A Foreword from MMM:
I’m taking some time away from the computer this month as I swim in the torrent of self-imposed work caused by moving to a new house and selling the old one. But my friend Mr. Toque insisted that we run this rant on Tax Complainypants Disease, a topic dear to my heart. I’ve never really liked the whole practice of complaining about the government, since it is a distraction from our real job of living rich lives, which is obviously easier than ever. His numbers are Canadian, but you’ll find exactly the same complaints in the news here in the ‘States and elsewhere. So take it away, Toque.
Tax Freedom Day is Bullshit
If you’re not familiar with the concept of Tax Freedom, it is best explained thusly:
Imagine that your employer had to remit your whole year’s worth of taxes, to all levels of government, up front, before they could give you a single penny. How far into the year would you be before you actually received any of your income? That day is your “Tax Freedom Day”.
What you’re doing, essentially, is figuring out what percentage of your income goes to taxes and expressing that as a percentage of a year. In previous years, I’ve calculated my own tax rate to be somewhere in the 25% range by counting all possible payroll and income taxes, property taxes, alcohol tax and sales taxes.
My more recent job came with a higher salary and that tax rate is hitting about 34% these days. Since I’m now earning an “above average” salary, my personal Tax Freedom Day (May 5, 2014) ought to have been much later than the average one put out by the right-leaning Fraser Institute, shouldn’t it?
But no. I’m being told that the average Canadian has a Tax Freedom Day that only just passed: June 9, 2014. How strange.
These calculations were based on an average Canadian couple making about $100k. Apparently, such a couple would be paying 43.5% of their money in taxes. The first thing we have to establish is that this number is wrong.
If you were a married couple who came to Canada and were promised salaries combining to $100k, would you pay $43 500 of taxes to various levels of government?
There are a number of utterly fatuous factors involved in arriving at that number and I want to hit a few of them right now.
Payroll Taxes $9903
In Canada, the government collects a certain percentage of your income for the Canada Pension Plan and for Employment Insurance. These have upper limits which, even for two people, can’t reach the $9903 in this document. What the Fraser Institute has done here is to add the CPP and EI that your employer would separately remit to the government and claim that this is your tax burden. So, of your $100k combined income, you lose nothing because of such employer remittance, and yet this is considered part of your 43.5%.
Sales Taxes $6764
In Ontario, where I live, the combined federal and provincial sales tax is 13%. In order to spend $6764 on sales taxes, you would have to spend over $52k on items which are fully taxed. Note that raw foods like meat, fruit, bread and vegetables, are not taxed. Given that you’re probably spending at least $4000 per year on such food, I don’t see how you even have enough money left over to spend $52k on consumables.
Profit Taxes $3709
The bullshit grows heavy and rank here. You don’t actually pay this tax at all. You can’t even pretend you do. Although I can’t be completely certain, because there is no clear explanation, the implication is that the Fraser Inst. is taking all of the taxes that corporations pay on their profits and then distributing this evenly across the population. This $3709 is “your share” of corporate taxes because, I suppose, when corporations pay taxes, we all cry a little inside. Or something.
Liquor/Tobacco/Excise Taxes $2335
Holy Shit! Are you kidding me? I’m not even going to talk about Tobacco. But who the hell buys enough liquor that the tax bill comes to more than $2000? Even if the taxes are 25% on liquor, and I don’t see any reason to actually pay them, you’d still be spending TEN THOUSAND DOLLARS per year on booze. Shit. Get some help.
The Fraser Institute vs the Toque Family
Here’s a chart indicating what my life was like, just a few years ago, when the Toque’s family income was approximately $100k. All figures on an annual basis.
|Tax||Fraser Institute||Toque Family|
|Income||$14,140.00||$16,758.00||This is for a $100k/$0k split|
|Payroll + Health||$9,903.00||$3,947.82||With one income, only one set of payroll taxes|
|Sales||$6,764.00||$1,800.00||13% of 24k of expenses, minus groceries|
|Property||$3,620.00||$5,000.00||We could have picked a smaller house|
|Liquor/Tobacco||$2,335.00||$0.00||I make my own wine and beer now|
|Vehicle Fuel||$1,135.00||$600.00||We still drive way too much|
 In Canada, you can’t split income with your spouse, so people with a 50:50 division of income pay quite a bit less income tax, but more payroll tax. I suspect they come out a bit ahead. There isn’t much a salaried Mustachian can do about this, but there are some other areas where we make significant changes from the supposed “average” tax bill.
 The big savings, obviously, are on the sales tax. Sales tax is not charged on real, non-processed food. When you buy meat, dairy, vegetables, fruit and bread, you pay no sales tax. This makes about 25% of the Toque household’s expenses sales-tax-free. The rest of our expenses total roughly $14k for the year for a sales tax bill of $1800. In order to run up a sales tax bill of $6764, you’d have to spend $52030 on taxable items – on top of any non-taxable groceries. No Mustachian could possibly brook such idiocy.
Property taxes are obviously a self inflicted wound. Mrs. Toque and I could move from our unexpectedly expensive house any time we like, but we’re settled in here and we’re willing to pay that premium.
I already commented on the bullshit “Profit Taxes”. You do not pay this out of your $100k income. It does not belong in this list.
 The cost of 48 bottles of wine from one of those make your own wine stores is about $200. Even if you drink twice as much as we do, that’s still $400 a year for wine – and zero liquor tax because you don’t pay tax when you make your own. What are “average Canadians” doing that they pay over TWO THOUSAND DOLLARS in liquor taxes?
