Most Working Americans Don’t Pay Federal Income Taxes – A Problem?

The Tax Policy Center recently calculated most working Americans didn't pay federal income taxes in 2020. According to the chart below, supposedly 106.8 million out of 176.2 million total income tax filers did not pay federal income taxes. That amounts to 60.6 of Americans don't pay federal income tax!

Given there are roughly 332 million Americans, what happened to the other 156 million “tax units”? Well, the other 156 million are either children, retired, or too old to work.

Have a look at the data for yourself and tell me if you're seeing what I'm seeing. The forecast for the percentage of Americans who pay federal income taxes increases in 2022.

As we move into 2024, the Tax Policy Center estimates roughly 41.4% of income tax filers will not pay any federal income taxes.

Percentage of Americans who pay no income taxes in America

The Tax Policy Center also estimates that 57.1% of working Americans in 2021 won't have to pay federal income taxes either. The reasons for the surge in non-federal income taxes payers are obviously COVID and the many tax credits the government introduced to help rescue our workers.

More than 20 million workers lost their jobs in 2020 with low-income workers hardest hit. When you add on refundable tax credits, such as the Child Tax Credit (CTC), the Earned Income Tax Credit (EITC), and stimulus checks, it's easier to understand why 40% more working Americans in 2020 paid no federal income taxes.

The Future Percentage Of Americans Paying Federal Income Taxes

Perhaps what's most interesting are the Tax Policy Center's forecasts.

By 2022, the Center estimates 41.6% of Americans will not pay federal income taxes as the economy recovers. I believe this forecast is too aggressive given the percentage of non-payers has ranged from 42.4% – 44.7% from 2011 to 2019. A lot more workers are either quiet quitting and happily making less money.

Here are the reasons why I think the percentage of Americans paying no federal income taxes will be between 47% – 52% for the next 10 years. I highly doubt only 37% of Americans will not pay federal income taxes as the Tax Policy Center predicts by 2031.

1) Once The Cat Is Out Of The Bag

Let's look on the bright side. Millions of Americans have experienced the joys of NOT working. The people I've spoken to who've been able to receive enhanced unemployment benefits, stimulus checks, and tax credits have all greatly appreciated the support.

They've been able to spend more time with their family, play more midday tennis, and live a more balanced lifestyle. Some states even paid more in unemployment benefits than the median income.

In 2020, I could seldom get a tennis court at a public park between 10am – 1pm because so many of the restaurant workers and gig economy workers stopped working. One fella gleefully told me, “I love my new employer, the EDD (Employment Development Department)!”

When you've gotten used to a new, better way of living, it's very hard to go back to the old way of living. Just look at the latest surveys from employees who've been able to work from home since March 2020. Any increasingly higher percentage of respondents wish to work from home forever.

2) Different Politics In Power

We've got President Biden in office. Therefore, we should expect continued bigger government programs to help more people, not less. The more government stimulus that's provided, at the margin, the less incentivized people are to work.

Remember, we have to compare President Biden's economic policies to President Trump's economic policies when making federal income tax percentage forecasts.

Further, with President Biden's approval ratings dropping due to the Afghanistan situation and the rise of the delta variant, the Democrats lost their majority in Congress.

Vice President Harris also seems to have lost her luster. Therefore, the Democrats will be incentivized to keep stimulus spending high thru the 2024 Presidential election.

3) Potentially Higher Taxes For All

To fund bigger government programs requires higher taxes and more deficit spending. Therefore, at the margin, higher-income earners will be less incentivized to work. These taxpayers will still be recorded as paying federal income taxes but simply be paying less.

However, there is a chance government spending gets out of control. If so, there may be higher taxes on the middle class and lower-middle class to help spread out the cost.

If this were to happen, fewer people will be incentivized to work as much. Therefore, there will be a lower percentage of Americans who will pay federal income taxes. Further, less Americans are willing to donate to charity because they are already being taxed so high.

4) A Growing Percentage Of Entrepreneurs And Freelancers

About 4.3 million new business applications were filed in 2020, almost 1 million more than in 2019, according to figures from the U.S. Census Bureau.

Compared to W2-income earners, entrepreneurs have many more ways to reduce their tax liability. For the first several years of a small business's life, many pay little-to-no federal income taxes due to startup costs.

