Nothing is certain but death and taxes…

Benjamin Franklin, 1789

This statement really goes without saying, but Mr. Franklin said it anyway. To be sure, everyone pays taxes. In the US, this truly does mean everyone, in one form or another. Those on the lower end of the income scale pay sales tax, even though they may avoid income tax. Nobody likes to pay it. Everyone wants to lower what they pay, and if the law allows, so be it. However, no matter how loath a concept it may be, can you imagine a government without it?

Modern Tax Structure

In the state that I live in (Florida) the sales tax rate is 6%. In the city that I dwell, there is an extra 1.5% increase, bringing the total to 7.5%. There are some states that do not have a sales tax rate, which include Alaska, Delaware, Montana, New Hampshire, and Oregon. However, this does not prohibit local sales taxation. All but 8 states (soon to be 9 with New Hampshire) also have income tax. All US residents are subject to federal income tax. Have we mentioned taxes on certain goods such as gas, alcohol, and tobacco and other items that carry a “sin tax”?

One thing that many seem to hold a grudge about is just how many times the government taxes the same money. For example, a corporation makes a profit, and pays taxes on that profit. Then, they pay you. Now, you must pay taxes on what you earn. You pay again when you spend the money, and what you manage to save gets taxed again when you die and leave an inheritance to your loved ones. No matter your opinion on this practice, this is currently how it works. What has taxation looked like in the past?

Taxes Are Nothing New

As far back as 3000BC the Egyptians were already on to this. Genesis 41 explains that one-fifth of the food produced would be collected by officers of the Pharaoh, and to be stored in case of famine. There was very likely no option to decline, and it was likely a serious mistake to try to do so. Nevertheless, a commodity taken at a certain amount and used to fuel a civilization is certainly taxation.

The Greeks and Romans had sophisticated tax laws, and Julius Caesar had the wonderful idea to impose a sales tax (at a whopping 1 percent). Every major civilization has had their pesky little paws in this practice, whether to fund wars, building projects, or whatever else the powers that be had a fancy for.

The Purpose of Taxation

But wait, to do what? Finance wars and infrastructure? Hmmmm. Maybe there is something to this after all. Ask yourself a question: Who pays the fire department to come put out a fire? Who pays the police, military, the salaries of the FDA, FTC, FBI, CIA or even the people who come get that stray dog that’s terrorizing your neighborhood? Of course, we all know that taxes are necessary and all that. We got that part. However, sometimes we forget about it.

I would wager that few (if any) of those reading this could describe for me a government that could exist and be effective and prosperous (not to mention sustainable) without taxes of some sort. You can’t rely on people donating their income out of the goodness of their heart, and even if you could, planning and budgeting would be a mess. Ok, so we painfully accept the fact that taxation is just plain required. So, the real question, which I have spent the last 500 or so words getting at is, how can we tax wisely?

Effective Taxation

This question could have a thousand answers, and most would consider it subjective. But nevertheless, from a financial point of view, there are some answers that are better than others. Waste is the enemy of a fair and effective tax system. A tax is only as good as the finances of those who spend it. In this case, that would be the government, whether federal or local. Everyone has uttered the phrase “That’s what my tax dollars are going for?” And this is usually an opinionated question, because at least some people thought it was a good idea, or it wouldn’t be happening.

But there are some cases where you have a hard time giving the government a pass. One that bugs me the most is raising taxes to take care of problems caused by a lack of foresight. This is waste, brought on by narrow-minded leadership. Major corporations perform mind-boggling what-if scenarios to help determine risk and return, and a general idea of the effectiveness of funds spent. Often it seems that the government fails to do a good job at this, if they attempt it at all.

Alas, I may be too harsh. There are no corporations with the complexities that exists with governance, especially of a society as complicated as ours. But this does not mean that we let the powers that be off the hook, rather the reverse. Ultimately, we the people put these governments in place, and all too often fail to hold them accountable for the judgement that they have exercised. People zip in and out of the voting booth after looking for a certain letter after the candidate’s name, having little memory of what they have done with their hard-earned tax money in their tenure so far. This won’t stop them from complaining later. Nope.

Final Thoughts

I suggest to you that taxation is absolutely essential. I also suggest that progressive taxation is also wise, necessary, and fair. However, I also suggest that the tax system should be lean, focused, well-planned, and constantly scrutinized by you. Waste inevitably brings about more waste, and the only checks and balances are the people who allow it to continue. In order to stretch your tax dollars further, you must pay attention…. because as Benjamin said, you will most certainly pay your taxes.

If you enjoyed this content, consider sharing. Also, leave a comment. We would love to hear what you think!