Today I’d like to talk about taxes. It’s a topic that often receives little attention in our community even though it is an integral part of our lives, especially if you’re trying to achieve financial independence like most of us are. I know that taxation is a tricky issue for many of you, mainly among my Northern-American and UK readership, but hear me out why I enjoy paying taxes.
Now, don’t think that I hand over a large chunk of my income and investing returns to the tax man with a smile as big as the Cheshire Cat, absolutely not. Having your paycheck cut in half isn’t any more fun for me than it is for you. However, I’ve shown before that facing exuberant taxes doesn’t matter all that much in the grand scheme of financial independence. Yet many of my readers constantly point out the high tax burden I face.
Dividend Gremlin recently mentioned that “those taxes […] are brutal“, a view that Dividend Drive also took in the comment section of my latest dividend income report: “The tax cost is pretty painful.” Canadian investor Tawcan agreed with the other commenters too by stating that “the 25% income tax [on dividends] gotta hurt“. And they’re right, it hurts my performance quite a bit.
That’s probably one of the reasons why I receive heaps of e-mails from European investors asking me what they should do to reduce their tax burden. Many European countries don’t offer tax-advantaged or tax-deferred accounts like Canada, the United Kingdom, or the United States do, so we’re left to our own devices on the old continent.
What’s weird though, is how many of the people that message me view taxation as an absolute evil. They’re unnecessary, they don’t provide citizenry with any real value, and they’re only there to pay for an excessive, even obese public administration. The general train of thought seems to be in line with one of Winston Churchill’s more famous quotes:
We contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle.
Against the socialist and communist ideals of the time, Churchill’s words make a lot of sense, yet there seems to be a lingering sentiment of what he meant even today. I believe that even though a nation definitely can’t tax itself into prosperity, it can use taxes to redistribute wealth and thus increase overall prosperity by providing more people the chance to climb the social ladder.
That’s exactly what happened in the Western-European welfare state since the end of the second World War. Governments used redistributive policies to build a social safety net and to bring health care to the masses. My own country is the best example of this phenomenon. Yes, I pay a lot of taxes, but I also receive a lot in return, even though I might not need all government services at this point in time.
This thinking closely resembles the ideas behind a speech on the topic of tax evasion that Franklin D. Roosevelt gave in 1937:
Mr. Justice [Oliver Wendell] Holmes said “Taxes are what we pay for civilized society.” Too many indiduals, however, want the civilization at a discount.
With just one sentence Roosevelt illustrates what is at the core of the problem: each individual want as much (civilization) as possible for as little (taxes) as possible. And that’s a fair point to make, because efficient usage of government funds is essential to a modern society. However, it doesn’t mean taxes and your nation’s tax authority are the devil.
You should be happy that you enjoy the privilege of taxation. Even the American revolution is built on this principle with its “no taxation without representation” mantra. You now get to enjoy a well-functioning and warm society in return for contributing to it through taxes. Being in a position to give back to society because you are well-off or even wealthy in some way or another is a beautiful position to be in – it’s quite possibly the best first world problem.
A couple of weeks ago The Frugalwoods household wrote a very humble and down-to-earth post on what they believe is the privilege of pursuing financial independence. Just like being able to seek financial independence is a privilege, paying taxes is a privilege. If you enjoy financial freedom, you might as well enjoy taxes because they’re the result of the same root cause: you enjoy a good life.
Most countries even built their tax system based on this principle by making taxes progressive. The more you make or own, the more you must contribute to the national income. People who have nothing contribute very little or nothing at all, but that’s not a good position to be in. Would you rather not have anything? I don’t.
Of course, there’s no reason to just throw your money out of the window or at your government. There’s no shame in trying to legally optimize your taxes as much as possible. Those optimization routes are there for a reason. Furthermore, I’m the first to admit that I buy the British shares of Unilever (LON:ULVR or AMS:UNA) instead of the Dutch ones simply because I don’t want to pay the 15% foreign withholding tax in the Netherlands.
However, when there’s no other option than to simply pay taxes, you should do so happily. You are fortunate enough to contribute to society and civilization. Your progress towards financial independence might slow down a little, but maybe there will be a day that you’re happy the government services that you payed for all these years are there when you need them.
Oh, and before I forget, I am an overly motivated civil servant, so this article obviously has “bias” written all over it. I nevertheless hope that you see where I’m coming from and that you won’t mind filling out your tax form next time it lands in your mailbox. Do you enjoy paying taxes?
Good article. I have no problem paying taxes. I do however wish government officials would be better stewards of the funds collected from our hard work. On my SA articles I have investors complain about paying dividend taxes and investment taxes in general. My take on this is that paying taxes as an investor means you are doing something right. Paying taxes means i am making money.
