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Last year, I suggested that the price of civilization (i.e., government) should be no more than 15% of your income. I further suggested that any taxation beyond this level would be tyrannical.
Fifteen percent is obviously an arbitrary threshold. Your “tyranny” threshold may be higher. But before I make the case again for 15%, let’s see how Mrs. Groovy and I did in 2016.
2016 Income
In 2016, Mrs. Groovy and I had an income of $128,766. Here’s how that amount was derived.
| Source | Amount |
|---|---|
| Wages | $110,590 |
| Dividends | $13,297 |
| Capital Gains | $3,278 |
| Pension | $1,546 |
| Interest | $55 |
| Total Income for 2016 | $128,766 |
2016 Taxes
Considering that Mrs. Groovy and I left the workforce in October of 2016, our income for 2016 was pretty darn good. Now let’s turn to our tax burden. Here’s what we paid in taxes.
| Source | Amount |
|---|---|
| Federal Income Taxes | $6,597 |
| Social Security Taxes | $6,535 |
| NC Income Taxes | $2,799 |
| Property Taxes | $2,101 |
| Medicare Taxes | $1,528 |
| Sales Taxes | $875 |
| Federal Refund | -$2,406 |
| State Refund | -$147 |
| Total Taxes Paid in 2016 | $17,882 |
The Results
Okay, if you divide $17,882 by $128,766, you get an effective tax rate of 13.89%. Hooray! Mrs. Groovy and I were under my tyranny threshold. We paid a reasonable amount for civilization in 2016.
The Case for Fifteen Percent
My first defense of 15% is philosophical. One of the hallmarks of freedom is the ability to spend the money you earn on the things that interest you. This freedom, of course, isn’t absolute. The political majority has the right to confiscate a portion of your income for things such as roads, schools, and welfare. Likewise, the right of the political majority to take your money for the common good isn’t absolute either. If the political majority had an unlimited claim on your income, you wouldn’t be free. You have to draw the line somewhere. I think 15% is a reasonable compromise between the political majority’s taxing prerogative and the individual’s right to be the primary steward of his or her money.
My second defense is practical. When I worked for the government, I estimated that my department gave the taxpayers about 50 cents of service for every dollar in taxes they surrendered to us. Was that degree of wastefulness and contempt peculiar to my little corner of government? I don’t think so. I think inefficiency, corruption, and disdain for the taxpayers is the norm for government at all levels. It’s part of the operating system.
Consider education for a moment. I grew up in Plainview, Long Island. Plainview’s school district currently spends over $25K per student annually. That’s right. A kid starting kindergarten today will cost the Plainview taxpayers over $325,000 by the time he finishes high school. Now a question. What’s being taught in Plainview’s schools that a child can’t learn on his own for far less money, providing he’s motivated and his parents are responsible? The Khan Academy is freakin’ free, after all. And so are libraries (at least if you’re a minor with no income, that is).
But wait, there’s more. The New York State Board of Regents, the body responsible for setting teacher qualifications, is seriously considering scrapping the literacy exam that all prospective teachers are required to take. I kid you not. Apparently a large number of New York’s prospective teachers have trouble reading. And some board members would rather sacrifice standards than force prospective teachers to up their game. Now another question. Does the New York State Board of Regents strike you as an entity dedicated to excellence?
My point here, of course, is not to pick on public education or New York State. Take any government agency or program anywhere in the land and you will find wasteful and absurd practices. And, sadly, for a large number of government agencies and programs, you will also find corruption and disdain for the taxpayers. My point, rather, is this: The government is just a lousy steward of our money. And until the government proves otherwise, I see no reason why it should get more than 15% of my hard-earned money.
Final Thoughts
Okay, groovy freedomists, that’s all I got. What say you? What was your effective tax rate in 2016? What’s your tyranny threshold? How much are you willing to surrender to the government given its current make up and business practices? I’d love to hear your thoughts. Grease for peace.
Very interesting post Mr Groovy, thank you for it.
I am quite surprised by the level of taxes in USA. They are lower than expected.
Let me tell you about taxes in Europe. I think USA is evolving towards this direction, therefore this is your future. I describe developed Europe in general, and Germany in particular.
As a German freelancer, I pay ~30% of my income in the annual tax declaration. My tax-deductible expenses are relatively small.
After those taxes, VAT is about 20% for any product that I purchase. Some products pay less, but other pay much more (tobacco, petrol, electricity… 50%-60%).
