On his way to mail a large check to the IRS yesterday, my husband stopped to get a cup of coffee, and was irked to see a woman in front of him pay for her $4 latte with food stamps. “That’s my tax money!,” he called me to complain.
His attitude is representative of the 45% of Americans who don’t think their taxes are fair—a 12-year low, according to Gallup data released just yesterday:
According to Gallup, the increasing feeling of unfairness has been mostly driven by growing discontent among Americans who identify themselves as Republican. Fifty percent of the Republicans Gallup surveyed now say their taxes aren’t fair, compared to 38% in 2003. Democrats’ feelings haven’t changed at all: 32% said their taxes were unfair in 2003, and 32% say they’re unfair now.
Gallup summarizes: “Thus, the decline in Americans’ belief that their taxes are fair is due mostly to Republicans’ changing views. Taxes have been at the forefront of much of the debate over economic and budgetary policy in recent years, although, in reality, federal income taxes have not changed for most Americans since Obama took office, because the president has preserved the Bush-era income tax cuts for all but the highest-income Americans.”
I’m surprised so many people—more than half—think their taxes are fair. I’m also surprised that only half of people in another Gallup survey think their taxes are too high while 45% think they’re “about right.”
Personally, I think my taxes are too high! I also don’t think they’re fair.
I just plugged the taxes I paid this year into the White House’s “Federal Taxpayer Receipt” calculator, and while I now understand where my tax money is going, as is their goal, I’m still irritated. The largest chunk of my taxes, over 25%, went to various health programs. That mostly feels unfair because I also pay thousands a year for my own health insurance, and yet I probably used no more than a few hundred dollars worth of health care last year, much of which I also paid co-pays for. It also feels “too high” because I’m aware of the massive inefficiencies in our medical system, and think it puts an (expensive) focus on emergency and chronic care at the expense of prevention and encouraging healthiness.
The second-largest chunk of my taxes went to “National Defense” spending, with the largest sub-category, “ongoing operations, equipment and supplies” consuming a full 10.26% of my income taxes. So that feels unfair because I don’t feel my “national defense” is being well served by our military’s most costly “ongoing operations.” Of course, the wars are already started at this point.
Finally, bringing us back to my husband’s experience at the café is the $307 of my taxes that went to “food and nutrition assistance.” I’ll happily pay as much as I need to ensure that no one in our country goes hungry, but I’m not convinced that my money is being well spent here. This isn’t the first time we’ve seen our neighbors buying what we consider luxury items with their EBT card.
But, like many Americans, probably the number one reason I don’t think my taxes are fair has nothing to do with what the money’s being spent on. Our tax system’s complexities and wide range of built-in incentives mean that many people who make much more than I do—in some cases millions more—pay a lower tax rate than I do. That feels very unfair.
How do you feel? Do you agree with the 55% of Americans who think their taxes are fair? Do you agree with the 45% who think the level of taxes they pay is about right? If not, where do you think your money is being misspent, or why do you think your taxes are unfair? Let me know by responding to this email, and I’ll share some of your responses next week.
Even if you’re retired and not paying income taxes, you probably still have some feelings about taxes. Maybe it’s because you have to pay taxes on your investments, including on your hard-earned profits. Those taxes are no fun either, so many investors try to avoid or minimize them by holding on to their stocks. But Chuck Carlson, the editor of DRIP Investor newsletter, just cautioned his subscribers against that tendency in yesterday’s DRIP commentary. He wrote:
“Given it is Tax Day (April 15), it’s noteworthy that a big mistake investors often make is to allow taxes to influence their buy and sell decisions.
“To be sure, taxes matter, as they impact after-tax investment returns.
“However, to keep a stock simply because you don’t want to pay taxes on the gains is wrong, just as selling a stock (to book a loss to offset realized gains) may be the wrong approach.
“At the end of the day, the investment merit of the stock is what should determine whether to hold or sell. The tax implications may serve as a helpful ‘tie-breaker’ in the decision process, but ultimately investing is about owning the best stocks.
“One way to avoid much of the tax hassle is by owning ‘easy hold’ stocks. Easy holds are those stocks that don’t force you to make too many decisions. They kind of just chug along, providing decent returns year-in, year-out.
“One easy hold that I’ve owned for many years is ExxonMobil (XOM). The stock is rarely at the top of the leader board in any given year but typically produces acceptable returns.
“Exxon offers a direct-purchase plan whereby any investor may buy the first share and every share directly from the company. For contact information for Exxon and other U.S. direct-purchase plans visit the DRIP Investor website at www.dripinvestor.com.”
That’s it for today, and remember to let me know how you feel about the taxes you paid this year. Just reply to this email.
Wishing you success in your investing and beyond,
Chloe Lutts
Editor of Investment of the Week