I can’t speak for every country of course, but in general I think that government officials use tax income quite responsibly. Many of the so-called public sector innefficiencies are a direct result from the democratic process itself and very hard to overcome without changing the balance between accountability and increased effectiveness.
Any investor that has to pay taxes is doing something right indeed; that’s exactly my reasoning why I enjoy paying taxes!
Glad to have you in my corner,
Thank you for linking to my modest post about optimizing tax situations.
I used to be happy that I paid a lot of taxes, since that showed I was doing something right. However, when the amount of taxes I was paying started exceeding my annual expenses, I had to reevaluate my thesis. I found that any dollar I paid in taxes didn’t provide a benefit directly attributable to me. But a dollar I could defer in taxes, could compound for me for decades ( even if I then had to pay taxes on it in a few decades).
And I am surprised that there aren’t tax-deferred accounts in Belgium. I know there are some in the UK for example – the ISA.
Always glad to link high quality content for my visitors!
Belgium doesn’t have any tax-deferred accounts because (almost) everyone receives a government pension and because many private sector employees are offered an additional pension scheme through their employer. As such, there’s not really a need for tax-advantaged and tax-deferred accounts.
Most European countries do it this way – it’s what we call the Swiss model, with the UK being one of the notable exceptions.
Thank you so much for writing this! It’s great to see someone else happy to pay taxes and I really like that you have described it as a privilege and a good thing.
I actually believe very strongly in paying taxes, which a lot of my high-earning friends don’t. I’m in the UK and I just yesterday I had a friend joke that she would leave the country if the Labour party (currently in opposition) win the next election because they want to raise the tax rate. I’m also self-employed and a lot of people don’t understand why I don’t set up a limited company so I can pay less tax. This is just a loophole which self-employed people can use, if I was employed then the tax would be deducted at source and I would have no choice in the matter. It seems wrong to me to take advantage of a loophole. I would rather contribute to the things that we are so proud of here in the UK – schools, roads, hospitals – and I know that these things wouldn’t exist if we weren’t all contributing. Yes, some people take advantage of our welfare system but that’s a different, separate issue. Not paying taxes doesn’t help solve that problem!
I’ve heard about the tax issue in the run-up to the UK elections. Just today Labour put out a warning that the Tory’s are seeking to dramatically cut the budget and lower the taxes. From what I can tell, they’re both campaining pretty harshly.
Making use of loopholes is a very grey area that I don’t want to caught in myself, so I understand why you’re not using a limited company. Someone once suggested that I should do the same thing to push ahead my dividend income, but I didn’t really feel comfortable with such a structure either after reading up on it. Besides, I’m doing remarkably well, so I might as well give something back to the society that has financed six years of university for me.
You mentioned something else that I believe is at the core of the problem: not everyone is contributing equally. In Belgium tax evasion has almost become a national sport. When lots of tax payers don’t contribute as much as they should, you’re just raising the tax pressure for others, thus making it seem like there’s a high overall tax burden.
Well said. We consider ourselves very fortunate to live in a first world country and we fully acknowledge that taxes are a crucial component of supporting our society. We’re happy to pay our taxes just as we’re happy to benefit from the services our government provides.
Thank you so much for mentioning my privilege post–I truly believe we’re incredibly fortunate and having that awareness is important to me.
I’m glad to see you agree with the point of view I put forward here, even though I knew in advance you guys would. We are very privileged to live in some of the most-advanced countries in the entire world. If I was born just 2,000 kilometers to the east, my life story would have been totally different and not nearly as awesome as it is right now. And most of that comes from our societal structure, democratic process and government policies.
I totally agree with you. Paying taxes in western countries seems to hurt net savers on the first view. In Germany the tax rate, including all social securities, goes up to nearly 40 %. But our society has a lot of advantages of wide social security, low criminalization,, preparing the stable backround for a prospering economic as well as benefits for individuals to be free to develop to what they want and have the potential for. To cite Buffett, it’s like winning the lottery that we have been born in western societies with all the advantages linked to these.
I believe the German tax rate is comparable to the Belgian one, albeit a bit lower. You name some of the best reasons why we pay so much taxes, yet don’t appreciate it: people take something like low crime for granted, but these things cost handfull of money.
Never heard of that quote by Buffett, but now he’s an even greater man to me than he already was!
Since I enjoy the benefits of modern indoor plumbing, fire and police departments, and a national road system; I enjoy paying taxes. These services don’t just appear out of nowhere.
You’re absolutely right, Brad!
Great article NMW. I enjoyed your post very much. For myself, paying taxes is a privilege as well. I live in Canada and it provides vast amounts of opportunities. There’s so much wealth to be made and taxes are a part of life. Why fight it? Just embrace it and adapt by minimizing it as much as you can legally. For your information, me and my wife pay over 60 k a year for our personal taxes so I know how it feels to pay but I don’t mind because cash under your mattress doesn’t earn any interest but after tax money made and invest just compounds fiercely for decades to come. Thank you my friend and keep up hustling hard. You’ll be prepared for whatever that’s ahead of you. Much love. Tyler.
