Why I Don't Mind Paying Taxes

A Note from the Senior Editor: Liz Farr offers a refreshing take on taxation, framing it as a fundamental pillar of societal progress rather than a mere financial burden. Through personal anecdotes and historical wisdom, she highlights how taxes fund crucial services and infrastructure, reinforcing our collective commitment to a thriving community. This piece invites readers to appreciate the intricate ways our contributions shape the world around us. Enjoy!

“The wealthy should be more willing to pay taxes because they receive so much more benefit from it.”  

That’s what my corporate tax professor said some 20 years ago when I was working on my Masters of Accounting. Lest you think that came from a left-wing, ivory-tower-dwelling academic type, he was an old-school CPA helping out as an adjunct professor. A partner in a local, very traditional CPA firm, he had moved to New Mexico in the 1960s to open the Arthur Anderson office. It’s hard to get more old-school than that. 

I tend to agree with my former professor’s statement. I like many of the things our taxes pay for. What use is having a nice car if you can’t drive it anywhere because the roads are full of potholes, and you can’t park it without fear that it will be stolen?   

Our taxes pay for many things we can’t do on our own.  

Here are a few more of my favorite quotes about taxes:  

“Taxes are what we pay for civilized society.”

–  Supreme Court Justice Oliver Wendell Holmes in 1927 

“Taxation is the price which we pay for civilization, for our social, civil and political institutions, for the security of life and property, and without which, we must resort to the law of force.”

–  a report commissioned by the governor of Vermont in 1852. 

 “Rightful taxation is the price of social order.”

– a report to the state senate of Ohio in 1848 

 “Paying taxes is a good thing. The higher your tax bill, the better your business is doing. This is your number one key performance indicator. You can’t create legitimate wealth from an operating business unless you pay taxes.”

– Greg Crabtree, from his book Simple Numbers, published in 2011.  

And for balance, a contrarian view from my friend Ed Kless:

“Taxation is theft.” 

Other perspectives on paying taxes

Over on X, many in the #TaxTwitter community regularly post rebuttals to influencer TikToks that supposedly reveal tax loopholes that will allow you to pay zero taxes. Buy an expensive SUV for your business and write it off! Make videos so you can deduct everything in your life as a business expense! Put your business in a Delaware LLC and avoid all taxes!    

Besides the doubtful legality of most of those tax avoidance schemes, many of the suggestions are fairly expensive ways to save on taxes. Sure, you might save $11,000 or so in taxes when you buy a $50,000 SUV, but you still have to buy that SUV. Plunking down a wad of cash now so you can save taxes later doesn’t immediately reduce the cash flowing out of your bank account today.   

When the Inflation Reduction Act passed in 2022 with $80 billion in funding for the IRS, that resulted in panic about an army of IRS agents descending to extract taxes from innocent business owners, along with new calls to defund the IRS. But to determine whether this additional funding is good or bad, we need to first understand a bit about what it is we are getting in exchange for our taxes.   

What are the sources of US revenue? 

Let’s look at numbers for the current fiscal year, up to the current date, using numbers from the US Treasury. As of February 29, the US Treasury had collected $1,856 billion in revenue.  

• 50% or $928 billion from income taxes from individuals 
• 36% or $663 billion from Social Security and Medicare taxes 
• 9% or $174 billion from corporate income taxes 
• The remaining 5% comes from excise taxes, customs duties, estate and gift taxes, and miscellaneous other sources. 

Every year, the Tax Foundation compiles data from the most recent data released by the IRS.  The most recent compilation (released March 13, 2024) is for 2021, which, as you may recall, was an unusual year due to the ongoing pandemic. While incomes were overall higher than in 2020 – when more shutdowns were in effect – incomes grew faster at the higher levels of income, largely due to realized capital gains from a strong stock market. The American Rescue Plan Act (ARPA) provided recovery rebates of up to $1,400 per eligible individual and dependent, and expansions to refundable tax credits such as the child tax credit and the earned income tax credit meant many people had extra cash to spend.   

In 2021, the top 1% of earners received 26.3% of total AGI and paid 45.8% of all taxes. Both of these are increases from the prior year’s shares of 22.2% of AGI and 42.3% of taxes and are part of an ongoing trend over the last few decades. In 2001, the top 1% of earners paid 33.2% of income taxes. In 2001, the bottom 50% paid 4.9% of income taxes, but by 2020, their share had dropped to just 2.3%.   

This big jump in the share of income taxes paid by those at the top makes it look like our tax system is “soaking the rich.” However, the Tax Foundation points out that “While the share has generally been increasing over the period [2001-2021], 2020 and 2021 are outlier years largely because of the changes in income and in tax policy during the coronavirus pandemic.”   

The previous year’s report for 2020 – which also noted an increase in the share of income taxes paid by the top 1%, and a drop in the contribution by those near the bottom of the income scale and pointed out that the combination of the pandemic-related downturn and the relief programs skewed the data. As the Tax Foundation explained, “The income dip for the bottom half of taxpayers combined with the tax credit boost unavailable to higher-income households led to lower average tax rates at the bottom and a greater share of taxes borne by households at the top, compared to a typical year.”   

Therefore, we might expect that as our economy returns to a new normal as the pandemic eases – whatever that new normal is – we may see that the share of taxes paid by those at the top will drop.   

What do our taxes pay for? 