In addition, there is a myriad of tiny taxes. They provide a service, right, but they are also compulsory. It does not matter if you do not watch TV because you do not understand the local language, you pay TV tax. It does not matter if nobody lives in a flat, you pay garbage tax. And recycling taxes, religion tax, water…
At the end, everybody in Europe pays ~50% of his annual effort in taxes (see “Tax Freedom Day” for more information).
Let me say in a different way: everybody works “part time” for the government.
I agree that we receive services in return. But let me indicate:
– My taxes indicated above do not cover health insurance. I have to pay it from my pocket after taxes.
– In Sweden there are no unemployment benefits. If you want income while not working, get a private insurance if you want. And you still pay about 50% in taxes.
– Health insurance is so low-cost, that in Netherlands pregnant women deliver at home and **never** meet a doctor (because “they are not sick”).
– In Spain hospitals are so saturated, that when you are sick, you usually get the appointment with the doctor 6 months after requesting it.
Finally, 2 comments:
– Taxes are so high, that it is not worth to work. When I get an extra work, I reject it. Why? I have the time, I have the capability, everything ready. But any additional income pays 50% in my annual taxes (the marginal tax rate; the 30% indicated above is the average). And afterwards I pay VAT. It means that I pay 2/3 to the government and I receive 1/3. For every euro that I get, the state gets double. If I do not work for me and my family, I do not work at all.
– With low income you have all your needs covered. But when you work hard, are successful and perhaps lucky, you are punished with high taxes. Both receive the same services from the state, therefore the entire continent wants to be poor to work less and receive the same. It is an awful incentive!
Let me conclude telling that yes, the state provides important services. Solidarity and support those in need is a must. And Europe has other positive aspects. Not everything is negative. But be ready for all this because according to what I read about USA, there is a trend towards the European system…
Thanks for ruining my day, WillyFog. Yes, I know it’s coming. First, we’ll hollow out our military. That should take a couple of decades. Then, because there still won’t be enough money for the government to meet the “critical needs” of the people, the federal government will institute a VAT. So, yes, full-blown socialism is coming to America. When more people fear freedom than fear government, socialism is the logical result. Sigh. But fear not. Big education and big media will hammer home the notion that good people surrender to the collective. Slavery = freedom. And most people will buy it and happily fork over 50% of their incomes to their bureaucratic masters. Thank you for stopping by, WillyFog. I really appreciate what you had to share. If only my fellow Americans would heed your warning.
P.S. Sorry for the late response, my friend. Things have been crazy in Groovyville lately.
I’m not sure I believe that private business is that much more efficient/effective that government, and privatizing some functions tends to cause a lot of problems.
Take education. Kids who get vouchers go to often completely unaccountable schools that will not accept kids with high needs. Not every kid takes the same amount of money to educate. My kid takes less resources to educate than a kid with MS, but the public schools have to educate them both. Is that a waste? (And NC spends less than $9K per student per year, with a $15 per year textbook budget and abysmal teacher pay. Sometimes you get what you pay for.)
Or take privately run prisons. Not only have states had to set up contracts to keep them filled (there’s a conflict of interests for you), but they also only take the healthier, younger prisoners. Sure, if you don’t have to take on the high expense populations, you’re going to look leaner, but are you really?
I’m not saying there’s no waste. Obviously, there is. But I can tell you I’ve seen plenty of loafing and waste in the private sector too.
LOL! You’re absolutely right, Emily. There is a lot of waste and tomfoolery in the private sector as well. But when the private sector fails to address bullsh*t, it loses customers and market share. Just look at GM and Sears. Back in 1980, GM had 43% of the US auto market. Today it has 17%. And Sears, once the largest retailer in America, is now on the brink of bankruptcy. Can the same be said of government? When the government fails to address bullsh*t, does it lose market share? Ah, it’s nice to have a conscripted clientele.
As far as education goes, I just don’t trust our education bureaucracy. For thirty plus years I’ve been listening to its excuses on why it can’t ensure that the vast majority of kids it teaches leave high school with solid math and reading skills. Basically, after all the excuses, the one resounding message I get from the education bureaucracy is this: give us more money and everything will be okay. But is money really the answer? Like you pointed out, Emily, North Carolina spends less than $9K per pupil. New York, my home state, pays at least twice that. So how did NC compare to NY in SAT scores? Here are the 2016 test results.
NC mean math score: 508
NY mean math score: 501
NC mean reading score: 502
NY mean reading score: 489
So, yes, I’m all for vouchers and choice when it comes to K-12 education. If the education bureaucracy really knows what it’s doing, and it’s totally driven by the needs of students and parents, it has nothing to fear from competition.
Government is a necessary evil 🙂 just like friction is by enabling us to walk and drive cars etc.
How much is too much? I would say about 10%. Anything more than 10% is too much.