The number of sole proprietors and small business owners is expected to increase in the coming years. The general trend is for more people to want to work for themselves, not less. As a result, there should be fewer and fewer people who will pay federal income taxes, not more.

Short term and long term capital gains tax rates by income for singles

Perhaps You Should Also Stop Paying Federal Income Taxes

The Tax Policy Center and the Federal Government are painting a rosy picture about America's economic future. However, the Center's forecast that only 37.5% of working Americans will not pay federal income taxes by 2031 is way too aggressive.

Instead, I forecast we'll hover in the 47% – 52% range for non-taxpayers for the next 10 years. There should be a structural increase in non-taxpayers, not a decrease.

Just like in politics, the country will be almost equally divided between the payers and non-payers. And if you don't pay any federal income taxes, you don't have to feel guilty since many millionaires don't either.

As a result, you may want to ask yourself whether or not you want to be one of the working Americans who pay federal income taxes to help support those who do not, or vice versa. You should also consider gaming the college financial aid system as well and get others to pay.

But Paying Taxes Means You Are Earning More

I'm assuming most of you would rather pay federal income taxes. If you do, that means you're making at least the standard deduction limit of $12,550 for singles and $25,100 for couples after all adjustments. Living on less is difficult.

Further, I'm also going to assume you're busy trying to generate as much passive income as possible to not have to work so much. At least your investment income will be taxed at a lower rate than W2 income.

However, if enough people prefer to pay no federal income taxes, there may be a growing amount of apathy towards policy. With no skin in the game, you may not care as much about making America a better country for all.

The Great Upside To Fewer Taxpayers

Before we had children, we went all over Europe multiple times. With higher unemployment, lots of government support, and higher tax rates, we were always amazed by how happy the Europeans seemed to be. It was probably mostly a mirage since we were tourists being greeted by people who were paid to make us happy.

Happiness Is Great

However, Europe is perennially home to the happiest countries in the world. And given happiness is a terrific end goal, perhaps America turning more into Europe isn't such a bad idea.

Here are the happiest countries in the world according to the latest World Happiness Report.

  1. Finland (4th year in a row)
  2. Denmark
  3. Switzerland
  4. Iceland
  5. Netherlands
  6. Norway
  7. Sweden
  8. Luxembourg
  9. New Zealand
  10. Austria

More Wealth Is Nice Too

If we then look at our friends up north in Canada, they are doing very well. Canadians have a massive housing boom, subsidized tuition, and subsidized healthcare. Although their federal income tax rate is slightly higher than ours on the low end, the top Canadian tax bracket is only 33% versus 37% in America.

Canadians also have a higher median net worth than Americans, which means society is more equitable as well. Further, the growth rate of Canadian millionaires is forecasted to be almost triple the growth rate of American millionaires over the next four years.

Canadian federal tax rates for 2021
Canadian Federal Income Tax Rates 2021

Therefore, perhaps the Tax Policy Center and the Federal Government should not be forecasting such an aggressive increase in the percentage of federal income taxpayers over the next 10 years. Instead, they should be forecasting the opposite to promote more happiness and redistribution of wealth.

Living in a country with greater government support will make life easier for working Americans and their children. With a lower federal income tax burden, there may be more disposable income to invest for retirement or live a happier life in general.

Find More Balance Between Work And Life

We've read about how investment banking analysts are working 100 hours a week and completely miserable.

I've introduced to you couples who make $500,000 a year and hardly ever see their children. These people are not happy. And they number in the many.

Although Financial Samurai is a website that provides strategies to maximize wealth, this website also tries to encourage people to optimize for a better lifestyle. Don't forget the end goal!

Of course, nobody wants to pay no federal income tax because they're too poor to do so.

Instead, it's probably best to always pay some percentage of your income to federal income taxes. Above a certain threshold, say 20%, is probably not worth grinding so much if you already make enough to provide for a comfortable lifestyle. Because don't forget, you have to pay FICA tax and most likely state income tax as well.

A total all-in effective tax rate of about 30% is my threshold where work motivation starts to decline. After 50%, the incentive to work more should fall off a cliff for the vast majority of people.

Why bother working so hard if the government takes more than you get to keep? If you are then part of the ~50% who disagrees with the current political regime, then you will be even less motivated to work.

