Is Paying Taxes A Form of Charity?

Sleepy Old ManI just got done with two things: 1) Writing a check for another $1,000 more in taxes to the Federal Government for 2011, and 2) Re-reading the article, “The Average Percent Of Income Donated To Charity Can Improve“.  Hopefully all of you are on pace to finish doing your taxes before the April 17th deadline.

Forget about filing an extension and putting off paying your taxes.  Do it now!

Several things I’ve learned from doing my taxes:

* I paid almost as much in taxes as I’ve saved.  In fact, most of my friends, and probably most of you have paid MORE in taxes than what you’ve saved, since most people don’t save more than 20% of their gross income, let alone 55% of their after-tax income.  Go ahead, make the calculation and start vomiting.

* The amount of total taxes I paid in 2011 could buy a nice 4 bedroom McMansion in the MidWest or a Lamborghini Gallardo.  With the money left over from the Lambo, I could pay for five friends to go to Vegas for a week.  We’d stay in suites at the Aria Hotel and reserve a private booth each night at Tao with an endless flow of Crystal, Ron Zacapa, and Goose.  And here I am, a total fool trying to keep my credit card spending below $1,500 a month so I can save more for retirement and build more financial security.  I might as well live it up since the government is living it up with my money!

* I seriously do not feel I have derived even 1/5th the return from the government for what I’ve paid in taxes.  There are potholes and broken signs everywhere in San Francisco.  Meanwhile, when I call the city to fix anything, they don’t, or take months to get around to it.  I recently spent $50 on green paint so I can paint over the occasional graffiti on the government owned mailboxes myself!  If I did receive just 20% of value for my taxes in return, I think I would feel better about paying taxes, but I don’t.

* Despite paying so much in taxes, the Federal Government wants to raise my taxes even more even though apparently half the nation pays no net federal income taxes.  Furthermore, why are there still homeless and jobless veterans in America?  These are the very men and women who risk their lives to serve our country, and the Government can’t even ensure they have food, comfortable living standards, and a job when they are waiting back home?  Are you shitting me?  This is an absolute FAILURE by our leaders in Washington not to take care of our troops.

* On the State level, California is close to bankrupt given politicians have spent way more of our funds than the State has taken in.  The State is now firing some of our most important people: teachers, police officers, and firemen!  So let me get this straight, the State is going to fire people who make $50,000 a year who add tremendous value to our society because politicians in Sacramento were extremely careless with their spending all these years?  This is total bullshit!  If I am to pay this much in taxes, I want more public service people, and I no longer want to hear rhetoric about how people making more than X are bad!

* Taxes are painful and really do make me want to stop working.  In fact, there’s a part of me that wants to give everything up and go on unemployment for a year or two so I can recharge my batteries and finally get something back from the government.  Perhaps I’m just burning out.  Regardless, this is how I feel and I’m not denying it.

* I truly am thankful for the money I make.  It’s just that the thankfulness is diluted due to how broken and inefficient our political system is.  If I knew all my taxes went to help a family of 5 who lost their home to a flood and set them up for the entire year, I would be ALL FOR IT!  But, I know that only a small fraction of my taxes will go to directly helping others.

IS PAYING TAXES A FORM OF CHARITY?

Given I don’t feel I derive even a 5th of the benefits from the taxes that I pay, I’m wondering who gets my other 80%+?

If the government uses our tax dollars to fund public services to those who need it most, isn’t paying taxes a form of charity?  From the “Average Income Donated To Charity” article, we discover that there is a percentage drop off in donations once one’s income hits $75,000-$100,000.  After $100,000, the percentage of income donated to charity climbs back up again presumably due to more disposable income.

The theory for the drop off in donations is that as one starts to make more money, one sees a ballooning tax bill that increases faster than the rate of their income increase.  Once people realize they are paying more in taxes than they are saving, they get upset and start cutting back on charitable donations.  Since the government is taxing their incomes at a higher percentage, the logical conclusion is that their tax proceeds should be used to assist the poor and most needy.  Otherwise, what on earth is the government doing with our money?

Recommendation: I’ve been doing my own taxes with H&R Block At Home for the past ten years. H&R Block is so easy to use, anybody can do their own taxes with their step by step guide. The program has consistently found thousands of extra dollars in tax savings I did not realize I could have. Why bother paying an account hundreds of dollars when you can learn more about your financials, find extra tax savings, and do it all from the comfort of your own home? Get the H&R Block At Home Online Free Edition!

