This is an extremely simple post, with simple (yet I think rarely considered) implications. I'm sure some will respond by saying 'duh!' or excoriate me for pointing out 'obvious truths,' but I feel compelled to bring it up because after sharing these thoughts with others, its amazing to me how few actually realize the truth. If you've thought about and considered this often, I apologize. I'm writing it for those who haven't. --- Ok, here we go... When discussing tax rates with people, depending on their political persuasion, you usually end up getting one of two generalized responses: 1) (conservative) I know, isn't it sick! The government takes almost half of what I earn! 2) (liberal) I know, it's a good thing. Government helps people, I'm glad to pay what I pay... it's going towards good things. Now, the the conservative is definitely right about the rates being almost half of what they earn... if you add up income taxes, federal, state, local, sales taxes, property taxes, taxes passed through the price of goods, etc. taxation for the average Middle Class American can actually extend well beyond 40%. But, that's not the point... let's use 40% for now. I maintain that people on both sides tend not to see the bigger picture. People from both sides of the political aisle while mathematically accurate when pegging it at around 40%... this in fact the incorrect measurement. The number you should be concerned with is a lot bigger. --- Here's a real-world example. I'm going to use the same 40% rate in my example. Say Bob and Sally Thompson both have decent jobs. Sally teaches 3rd grade, and Bob is a Marketing manager at a small company. Together, they earn about $100,000 per year. Through various levels of taxation, using the 40% rate discussed earlier, the Thompsons have a net take-home-pay of around $60,000 or about $5,000/mo. Here are the Thompsons' bills: $1,200/mo. mortgage $1,000/mo. food/dining $600/mo. car payments $200/mo. insurance $500/mo. student loans $500/mo. furniture, home/auto repairs, etc. $200 miscellaneous entertainment, trips, etc. $300 retirement After it's all said and done, the Thompsons have about $500 left each month (or about $6,000/year) they can put in to savings, or to spend on things they wish like electronics, gifts, etc. Let's call this their "REAL INCOME". Now, let's consider for a moment that the tax rate was 20% instead of 40%. What would the net effect on the Thompsons financial situation be? Would it be 20% better as most would probably consider in their head? Actually, it would be a much bigger deal. If the tax rate was only 20% instead of 40%, this would mean that their take home pay was $80,000 instead of $60,000.... and with the exact same expenditures, what would their new "REAL INCOME" be? Well, instead of having $500/mo. or $6,000/year would now work out to be $1666/mo or $19,992/year. This would be 330% more "REAL INCOME"!! Not 20%, 330%! These are huge numbers. Consider for a moment what Bob and Sally could do with this amount of money. They could save their money for 10 years and buy a $100,000 house with CASH. With compound interest, they could be millionaires in less than 7 years. They could buy all their kids a college education, and their kids' kids. When you consider tax rates, you should never compare one rate vs. another, but rather instead what effect this rate has on actual usable funds... on REAL INCOME as I've defined it here. The lesson to take from all of this is that the next time some politican says 'we just need a few percent more' or 'think of all the government could do with that money... you aren't going to feel a few percent difference in your pocketbook'... think real hard. Think beyond just the percent they show you on the news. Do the math and consider for a moment the effect it'll have on your, and your neighbor's bottom line, on your REAL INCOME. Consider for a moment how everyone's financial situation could be better if we all had 330% more REAL INCOME! It's not a minor issue, it's something that effects us all every day! Liberals are right when they say that government provides value to society, it obviously does good... but the question I try to ask myself is not whether value is provided, but whether the value provided outweighs the cost... the cost that is often hidden from us either purposefully (auto-deduction from paychecks) or right out in the open, but not automatically thought about (tax rates as discussed here). I don't know about you, but I'd definitely be willing to put up with a little less government if I could have 330% more spending money, every year, over a lifetime. How about you? Was the difference between 20% and 330% well known to you before reading this? What would you do with 330% more spending money each month? Would you save it? Spend it?