The amount I spend on gasoline is embarrassing. I must learn to drive less. I consider myself chastened.
 As for the “Other”, “Import Taxes” and “Natural Resource Tax”, I doubt very much that I see these in my spending anywhere. This is probably one of those mystery taxes, like the Profit Tax, that someone else pays and the Fraser Institute believes “filters” down to me somehow. If you wanted to take that concept far enough, I’m sure we could delude ourselves into believing that 100% of our money is eventually tax.
Summary of Taxes
So there we are. We have a study that says “Oh. My. God! 43.5% of your money is going to taxes! How will you ever live?!” and we have a Mustachian who has looked at his actual taxes for a similar year and determined that the number is close to 28%. My point is that you shouldn’t freak out when you see studies like that. Don’t worry, you still get to keep a lot of your money. But even if you didn’t …
But wait, what about my Services?
I don’t know if you knew this, but governments actually do things for you. In Canada, for instance, they pay for all of your doctor’s visits, surgery and hospitalization, public schools, police, fire departments, libraries and road maintenance. The Toque family has two children. If we had to send those two kids to a private school, I’m dead certain the cost would come to more than the tax bill you see there.
How come that isn’t part of the Tax Freedom calculation?
I’m sure it’s not because we’re just trying to freak everyone the fuck out about taxes, is it? I’m sure it’s just an oversight. Because that would be totally irresponsible if it was on purpose.
Stop Whining about Your Taxes
We’ve already established that we live in one of the most prosperous eras in the history of humanity. The selection of food you can eat on any given night dwarfs anything the richest kings of the past could have commanded to appear at their tables. There is a certain cost associated with maintaining the society that makes that possible. There are people to heal, children to educate, roads to build and banditry to prevent. When you start making a lot of money, it’s your turn to pay into the fund that got you here, so the next impoverished kid to come along can have the same shot your impoverished, post World War II refugee grandparents had.
What about my Mustache?
That’s the question you should now be asking. Mustachians are not the sort of people who sit around moaning about how the government is keeping them down. We’re the people who look at what we got, figure out what we don’t like, and fix it.
Does your local government have a high property tax rate? Move to a smaller house. Those are almost always cheaper.
Is the income tax rate high? Put as much money as you can into tax sheltered retirement funds.
Sales taxes are high? Why are you even talking about this? If sales tax is a problem for you, stop buying so much shit.
But, but, but, gasoline tax! Hm. If only there were a way to live that avoided gasoline tax. Help me out, here. Anybody? Bueller? Bueller?
And if you really, really can’t stand the way the man is keeping you down in your province or state, you can always pick a different one. Mr. Money Mustache did that and he’s quite happy with his adopted home. I’m living in Ontario and I’m quite content with life here as I finish my final leg on the road to retirement. But if I wasn’t happy, I wouldn’t just complain about it. I’d rearrange my finances or move my family.
Why are you telling me this?
“Tax Freedom Day” is a disingenuous, selfish, short-sighted bit of fear mongering. Every year I see the numbers and dates come out, I think “What privileged jackass decided to count only the taxes being paid and completely ignore the services being returned?” Who, in either of our countries, has arrived at the point of having to pay taxes without having also been helped along on the path to becoming a taxpayer?
It wasn’t until I did the calculations, however, that I realized how truly out of whack the “Tax Freedom” percentage is from the actual experience of an actual Canadian. So I should thank all of you for making me want to do the math.
I will be over here enjoying by 28% tax rate, even while others less informed are crying over their make-believe 43.5% rates.
MMM Afterword: I should also note that if you are a rich do-gooder who is frustrated with the inefficiency of government compared to your own capabilities, it is still possible to evade taxes for the good of humanity: Simply have your business(es) operate as a separate entity from yourself (or even a nonprofit), pay yourself a small salary, then have the business go to town for the social good of your choice. You can choose to treat the employees really well, all while inventing better electric cars or solar panels, curing malaria and polio, or any number of other things – with high efficiency and very little tax burden.
I agree with the business owner that the payroll tax part is a very real part that could of gone to you directly. It’s a deceptive slight of hand that should be made fully visible to employees and your falling for it to be honest. The $100k family is really should be called the $109’903 family. It’s the same reasoning behind why GST/PST/HST is something you see separately after the fact vs. before the fact, so you are actually aware of the tax. Sales tax changes aren’t as visible when it’s baked into the price. Mathematically it’s the same thing but human psychology wise it is not. I didn’t realize that part existed for years until i read about it in an article, since no payroll check stub shows the ’employer portion’.
People don’t like taxes because they feel inefficient. In America you can pay similar to Canadian rates but get far less back for your dollar. Canada has less social economic inequality, obvious poverty or crime, a less aggressive government, nicer government services, a calmer police force and universal healthcare, cheaper college, less geographically restricted schooling and so on so they have higher ‘customer satisfaction’ compared to the USA. Come live in the USA for a while and you’ll start to understand why Americans feel the way they do compared to Canadians. Canadians feel like they’re getting something back, Americans not so much.
Also as a Canadian you pay a bunch more in cartel pricing, import duties and so on that are completely invisible to you. There is a reason why everything is significantly cheaper south of the border. Also how much would you pay for an equivalent house lets say in upstate new york for example vs where you live in ottawa. Probably a lot less. The hidden taxes in the cost of goods is something you should be comparing too.
So if you adjust what the fraiser institute is saying, you can say canadians pay a %35-%43.5 tax rate. I don’t know although how much you have to adjust that upwards for the higher prices canadians pay. Stuff can be %10-%30+ more expensive on average in Canada.