Among all the taxes, the only tax I see missing is “breathing tax” – the tax for just being alive 🙂
Our effective tax rate has been around 17% to 20%.
I love it, Michael. “If men were angels, no government would be necessary.” But since men aren’t angels, we need government. And since men and women will administer government, we need some pretty stern checks against bureaucratic avarice. And perhaps the best way to check this bureaucratic avarice is to limit taxation. Ten percent sounds good to me. Thanks for stopping by, my friend. It’s always great hearing from a freedom-loving patriot. Cheers.
Interesting inside perspective you have on government operations. And $25K per kid per year (and I doubt NY is unique in this matter) is crazy. The government is big and bloated, I’d agree with that. Another good example is the USPS…meanwhile Amazon is figuring out ways to deliver packages in hours via drones!
LOL! I forgot all about USPS. Great point. Thankfully we don’t depend on the Postal Service as much as we used to. I think we’ll use a booklet of stamps every 6 or 8 months. And what kills me about our local Post Office is this: I always happen to hit it during rush hour. There’s always a line backing up towards the entrance. And invariably, there’s only one clerk behind the counter. Meh. Thanks for stopping by, my friend. It’s always a pleasure.
Oh, man. I can’t believe I’m so late to the party on a Mr. Groovy government post!
I paid 15.3% to the feds and 5% to the state. And I would gladly pay more to expand government services 🙂
We’ve already talked about how we have had very different experiences as government employees, so I won’t revisit that today. And I will not deny that there is significant waste and corruption in government (as there is in the private sector).
I think the solution to waste and corruption though is to target waste and corruption, rather than starving the government as a whole of funding. Where a family whose income is suddenly limited would cut back to focus on necessities, the government isn’t necessarily like that. The government has a lot of inertia and was designed by the founders to be slow-moving and resistant to change. Plus, the things that get cut first would be the things with the least powerful backers, which tend to be the programs most needed by the poor.
As to the 15% bar – I have a lot of issues with our current tax code, but the fact that it is progressive is certainly not one of them. For someone who is struggling to make ends meet and faces a lot of systemic problems in lifting themselves up, 15% is too high. For someone like me who has been fortunate and gotten good opportunities and made some good money, it makes sense to put in extra to make up for the people that don’t have the money to spare.
I guess the takeaway is that I agree with you that we should be trying to make government more effective and efficient, but I don’t mind the fortunate paying extra in taxes as we work towards that goal.
You’re a worthy opponent, my friend. Not only do you point out the flaws in my reasoning–in a very respectful manner, I might add–but you never fail to make me think. And this comment was no different. I have a very interesting reply to your excellent points. So interesting, in fact, I need a whole post to give them a fair hearing. So look for it later this week or early next week. Sorry for the intrigue, Matt. I hope you don’t think I’m copping out.
The respect is mutual, good sir. I appreciate both your willingness to think outside the box and make bold statements as well as your openness to conflicting viewpoints.
I look forward to reading!
10.99% – I’ll take it!
Four kids plus a healthy dose of tax advantaged savings accounts to lower my income left us with an effective tax rate that was MUCH lower than I was expecting.
I believe that I could get that even further next year if I were to take full advantage of an HSA.
I love it, Ty! 11% percent is a kick-ass effective tax rate. Are you a 1-percenter in disguise? Thanks for stopping by, my friend. And jump all over your HSA this year. I want to be super jealous next year when you report that you’re effective tax rate under 10%. Woo-hoo!
I wish! We’ve got a very good income and get all of the benefits of being married and filing jointly so that helps as well.
I also live in WA and we have no state income tax. 👌👍
well done ! I paid more than you and this year I actually owe about 1K 🙁 . I am going to work on this. I need to find more deductions. I agree, 15% seems a reasonable amount. The Trump tax cuts are coming for better or worse but it will most likely benefit those over 250K income. We’ll see. Thanks for sharing !
-Brian
Good luck, Brian. I think 15% is reasonable, but I sometimes wonder that it may be too low. I was curious to see what others thought. Thanks for stopping by, my friend. It’s always great hearing from another 15-percenter.
Mine was right above 25%. It’ll be a lot lower next year. 😀
It better be! There’s no reason why a fine, freedom-loving American such as yourself should be paying a higher percentage in taxes than Bernie, Barack, and Donald.
P.S. Heard you on the Mo’ Money podcast today. Lot of fun. It was great hearing shoot the breeze with Jessica. Nice job.