I’ll save my comments on the fairness of our tax system for another article. But for now, let’s just look at what the federal government does with our taxes. Back in 2018, Michael Lewis wrote the book The Fifth Risk (which I highly recommend), which was mainly about the challenges of the transfer of power from the Obama administration to the Trump administration, but also about many of the things the federal government does that we are largely unaware of. Our federal government funds many things that are too big or too risky for the private sector to cover. These include things like:  

•  Medical care for veterans 
• Air traffic control 
• National highways 
• Food safety guidelines  
• School lunch program 
• Military to keep us safe 
• Weather data 
• Resources for fighting massive wildfires 
• Tracking nuclear materials to keep them out of the hands of terrorists 
• Research and innovation on projects too risky for the private sector, including more efficient sources of energy, development of fracking technology, and Kevlar for bulletproof vests 
• Do Not Call Registry 
• Immunotherapy to treat previously untreatable cancers 
• COVID vaccines, tests, treatment 

I may not agree with all these uses, but I agree with Mr. Lewis’ assertion that many of these are too risky for the private sector to fully fund. Even the existing levels of funding for many of these programs are far too often inadequate for the need.  

A trip to the grocery store 

Let’s put this into real terms by looking at how taxes and various government fees impact a trip to the grocery store to buy food for dinner.   

I live far enough from a store that I need to get in a car and drive there. The VIN number of my car is in the national registry, which helps protect my ownership and may help me get it back in case it’s ever stolen. This VIN number also gave me access to my car’s history, so I know it wasn’t previously in a wreck or damaged in a flood. The funding for the VIN registry comes from the DOJ and user fees.   

My car has various safety features, like seat belts and airbags. The justification for these features came from studies by the National Highway Transportation Safety Administration, which were supported by my taxes. I pay an annual registration fee to New Mexico, which funds various programs at the state level. One of these programs is public education. My husband taught school for years, so it’s possible that a tiny portion of my car registration fees paid his salary.   

Now I back into my street. When I moved here in the mid-90s, roads in this subdivision were still dirt, even 20 years after the first houses were built here. We don’t get much rain here, so the main problems were wash-boarding and dust. Those rough roads did keep car speeds down, so it was pretty safe for kids and pets. It also seemed to keep burglary down: quick getaways are nearly impossible on rough roads that churn up clouds of dust. About 20 years ago, we finally got the streets paved, which was likely paid for with a combination of gas taxes, property taxes, and local sales taxes.   

I live in a relatively safe rural neighborhood with little crime, though we have had a few incidents of burglary in recent years. I’m grateful to the county sheriffs who keep us safe and whose salaries and cars are paid for with my taxes. However, in this rural county, law enforcement is sometimes spread very thin. Years ago, one sheriff told me that, at times, six sheriffs had to cover more than 1,000 square miles. I would gladly pay more taxes if we could have a few more sheriffs out here.   

A few more turns, and I’m on Highway 47. This is a nice 5-lane road with bike lanes and sidewalks on either side. I’m not sure why they added the bike lanes and sidewalks, because almost no one uses them. About 20 years ago, Highway 47 was widened from a treacherous four-lane road with no shoulders. That was a huge and disruptive project, also paid for with my taxes.   

When they widened the road, they also added a traffic light at a busy intersection. Previously, that had been a flashing yellow light with no turn lanes. I’m grateful my kids never had to navigate that when they were learning to drive. I narrowly avoided numerous serious accidents when it wasn’t clear what an oncoming driver was planning to do.   

On my way to the store, I get stopped behind a school bus stopping to drop kids off. In this largely rural community, most kids either ride buses or are dropped off at school by parents. Some kids spend an hour or more on buses each way, all paid for with my tax dollars. Our public schools are supported by property taxes and other state taxes. As I mentioned before, my husband taught in the local schools for about 20 years, so the state taxes we paid provided a chunk of our household income. Not a bad ROI.   

I arrive and park at the grocery store. I’m glad that there is enough law enforcement presence—and enough decent people—that I can park with little fear of theft or vandalism. When my husband moved here in the 1980s, people left keys in their cars.   

Now, I start to pick out food for dinner: chicken, salad greens, potatoes, broccoli, and some cookies for dessert. I am glad my taxes pay for food inspectors and food safety programs at the USDA so I can buy these and be assured that my food is relatively safe. If you have ever read The Jungle by Upton Sinclair, you will know that this wasn’t always the case.   

Now, to check out. This is a low-income county, so many people here rely on federal and state food support programs. For this school year, all the kids in the local public schools get free lunch and breakfast. During the pandemic, many families received supplemental SNAP benefits to make up for the loss of meals when schools closed.   

I pay with my debit card, reassured that because I am banking with a credit union subject to federal regulations, my money will be there. Enforcement of those regulations is paid for with my taxes.   

Back to my car, and I swing by the pharmacy to pick up a prescription for my husband, who’s on Medicare. Thanks to the Medicare taxes my husband and I have paid in for decades, his heart meds cost almost nothing. We also didn’t pay anything when he had a heart attack three years ago or when he had knee replacement surgery two years ago. Also, thanks to the FDA, we can be confident that his meds are safe and effective, as far as current science can determine. Myself, I’m looking forward to being eligible for Medicare in a few years.   

I also need to put gas in my car. Because gasoline is regulated by the EPA and gas stations themselves are regulated by state and local authorities, I am confident that I’m getting the octane the pump says I am, that I’m getting the volume the pump says I am, and that the additives won’t hurt my car.   

On my way home, I slow down and let an ambulance pass. Here in NM, healthcare resources are spread thin, partly because we have a lot of people who are uninsured or on Medicaid or Medicare. My daughter and her long-time boyfriend are both nurses and tell me that many doctors are leaving the state because they can make substantially more elsewhere. We haven’t had a hospital in this county since 1990. Without federal or state subsidies for health care and ambulances, we’d have even fewer services.   

Now I’m back home and grateful for all the things that my taxes pay for. Sure, there are things I don’t like. And I don’t mind that my tax bill went down substantially with the TCJA. But there are enough good things that I can pretend that all my taxes go towards them.