Watch out, rich people: I’m coming for you! A preliminary run-through of my 2013 taxes has revealed that I now earn a low enough amount to no longer qualify as a prime tax hike target. And yet, as sad as this apparent reduction of my own productivity may be, I still possess a wondrous power: the ability to vote to raise taxes on others to benefit me, me, ME!
It’s quite amazing, really; first we learn that the average 401(k) balance surpasses $100,000 for over 50 million working Americans, then we find out that the national unemployment rate has dropped to 6.6%, and now this? Drinks for all, paid for by my rich blogging buddies next time we meet.
I think it’s everybody’s duty to pay taxes. A flat tax above a certain minimum income level of comfort (MILC™) for individuals and families sounds like a fair approach, right? Make 10x more than someone, pay 10x more in taxes than someone. Stuck below the MILC? Don’t worry about income taxes, we got you; just pay sales tax, and FICA tax for your own good (assuming you have a job). We all enjoy the same benefits of military protection, libraries, a functioning judicial system, the NSA, and manicured public parks; it’s only right that we should all help pay for them.
This post offers a little bit of honest introspection as to how I’ve felt going from paying no income taxes as a student, to paying a boatload of income taxes as a worker bee, to once again paying not so much at all. I now find myself assailed by an odd sense of guilt; while my own tax liability has decreased, I still have the ability to potentially vote for legislation to increase someone else’s taxes in order to benefit myself and my family. Deep in my heart I know that ganging up on any one group is wrong, even if the law allows it. But hey— if I don’t pick up the $100 bill lying on the street, someone else will!
As a reminder, the ideal (adjusted gross) income for maximum happiness is $200,000 because:
- Regardless of how high the cost of living may be in your neck of the woods, anything over $200,000 is a target for tax hikes, period.
- The marginal federal tax rate is 28%– a reasonable number, even if you add a state tax rate of 8% to your wages.
- You don’t have to pay the new Net Investment Tax of 3.8% for every dollar you make over $200,000 as an individual, or $250,000 as a couple (why 1+1 = 1.25, I don’t know!).
- You still get to max out your 401(k) and save plenty in after-tax money at $200,000.
- You get to be a part of the middle class, which is the best class in society.
- You can vote to raise other people’s taxes without having to pay more yourself.
DON’T FIGHT THE GOVERNMENT OR THE MAJORITY
Try to fight the government and you’ll likely get crushed. Spend some time studying world history and you’ll find countless examples of people just disappearing without a trace for going against the ruling party. If you walk into a Star Wars convention and take on 100 of the scrawniest teens, you will get beaten to a pulp. Same principle.
I care about all my readers on Financial Samurai, which is why I wrote the Stealth Wealth Manifesto for everyone to follow. To make progress while protecting your family, you must follow my advice and blend in. Telling everybody how much you make if your income is over $200,000 is a sure-fire way to attract Cleaners who will pluck you from your bed one evening for erasure.
For over two years I’ve been trying to keep hope alive by researching what the future of America is likely to be. I spent eight weeks in Europe’s most taxed countries (which also happen to be the world’s happiest countries) seeking to understand the benefits of Socialism. Based on my research, I’m proud to say that America will one day join places like Sweden and Norway as one of the happiest countries in the world. You just have to be on the right side of the debate to see it that way.
I wasn’t always this paranoid or cynical about the government. During college, I loved rallying for world peace, supporting the United Nations, and singing Kumbaya while holding hands with friends. Of course I was also in favor of massive tax increases and income redistribution. Then I got a job.
THE CATALYST TO EARN LESS AND TAKE MORE
Despite paying six figures a year in federal and state income taxes through my 20s and 30s before ejecting myself from the system at 35, I was never bitter about paying taxes. I recognized I was lucky to be earning a healthy wage and paid my taxes on time like clockwork. In fact, every time I finished my taxes I’d say a little prayer: Thank you, IRS– may I have another?!
Then one day a manhole cover started rattling on the street outside my house. The molding surrounding the heavy steel plate had come loose, so I called 311 to see if they could get a city worker out to fix the cover. After 50 calls and 18 months, the city finally sent out a tar truck to simply cover up the manhole completely– a band-aid fix that took a total of 30 minutes to complete. Six months later the manhole cover started rattling again. Bah! Paying tens of thousands of dollars in state taxes a year gets you crap, I grumbled.
Then Proposition 30 passed at the end of 2012, retroactively raising taxes by 3.8% on all individuals who made over $250,000 a year in order to help pay for our public schools. Even though I don’t have children and already pay tens of thousands a year in property taxes to fund education and public works, I’m all for supporting public education in my city. What I mind, however, is getting fleeced by a double standard.
Originally there was Proposition 38, which proposed to raise state income taxes by 0.4% – 2.2% on everybody so that everybody could pitch in to support our children’s education. The proposition would have raised an estimated $10 billion dollars a year. Unfortunately, Proposition 38 was shut down in favor of Proposition 30. The end result is $4 billion LESS per year for education. In other words, everybody is pro- raising money for education to help our children, so long as everybody doesn’t have to pay for it!
After seeing the retroactive tax bill for 2012, I decided I had had enough. I no longer wanted to feel like the enemy, despite paying so much. Instead I went John Galt for a full year. I ate ramen noodles, didn’t work, played tennis all day at the park with my fellow unemployed friends, and lived a generally good life. What did I care? Asset-rich, income-poor is the way to go. I even wrote a long post showing people how to pay little to no taxes on wage income, rental income, and business income. You should check it out.
Anyway, there I was, at last intimately enjoying all the little things the government had to offer while no longer having to pay as much. Success! And yet…After about a year I started feeling kind of useless. While I believed I was doing a small part to help society by consistently publishing helpful articles on Financial Samurai, aiding (for free) anybody who cared to listen, I felt bad for living such a carefree life while others had to work. So, as I saw the economy booming once again, I decided I was willing to pay the price of admission to get back in.
HOW DO YOU DEAL WITH THE GUILT-JOY?
Would I ever actually vote for legislation that raises taxes on some one group in order to benefit my own interests, while not having to pay more taxes myself? I don’t know. Such power feels so intoxicating – like finally, I’m on a dynasty team! I’ll probably just sit tight for a while and enjoy the benefits of no longer having to pay as much taxes while having lots more free time to enjoy what taxes provide. But guilt-joy will inevitably start creeping in as I succumb to greed. Please don’t hate me, rich people — you’ll still have lots of money left over! Tennis anyone?
Recommendation To Build Wealth
Track Your Wealth For Free: In order to optimize your finances, you’ve first got to track your finances. I recommend signing up for Personal Capital’s free financial tools so you can track your net worth, analyze your investment portfolios for excessive fees, and run your financials through their fantastic Retirement Planning Calculator. Those who are on top of their finances build much greater wealth longer term than those who don’t. I’ve used Personal Capital since 2012. It’s the best free financial app out there to manage your money.
Tax Savings Recommendation
Start A Business: A business is one of the best ways to shield your income from more taxes. You can either incorporate as an LLC, S-Corp, or simply be a Sole Proprietor (no incorporating necessary, just be a consultant and file a schedule C). Every business person can start a Self-Employed 401k where you can contribute up to $54,000 ($18,000 from you and ~20% of operating profits). All your business-related expenses are tax deductible as well. Simply launch your own website like this one in under 30 minutes to legitimize your business. Here’s my step-by-step guide to starting your own website.
Updated for 2017 and beyond. Income taxes are set to come down under President Trump. As a result, those who contributed to their Roth IRA or Roth 401k and planned on retiring in 2017 – 2021 had wrong tax expectations.