Aside from having to pay taxes at all times, being an arbitrageur should make you aware that the importance of paying taxes is vital information when doing your own financial investments. In our last post about effective tax rates, you learn how much taxes we are really paying as a percentage of our income. Well, today I would like to talk about what is the importance of paying taxes.
The Purpose of Paying Taxes
As you already know everything we consume is being taxed; goods, services and even incomes before expenditures are meted; but for what purposes…
- Social Value, or Responsibility.
- Personal Benefit, or Gain.
The Social Value of Paying Taxes
Revenues – the primary goal of taxation is to raise funds for the government “Revenues”. When taxes are paid, it can be spent on national defense, roads and bridges (transportation), schools (education), hospitals (healthcare) and many other indirect functions that guard the capitalist system that we all love and enjoy.
Redistribution – the way of the government to transfer wealth from richer people to the less fortunate ones. The tax liabilities impose on big corporation help subsidy social benefit programs like Social Security and Medicare. Like we all know not all Americas have the same effective tax rate. Enhance the dislocation between the 1% and the 99%. But by contributing to the FICA Tax, we all accomplish our social purpose.
The Personal Benefit of Paying Taxes
If not for any other reason, I encourage you to always pay your taxes on time… for your own personal benefit:
Legal Consequences – protect yourself against the government. Avoid late fees, penalties and interests.
Legal Protections –allow the government to protect you. Funding the federal system keeps the machine running, especially the legal system. It’s the department of justice that protects my favorite right of them all; property rights the ability of having personal ownership of assets. Property rights are engines of wealth creation of this country.
The Bottom Line
This is not to say that you have to forget about being tax efficient, but do your part and contribute. Pay your taxes for whatever reason; be it personal benefit or social purpose. It doesn’t even matter what your real effective tax rate is.
Just fuel that engine!
Case Study Time
Develop a spreadsheet table that will account for all the taxes you have paid over the years.
What importance do taxes have for you?