Financial Samurai

Slicing Through Money's Mysteries

Do Higher Taxes Lead To Socialism In America?

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Do higher taxes lead to Socialism in America? This is the question I had on September 1, 2009 when I was still slaving away at my corporate job. Paying lots of taxes while the world was falling apart wasn’t sitting well with me. I had also just started Financial Samurai in July 2009.

Now that the world is falling apart again 2020 thanks to the coronavirus pandemic, it’s more than likely we will have higher taxes in the future to pay for our spending. Therefore, I’m once again asking whether the grind is worth it.

Higher Taxes And Socialism

Someone once said, “nothing is certain except pressing the reply all button by mistake and taxes.” How true the saying as we face rising taxes under the Obama administration. 

Supposedly 32% of Americans filers pay ZERO TAXES! I doubt this statistic sits well with the other 68% of files who pay taxes. I also doubt the percentage of non-tax payers could be that high, but either way, even 15% is a lot.

The good thing for high income earnings is that the highest marginal tax rate has come down by almost half  since the 70’s. Furthermore, generally if you are paying no taxes, your adjusted gross income is less than $8,350 as a single, or $16,700 as a married couple.  

Wouldn’t you rather make more money and pay taxes than make little money and pay nothing?

It just feels bad that the average American pays a higher percentage of his or her wages in taxes than in savings.

Given we don’t blog for a living, and several readers asked me this afternoon “whether I think higher taxes lead to Socialism in America, Yes or No only”, my answer and thesis is therefore: “Yes, higher taxes do lead to socialism in America.”



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Obama’s Universal Healthcare Proposal

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In Sarah’s first online post since quitting her job as Governor of Alaska, she writes that Obama’s Healthcare Plan is “Evil” because of its support for euthanasia. Obama later explains, “Nobody is going to be forcing you to make a set of decisions on end-of-life care based on some bureaucratic law in Washington.”

What’s interesting to note is how this story has garnered so much more attention rather than the costs and implementation of Obama’s healthcare plan. I have admittedly not paid attention to this debate, but feel I should. In this post, I attempt to provide a brief understanding of this controversial topic, along with various viewpoints.

THE SKINNY ON UNIVERSAL HEALTHCARE:

WHAT IS IT?
* Universal health care is also known as single-payer system, united health care system, or national health care. Universal health care is similar to the current US Medicaid program for low-income folks, and would apply to all citizens of the US regardless of the ability to pay.

WHY HAVE IT?
* Supposedly 50 million or so Americans, or almost 20% of the country’s population is without healthcare. People will argue that it should be the right of every American to have coverage, just like the Canadians and the British.

ADVANTAGES
* With a single Universal Healthcare system, Americans will save money because the new system will slash billions of dollars in administrative costs. Furthermore, 50 million people will have coverage.

DISADVANTAGES
* To provide 50 million more people with free healthcare, someone has got to pay for it. Some don’t believe big government will be able to run the new system as efficiently as the private sector.

With this quick understanding, here are various opinions from real people I’d like to share with you.

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Make 10% More Per Annum Forever – Move to Nevada.

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With California heading towards the abyss, and taxes rocketing to the moon, I’ve toyed with the idea of leaving the state. Here’s an article in the San Francisco Chronicle highlighting homeless 24 year olds and rising unemployment even in a rich suburb such as Marin County.

From this other article, we learn that from the first stimulus package alone, the gov’t has borrowed $10,000 from each individual so far, and it is doubtful that the majority of people have felt a return on their $10,000 loan yet.  At any rate, it’s clear that taxes are going up in California and perhaps NYC, and we residents in troubled states should think long and hard about whether to stay or go.

Did you know that seven states have no state income tax: Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming? Two others, New Hampshire and Tennessee, tax only dividend and interest income. Alaskan residents even get an annual oil credit for goodness sakes.

If you’re earning $100,000 a year, you’ll automatically save $10,000 bucks just by setting up shop in another state. Multiply this by 20 years, and bake in a 4% annual return, you’ll come out with $310,000 more in the bank! Even 10 years provides you with about $125,000. Hey, who wouldn’t want an extra $125,000 laying around. I could finally buy that Porsche 911 Turbo I’ve always wanted! Must resist temptation.

Obviously relocating is easier said than done. Hence, another strategy should be to simply set up residency in one of the 7 states after one retires. This is one of the key benefits of retiring early. Amass the nut, and save 10%/annum on your interest income every year for the rest of your life. Setting up residency is easy. Just buy a place, or rent some cheap studio… maybe even a habitable closet and call it home. The more money you make, the more you should consider moving.

Seattle, Incline Village in Lake Tahoe would be my top two choices. I’ll just get in trouble in Vegas!

Related:

The Best States To Invest In Real Estate Today

Why I’m Investing In The Heartland Of America

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Regards,

Sam, Financial Samurai – “Slicing Through Money’s Mysteries”