That’s a lot of taxes you pay every year, but then again, you’re doing great too! I love your optimistic view on things: why fight something that you can’t change and that actually provides you value anyway?
Thank you for adding to the conversation,
Excellent and thought-provoking post!
I agree. Some people seem to view tax as an evil (sometimes it feels that the word should come with devil’s horns included). I don’t see why it should be as such. It is there for a reason. And a good one at that!
Part of the problem is that I think many people don’t realise where their tax goes. Most only hear or think of the “wasted” tax in the press. For every pound of wasted tax expenditure there is no doubt millions of worthwhile tax expenditure. The UK government has tried to rectify this recently with annual “Where does your tax go?” breakdowns which I think is a nice idea.
I like the fact that my money invested in the tax efficient ISA is already taxed 20% (unlike in pensions). Although it is untaxed as income or capital gains later the government still gets the 10% of the dividends each time they are paid.
As I will be holding these stocks for the long haul it is comforting to know that the education, health, etc. etc. systems in the UK are being helped a little along the way. A double profit I suppose you could say. Directly I profit from the dividends I receive myself. Indirectly I benefit from the government-funded schemes the 10% of the dividends I don’t get goes towards. If they proposed scrapping the tax on dividends tomorrow I would be wholly opposed to it.
Taxes can be painful when you’re starting out (not just investing, but everything) as it sometimes feels to people that every time they seem to take two steps forward they are forced to take one back. I know this is particularly felt in the UK amongst my generation (i.e. millenials). We are constantly reminded that we are paying our taxes but are unlikely to feel the same warm benefits from them in the same way that our parents/grandparents generation did.
I think that is why greater awareness of what taxes actually pay for should be pursued. In the UK the headline grabbers are the NHS, education, and welfare benefits (inc. state pensions). All of these are receiving huge amounts of additional investment now with concomitant tales of the reduced accessibility to future generations (inc. ourselves). In many ways therefore the system seems to some more as an unequal distribution of resources than the equal distribution it had been in the past.
All in all, it is a tough tight rope to walk but I am quite happy to contribute my little bit of balancing weight!
PS: Sorry for the long, dry comment!
Don’t worry about the long comment. I enjoyed reading through it since you put forward a very interesting point of view – one I’m sure that you don’t find often anymore in the UK.
You’re right that it would help if people knew what their taxes were used for, but similar transparency programmes in Belgium like you have in the UK don’t seem to have the desired effect. I think that’s because a lot of people don’t find all government services are necessary, and thus waisted tax money. (This goes back to the quote from Roosevelt.)
You also touched on a very delicate subject, namely wealth transfers between generations. A lot of millenials feel like they have to pay up for older generation’s benefits while they won’t be able to enjoy the same benefits themselves. While it is true that the baby boomers got more out of the system than they ever contributed, the demographics show that it’s highly likely that our generation will also benefit from many of the same services our grandparents enjoyed – at least in Belgium.
This may sound morbid or even ungrateful, but once the baby boomers are all dead, a ton of fixed government expenses will be gone, thus freeing up room for other policy initiatives and tax reductions.
Nevertheless, I’m just as happy to you to contribute to our society!
I’m glad you enjoyed reading it despite its length! And thanks for your further comments!
That’s interesting that more transparency with where taxes went in Belgium did not have the desired effect. It is a shame. Unfortunately, it is one of those things that should be persisted with. I think people are so used to politicians looking to hide what goes on in government that when they are genuinely transparent there is a natural (and often quite vitriolic) cynicism. As a result, many politicians lose appetite for transparency for fear of a backlash. Ideally they would just keep being transparent until it became the new norm! It would take some political nerve though!
It is an interesting and perceptive point you raise about the wealth transfer between generations. Unfortunately, the debate about how the generations are going to best work out the near and long term future for mutual benefit and how that would be done is not really undertaken.
It’s a little sad as it sometimes therefore comes across as a “us” and “them” mentality (which my post above almost sounds like it falls into!). In reality it is just “us” altogether. I do think there is a slow appreciation–in the UK at least–of the challenges the older and younger generations are facing. If these can be considered and avoided beforehand that would be great. Prevention, as they say, is the best cure. Certainly a little more economic empathy between generations seems to be developing.
The flip side of the demographic position many Western democracies are facing is very interesting. It is not something I have looked into in great depth. I will do, however. It sounds like the Belgian debate is far more mature than in the UK at the moment!
PS: A week or so ago I was writing a little piece on the “millenial” generation (more specifically me) and investing. Not really related to our above discussion, but got me thinking about it! It may get finished one day! This discussion reminded me I did not finish it!
