, they’re not. Free riders abound. But I believe that a large enough percentage of the population is wired to helping others, that mutual assistance without the interference and coercion of government can and does work.
Taxes drive me crazy and I would do anything within the law to avoid them. When I see what tax dollars go to, I could scream. I love shopping online to avoid taxes. I also hate paying into social security, but that is another issue altogether.
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Kris, I think we’re on the same page. I once checked our city’s online FY budget. I had so many WTF? moments, that I had to stop reading it and go off somewhere else to cool down.
All the tomatoes in our community garden failed to ripen last season, just saying.
Avoid tax? Maximize passive income and your tax rate will go down since the tax rate is generally lower on those.
I just got a new lens for my DSLR, I’m thinking about writing it off as blog expense for 2011….
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*All* the tomatoes? Wow, that’s a lousy season, I’m sorry to hear.
What were the issues?
Agreed on the passive income, it’s one of the “all of the above” things to do.
entitlements, entitlements,entitlements… until we reign them in (which is politically unpopular), it is a mathematical certainty that our taxes MUST go up – federal. From a state level, most municipalities are utterly broke given unfunded entitlements, investment losses and public sector worker contracts that are unsustainable. Taxes are going up in the long term regardless of which politician can promise the best deal at election time. Stinks, but it’s reality!
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Cutting entitlements is political suicide for our elected nobility. So yes, agreed that taxes will increase, have increased already, and services will be cut. Our municipality have now started charging extra for paramedic service at the scene of the accident.
[...] Centavos: Thoughts for Tax Season – Very well thought out piece about income taxes. I agree to pay money without really thing [...]