Among all the stories of free travel and shaving cost analyses, we haven’t dived too deeply into financial philosophies lately. Though Ben Carson was slammed for suggesting this, money is so often a mental issue, not a financial one. No, optimism will not pay a medical bill. But pessimism won’t make you rich. Usually.
So what does this all have to do with your tax bracket? Well, people tend to b*tch and moan about taxes their entire lives. As a country, we are self-destructively allergic to taxes. If we all generally paid into the system (and if the system was efficient, granted), we wouldn’t have such nightmare issues with healthcare, infrastructure, and education. Generally, Average Joe pays his taxes because he can’t afford to hire someone to help him avoid doing so. But rich folk save enough on tax-avoidance to justify hiring advisors, attorneys, and accountants.
But it’s not our vague idea of altruism that should make you nonchalant about giving away a third of your income to an inefficient pursuit of the greater good. Rather, it’s that you shouldn’t complain about losing money you never had.
Let’s say you’re offered a job that pays $50,000 per year. If you file as “single” and don’t have real deductions, you’re gonna go home with $38,362. Between FICA, Federal, and State, you’re “losing” 23.3% of your money. But that really shouldn’t matter to you at all. First, about 1/3 of that money gets paid into Social Security, which will presumably be the source of some income when you retire. Second, you’ll enjoy national defense, highways, public schools, blah blah blah… Taxes do us good.
Now that the obvious nonsense is out of the way, take a more nuanced approach. You never had that $11,638. If you’re any good at entering simple numbers into TurboTax, you won’t owe anything at the end of the year. The taxes you’ve paid never temporarily resided in your savings account, wallet, or under-the-matress stash. So what did you actually lose? The only reason you feel any discomfort is that there’s a tiny section of your payslip– which you don’t even read because you have direct deposit– that shows what you “paid” to the government.
Now imagine your employer just offered you $36,362 per year, tax-free, from the beginning. Her company covers the cost of income taxes and doubles its FICA contributions while lowering the salaries of all new hires. Our guess is that the employees would be a whole lot cheerier while enjoying exactly the same standard of living, celebrating their tax-free paychecks. Finally, because that situation doesn’t exist (yet), blame yourself for ever thinking that you make $50,000/year.
It may feel good to go through life with the confidence-boost brought by the pre-tax value of your salary, but it does more harm than good. When you convince yourself that you make $2,000 per paycheck and wake up to find $1,600 in your bank account, you create for yourself a regularly-occurring failure. So, when a new (or old) employer offers you a salary of $40k, $60k, or $100k, understand that you are worth less (but not worthless!). They are aware that taxes exist and think your skills are worth the standard of living bought by $31k, $44k, and $68k salaries, respectively.
So, that’s that. Thanks for letting us wax philosophical today. Don’t create failures where there are none: your salary (or wage) is your take-home pay, nothing more. Spend some, save as much as possible, and get on with life before IT’S OVER.
Also, dear reader, don’t leave money on the table. Spend a few hours this weekend reading online about how you can reduce the taxes you pay and you’ll effectively give yourself a raise.
Featured image from the ever-engaging How Stuff Works.