Great post! I feel there is a lot of confusion regarding taxation and the direct/indirect benefits of the raised funds, at least here in the US. All too often people blindly support or reject the concept of “raising” taxes, often without an idea of where they currently stand or from what part of the economy they will be extracted from.
Taxes, if used appropriately, are essentially paying for wholesale services the state can provide without having shareholders such as ourselves take a profit along the way. Without the payment of shareholders, services can be provided at a discount and benefit society more efficiently. With regards to financial independence, services such as fee transportation or health care go a long way in reducing retirement expenses all because they have been paid for in advance, ideally.
I have really considered leaving the U.S. due to our lack of affordable health care and college education. I don’t think my kids will be able to afford the education I am grateful to have received, that is when I have some.
I look forward to more posts, and am excited to see another young individual (I am only 22.5) on the path to financial independence.
Best of luck,
You raise some good points and I’m glad too see that they’re in my line of thinking. Blindly supporting or rejecting something never is a good idea, especially with regards to taxes. What bothers me most, though, is how most tax payers literally have no idea what happens to their tax money or how it benefits them in any way. Many of them even take the roads they use to get around on all day for granted.
What surprises me most about the United States is the lack of health care. Today I saw a video on YouTube and the guy running the channel said “I put off going to the doctor because since getting layed off at Microsoft I don’t have access to its awesome health insurance anymore.” I cringed at the idea that someone in such a prosperous nation would forgo a doctor’s visit because it is too expensive, even if his own health suffers for it.
Awesome to hear you’re just 22.5! I think you’re the youngest member of our community. Time is our best friend and most powerful force in reaching financial independence, so I’m sure we’ll both do great. Best of luck!
PS: I wanted to comment on your blog, but I can only use a Google Account. You should allow other types of comments as well.
Thank you for notifying me of this, I had no clue!
I get paid at work, i get taxed. I buy something I get taxed. I file for income tax, I get taxed! Tax is a head ache for me, I feel like everything I do, the taxman is getting a big chunk of money from my pocket. But when I got unemployed during the recession, I saw how my taxes worked for me. Right now I am trying to understand the US tax system and how to legally lower my tax. I am happy to pay tax, but Ill be happier if I could lower it down.
I’m really glad to see you finally understood the reason why we pay taxes when you became unemployed during the recession. More people should think of taxes like an insurance against bad times – something that can happen to us all and that we don’t have any control over.
Being happy to pay taxes, but wanting lower taxes is what I think most people feel like – myself included. I think having this mindset helps us a long way towards financial independence too!
I don’t mind paying taxes. It means I made money. Of course, if I could defer paying them than that would be ideal.
That’s the right attitude, pal!
I wish I had more say in where my taxes went though…. I don’t mind paying them since I know that they keep our roads fixed and society running in general. But I wish taxpayers got to vote on where the money was spent. I bet if it was something that people voted on then, war and bombs would get a lot less money, and education and infrastructure would be much better.
I realize that we get to vote for the people that make those decisions and I’m sure to a degree that is good because I’m sure the masses would probably overlook funding things such as garbage or sanitation which could get pretty messy… literally.
I understand what you mean, but that is what the democratic process is for, like you said. Citizens elect officials who then do their bidding (or that’s the idea anyway). Over here in Belgium there are so many different political views and with up to six parties in a cabinet sometimes, it’s a difficult process to allocate taxes efficiently.
Churchill also once said that something along the lines of that democracy was the worst form of government, but that we just don’t have any better alternatives. I guess that goes to show why some people feel taxes are being wasted on useless junk.
And it’s like you said: people don’t want to pay for some services, yet they need them anyway (e.g. police, military, etc.).
Thanks for chiming in,
Given the choice, I’d rather pay lesser tax than more, but don’t get me wrong, I don’t mean by tax evasion.
Over here, dividend income and capital gain is tax exempt from the individual while salaried income is being taxed. You can see why I’m hoping to pay zero taxes in the years to come, should I be sufficiently vested in enough dividend counters 🙂
Of course you’d like to pay less tax rather than more – everyone does! But that doesn’t mean you don’t want to pay any taxes at all.
That’s a really weird way to tax things. So you basically only have tax on labour, but not on capital? You should try introducing a policy like that in Belgium… Major uproar, I tell you.
I partially agree… I don’t mind paying taxes since it has a lot of benefits.
On the other hand the government isn’t doing a very good job managing their (our) money. And now they need more money they just invent more taxes instead of looking for ways to spend less…
It sometimes reminds me of the window tax a couple of 100 years ago… http://en.wikipedia.org/wiki/Window_tax
I understand your point of view, but I’d like to ask you when and how our government is doing a bad job managing our taxes? Public administrations will never be as efficient as private corporations – and neither should they be – but that’s only logical because they provide a public service that is inherently inefficient. If it wasn’t inefficient, a private player would do it without thinking twice and make a ton of money doing it.