Regards,

Sam

Photo: Resting old man in Santorini, Donkey Trail.  SD

Sam started Financial Samurai in 2009 during the depths of the financial crisis as a way to make sense of chaos. After 13 years working on Wall Street, Sam decided to retire in 2012 to utilize everything he learned in business school to focus on online entrepreneurship.

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Comments

  1. says

    Hmmm tough subject. I do think that taxes are a form of charity. One thing that really irks me is that my father paid social security for so long, but since he passed early (and wasn’t remarried for long enough), all of the money that he paid towards social security doesn’t go to anyone in our family, but instead goes to others.

    • says

      I’m sorry for your loss. That is total bullcrap about the government not allowing your father’s social security benefits pass on to the next of kin or you, given he paid all that into the system!

      It’s like robbery imo, which is why I’m perplexed with those who contribute to a ROTH IRA. The government has shown time and time again that they can and will rob citizens blind, and people want to pay more in up front taxes?

        • says

          Welcome to the government. I see so many younger readers in their 20s all starry eyed and believers that the government will help them. Only after a while, they will realize that the government is there for their own power and glory. By then, it’s too late.

    • David M says

      Sorry for your loss.

      I look at it differently and that is because I am the youngest of 9 children and my father died when I was 4 months old. He was only 35 years old at the time.

      My mother raised us 9 children on Social Security and a small life insurance policy until I was about 10 years old and then she went out to work.

      Thus I sort of look at Social Security different then many people. To me it is a safety for as long as the person lives – some people get out more than they paid in and some get out less. The nice thing is for those that live to 100 years old – they will get back much more than they put in and the dollar will keep on coming.

  2. says

    If paying tax is a form of charity, you are certainly one charitable guy Sam! I’m not a huge fan of taxes, it does seem like you pay a lot for very little most of the time and that you are just subsidising costs for people that often don’t deserve it.

    I have been fortunate enough to visit a number of third world counties and comparing the lack of infrastructure and amenities that I often take for granted tends to help me feel at least a little better.

    • says

      Mate, from the 45% Australian income tax chart you sent me, I’m going to have a tough time moving to Australia! That said, if one can make less, Australia could really rock with its nice weather and cheap healhtcare!

  3. says

    First I need to up what I am doing especially since it appears what you pay is charity is more then I make all together.

    I don’t know if its a form a charity or rather the government is just bad with money and needs a way to make sure there is money coming in. The things that our taxes pay sometimes is just mind boggling.

    While I agree that the gov is very wasteful with the funds I think we as a nation are responsible for the homeless and other things that happen. Some of these people are actually family members yet we have more people concern for animals as oppose to people. But that is another story.

    I don’t think taxes and charity go hand and hand. Charity you give freely – we have no choice with taxes.

    • says

      That’s right. We get fined and could go to jail if we don’t pay taxes.

      Yet, politicians don’t get fined or go to jail when they misappropriate our funds every single day they are in office on war, on killings, on pork barrel politics, on not taking care of our veterans.

  4. says

    I don’t have any problems with “feel-good” economic policy. If we want to provide everything to everyone, then so be it. I would prefer, though, that any such policies be balanced out with appropriate cuts elsewhere. Let’s spend less on bombs and spend more domestically – sounds great! Or, hey – let’s stop giving Federal tax dollars to people overseas until everyone is taken care of here at home.

    For the record, the VA budget is about $70 billion, or less than one-half the current cost of the Iraq/Afghanistan wars. It’s a shame that we spend $160B in a single year to create more veterans and yet spend only $70 billion to take care of them once they’re back. It’s stupidity, really. But it’s government, and war is the biggest racket of them all.

  5. says

    The problem, of course, is that the government is a huge machine and is *extremely* inefficient at spending our money. I think a lot of congressmen and women forget whose money it is when they want to throw a billion or two at a problem.

  6. says

    Sam, I love this article and I’ve been thinking about asking you for a guest post here in the near future (on the lines of this subject). I think it would be a fun write-up.

    My wife and I were talking about the homeless/jobless vets last night and how many people on welfare receive better benefits than many of our military veterans. Sad stuff.

    I’m not sure I view taxes as charity but I’m not sure why I don’t: there is little doubt that taxes are obviously charitable contributions.

    The only benefit I receive from our government are roads, military, and some oversight/consumer protection. Other than that they’re pretty worthless.

    I’m not too sure I think the government should be the ones responsible for taking care of the poor and needy. They’ve had numerous opportunities to manage money (soc sec, welfare, medicare, etc) and they’ve failed miserably at all of them. Why should we give them more to do and fail at?

