Monday, November 17, 2008

The frugal shrug

Browsing around today, I found the penultimate Freedom Outlaw posting, which linked to the "Frugalista Gulch" piece at Wendy McElroy's place.

I like the idea that living frugally is another way to resist the state ...
Consider an acquaintance of mine who buys the latest and fastest computer every year. Let's say it's a $2000 computer. Here, we pay combined sales taxes of 14%, so he has to fork over another $280 at the time of purchase. Now assume he's in a 33% tax bracket. He has to earn $3,403, to pay $2,280, to get $2000 worth of computer. To get that computer he has to pay $1,403 in taxes.

From my viewpoint, every year I don't buy a fancy new PC is a year I've kept $1,403 out of the rapacious maw of the State.
"Gulching in place." A great idea while building towards a more thorough shrug.



Anonymous CK said...

33% tax bracket = $200,300 - $357,500 income. His top-o-the-line powerputer is less than 1% of his income. The sales tax he pays is deductible on his feddy taxes, and if he attempts to earn income that involves his using that computer, it to is deductible or at worst depreciable on his feddy taxes.
By righteously not buying that powerputer the author has not "kept $1403 out of the hands of the rapacious maw." That math only works if you assume that he has to earn an EXTRA $2280 over and above his current earnings. ( And that he is too dumb to buy on the internet or in some state with 0 sales tax.) Now if he buys the computer in a 0 sales tax state, and uses it to earn money, then he can deduct the $2000 at his 33% marginal tax rate for a cost reduction of $667. Net cost of $2000 computer is now $1333. And it is an earning asset.
So every year that you do not add an additional $2280 to your income that is between $200,300 and $357,000 is a year that you have not had to pay the govt $1403. Or you could buy the puter, put it to work in a barter situation, and take back an extra $667 from the govt.
Frugal is good, pennywise and poundfoolish isn't.

11:51 AM  

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