Spending less means doing less, but nobody wants that either… It’s a double-edged sword that goes back to what Roosevelt said.
The window tax made me laught though! That’s a brilliant example of creative problem-solving, but awful governance. 😀
Best wishes and thank you for dropping by,
PS: I’m from Hasselt too!
December 2014 Angela Merkel:
“If Europe today accounts for just over 7 per cent of the world’s population, produces around 25 per cent of global GDP and has to finance 50 per cent of global social spending, then it’s obvious that it will have to work very hard to maintain its prosperity and way of life,” Ms Merkel said in the interview.
“All of us have to stop spending more than we earn every year.”
I think we all need a reality check and get off our high horses. 50% of social spending on 7% of the world’s population. The welfare state is hardly equitable as many people like to tell us and it costs a fortune to maintain. It is good for Europeans but at the expense of other nations.
I am happy to pay taxes if they are actually spent on schools, hospitals and infrastructure. But are taxes are wasted on so many other things. Some examples:
1. Defined benefit pensions for public servants. Surely it is equitable that public servants contribute to their own retirements with no guarantees…. like the rest of us.
2. Our public servants insist on working with the big multinationals despite the fact that can often get services for cheeper from smaller, local suppliers.
3. Our regulators and governments completely failed us in the financial crisis. Bank debt was socialised and we will be paying this for generations to come. The cost of this poor judgement is horrendous.
4. Most civil services institutions are unaccountable. People don’t get fired when they makes big mistakes. Worse – They are are often given a big compensation package and moved sideways into some other high paying job.
5. WE have just set up a new water state body in Ireland. €100M was spent on consultant reports before this state body was even created by our government. I am sure there are lots examples in other countries of this.
So as you can see from my small list (and I could go on) lots of our tax money is wasted. I am not happy to pay taxes until there is full accountability.
While I understand what Mrs. Merkel said, I don’t think she meant we should dismantle our welfare state. It’s not because it’s jus us that spend a lot on social welfare that we have to downsize to other countries’ level. We could also help those other countries level up and provide better social security and health care benefits.
Would you care to elaborate how our social welfare is detrimental to other nations and its people? I don’t really see that.
I’ll try to answer your questions, but keep in mind that I only provide a Belgian perspective. Things might be different in Ireland.
1. Public servants in Belgium provide for their own pension. I actually pay a lot more than private sector employees in pension payments, but I’ll also receive more once I’m eligible for retirement.
2. Public procurement in the European Union is tightly regulated, so there’s not really a lot of leeway for civil servants to choose who to work with. Don’t think this is much different in Ireland, unless there are a lot of contracts under the e-procurement threshold of €85.000.
3. The financial crisis was a big pile of poo, and I agree with you. The alternative would have been much worse on the Belgian economy though. Let’s hope everyone learned their lessons…
4. Not really my experience, but accountability and transparency should indeed be every agency’s priority.
5. That’s a horrible example of waste and government excesses. How do you spend €100 million just on consultancy?!
Hope I addressed some of your concerns!
As a fellow Belgian, I can’t agree with you on this topic.
I think you should see our socialist welfare state as a proxy for economic footprint. Most of our western healthcare and socialist systems (read most of our western society as a whole) just isn’t sustainable let alone that we were to help other countries reach the same level of welfare. Al lot of studies point out that our earth already can’t sustain the current burden we place on it.
My thoughts on the answer you provide to Nigekelly:
1) No, nobody in Belgium actually contributes to his or her own pension, our taxes atm go completely to paying the pensions of whoever is already enjoying a pension. This is the crux of the current problem with pensions in Belgium, compare our system to for example The Netherlands where you literally contribute to your own pension, at any point in time a Dutchman knows how much pension he has build. This isn’t the case in Belgium, and its the main problem why an inverted demographic pyramid is or will tax the younger (read our ) generation to death if we will have to provide the pensions of the retiring baby-boomers!
Also public servants enjoy a state pension with zero risk involved, the state pays a predetermined amount each month, whereas in the private sector if you want a decent pension you will have to take all the risk -and- pay more tax to the state for no additional benefit.
2) no comments here.
3) I disagree, the Fortis and Dexia debacle are an outright disgrace. They (our ministers) choose the worst solution possible and took very rash decisions even unlawful ones in my eyes bypassing shareholders without consulting them and nationalisation simply is not done. Fortis was sold at an insane discount (now its the most profitable branch of Paribas….). Remember the inside trading of one of our ministers at that time, his wife sold >100.000 stock in Fortis worth millions minutes before trading got halted and he got away with it. The current CEO of Dexia was the CEO of Fortis…no accountability whatsoever, the fact that this guy along with the board of directors isn’t in jail is mind boggling.
