By Stephen Buller
Benjamin Franklin wrote, “In this world nothing can be said to be certain except death and taxes.” Perhaps one of his less inspiring quotes, but the sentiment holds true today, arguably more so than in 1789.
In case you’d forgotten, your federal taxes are due on the 15th of this month. If you own real estate in King County, your property taxes are due on the 30th. If you run a business in Washington State, your taxes are due at the end of the month, and the next month, and the next …
It’s easy to complain about taxes, and I’d like to take a more nuanced approach than “taxes are theft” or “make the rich pay their fair share.” Instead, let’s look at taxes from the following angles: 1) What are taxes for, 2) How should they be assessed, and 3) What can you do? I’ll be sure to give my color commentary at the end.
First, what are taxes for? The answer is, a lot of things. Different agencies in different jurisdictions assess taxes for different purposes. Your federal taxes largely fund programs like Social Security, Medicare, and national offense. Property taxes often fund schools, police, and fire. Business taxes fund a wide range of social and environmental programs.
Second, how should taxes be assessed? This all depends on your perspective. If you think taxes should be used to fund essential government services everyone benefits from, then they should be assessed across the board with something like an income tax. If you think taxes should be used to redistribute wealth, then they should be assessed on specific entities or individuals. If you think taxes should be used to incentivize behavior, then they should be assessed on specific products or activities.
Third, what can you do? For most people, unfortunately, the answer is not much. If your primary source of income is a job, there are few ways to decrease your taxes. However, simply investing your money can provide interest, dividends, and capital gains which are taxed at lower rates than earned income.
If you really want to bring your tax bill down – taxes are most people’s single-largest expense, so I encourage you to at least consider it – you need to look to those incentives I mentioned. If you start your own business, you may be shocked that your tax bill goes up at first, but if you reach a certain size, you can benefit from corporate tax rates. This is because the federal government wants people to create jobs.
There are tax credits for building new housing, and rental income is usually tax-free because of the magic of depreciation. This is because the government wants people to provide shelter. There are tax credits for investing in solar and other “green” energies, and there are still benefits of drilling for oil. This is because energy drives our economy.
The list of incentives goes on and on, and comprises the majority of our tax code. There are disincentives as well, such as “sin taxes” on alcohol or cigarettes. We are still incentivized to have children with a federal tax credit, but if the government decides our population is getting too high, they could change that into a child tax.
No one likes paying taxes, but we all benefit from programs they fund. As citizens, our focus should be on the programs we choose to fund, and how. As individuals, I think we should consider ways we can decrease our own tax bills by investing in activities our government wants us to.
Is there corruption, lobbying, and other barriers that make it hard for the average person to get ahead? Welcome to reality. In my opinion, the “fairest” system would be one where the government stops social engineering, and everyone pays a flat percentage of their income to fund essential programs.
There are good arguments to be made for taxes on something other than income, such as a sales tax. The individual has a choice whether to purchase that item or not. But there are some particularly terribly types of taxes.
Property taxes on residential homes, in a country where real estate prices can be artificially and wildly inflated, can cost someone their home. Similarly, an unrealized gains tax is absurd – and a bill was just rejected by Washington’s governor because of this. In isolation, how do you pay for unrealized gains except by realizing those gains by selling your investment?
“Don’t hate the player, hate the game.” I don’t think Ben coined that one, but it applies here. Hate an unfair system, and let your “representatives” know, so positive tax reform can be made. But don’t hate your neighbor. Learn what you can do to up your game.
