Friday, April 13, 2012

A Penny Saved...

... is two or three pre-tax pennies earned.


If you work in the United States, you pay Social Security and Medicare taxes on the very first dollar you earn.  (I'm not well-versed in the tax codes of other countries; some are better, some are worse.)  Your employer pays an equal amount, too, and if you're self-employed, you get to pay both.  That's almost 1/6 of your income off the top, unless you happen to earn more than the cap on Social Security taxes.

Next comes income taxes.  If you're poor, you do get a break.  You can earn almost $10,000 before you start paying federal income taxes.  If you have children, you can do even better through the Earned Income Credit.  But once you start earning more, you can end up paying up to 35% of your income to Uncle Sam.  Add to that state income taxes of up to 11% (for Hawaiians who earn over $200,000).

If you spend what money is left, you may have to pay state and local sales taxes up to 9.45%.  At least you get to see that.  When I was in Poland, the 22% sales tax was included in the sticker price.  Other countries hide their sales taxes as "value-added taxes" that the companies pay.

Of course, part of the money that you pay for stuff you buy goes to other peoples' wages, which gets taxed all over again.  If the money goes to a corporation and generates any profits, they get taxed again; if it pays out a dividend to its stockholders, they get taxed once again on that.

Direct taxes are not the only issue.  Other expenses are involved in having a job, such as commuting and having nice clothes.  I have known several couples where they ended up better off financially when one person quit working and took care of the household.

Cutting expenses by doing more for ourselves will get us further on the Long Ascent.


  1. Hi John,

    Sorry I haven't been around. Busy, busy. But I have been catching up on your blog, and I see you've been doing the same! All up to date now. Nice work.

    I've been in the low income realm for the last few years. I suppose, actually, all my life, depending on how you define low income. I've never made much more than $15,000 in a year. I'll be making more this year than last, now that I have a couple paying jobs rather than just doing work-trade. But it still will be a small amount and I don't expect to pay any income tax on it. I'll definitely be under $10,000.

    Anyway, I have to say that there's a simplicity to it. Taxes are easy and you pay very little. I have to say, I like not paying much in taxes, even aside from the usual reason of having more money. I don't think government is inherently bad or evil, but I'm not too impressed with ours, and so I don't mind the fact that I'm not contributing much to it monetarily.

    Of course, this also means I have no retirement plan (which I'm uncertain would still be around when I needed it even if I did) I have no health insurance and I have no obvious path to owning land. Detriments, for sure. I also have no family to support, which makes this all much easier. But still, there are a lot of benefits to this path, including dramatically reducing the complications and dependencies that money brings.

    But I'm just sort of rambling at this point. Nice post. I think our first instinct in response to a problem should always be to look for a way to scale back rather than scale up. Unfortunately, we tend toward the latter.


    1. Maybe we should scale up our efforts at scaling back? <(-:<

    2. Ha! I think you've about hit the nail on the head.