Personally, I think the best time to retire is under a Democratic president. Bigger government means wider safety net and less stress.

The Ideal Number Of Years To Pay Maximum Federal Income Taxes

I was OK grinding it out for 13 years in finance. I paid paid six-figures in federal income taxes a year for most of those years. However, once the decision was made to raise taxes in 2013, I thought finishing up in 2012 was as good a time as any.

I was exhausted and didn't want to work even harder to pay more in taxes (3.8% NIIT, 20% capital gains tax, 39.6 percent top marginal tax rate). Further, I longed to do something new.

I think the ideal number of years to grind it out is up to 20 years. After 20 years, you will tire or get bored of working so much. But you will also feel proud knowing you contributed for a long enough time to support this great country.

After 20 years of working to make the most money possible, you can then take it down a notch. Or, you might even want to take a long retirement. Just be prudent about planning ahead.

If you don't want to pay higher federal income taxes, make a move. Complaining won't get you anywhere. Although I'm likely poorer for leaving a well-paying job behind, I'm healthier and happier.

Recommendations On How To Pay Less Taxes

1) Start Your Own Small Business

I encourage everyone to start their own small business. You get a lot more flexibility with deductions as you can see in the example above. The best way to start a business is create a website like mine. Sign up for a hosting company like Bluehost, which costs less than $4/month. You get a free domain name for one year too.

Once you've got your simple website up and running, you help legitimize your business. There's no need to incorporate as an LLC. Just be a sole proprietor, report your income on your schedule C, deduct all your expenses, and pay taxes on your operating profit.

Whenever I spend money on travel, it is largely a business expense because I'm always prospecting for potential clients. I expense a portion of my car lease payment given I drive down to the Peninsula to work at my consulting clients. Many of my meals are also expensed due to client luncheons and dinners.

Finally, I contribute over $50,000 a year pre-tax to a Solo 401k because I run my own business. You can check out my step-by-step guide on how to start your own website today. Once you've got your own website, you've helped legitimized your business.

2) Invest In Real Estate

If you want to pay less taxes, you need to change the composition of your income more towards investment income. Earning stock dividend income and bond income are great because they face lower marginal income tax rates.

However, my favorite tax-efficient investment income is rental property income. Because you can deduct all rental property expenses, you can lower your taxable rental income. Further, amortization is a non-cash expense which also significantly reduces your tax liability.

After you have purchased enough rental properties that you can handle (four for me), invest in 100% passive private real estate funds like the ones offered from Fundrise. Fundrise manages over $3.5 billion and invests primarily in single-family and multi-family properties in the Sunbelt.

After I had my son in 2017, I sold my hard-to-manage rental property and reinvested $550,000 in private real estate. It's been great to earn more passive income in order to spend more quality time with family.

3) Invest in Private Growth Companies

In addition, one of the most interesting funds I'm allocating new capital toward is the Innovation Fund. The Innovation fund invests in:

  • Artificial Intelligence & Machine Learning
  • Modern Data Infrastructure
  • Development Operations (DevOps)
  • Financial Technology (FinTech)
  • Real Estate & Property Technology (PropTech)

Roughly 35% of the Innovation Fund is invested in artificial intelligence, which I'm extremely bullish about. The investment minimum is also only $10. Most venture capital funds have a $200,000+ minimum. 

Related Posts:

How To Pay No Taxes Like Billionaires

How To Get Healthcare Subsidies As A Millionaire

For more nuanced personal finance content, join 60,000+ others and sign up for the free Financial Samurai newsletter. Financial Samurai was started in 2009 and is one of the largest independently-owned personal finance sites today.

43 thoughts on “Most Working Americans Don’t Pay Federal Income Taxes – A Problem?”

  1. With all this “free stuff” we should be a good ole happy nation. What is the national debt now $28 trillion $85 trillion unfunded liabilities? The U.S. borrows money to give away money. People should work as much or not as much as they wish, but don’t pay able bodied people to stay home. Not picking on the poor I was one of them. This country is not that difficult to be successful in, yes it requires work and some luck. There is help for people who need it, but it shouldn’t be multi-generational. If we want to help people, use our money to teach real world skills. There is a huge shortage of skilled workers or just people with a decent work ethic.

