I’ve been toying with a random thought on taxes, and it seems appropriate to publish it now during the peak of tax season. You see, my web-life right now revolves around taxes because investing and taxes go hand-in-hand. Plus, for many, tax season is a good time to really start diving into personal finance.
Regardless, paying taxes seems to elicit a common phrase: I pay too much in taxes. I hear it from poor people. I hear it from rich people. People post it in comments on this site. Let’s talk about paying your fair share.
And I, personally, feel like I do pay a lot of taxes. I hate paying taxes. Who does?
But do I really get value in what I pay for? Do I pay too much or too little compared to what I use? What alternatives to our tax system are there?
For reference, the United States spent $19,721 per person last year. Did I get $19,000 worth of benefits from the government last year? Let’s take a look at my random view.
Where Did My Taxes Go?
The first thing I wanted to look at is where my taxes went? Did I get my money’s worth from what the government actually spend money on?
Here’s where the average $19,721 went last year:
- Social Security – $3,436
- Health Care/Medicare – $3,744
- Education – $2,533
- Defense – $2,734
- Welfare – $1,988
- Police/Fire/Courts – $1,067
- Transportation – $962
- Government Overhead – $362
- Other (R&D, Grants, etc.) – $1,510
- Interest on Debt – $1,375
Now, do I feel like I got benefits in each of these areas? I don’t feel like I did.
Areas I received no benefit:
- Social Security
- Medicare
- Education
- Welfare
- Payment on Debt
Areas I received indirect benefits:
- Defense
- Government Overhead
- Police/Fire/Courts
- Other
Areas I receive direct benefits:
- Transportation
Wow, that is a very skewed look at where my taxes go. That’s why maybe we should consider moving towards a system where you pay your fair share. That’s my random thought.
Moving to a Toll instead of a Tax
Every day I drive to work I drive on a toll road. The road didn’t exist 5 years ago. It was built by a private company to solve a need in transportation by my work. You see, the alternative to this toll road was that I would either have to take a bunch of side streets that would add 30 minutes to my commute, or take 2 different freeways, which would add 13 miles to my commute, and about 10 extra minutes.
The company charges a toll for my exit of $1.50 each way. I view that toll as money well spent, because the gas costs alone of 13 extra miles is about $2.50. I feel like I truly get a return on what I pay for, and that I have the choice to NOT pay the toll and take that road if I don’t want to. It’s the epitome of the American Dream – freedom of choice!
Imposing a Toll Structure on our Current Tax System
So my random view on taxes is this: what if you truly only paid for what you used. Could it be done? How would it impact our society?
Going back in history, this is the system we essentially had in place during the Revolutionary War. When the colonists wanted to buy something, especially for the army, citizens voted and really discussed whether they wanted to personally pay for the expenses. And given that 100-200 people were totally footing the bill in some counties, these decisions really mattered. You would personally be liable for your own spending decisions.
Let’s look at some potential examples in our current lives.
Driving
There are people who drive and those that don’t. If you live in big cities like New York or San Francisco, you may not even own a car. Yet, your tax dollars everyday go towards road projects nationwide. How is that fair?
What if, instead, you only paid for what you actually drive? Or, if you use public transportation, your fee covers your cost of using the road. Just think, we could have digital odometers that transmitted your miles, and your taxes/toll would be calculated exactly based on how much you drive.
Maybe there would be a set system – like the mileage reimbursement rate – that would be your toll. Right now, that’s 56.5 cents per mile. So, if you’re like me, and drove about 15,000 miles last year, your tax would be $8,475. Ouch…maybe I should drive less…
Education
Education is another area that many people claim is under-funded. But most Americans only use education from age 5 to 18. Why should we have to pay our whole lives for something we no longer use? Instead, there could be a system where education is mandatory, but only those using the system pay. So, if your child is in school, you pay the costs of education. Just like private school!