Gadzooks! I calculated ours at 26%! Tyranny! We had a good year financially, and maxed our pretax accounts ($18000 for Mrs. G and $24000 403b plus catch-up +$18000 457b for me), and still paid 26%. To be honest, I have a little bit of nausea about this. However, you have inspired me to keep a closer watch on what we pay in taxes. 2018 is our Year of Jumping Ship and I expect tax burden to be far less after that.
Great exercise!
Gadzooks, indeed! You’re paying more than Warren Buffett. I think what saves me is living in North Carolina. Property taxes are very reasonable here. When I left New York in 2006, I was paying $5,400 in property taxes on my one-bedroom, 600 sq ft condo. I didn’t go over $2,000 in property taxes in NC until 2015. I spoke to a good friend a few weeks ago who still lives on Long Island. He has a normal three-bedroom house and his property taxes are over $20K. I think you got to also become an honorary southerner in 2018, my friend. That will surely get you under the tyranny threshold. Thanks for stopping by, Mr. G. Always great hearing from someone who is determined to remove himself from the tyrannical clutches of government.
Mr G- great post, and I am
Interested to calculate what our effective rate is. I agree that 15% sounds like a reasonable threshold.
I had a few counterpoints about education and government inefficiency but SJ articulated them very well.
Essentially I agree that government waste is tragic and outrageous, as is the erosion of standards for educators. However, I don’t have the same level of confidence that the solution lies in trusting parents to fill the gap.
Thanks for another thought provoking topic!
I don’t think we disagree. By pointing out the Plainview School District spends over $25K per pupil, I wasn’t suggesting that public education should be abandoned. I was suggesting that it was a poor value, especially when you consider that you can get an equivalent education for a lot less by using Khan Academy and public libraries. For the record, then, I don’t trust parents in general. In fact, I think a big reason why our public schools have such a hard time producing educated adults is because of parents. Too many parents have steeped their children with attitudes and habits that are antithetical to academics and learning.
Hmmm – I have some math to do! I have never actually calculated how much I am paying in taxes. I have read many posts on how to alleviate some of the tax burden but often times it feels like I am reading Chinese. Time to start paying more attention!
Hey, Miss M. Give it a try. Calculating your effective income tax rate is pretty straightforward. The hard part is estimating what you paid in sales taxes. To do this, I used Schedule A from the IRS. In the Schedule A instructions (see link below), there is a chart to determine your sales taxes based on your income and your residence. It isn’t perfect, of course. But it provides a pretty good estimate. Good luck.
2016 Instructions for Schedule A
My husband is in a (new) position to (perhaps) shake and rattle the education system… at least by a couple degrees… clearly he won’t overhaul the institution (if only!). I think he’s going after higher ed first, but the same concepts could (and would) be applied to k-12. I really can’t get into specifics about it. I will just say that he has been asking the same very basic questions about costs and quality of our public education system as you are but as a PhD and former university researcher in the field. He thinks he offer some viable solutions at scale…
As a parent I could argue against a few points you’ve made. I think that that you haven’t had to educate a human being or two is bleeding through as a bit of ignorance about the educational process. Or maybe it’s that your confidence in *other* parents to adequately and competently educate *their* children is humorously (and painfully) overreaching. I mean, come on, look at what’s happening in Washington *right now* when it comes to science… our leading politicians are actively devaluing the merits of scientific thought, inquiry and process. And ask yourself, what is filling the void? And is this what our country and our nation’s children need?
My husband would argue a huge “HELL NO”. His company, like many in the area, have to import talent from abroad because our nation’s boys and girls don’t have the technical chops: they don’t know the math, they don’t know the science, they don’t have the patience and drive. Now it’s very complicated… so many factors go into it.. but lowering our standards and allowing parents more “freedom” in education is not necessarily going to produce the workers and, probably more importantly, the kind of citizens and system thinkers our nation needs. Certainly not en masse.
A few last points.. libraries and khan academy are wonderful resources, but they aren’t “free”. Our libraries are funded by property taxes and you have to either pay for internet service at home or travel to somewhere that offers it for free (or a cost of a latte) You must also have access to some sort of electronic device to learn online, which even in this day, can be challenging for many.
That said, we have to find ways to lower the costs and raise the efficiency and effectiveness of academic institutions. Educational technology will continue to have a larger impact inside and outside the classroom, but not without increasing the accountability of stakeholders: children, parents, educators, community members, politicians.
The (ten.. hundred… ten hundred) million dollar question is, of course: How you gonna do that?
If we’re not careful, we will end up like highly stratified developing nations like Mexico or India where quality, dynamic and innovative education is a selective privilege.
The slogan will have to change from “No child left behind.” to “No classes left behind!”.
