The tax season is just over. Everyone has submitted their tax form, and the dust has just settled. In the Netherlands, people are complaining about taxes – a lot. They’re complaining about the fact that we need to pay taxes, about how much taxes we need to pay, about where the government spends our taxes on, and more.
Taxation is a tricky subject.
Don’t think that I happily give half of my paycheck to the government – absolutely not. Seeing that half of my money goes to taxes is equally fun for both me and you.
Many ask themselves: how can I reduce my tax burden? Many European countries don’t offer tax-deferred accounts like in the United States, Canada or the United Kingdom. We have it hard in Western Europe – really we have such bad first world problems. NOT.
Some People Hate Taxes
Last week I ran into this survey done by WalletHub. They asked 1000 Americans about taxes and had some interesting results. Instead of paying taxes: 36% would move abroad to a tax-free country, 24% would rather get a tattoo that says “IRS”, 16% would stop talking for 6 months and 15% would take the vow of celibacy.
Full disclosure: I would 100% move abroad, but celibacy is too big of a commitment.
The results got me thinking. I mean no one loves to throw all their money towards the government, but most people I know pay their taxes and know that something good is coming from that.
Redistribution Of Wealth
Like mentioned in Rich Dad Poor Dad, taxes are originally meant to redistribute wealth among the people. The people who were too poor didn’t pay any taxes naturally because they didn’t have anything. The rich were the ones in the early days who paid taxes. Sometimes in forms of crops (like 2000 years ago) and sometimes in monetary forms (more recently).
While a nation can’t tax itself into wealth, it is still used as a way to redistribute wealth. It increases overall prosperity by providing people the chance to climb the metaphorical ladder.
In Western-Europe, the tax system changed at the end of the 18th century. The wars that were being fought, make the tax rate go up dramatically – war is expensive. Later on, when the war was over, governments used the redistributive system to build a social safety net and make quality health care available for everyone.
The Netherlands is a great example of this. Yes, I pay a lot of taxes, but I also get a lot in return. Even though I might not need all the things the government offers at this moment, I have benefited from it. When I was studying, the government paid 90% of my tuition. Indirect. The government funds our universities and schools.
On top of that, I got student grants and a student loan from the government for 0% interest. I got an additional contribution to pay for my health care while studying. When I was looking for a job, I received unemployment benefits.
Taxes For A Civilization
Oliver Wendell Holmes, Jr. said it best: “Taxes are the price we pay for civilization.”
While that is true, many want as much civilization as possible for a minimum amount of taxes. They want a discount on their taxes, for a maximized civilization. I think everyone wants an efficient 21st-century government that can make this happen. Unfortunately, governments are still bureaucratic organizations that have to deal with a lot of inefficiencies in order to get things done.
That doesn’t make taxes or the tax authorities the devil.
Taxes Are A First-World Problem
You should be happy to pay taxes. Taxes provide you and your children with education, taxes provide your family with health care, taxes provide roads and parks, taxes provide safety, taxes make sure everything in your country is arranged as it should be – things you will benefit from every day, year after year.
You get to live in a well-functioning and organized society in return for contributing through taxes. You are in a position to give back to society because you are well-off. It’s a beautiful position to be in. Paying taxes is a privilege. It is the best first world problem there is!
In the Netherlands, we have a progressive tax system. Meaning that if you make you, you contribute more. People who have nothing contribute very little, that’s what my parents were very happy with when my stepdad lost his job in 2008. That was not a good position to be in. Would you rather have nothing than paying taxes? I don’t.
That doesn’t mean that you should hand over your taxes without optimizing anything. It’s okay if you’re optimizing your taxes as much as possible – as long as it’s legal. I buy the Dutch shares of Vanguard World ETF because I can’t recover the 30% dividend taxes that are charged in the US ones.
I Love Paying Taxes
When there is no other option than paying taxes, you should be happy that you’re able to. You are contributing to society in creating a better civilization. Yes, it might slow your progress towards financial independence, but remember that you will make use of the government services if you haven’t done so already.
Warren Buffett agrees:
“Writing checks to the IRS that include strings of zeros does not bother me … Overall, we feel extraordinarily lucky to have been dealt a hand in life that enables us to write large checks to the government rather than one requiring the government to regularly write checks to us – say, because we are disabled or unemployed.” – Warren Buffett
Do you enjoy paying taxes?