Now, that would include your teacher’s salary, the cost of the building, and any administrators’ salaries. So, if your teacher earned $35,000 per year, and there were 25 students in the class, your annual tuition for the class would be $1,400. Then, maybe tax on some extra costs for the building, and your education expenses would be around $2,000 per year. You could even use education savings accounts to pay for the cost. Still much cheaper than private school tuition, and now you pay for what you actually use.
War
What about national defense and war costs? Now, this one could be tough, especially because it’s not something we “use”, but it is something we benefit from. But there are people who totally don’t agree that we should be fighting, while others are adamant we should be. These polarizing issues can be tough to justify and tax, but think about this.
When we were attacked at Pearl Harbor at the start of World War II, the United States still declared war to ramp up the military-industrial complex. At that time, there was almost unanimous support for the war. Only one member of Congress out of both the House and Senate voted against the war. And the member was a life-long pacifist.
Where I’m going with this is that if the cause is truly worthwhile, everyone would be for it and everyone would be willing to pay for it. In this case, we could attach taxation to which Representatives voted for the war, or something similar. Imagine, then, if your Representative voted for war, you would have to pay the added costs. In the case of World War II, there was complete shared sacrifice for a noble cause.
I think it would really make us think hard about future engagements, especially if we bear not just the true cost of life, but true cost of not fighting as well.
Dealing With Social Programs
A real question comes up with how we deal with social safety net programs? This is a very tough question, because there will always be those who need help when times are tough.
The main social safety net programs bucket into the following areas:
- Retirement (Social Security)
- Health Care for Adults (Medicare)
- Low Income Support (Welfare and Medi-cade)
- Health and Nutrition Programs
- Care for the Disabled
- Unemployment Benefits
I don’t want to argue for or against any of these programs. I use none of them, but if times were tough, I would use all resources I needed to get by.
But can these services be provided in a toll structure, or some other means?
I think they can be, through a combination of charities, self-reliance, and interest-free loans.
Charities can provide a lot of services like they currently do. This can provide health and nutrition programs, low income support, and some care for the disabled.
Self-reliance can help with retirement and health care.
For unemployment and related welfare benefits, the government could offer interest-free loans to get through for a period of time, with generous repayment periods. For example, if you’re laid off and are out of work for 6 months, you can get money from the government – any amount up to your previous salary. You would then repay the loan from your income from your new job. The benefits of this are that the incentives are in place to encourage responsible use of benefits, and the government can always get repaid through tax refunds or garnishments.
Paying Your Fair Share?
I truly believe that I’m paying more than my fair share based on my simple math.
Last year, I paid about $25,000 in Federal taxes and $4,800 in state taxes. I definitely didn’t receive almost $30,000 in benefits personally. Now, you could argue that a lot of that went towards “the greater good”, but I don’t really see it. Where’s the greater good when we are failing in education, failing to fix health care in the country, and failing on so many other fronts? It continues to perplex me how Congressional Leaders continue to promote financial un-accountability.
I will always be okay with paying for what I use, including public use services like transportation and infrastructure. I’m happy paying for a strong defense.
But at the same time, I think there needs to be more self-reliance. We need more structures in place to promote self-reliance. I’ve always said that being self-reliant is a charity in itself.
If you use it, you pay for it. Plain and simple. What do you think about paying your fair share in taxes?
Discussion Questions:
1. What are your thoughts on a toll system versus a tax system?
2. Can you truly pay for everything you use?
3. What do you do about social value programs?
Robert Farrington is America’s Millennial Money Expert® and America’s Student Loan Debt Expert™, and the founder of The College Investor, a personal finance site dedicated to helping millennials escape student loan debt to start investing and building wealth for the future. You can learn more about him on the About Page, or on his personal site RobertFarrington.com.
He regularly writes about investing, student loan debt, and general personal finance topics geared towards anyone wanting to earn more, get out of debt, and start building wealth for the future.
He has been quoted in major publications including the New York Times, Washington Post, Fox, ABC, NBC, and more. He is also a regular contributor to Forbes.