SJ- You make some excellent points, particularly “alternative fact” (my term) tactic that our leaders are using to devalue and distort scientific process and inquiry.
Et tu, Mr. Grumby? SJ did make some excellent points. I tried to counter one of them and let the rest slide. I think she got me this time. Damn, she’s good!
Whoa, SJ! I love it. Excellent points. But I will quibble with you on this point: I’m not saying that parents and children don’t need schools and we can do away with public education. I was making a comment on value. Yes, Khan Academy and the library aren’t completely free. But their costs are puny compared to the per pupil cost of the Plainview School District. And tens of thousands of home-schooled kids have proved you don’t need a lot of money to acquire the core knowledge that a high school diploma signifies. So I’ll stand by my contention. Thanks to the digital revolution, our schools aren’t teaching anything that kids can’t learn by themselves if–and that’s a big IF, they and their parents want to.
I readily acknowledge, however, that a lot of kids need a push. And teachers are the academic equivalent of coaches and trainers. But are our public schools good at pushing kids? It seems to me that the opposite is actually the case. As our kids grow older, most become less engaged in academics and less excited about learning. How do the schools that educate the talent that your husband has to import from abroad keep kids engaged in academics? What are they doing that we’re not? What education technology are they using that we don’t have?
In 1983, a federal commission published a landmark report on education called A Nation at Risk. And the most quoted sentence from that report is as follows:
“If an unfriendly foreign power had attempted to impose on America the mediocre educational performance that exists today, we might well have viewed it as an act of war.”
Fast forward 34 years and nothing has changed–at least, academically. We’ve thrown a boatload of money at education and our public schools are still cranking out a ton of kids who can neither read nor compute at the 8th-grade level.
I wish I could say otherwise, but I just don’t have any faith in our education leaders. If they knew what they were doing, our education issues would have been solved a long time ago. And until our education leaders prove otherwise, I would not trust them with more money.
Thank you for stopping by, SJ. I really appreciate you challenging my crazy ideas. Someone’s got to keep me in line.
P.S. Keep me posted on your husband’s work. We need more people like him who are sick of the status quo and who aren’t afraid to rattle the cage.
Libraries are wonderful, but they’re not ‘free’ any more than schools are ‘free.’ Taxpayer money funds them too, along with National Parks and Monuments and the roads that you already mentioned.
I’m all for lower taxes and more efficient spending, but I try to focus on the positives because otherwise it’s quite depressing to see the inefficiencies in our system.
Hey, Julie. Good catch about the libraries. They’re not free. I tightened up that portion of the post.
So true, Julie. If one didn’t focus on the positives, one would truly find oneself in a very depressed state. Whenever I get down on government, I think of our National Parks. It gives me some much-needed perspective. Not everything our government does is lousy or inefficient.
We ended up around 10-11 percent. It never ceases to amaze me all the tricks you can do to reduce your tax rate. Without such tricks we’d be closer to 18-19 percent.
I will continue to maximize tax avoidance. Frankly one of my companies big customers is the government. I’ve seen first hand where they buy our equipment (avg maybe 100k a pop) and then it sits on the shelf because of some regulation or site change. They buy to spend their budget for the year.
Hey, FTF. Thanks to our 401(k), 403(b) and HSA, we were able to shelter nearly $50K of our wages from the tax man last year. Without those loopholes, we never would have been able to get our effective tax rate below 15%. Getting yours down to 10-11% is quite an achievement. Bravo, my friend.
My effective tax rate was 13.73%. I agree with your points, if the government is going to waste our money, then what’s the point…
That’s crazy that the literacy exam is going away…
I don’t mean to pick on public education, but it’s hard not to. For thirty plus years we’ve been giving our public schools more and more money and in return for this treasure we’ve been receiving little if any academic improvement and plenty of excuses. Sigh. Thanks for stopping by, Erik. It’s always great hearing from another person who has kept his taxes below the tyranny threshold.
Interesting! I mean, of course I’d rather pay MUCH LESS than 25% (ouch) of my income to taxes. I honestly think there are prudent spending cuts we could make that would lower the need to tax people so damn much. I get that roads need to be built, but I know the government could do a better job at spending our funds more efficiently. Sigh.
Hey, Mrs. PP. I admit I’m biased in this regard. I worked for government for twenty-one years. And I saw a lot of waste. The trick is to set up a system where the goals of public servants align with the goals of the taxpayers (e.g., greater pay for public servants and efficiency, reasonable costs, and quality services for taxpayers). Sadly, no one’s been able to figure out how to do this. Meh. Absent this holy grail, our only defense is to mitigate the damage and limit the taxing powers of the political majority.