  2. “I’m assuming most of you would rather pay federal income taxes.”

    Based on the many, many articles I’ve read about how to lower your tax rate, I’m assuming most people do not want to pay federal income taxes. :-)

  3. 1) Even people with low incomes should pay something that’s meaningful for them, so that they care about how the government / country is run. Having “skin-in-the-game” is important to align interests, it’s human nature. If someone doesn’t have to pay much of anything in federal taxes, or is a net recipient of government largess, then that person is less likely to care. A prosperous Democracy needs an engaged citizenry with a stake in it success.

    2) The Europeans countries cited as “happiest” in this article have other variables that may be driving the majority of the outperformance, like being smaller / more uniform culturally, having high social cohesion, limited geopolitical concerns (they benefit from the US security umbrella), and more elderly populations (remember that most violent crime is conducted by the young). There are also large European countries that didn’t make the list even though they have high taxes and large welfare states, like France and Germany, which do not benefit as much from the characteristics listed above.

  4. Great find, definitely thought provoking. I think you’re right about the trend of fewer people paying paying federal taxes in the future. The projections do seem significantly out and very ambitious, I just hope that the forecasting information isn’t heavily relied upon for important decisions.

    To add another lense on this, I think the rise of more immersive gaming and social networking will further fuel this trend.

    For some people, as long as they can sustain an ok standard of living, and are able to spend their time increasing their status in the virtual world, the incentive to work harder for more money will significantly reduce.

    This standard of living could even be sustained completely though government support or just working a handful of days a week, meaning less tax revenue.

  5. I truly believe that anyone who is pro big government should be forced to live in Ho Chi Minh city, Vietnam, for two weeks as it is right now. Ho Chi Minh City (also referred to as Saigon), has a population of approximately 2m people and provides ~30% of the annual budget for a county of 100m. For most of the COVID pandemic, the country was untouched by disease and fatalities due the the government locking down the international boarders. Starting around April 2021, cases began to increase, then undergo rapid exponential rise. The government instituted strict policies such as limiting gatherings, locking down affected areas, and social distancing measures. When this did not curb the outbreak, the entire city of Ho Chi Minh city was put under full lockdown in early July, people could not leave their houses unless extreme emergency (at discretion of police) or at a set day of week to purchase essential items.

    August 16th 2021, ten thousand soldiers entered Ho Chi Minh city to institute the equivalent of martial law. All food distribution was to be handled by military operations for the “benefit of the citizens”. Of course, with absolute power comes absolute corruption, and it is currently estimated that only 20-30% of the food seized from suppliers was distributed to common citizens. My wife’s family has been living through this absolute nightmare, luckily they took my advice about a month ago and stocked up on non-perishable food/medicine as best they could.

    To paint a picture, the government of Vietnam had more than an entire year untouched by covid, yet they did absolutely nothing to prepare. No healthcare infrastructure was increased, no vaccine produced, they simply thought they were smart enough to not have it enter their country. Now they are begging the world’s nations for the vaccine (donated of course). So far, millions of doses have been given to the country, guess who received them first?

    By the way, Vietnam is rich in natural resources and economic potential, the only thing keeping the country in poverty is the corruption and stupidity of an ineffective government. Vietnam is a great example what every country that does not check its government power will become. So tell me, how much tax is enough? How many free handouts do power-hungry politicians need to give out at the expense of future prosperity before people realize how much it harms them and their children? How many basic rights need to be taken away? When exactly will the cycle stop and we all wake up?

  6. “Remember, we have to compare President Biden’s economic policies to President Trump’s economic policies when making federal income tax percentage forecasts.”

    I fail to see how Trump factors in. Biden’s policies vs Trump’s policies? Those aren’t the only options, especially when Congress controls the purse, not the President. In fact, I’d say Biden is not even in the top 3 most powerful people in DC. Number 1 is Joe Manchin.

    1. Think in terms of forecasting the percentage of workers who will pay federal income taxes. Do you think more people will pay under Biden’s policies than under Trump’s policies pre-pandemic? I don’t think so. But the Tax Policy Center is aggressively calling for a large decline in non-taxpayers, to the point below Trump’s term in office. I find that to be illogical.

      What do you think and why?