    I certainly think people that are passionate about helping the needy/poor would do a much better job of doing so. It would obviously take a great deal of work and organization but I think there is little doubt MOST people could do a better job than the government.

    No…taxes don’t make me want to donate less to charity. Why punish others that need help because the government can’t properly manage money?

    • says

      Should one be forced to contribute at least some minimum to charity every year eg $5,000 if they don’t pay any federal income taxes then?

      You’re welcome to e-mail me a GP outline suggestion any time. thx

      • says

        I don’t think that large of a minimum contribution is feasible for most people that aren’t paying anything in federal income taxes. I do believe there should be something though….

        I personally don’t think it’s fair that 50% of people pay all of the taxes in this country and the other 50% of people use the majority of it. Having them contribute something only seems logical.

  7. says

    Interesting that there is a limit on charitable donations, but there is virtually no limit on taxes. I would like to think I have some control over how much tax I pay. I can choose to invest in a business or invest in something that defers taxes or is exempt form taxes. Would I lower my income to avoid taxes? No way, but I would look for legitimate deductions to reduce my taxes. I used my rental property to shelter my income to reduce my taxes years ago.

    • says

      How do you use your rental property to shelter your income? First, I assume you have rental property positive income. Second, the government caps losses on rental property if you make over $150,000.

      • says

        Remember, I sold my properties 20+ years ago. There was no income limit then. I used the depreciation to shelter the income and it sheltered my ordinary income as well. I was building up assets, so as I increased cash flow, I either refinanced to shift funds to a new property or reinvested into the properties. My goal was to have more properties versus cash flow. I was more interested in the future versus using the funds as income.

  8. says

    Wow, you are paying a lot of tax. I think everyone should pay some tax and the 50% freeloaders should be taxed too. I don’t think tax is the same as charity. Like you say, the bulk of tax goes to the politicians.

    • says

      Yes sir, very painful. Thinking about retiring and living off the government this year. I don’t need much to survive. I’d like to start the healing process too and love the government again.

  9. says

    In NJ we have a situation where income taxes are dedicated to property rax relief. But only poor cities get most of the money. Where does the money go? It pays for jobs for middle class people, some of whom wouldn’t make it in the private sector. The bottom 25% of the graduating class if they have a degree at all.

    So the taxes go to make people who might otherwise be poor, to make them middle class.

    • says

      Interesting. That’s some serious income redistribution. Well intended, don’t know how efficient it is. What about just having the bottom 25% work on after school programs?

  10. says

    I definitely agree with you on this one. When 50% of Americans don’t pay taxes, there’s no other logical conclusion. I wouldn’t mind paying taxes as much if the government didn’t waste money like it was their job. I have worked for the government in several capacities and I’ll be the first one to say they overpaid me!

  11. BusyExecutiveMoneyBlog says

    Every year I see the option to prepay my taxes for the next year and wonder, who’s actually doing that???

  12. says

    I’ve never felt a strong desire to stop working just so I wouldn’t have to pay taxes. I like having the stability of steady income coming in and paying taxes is unfortunately part of the cost of having that benefit. Taxes suck though. Even being an entrepreneur and having the perks of being your own boss comes at the price of having to pay plenty of taxes (esp. in California!). I try not to think about it too much because I don’t like feeling angry. I already pay plenty in taxes and I’m sure if my income was bigger than it is now I’d easily be foaming at the mouth in anger with how much the government is scraping off my paychecks each month.

    • says

      You will once you breach a certain tax threshold….. could be $50,000 or once you pay more than $100,000 in taxes. Different for everybody, but you will mentally go on strike and start hating all the government waste.

      There’s not even a “thank you” from the government. It’s all ATTACK.

  13. says

    Taxes go to a number of things – some of which are undoubtedly a form of compulsory charity (like overpaid civil servants and their bloated pensions). Others are for social goods or services (roads, military etc). Some goes to pay interest on overspending in the past.

    I have no problem paying taxes for a reasonable range of social goods and services and providing a safety net for those who cannot provide the basics for themselves. Unfortuantely, far too many people are feeding from the public finances – the safety net has become an enabler for those who choose to abdicate responsibility for their own lives and live of the efforts of others.

  14. says

    It’s a monopoly that we are forced to join. Things get done but at a snails pace. Yesterday they cutdown some cherry trees to make way for construction and said they cut them down solely because they were diseased. I had a tree branch that was as big as a tree in front of my house. 6 months later it’s still there and I have called several times. Not much I or you can do in the monopoly.

  15. says

    Make sure you send an invoice to the government for painting over the graffiti yourself! How much do you charge per hour of labor?