4) See number 3
5) Have you been following the saga concerning the “Ring of Antwerps” and the Uplace dossier? How many “consultants” do you think have been hired already? Not 1 brick is placed buth consultancy fees alone are staggering.
And I haven’t even mentioned the fact that a country with only 11 million inhabitants has 7 governments with hundreds of ministers, a dozen provinces with their own representatives, not to mention the fact that there are 589 towns with their own mayor, representatives counselling bodies etc…
So yeah paying taxes can serve a purpose and the main idea of a socialist welfare state should be applauded but in no way do I feel happy about the current state of the Belgian welfare state. The Belgian government simply isn’t doing a good job for the insane amount of taxes I’m paying.
Even though our economic footprint is huge compared to other nations and we’re robbing the earth’s resources blind, the cause of that is not our social welfare per se. It’s our desire to want more and grow our economy, even though it’s to the detriment of other nations. If our government stopped providing health care and social insurance, thus decimating taxes, our economic footprint wouldn’t diminish in the slightest.
1. You’re right that nobody pays for his or her own pension, I didn’t make that clear. The Dutch system has its merits, but just like the American system depends more on people’s willingness to contribute. I think it’s a protective measure against ourselves in that the government has decided to take care of everything the way it has. On a structural basis I think our system is better, but we shouldn’t throw it out completely simply because we have cyclical problem (i.e. demographic pyramid).
I absolutely do not agree with the fact that private sector employees pay more taxes for their pension though. Our social security contributions (RSZ) are lower indeed, but we have a separate payment towards pensions that’s actually much, much higher than in the private sector. That’s why statutory civil servants are so expensive, even though their current salary is slightly lower than their private sector counterparts.
Also, you say public servants take on “no risk”, but I’d much rather have the private sector’s second pillar than the way it is now for me. Our risk entirely depends on the political whims of the moment, which is out of our hands too. Already my pension is being cut into and I basically have just started working – not that I mind too much, though… Financial independence for the win! 🙂
3. I didn’t comment on the way things were handled, but on the fact that something needed to be done to save those banks. I don’t really qualify to make an informed opinion, but I lean towards your view too. The deal we have with the French is outrageous, especially considering most of the risk came from the French side.
4. I feel we agree on this point, but I’d like to point out that you should always make a distinction between the political level and the administrative level in government. The problems you point out in (3) are all on the political level and have nothing to do with transparency and accountability of the actual departments and agencies that Nigekelly mentioned.
5. I can’t comment on the specifics of policy initiatives in Flanders, sorry.
You are right that there’s a lot of ways to optimize tax and government spending in Belgium, but that’s actually what the democratic process is about. The current problem, and this is taking the perspective of someone who actually works for government, lies in the fact that everyone takes the view that “we should be doing more with less”, even though that’s just not sustainable. The first politician that openly admits he’s in favour of “doing less with less” or “doing things differently with less”, just shoots himself in the foot, so nothing happens.
If you look at the current political parties in office that’s exactly what happened. Big words during the run-up to the elections (some more than others), but once in power it’s back to the age-old tinkering on the sidelines, instead of completely rethinking how we do things. I think that’s one of the reasons why there was so much outrage on the issue of the tax shift.
Thank you for your very detailed comment! Always enjoy a fresh perspective on things.
Also a good story on why not to pay taxes.
Denis O’Brien is Ireland’s richest man – worth about €5-6Bn. He made his initial wealth from selling Ireland’s first mobile phone network to O2. He has subsequently invested in creating mobile networks in Haiti and the Carribean. Much of his current wealth comes from these “phase 2” investments.
Now when Mr O’Brien sold his Irish network to O2 he was supposed to pay a big Capital Gains Tax bill to the Irish government. But he didn’t. He had become a resident of Portugal in the lead up to the sale and was under no legal obligation to pay this tax. There was outrage in Ireland. The government had awarded him his license after all. Surely he owed the state some money.
But Mr O’Brien went away to the Carribean and Haiti and created lots more wealth for himself.
But lets think about this. O’Brien allegedly owed €60m to the Irish state in CGT. I have to ask myself what the Irish state would have done with this money? What return on investment would they have achieved? What good for society would they have achieved? Nowhere near what Mr O’Brien achieved.
Furthermore is the world a better place because Mr O’Brien got to invest this €60m? Clearly yes. He went to Haiti, one of the poorest countries in the world, and invested/created an important infrastructure that will benefit their society in immense ways. He then went and did this across the Carribean. Clearly he did this to enrich himself but he did alot of good. The Irish government could not have done this. I, for one, am happy that this money left Ireland and did some tremendous good elsewhere. And if Mr O’Brien got very rich off the back if it… then good luck to him.
Capitalism works. Governments spending money rarely does.
