Private Economies and the Public Tax Burden
Do members of a community rich in local social services have the moral right to avoid taxes?
Rationalizing tax avoidance can inspire rich creativity. Someone recently told me about one argument that’s apparently popular in the frum world. Here’s how it goes:
Governments have the right and responsibility to collect taxes in order to fund public services for the benefit of their citizens. But they shouldn’t expect individuals or communities that choose not to consume those services to participate in the funding. Since, the argument goes, the frum community saves the government money by not using certain services (like public schools), it’s reasonable for frum taxpayers to find ways to illegally reduce their tax payments by that proportion.
This argument is built on two distinct assumptions:
Individuals have the right to simply opt-out of revenue frameworks at will - without even informing the relevant authorities.
The lawful tax burden faced by the average individual outweighs the total benefits he receives through the government programs he and his community do consume.
I firmly believe that both of those assumptions are wrong. But that’s besides the fact that halacha forbids tax avoidance in and of itself (seeרמב”ם הלכות גזילה ואבדה ה:יא and this article). I also believe (as I wrote in But It’ll Be Cheaper if You Pay Cash) that the chilul HaShem that will be caused once “frum” tax cheats are caught will do far more harm than good.
However, in this post, I’ll ignore those issues and, instead, focus on the argument’s second assumption: that the average frum Jew pays more in taxes than he consumes. I’ll use a hypothetical New Jersey couple with four children earning a gross household income of $250,000. Why not a more common income level like $50,000 or $75,000? Because such families would be paying so little in taxes, that cheating would make almost no difference. Instead, we’ll imagine a family whose legal tax exposure would be both large and painful.
How much tax do we pay?
Just how much would a family earning a quarter million dollars have paid the government in 2021? Well, assuming they contributed $5,000 to their IRA and had $10,000 worth of itemized deductions, online tax calculators would peg their Federal income tax bill at $40,818, their FICA contribution at $12,479, and their New Jersey state income tax at $10,417. Those would add up to $63,714 (a 24% marginal tax rate). Regardless of your attitudes and moral preferences, that’ll hurt.
But that’s not all. Our imaginary family also paid sales, fuel, property tax through the year. Those, according to available estimates, added another $9,365 to the pain. Which brings the total 2021 tax burden to $73,434.
How much do we get from the government?
My methodology for estimating the government benefits our family enjoyed was simple. Using official 2021 budget numbers, I added up the largest line items from both Federal and New Jersey state documents. To fit the “frum” anti-tax argument, I then subtracted K-12 education spending from the state budget, and divided the new totals by the 2021 US and New Jersey population numbers to get a rough figure for benefits on a per capita scale. Then, since our imaginary family has six members, I’ll multiply that per capita figure by six.
Of course I know that those numbers aren’t going to be exact. And I’m also fully aware that, due to corruption and widespread incompetence, the connection between government budget allocations and programs that actually benefit real Americans is, shall we say, fragile.
In fact, I defer to no one in my utter contempt for the political decision-making process and the dominant moral ethic in the public service bureaucracy. But it’s nevertheless all we’ve got: in the absence of serious internal reform, the alternative to a corrupt and inefficient military or justice infrastructure is no military or justice infrastructure at all. And that’s definitely not a good idea.
As I heard it, the “frum” argument isn’t that we should pay taxes only on services we personally consume as individuals, but that we should pay taxes for all services not covered independently by the frum community. Therefore, even if a family earning $250,000 might not themselves benefit from Medicaid or disability insurance, there’s no doubt that at least some of their relatives or neighbors will. Similarly, everyone benefits at least indirectly from services like the military, policing, and justice administration.
(To be honest, I’m not sure anyone benefits from State Department - besides its thousands of employees with six-figure salaries. But I left its budget in for convenience.)
I should also note the reasons why the only item I subtracted from my benefits total was K-12 education (which, by the way, takes up 25% of the total New Jersey budget):
Government post secondary spending is often available to the frum community in the form of Pell grants, student loan guaranties, and program support.
Hatzalah does, of course, provide ambulance and EMT services. But they’re not replacing government programs. Ambulance services are private in New Jersey and, as a rule, their costs are reimbursed by insurance companies. It’s true that Medicaid and ACA are part of that process, but I suspect it represents a minimal portion of their total budgets.
I’m actually not convinced that we don’t also have an interest in perpetuating public K-12 education. After all, can you imagine what things would look like if all those schools suddenly closed down? Even the partial shutdowns of Covid were far from inspiring.
Balancing the books
At any rate, our family of six would have enjoyed $89,836 as their share of Federal benefits and $53,400 from New Jersey. That’ll give us a total of $143,256, which is nearly double that family’s $73,434 2021 tax bill. Or, in other words, even if they were to faithfully pay the full bill as required by law (and halacha), and even if we deduct K-12 education from the total, they’re still not actually pulling their weight.
Please feel free to let me know if you disagree with my methodology or numbers. But assuming I’m more or less on target, I’d say that the “private economy” rationalization doesn’t make any sense.