Back to the point of this missive - the REAL cost of taxes. My friend said, "What's the big deal? You must make over $200,000 a year. What's $10,000 or so compared to that? It's nothing!"
Of course, I could have stopped him right there by saying, "OK, George, if $10,000 is nothing, how about paying it for me. After all, what's 'nothing' between friends?" But I opted for something more substantial.
I showed George how money, earning 10% per year, would double every 7 years. "So what", was his response. I then told him that if I were able to keep that $10,000, I could invest it, and double it every 7 years. In 28 years it would accumulate to $160,000. Multiply that by each year that Maine takes that $10K (28 years in this case), and before you know it, your family's future has been deprived of millions of dollars over time.
Let's say a person only earns $80K per year, and their state taxes them a paltry 5%. That person pays $4,000/year. If this begins at age 21 until retirement at 65, the state has taken a total of $176,000. That, alone, is a healthy sum. But if the taxpayer had invested that at an average return of 10%, that $176,000 would have grown to $1,770,370 in just the first 40 years.
That individual, paying his state $4,000 per year, loses close to two million dollars over the course of his working life.
And that, George, is the REAL cost of taxes. Every $1,000 a person pays in taxes is over $45,000 lost in 40 years. More important, this same thing goes for money a person spends today. For every $1000 you spend unnecessarily this year, your net worth could be decreasing by $45,000 over your working life. Buy a $5,000 snowmobile, it costs you $225,000 over your working life. Buy an $80,000 Mercedes instead of a $25,000 Ford, and it costs you almost 2.5 million. That certainly is one expensive set of wheels! Think about that the next time you are tempted to spend money unnecessarily...