  7. Hey, I have a basic question. Super, super basic. When you said you saved 70% of your after-tax income for 13 years…that did NOT include your 401k and Roth IRA contributes right? So you maxed both retirement accounts, paid taxes, paid health insurance, and then you saved 70% of what was left after all of that, right? And that’s what your forecast for years to work until retirement was based on?

  8. One thing I did not see was a way to track what you paid in federal and state income taxes plus certain schedule and other totals. Ove 20 years, I have paid about 33% in combined federal and state income taxes. FICA taxes not included. I am very tax sensitive.

  9. Holy cow those stats are nuts! I can believe it for 2020 but am surprised with the 2021 estimates. It’s wild how much the pandemic has changed so many aspects of life, work, taxes, childcare, travel, etc etc. I pay a lot in both federal and state taxes that it’s hard to picture that so many people are still unlikely to in the future as well.

  10. Reading this article makes me feel like a total sucker. I guess its time to sell my business and get one of those jobs from the EDD. After that I’ll complain about the 40 percent of taxpayers not paying their fair share.

    1. The non-taxpayer speak should be temporary though and improve next year as the economy continues to recover.

      However, you may want to sell your business before new tax hikes become law.

  11. Frankly disturbing and unsustainable. “No taxation without representation” should also mean “no representation without taxation”. Exceptions to that would be if you’ve worked a certain number of years.

  12. It is interesting how two people can look at the same data and come up with widely different conclusions. I see this and think “man, way too many people don’t make enough money to be taxed…how can we get them higher up the income chain so they do get taxed?” while others get angry/resentful at someone they cannot see and call them “takers” and “lazy, entitled people on the couch” without knowing their life situation or how they got to the point where they work three low wage jobs and the only reason they aren’t paying federal income taxes is because that’s how marginal tax rates work and they don’t make enough money (not saying you are the latter, btw)

    Anyhoo, some other thoughts while I step up to my soapbox that nobody asked for:

    1) We don’t only pay Federal income taxes as Americans…we pay State Taxes (if we live in such a state), Sales/Use taxes, social security/medicare taxes and Property taxes, to name a few. Focusing on only one component of our tax burden as Americans would seem to oversimplify the issue, wouldn’t you agree?

    2) Speaking of oversimplifying the issue…everyone pays Federal taxes on the same tax table…ie if I’m a single filer, I have the same marginal tax rates as any other single filer based on my income. Statements such as “we should all have some skin in the game” ignores point #1 first of all, and also ignores the fact that one of the biggest reasons so many don’t pay federal taxes is because they don’t make enough money to fall into the higher marginal tax rates. What are you advocating for here…that they make more money so they do bump into a higher marginal tax rate? Or that we should take away credits we all get and/or raise the lower tax rates on all of us “just so we all pay our fair share”? I’m assuming most people in our country would not be for the latter solution when they found out it also meant their own taxes would go up too because we took away their child tax credit or increased their marginal rates at the bottom.

    3) The phrase “I don’t want that annual raise Mr. Employer, because my tax rates will go up” is not a thing because Everyone happily accepts that annual raise…because their paycheck still goes up after taxes. Focusing on only the tax percentage and not the after-tax net amount is what I’d expect from an opinion column and not a financial website looking to grow wealth. You are essentially advocating for people to take $8 instead of $10…solely because they could’ve had $12. (I’ll gladly take the extra $2 you are leaving on the table if you don’t want it) In my opinion, the motivation here should be based on what is given, not on what is taken away.

    Perhaps I am a little weird in how I look at things, I don’t know…but thank you for sharing your perspective on this. Life would be boring if I lived in a bubble where everyone thought like I did.

    1. All good points. Can you share your background so I know where you are coming from? Did you pay any federal income taxes last year?

      For point number three, I actually did just that. Raising the marginal income tax rate and introducing the net investment income tax are some of the reasons why I decided to not work at all in 2013. It just wasn’t worth it anymore. But that’s just me, and everybody’s got to make their own decision on what’s worth it.

      The logical suggestion is to enjoy the growing amount of government support if you can get it.

      I just think once so much support is given, it’s really hard to take it away. So I think the conclusion is enjoy life more as America becomes more like Europe and Canada.