I fully agree with Bite-sized income, the amount of taxes charged by all levels of government in Belgium is insane. It pains me to see how much of our tax money is squandered away and I think the average person pays too many taxes compared to what he/she is getting in return. I don’t like paying taxes and have very little faith in government.
How would you change our tax system if it was up to you? I understand that you have little faith in government, but it would be interesting to see if you came up with some alternatives to how we do things right now.
To me though, the things we tax should be different. I really don’t understand how we keep subsidizing cars when our roads are clogged up the most in the entire world, for example. Or why some types of capital are taxed (dividends), while others hardly are (rental properties).
The difference between Mr. O’Brien and what governments try to do is the fact that Mr. O’Brien furthers private interests or a subset of the public, while public administrations try to further the benefit of all people and society as a whole. I’m not familiar with the story to comment on it any further though, so I’ll take your word for it! 😉
What you should understand though is that government is inherently inefficient because it tries to cater to societal needs that nobody else is willing to do. Sometimes there are needs that private corporations won’t poke with a ten foot pole simply because they’re not profitable. That’s when government steps in to fill that void.
What would the optimal tax level for you be? In other words, which services should the public sector take on exactly? From your post I gather they shouldn’t be doing anything at all since you feel like we all shouldn’t be paying any taxes.
Thank you for your contrarian point of view. It’s always good to have your views challenged.
Looking forward to your reply,
Thanks for the mention! I know, up front that the taxes seem brutal, but I must admit I prefer your style as opposed to paying on the back-end every year by April 15th. That is super annoying, I wish it was just taken out upfront on everything. I know our taxation divisions have to employ enough smart people, certainly smarter than me; I just wish they’d set that up!
Otherwise you are right. Taxes make so many things tick in our nations that don’t always work elsewhere. Schools, roads, rails (in some cases), water, sanitation, healthcare (though I wish we had a single payer option), etc. Without those things life would not be nearly as easy or fun for those who are not at the upper echelon of society.
Thanks again for the mention and I liked the post a lot.
The beauty about our system is that taxes are deducted automatically if you use a broker in Belgium. That way there’s no juggling with numbers when we file our taxes. I would find you way of doing things super annoying too!
Taxes pay for more than we’d like to admit and we care to give up, so I gladly contribute my part, small as it may be. What do you mean by a single payer optio for health care?
Insurance with the current system and recent additions can be confusing in the USA for medical health. It creates a system where one person can rely on an insurance broker to cover all or the majority of costs for medical issues. Single payer is closer to what exists in the UK or Canada, where government is responsible for payment and providing of services.
Hence in the USA it can be more confusing, but it also allows people to select their level of service desired – which can be great or unfortunate depending on who you are. Some countries mix the systems where they have gov’t centric or provided healthcare as an option and private healthcare as another.
Hope that makes it clearer or muddier. Either way, healthcare is a great investment especially in the USA!
Heh, I thought I was alone in not hating my taxes. I’m like Henry above. High taxes means I am successful/making a lot of money the previous year. It’s basically validation that I am on the right path for financial success. Plus, although the gov’t isn’t always the best steward of my money, they still provide many valuable resources like roads, courts, and first responders. I’m okay with that.
You’re definitely not alone! High taxes does indeed mean lots of income too, so why hate paying them?
Government might not be the best steward, I don’t see any viable alternative to many services and infrastructure they provide. When markets fail someone has to step in and it makes sense that will cost society a bit more.
Glad to have you on board with my thinking.
I must even paying a lot of taxes, I am LOVING paying our taxes, why just because it we made money and I know where my taxes goes: Health, security, good road, great public transport, free school and universities etc. etc.
So no problem to pay 30.4%.
Haha, I wouldn’t say I love to pay taxes, but I get what you mean! They provide for so many things that make our countries wonderful.
Is the 30.4% on income from labour or on dividends?
The 30.4% is overall taxes. It’s difficult to know what is the contribution.
That’s a pretty low tax rate considering you’re not the poorest of Swiss citizens! You guys have to pay for your own health insurance though, if I’m right?
Correct, and it’s around 300-500 EUR per month for the basic coverage (mandatory). And for you?
Health insurance is 90 EUR for an entire year for me and it covers almost anything.
Taxation is daylight robbery. It is completely insane that over 60% of your hard earned income goes to the government. It is completely insane that more than 20% of what you pay when you buy something goes to government. It is completely insane how government finds out ridiculous tax mechanisms. And then you become insane when you see how inefficient this tax money is allocated by the obese government.
I’m sorry you feel that way. What would be a more acceptable tax rate for you, both on income from labour, capital and value added tax?
I have no problem paying taxes. The taxes I pay will only help Canada to continue be a country that I want to live in. The public services need to be funded somehow.
Exactly! We might nog like it, but taxes are what makes governments tick and in turn makes a country tick. Without them, many of the privileges we enjoy wouldn’t exist.