    In my hometown, the local government spent millions of dollars for a state of the art township building, most of which isn’t really used. They then go out and buy new trucks for the workers. The kicker is that there are 5 workers (it’s a small rural town) and 10 trucks. Why do they need 10 trucks? It would be nice for the township to keep taxes flat or lower them, but that will never happen.

    • says

      Hah, I should! I charge about $300 an hour, so I will send them a $300 bill since it takes time to go to the store, paint etc.

      10 trucks for 5 workers? Nice perks! One for morning, one for evening, or one for a honey bunny.

  16. says

    What’s interesting to me is that I didn’t realize how much I am paying in taxes until I started making some money from my side business. That self-income tax really kills. I am fine with taxes when they used appropriately, but the entire issue is that it isn’t happening.

    I wonder how things would change if we looked at taxes as a repayment for debt – meaning paying back the society that gave us the opportunity to have financial security. Those of us living in the U.S. are rich in comparison to most of the rest of the world. While it’s not perfect, it’s a better system than others.

    • says

      The world would be a better place if EVERYBODY started a business and had to write physical checks every quarter to pay the government. People would appreciate those who pay taxes more, and the inefficiencies of the government.

  17. says

    I don’t have a problem paying taxes when I see them used for the good of mankind. However, that being said, our streets are also riddled with pot holes, public services are being cut, and the state and federal government are broke. So where the heck did our tax money go?! Like any large bureaucracy, the government can’t tell you because they really don’t know! And that’s what I don’t like.

  18. San Diego says

    Mr. Samurai I am curious how you have a $250k+ (lambo) tax bill for 2011 but yet only spend $1500 a month on your credit card. Do you own a lot of property or some other big ticket taxable item? Do you only use your credit card for small purchases or do you pay most of your monthly expenses with your credit card? Please explain this discrepancy between what you spend and your rather large tax bill.

    • says

      I have cash expenses and business expenses that are separate from my personal credit card expenses. I also have a primary residence mortgage. But really, it’s about being frugal and spending money on what I really enjoy, which is travel, cruising, and tennis.

      You might also want to read, “How To Retire Early And Never Have To Work Again” to get inspiration on saving 55% or more of your after tax income.

      Relish in living below your means and figure out a way to start a business, buy a property and reduce your taxable income. Talk to a good accountant too. BTW, I’m not buying the Gallardo Superlegga top of the line super loaded Lambo. Seems overpriced and a waste of money, especially since it looks the same as a regularly loaded one.

      I drive a car that I love, but so happens to be 12 years old and worth maybe $3,500-$4,500 dollars. I do not understand how people can comfortably spend more than 1/10th of their gross income on a car. It leads to financial destruction down the road.

  19. says

    Yes, it is a form of charity because the bulk of taxes paid go to social programs like Social Security, Medicare, and Medicaid. It’s charity because the money is being used to help others and not myself (via the government).

    I feel I pay too much for the services I receive from the federal government, but I am pretty satisfied with what I get from my local government.

  20. Darwin's Money says

    I don’t mind the concept of paying taxes; I’ve even grown used to the level at which I pay taxes. What annoys me most is the trajectory, the misuse of funds and the disproportionate collection of taxes in this country. Charity or not, our system has created a generation of freeloaders and entitled whiners trying to raise taxes on others but not themselves.

      • Darwin's Money says

        Huh?
        First off, I don’t recall touting an effective rate of 3% – or ever having a 3% effective tax rate for that matter. If you’re going to quote me, please provide the source.

        Next, whatever my effective rate, is there only a certain threshold where your opinions on taxes are valid? I’d love to hear what your proposal is there.

        Finally, my comment was from April 4th. What’s up with a reply in Aug? Why bother?

  21. Paul B says

    My wife and I just had this same discussion. It can lead to dangerous things, because I told her about a car I was behind with the bumper stickers “Got Medicaid? Thank Democrats” and “Got Social Security? Thank Democrats”. It got heated when I suggested sticking a post-it in-between them that said “And of course thank me, because I pay for that.”

  22. mysticaltyger says

    The elephant in the room that is being ignored in California state government (and many other states) is that the pension benefits are not affordable. By the way, I’m pretty sure the California Highway Patrol and the Prison Guards make a whole lot more than 50K…and a fair amount of the teachers do, too, if they live in the Bay Area. I knew one teacher in San Jose who make 68K a year, plus pension, zero health care premiums & other nice benefits, and he was not at the top of the pay scale and this was not in a wealthy district. (Yes, I know 68K in the Bay Area isn’t luxury living…just sayin’ that 50K number is a little low for a lot of government workers).

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