      1. For sure, thanks for the reply. I’m from a middle class family in the midwest and went to a state school (because I was paying for it) that got me a job in the financial services sector for 16+ years. I retired last year at 39, which was planned but everyone thought I was having a mid-life crisis. (little did they know I was planning this since 2004) Working in HCOL places and in an industry that leans conservative, I’m definitely aware my financial opinions were in the minority.

        At any rate, I was typically in the 24% federal marginal tax bracket throughout my career, although effective rates were more in the 14-15% range. 2020 is a little weird because I “retired” mid-year, but in 2019 I paid about $40k in Federal income taxes and $15k in State income taxes to give you a general idea of what I was paying in. Admittedly, I will most likely pay $5k or less in 2021 though, as my income will mostly come from long term capital gains vs W2 income as in the past. (side note: I re-read my initial post and may have come across unintentionally combative. You are one of my financial heroes even if I don’t agree sometimes because you did it in HCOL areas like myself down in SD)

        1. I appreciate the color Brian! Congratulations for walking away at 39! That is almost ideal retirement age in my opinion, which is 40.

          It’ll be interesting to see how are you feel the longer you are away from work. I went through a lot of emotions and uncertainty for the first couple of years. It’s a fun and interesting journey that’s for sure!

    2. Hello Brian,

      Can you share your magic retirement number? How did you calculate that number will work for the remaining years (decades!) you have left? Most importantly, CONGRATULATIONS!!

      1. Hey Ryan, thanks for the question and much appreciated! The number is definitely different for everyone, but for me I started to seriously think about pulling the trigger when our total net worth (excluding primary residence) reached 25x our annual expenses, which happened about a year before I actually quit. My initial plan was to wait 5 more years after that happened, because I was still young and I was pretty much in cruise control on my career at the time.

        However, when we hit the 25x mark, I also convinced my wife to quit her teaching career and I thought it would be a great idea to take a new job with a competitor that overpaid me in order to offset that salary loss and maybe make the 5 years be 2-3 instead. It ended up being a terrible decision for my mental health, and when COVID hit I kind of got the itch when the market came back so quickly and our number ballooned to over 30x. While a 3.33-ish percent withdrawal rate may or may not last the decades I need to never work again, I was willing to take a chance on my ability to be CFO of our own house. :) So far, I’ll be honest in that I’m lucky with the timing as I went the first year without touching anything due to some lucky investment calls. Who knows what the future holds though, I definitely agree with Sam in the journey it’ll entail, and will pivot if we need to. (PIVOT!)

        Good luck to you on your journey!

    3. Thanks for saving me a lot of typing. I look at this and get depressed that so many people make so little that their tax burden is wiped clean by a few meager credits.

      People rant about handouts. For crying out loud, child tax credits for an entire year wouldn’t cover one of your mortgage payments for many of the complainers.

      The empathy tank is on fumes in this country.

  13. Bitter to Richer

    Another day, another article where you floor me with some of these statistics! I never would’ve expected it to get anywhere near 60%, but the more I think about it the more sense it makes.

    I think the only grey area is your remark about grinding it out for (at most) 20 years. People working that hard can certainly make the nation more prosperous, but I think an exceptionally small number of people can actually manage that and be even close to happy. In my personal opinion, I think most people will be happiest grinding it out for somewhere between 7-15 years and then taking a step back – to pursue other interests or have more time with family. Of course, that’s a personal thing and everyone will have a different perspective on it.

    1. Yeah, 7-15 years is about right. I was completely burnt after going 100% for 13 years.

      20 years of grinding is long enough not to feel bad no longer paying federal income taxes.

  14. I believe it is a problem in that we should not have an entire class of people, perhaps even a majority, who will have a vested interest in seeing taxes increased, rather than reduced.

    How to solve this with an income based tax system, rather than a consumption based tax system, is not going to be easy. Complicating matters is the rising tide of automation that will put increasing numbers of workers, particularly those with obsolete skills, permanently out of work, thereby requiring a kind of dole (sometimes called a UBI, although I object to that name). I would strongly suggest that something on the order of twenty hours per week of community service be required in order to receive that dole if they are not otherwise employed, infirm, handicapped, elderly, or juvenile.

    On the other hand, the government intends to tax 85% of my social security, that I presumably paid for with FICA, so they could probably find a way.