Great article! As long as you can optimize your taxes strategy, if you have to pay, you pay! 😛
Nothing wrong with optimizing your taxes through legal routes! When you’ve exhausted all legal options though, you should be happy to pay your part.
Interesting article! I can’t say that I enjoy paying my taxes but I’d much rather pay tax because I work than not pay tax because I don’t work. I just try not to look too closely at the gross figure on my payslip!
If I didn’t pay taxes, I’m not sure how else I would contribute to society and the country I live in. As Zee said above, I would love to have a say in how my taxes were spent, but well, that’s what governments are for and that’s why we try to vote in the best of a bad bunch, haha!
Thank you! I think that’s a pretty healthy attitude towards taxes. Just like you I really don’t like comparing my gross and net figure, haha! 🙂
There are other ways to contribute to society (e.g. charity), but it would be a mess and a lot of groups or people would be left out because nobody cared for them. We should be glad that governments step up for these minority groups.
“If I didn’t pay taxes, I’m not sure how else I would contribute to society”
Actually you are contributing to society through your work. What you do every day is appreciated by the rest, and society shows its appreciation by volutarily paying you an income because you are giving something useful for the rest. If they didn’t appreciate your work, you would not get any income. Your work is a contribution to society.
Of course you can contribute in other ways, charity, etc. but don’t think you are not contributing daily through your work.
I see what you mean, but it’s not really society paying you an income for your labour. It’s a corporation – granted, it’s part of society too. A corporation could add no intrinsic value to society at all, no matter how hard you work. Also, it’s not really paying you voluntarily when you both negotiate labour terms and sign a contract.
When taking your view to an extreme, there could exist a world in which everyone worked, but there wasn’t a single road in the entire country because there was no tax money to build them.
Thank you for chiming in,
“it’s not really society paying you an income for your labour. It’s a corporation”
I do not agree. The corporation merely passes the income from society to the workers and owners (shareholders like us). This income comes from providing society something that they need, from satisfying society’s needs, therefore the workers and owners are being useful to society.
“A corporation could add no intrinsic value to society at all”
If they didn’t add value, nobody in society would buy goods and/or services from that corporation.
Probably the concept of “adding intrinsic value” is very subjective. Something that you don’t value, other people values high.
I fully see that through my work I am contributing to society.
If the only contribution to society is by “paying taxes” as Weenie and yourself suggest, does it mean that the State = the Society?
My only qualm is that my income is quadruple taxed (Fed, state, city, RITA/Regional). So not sure in your country NMW but I am in favor of a simpler system of just one tax. Then split it out between all the levels of a government. Or better yet just one layer of government. KISS.
Let me one up you: European, federal, regional, provincial, local. 😉
We do have a centralised tax registration system, which then distributes the funds to the appropriate levels. So at least it’s not too much of a hassle to file our taxes every year.
I can imagine having to file seperate taxes makes you go bonkers!
I agree NMW… while I still like to try to reduce my tax bill where legally possible, I think we have pretty damn good public services in the UK for what my tax bill actually is. I also think people with higher earnings should be taxed even heavier, but I guess I would say that being someone who is not in that bracket (yet/probably will never be).
Glad to hear that you agree!
Of course, there’s nothing wrong with legally optimising your taxes – I do it to. Overall I’m pretty happy with the level of public services we’re getting in Belgium. I believe there’s a nice mix in there that everyone should be able to enjoy too.
I’m a big fan of progressive taxation, but it’s hard to determine where to draw the line, especially because there are so many outside forces and side-effects to consider. At the moment though I believe a tax shift is necessary. Personally I prefer higher consumption taxes, environmental taxes, etc. over more labour taxes.
I am glad that we agree also 😉
Consumption taxes would be a good idea as it would be attempting to kill 2 birds with one stone, I.e getting more taxes and reducing overconsumption. However I am not sure that is what the powers that be really want.
I would also like to see environmental taxes but again apart from a lot of hot air I haven’t really heard of any politicians actually doing much about this. In the UK at least.
Sorry for the comment dump by the way and really appreciate you replying to them all.
I know peeps who dodge taxes by getting accounts in england… they proposed that idea to me but I think, however interesting for me, isn’t something I should be doing. On the other hand, if you fairly pay your taxes on the efforts you make to provide yourself and the government of wealth you should have a safeguard for when you make losses. As far as I know that’s mechanism doesn’t exist. 🙁
My dream is to make a large amount of money, not because I want to be a fat cat but because I want to be comfortable and be able to offer others the same with the taxes I pay. I also like to be able to say where my taxes go to but I don’t have that right so I can’t. Therefor I one day even like to create my own charity fund. 🙂 Big dreams. 🙂 Nice post very inspiring and not as sour as most people see it.