There seems to be a lot of resistance to paying taxes, yet people are paying a lot of money to banks and other financial advisers when there are cheaper/better options out there.

Any thoughts on why that may be the case?

This observation may be wrong, and should not be discussed here, but I've noticed people going to a lot of trouble to avoid paying taxes. On the other hand, there are a lot of people that are getting into debt. It seems silly to put much effort into avoiding taxes, yet spend money on unnecessary/excessive fees/interest. Maybe these are not the same people...

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    I have my concerns about the subjectivity of this question. However, I could not keep myself from weighing in on the topic. – George Marian Nov 8 '10 at 10:58
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    Can you clarify what you mean by "paying a lot of money to banks" are you talking about interest, or bank fees, or something else perhaps? – JohnFx Nov 8 '10 at 15:43
  • Both, I can't think of anything else at this moment. Maybe somebody else can... – GUI Junkie Nov 8 '10 at 16:23
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    I have attempted to make the question a "good" subjective one. – George Marian Nov 9 '10 at 10:41
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    Really, this is not about the usefulness of taxes at all. I was trying to grasp why people are willing to 'spend' more money on the bank than on the government. @Alex B has a very good point there. – GUI Junkie Nov 9 '10 at 23:33

One is a choice the other is not.

While they are both liabilities on the balance sheet, in the real world they are quite different.

We do not feel as much ownership over our money that goes to interest payments as we do over our tax payments. Taxes pay for our government and the services it provides. Interest, on the other hand, is what we pay in order to have a bank loan us money. Similar to paying for a good or service obtained from some other business, we do not feel we have a say in what the bank does with that money. If we disapprove of a business' practices, we stop doing business with them; assuming there are other choices. We can not practically avoid dealing with our government.

We certainly feel that we should have a say in what is done with our tax money. I doubt there is anyone in the world that completely approves of their government's spending. It is very easy to feel marginalized with regard to our tax payments. For example, some people feel resentment because their taxes fund the welfare rolls.

All that said, I believe there is little overlap between the two groups. It seems to me that you are referring to those with large amounts of high interest (e.g. credit card) debt. I doubt that a large percentage of them are scouring the tax laws, looking for deductions and loopholes. If they had that mindset, they would also be working hard to get out of the hole they are in.

In summary, we choose to pay a financial adviser, to take out a loan or to obtain a credit card. We do not choose to pay taxes. Since taxes are supposed to pay for our government and things which should benefit everyone, we want a say in what is done with it. This is also the case because it is forced on us. ("Fine son, I'll lend you some money, but I don't want you buying cigarettes with it.") Since our say is limited and we likely will not approve of everything our government does, we want to exert what control we do have: reduce our payments as best we can.

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  • I think this is a great response. My short summary of it is - As humans, we feel like we control whether or not we spend money on expensive financial advice or high interest loans (we sign the contract), but we feel much less control over taxes. Humans inherently like feeling like they are in control, regardless as to if that is true or not. – CrimsonX Nov 10 '10 at 14:57

I think sometimes this is simply ignorance.

If my marginal tax rate is 25%, then I can either pay tax deductible interest of $10K or pay income tax of $2.5K. I think most americans don't realize that paying $10K of tax deductible interest (think mortgage) only saves them $2.5K in taxes. In other words, I'd be $7.5K ahead if I didn't have the debt, but did pay higher taxes.

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  • Very good answer. I guess this is the type of reasoning I was aiming at. Thanks. – GUI Junkie Nov 8 '10 at 18:46

To some extent, I suppose, most people are okay with paying Some taxes.

But, as they teach in Intro to Economics, "Decisions are made on the margin". Few are honestly expecting to get away with paying no taxes at all. They are instead concerned about how much they spend on taxes, and how effectively.

The classic defense of taxes says "Roads and national defense and education and fire safety are all important." This is not really the problem that people have with taxes. People have problems with gigantic ongoing infrastructure boondoggles that cost many times what they were projected to cost (a la Boston's Big Dig) while the city streets aren't properly paved. People don't have big problems with a city-run garbage service; they have problems with the garbagemen who get six-figure salaries plus a guaranteed union-protected job for life and a defined-benefit pension plan which they don't contribute a penny to (and likewise for their health plans). People don't have a big problem with paying for schools; they have a big problem with paying more than twice the national average for schools and still ending up with miserable schools (New Jersey). People have a problem when the government issues bonds, invests the money in the stock market for the public employee pension plan, projects a 10% annual return, contractually guarantees it to the employees, and then puts the taxpayers on the hook when the Dow ends up at 11,000 instead of ~25,000 (California).

And people have a problem with the attitude that when they don't pay taxes they're basically stealing that money, or that tax cuts are morally equivalent to a handout, and the insinuation that they're terrible people for trying to keep some of their money from the government.

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The bank provides a service that the customer voluntarily agreed to - the bank will provide funds to the customer now and the customer will pay back those funds plus interest in the future. The arragement wasn't forced onto the customer.

The government, on the other hand, takes money (the exchange is not volutary) from people to provide a "service". This frustrates a lot of people - myself included - since people do not have a choice. They must pay the taxes or go to jail (or have their house confisicated, wages garnished, etc.). It gets even more frustrating when the government takes money from the people and gives it to the banks, auto companies, insurance companies, etc..

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    @Muro - do you drive on roads? Then you get a service for your taxes. Are you assured of due process if you were to go to jail for delinquency on your taxes? Then you get a service that you should have paid for. Are there parts of the government working hard to keep drugs with false claims or harmful side effects from letting you die or killing you? That's a service. Personally I believe the government gives me a lot more services than the bank does. I may not want all of them, that's true, but that's why I vote whenever I get the chance to elect someone who thinks as I do. – justkt Nov 8 '10 at 17:09
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    @Muro - you make a good point. I don't think one has to fall down the slippery slope, though. I can say that I appreciate the FDA but not the Department of Education, or the DoD but not the National Endowment for the Arts, or perhaps some out there would prefer to vastly shrink the DoD and up funding for transportation projects. Everybody in the US at least has limits. Some have different limits than others. There's still the basic fact of the tragedy of the commons that needs some government to overcome it. – justkt Nov 8 '10 at 19:54
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    There's no reason to vote this answer down. I go to the bank and borrow money to achieve some specific thing. The government taxes me and does all sorts of things on my behalf that I may or may not agree too. That's is all Muro is saying, and that is a legit point. – duffbeer703 Nov 8 '10 at 21:06
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    The simple flaw with your statement is that it ignores the fact that our democratically-elected leaders chose to implement those services. They are the will of the people (as a whole). Remember that democracy != what YOU want. It is an approximation of what everyone wants. – myron-semack Nov 8 '10 at 23:45
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    @duffbeer703 - I read the quotes around services and the ensuing comments to indicate that the services are of negligible value, and that is simply not true. If they weren't of any value, people would stop electing officials who keep supporting them. – justkt Nov 9 '10 at 0:27

An example, where I live. When you buy a house, the seller wants 'black' money. This is because that way the seller pays less taxes. However, it's not smart for the buyer to pay in black, as the tax reductions are lower. Eventually, when the buyer tries to sell the house, he has to declare the difference, so a higher buy price should not have affected... apart from the notary minutes.

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