    Sidenote: I once collected unemployment for several months. I was stung by how the state kept pretending it was doing me a huge kindness to provide it to me and emphasized this over and over again, while making me jump through hoops to keep collecting it. Yet when I calculated it out, I realized that six months of benefits (the most you could get) wouldn’t be one tenth of what I or my employer had paid into it over the previous decade or two.

  15. Interesting take, Sam. I would prefer to see higher estate taxes instead of income taxes, though maybe both are appropriate given the riding debt. By increasing the estate tax, the government doesn’t discourage work, and you enjoy your riches; then when you die the money goes back to help society. I would also like to see charitable contributions capped when it comes to tax deductions, as the wealthy use it as a way to control where there money goes rather than supporting our government system.

    The book bullshit jobs makes a compelling argument for UBI, if you haven’t, it’s definitely worth a read!

    1. Going to have to disagree on that. Wealth has already been taxed at least once before. And then ongoing dividends get taxed again. So then tax one’s estate upon death again seems to be far-reaching.

      If you put a cap on charitable contributions, charities will be the ones that ultimately suffer.

      1. Concur on estate taxes. I think estate taxes should be replaced by steeply graduated inheritance taxes. At least that way, the person receiving the inheritance (a form of income) would be the one paying the tax.

        Of course, I would also want to see a very large exemption for each individual inheritor, thereby encouraging holders of dangerously vast fortunes to break them up up somewhat with each new generation. Break it up enough and all of it might be exempt.

        I would even hold that breaking up these estates somewhat, rather than just realizing tax money for the government, would be the main reason to have inheritance taxes.

      2. I concur it would create double taxation on dollars you earned, but you aren’t the one who feels the impact at death (and we already accept double taxation on dividends). With growing wealth inequality, it would seem that allowing the ultra-wealthy to pass on more than sufficient lifestyle to their heirs only further will divide the country. I am okay with the estate caps that provide up to ~$24 million to heirs tax-free, but anything above that is unneeded children to succeed.

        Additionally, I heavily dislike the system that the rich disproportionately benefit from “I know how to spend my dollars better than the government. So, I will donate it all to my charity and direct the spending.” While these charities do make a meaningful impact, there should be a cap on how much you can deduct in your lifetime. I am unsure whether that is $12 million or $12 billion, but that is my 2 cents.

      3. I concur it would create double taxation on dollars you earned, but you aren’t the one who feels the impact at death. With growing wealth inequality, it would seem that allowing the ultra-wealthy to pass on more than sufficient lifestyle to their heirs only further will divide the country. I am okay with the estate caps that provide up to ~$24 million to heirs tax-free, but anything above that is unneeded children to succeed.

        Additionally, I heavily dislike the system that the rich disproportionately benefit from “I know how to spend my dollars better than the government. So, I will donate it all to my charity and direct the spending.” While these charities do make a meaningful impact, there should be a cap on how much you can deduct in your lifetime. I am unsure whether that is $12 million or $12 billion, but that is my 2 cents.

        1. Currently, the top marginal rate for inheritance tax is 40%. But that is the marginal rate. The actual rate paid is more like half of that for most.

          But as anyone who has ever had a few million to invest can attest (I am one), it grows way faster at those levels as you can find better opportunities, and you don’t live in fear of having to live on cat food in your retirement if you don’t keep a lot of in bonds.

          A well-invested triple digit millionaire will make back that 40% very quickly, possibly in less than a handful of years. It doesn’t really factor in to reducing income/wealth inequality at all, which should probably be the primary purpose of it, if you are going to have such a tax.

          That in mind, I don’t see any reason at all to cap charitable donations. In fact, I applaud Buffet and Gates and others for resolving to use them to breakup their vast fortunes when they pass on, rather than choosing to plop an enormous amount of unearned raw power (which is what money is in those quantities) on some person that just happens to share some of their DNA. See Hereditary Feudalism.

    2. I guess your assumption is gov’t in USA is capable of wise use of funds to “make Society better.” I disagree with that assumption. Gov’t wastes valuable resources to encourage and grow more gov’t – that’s about it.
      We could quibble about stuff at the edge but in large scope, I am correct.

      1. That argument is fair, but the mindset that I should be able to direct my tax dollars too something I see as more fit is highly unfair and disproportionately benefits the rich. If we don’t like how the government spends our money, the solution shouldn’t be tax avoidance, it should be on spending reform. The argument is reminiscent of the all or nothing approach.

  16. It’s worth mentioning that the happiness index is inverse from the life satisfaction/meaning index; with the poorer, more religious countries making the highest marks.

    Reference: study done by Shigehiro Oishi, Ed Diener

      1. The income vs. happiness graph seems to mirror the life expectancy vs. happiness graph, so perhaps people feel more free to pursue meaning when when we’re not trying to merely survive. Even the source admits happiness is highly subjective, to which I would add “fleeting.”

        I will concede that “inverse” was an inaccurate term. More precisely, I should say “uncorrelated.” Either way, I stand by my original position that ultimate happiness should not be the ultimate index by which we gauge success.

        From the same source you used in the article:

  17. Imagine a world where the employees of a company were able to make all of its decisions rather the shareholders. Essentially this is where we are today with calls for ‘free’ education,healthcare, etc.

  18. Interesting perspective Sam. I like the idea of everyone having skin in the game. However, I would emphasize the FICA tax burden a lot more. FICA revenue is nearly as high as general income tax and the government de facto treats it as another tax and has spent the majority of any surplus. I would suspect there is a large overlap in the people who pay no general income tax but pay significant FICA taxes. I am one of them as a 6 figure earner who paid no income tax for 2 years due to large tax credits but have paid 5 figures in FICA.

    “Almost half of the FY 2019 revenue of $3.464 trillion came from income taxes.1 They contributed $1.718 trillion. Payroll taxes were $1.243 trillion and included Social Security and Medicare taxes”

    1. Can you share how you paid no federal income taxes making six figures? A one year summary example would be great! How do you feel not paying any federal income taxes for two years?

      Is FICA tax considered a similar burden if it is used to pay for Social Security, which payers get back if they live long enough? Or do you think the government should just pay us Social Security for free and not tax us? Thx

      1. Hi Sam, I made roughly 100k in one year but I paid ~20k for solar panels on a house. With the 26% tax credit, this cut my tax burden from ~$8k to $2k. With the $2k Child Tax Credit, my total tax burden was eliminated. It felt great to not pay taxes, frankly. I’ve paid probably $100k in income taxes over my 10+year time in the workforce and it’s great to not pay in for a couple years-especially when you don’t agree with many of the governments policies.

        I have mixed feelings on social security. Congress can change the law at any time to eliminate or reduce social security and this fundamentally makes FICA another tax. In a nutshell, I see the current approach (investing in non-marketable government bonds at ~2% yield) as a dishonest way to subsidize other parts of the government. Why doesn’t the government create a sovereign wealth fund like Norway to invest in the general stock market at anywhere from 5-10% return? Why am I forced to invest in low yielding government securities that there is no guarantee I can collect? Investing FICA taxes in a sovereign wealth fund would result in either a lower, less regressive tax rate on the working class assuming benefits were maintained or result in a higher benefit level with the same level of taxes.

        1. Got it. The problem is, if everybody starts thinking it’s great not to pay federal income taxes, despite having a good $100,000 salary, will the population remaining be large enough to subsidize you and others?

          It also disincentivizes others to want to pay too. So it eventually becomes this spiral of larger and larger non payments, which may end up severely stunting the country’s growth.

          1. Disillusioned

            Partially where I am coming from. I knew about the rising amount of people not paying taxes and it just sickens me. I work hard, and have for 30 years, it’s common to have 80-100 hour weeks, weekends and no holidays (In tech fields, if you’re the tech you don’t get them, those are ‘working windows’).

            Saw where this was going with this administration and the combination of pushing for the removal of the capital gains step up in basis; the removal of the stretch IRA, the increase in taxes and even talk of wealth taxes just removed all my incentive to work. Why should I put my effort in to help someone else? Where is the government or anyone else at 02:00 in the morning when I’m working? I don’t want any assistance at all for anything in life, I PAY for it by my labor directly. If I can’t then I do without as it should be. Yes this even includes BS such as ‘insurance’ as I’ve seen that being a corrupt system decades ago.

            So for one person, I have removed myself from corporate employment to stop contributing to incompetent government and subsidizing wastrels. It’s amazing and unfortunate how much Ayn Rand got it right.

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