The New Thrift: Revising Benjamin Franklin in an era of runaway government

“A penny saved is a penny earned,” Benjamin Franklin.

That piece of wisdom should be revised in an era when most welfare state governments tax every bit of economic activity, especially earnings.

Say you save. You save a thousand dollars by finding a way to avoid spending on something because you discover you don’t need it. You abstain from spending a thousand dollars or a thousand euros because you convince yourself that you thought you needed something but you found a way to avoid the spending. In that case you have done much better than if you would had you “earned” a thousand dollars or euros.


Thrift is often better than earning extra money in a period when so much of it gets taxed.

Work More, Get Less

If you, say, work a few extra hours and earn an extra thousand dollars or euros, you don’t get to keep all of it. You must give some of it to the government. Indeed, in some places, such as New York City, or Sweden or France, you must give a hell of a lot of it to the government. (I originally wrote that you must give a hell of a lot of it “back” to the government. But that’s not right. The government usually takes it cut—-it withholds first—then lets you have “your share” of the fruits of your labor).

And, with what’s left of your income, when you spend money, you pay more to the government through things such as sales taxes, excises, user fees and tolls).

So, if you hadn’t earned extra money—if you had saved money; or not spent it in the first place—-you enjoy more of the fruits of money. Hence the government taxes just about all income. If you find money on the street, it even expects you to report that. But the average person puts it in his or her pocket and forgets about the relentless army of publicans who plague his or her every economic activity.

This reminds me of when we were recently in France. When we used our credit cards to pay for meals there was no line on the card bill for tips. In the United States there is a separate line to add a tip. But in France you paid the tip separately out of cash and there was no record. That made it easier for overtaxed French servers to avoid some taxes.

Why are our governments so hungry for our money?

Desperate Governments

The government wants or needs every centavo it can shake out of the average taxpayer in exchange for government services that are often horrendous. But thankfully rapacious welfare states—like a crack addict, forever looking for more geld so he or she can “score”—haven’t found a way to tax people when they don’t spend money; when they find a way to avoid certain costs; when they steer away from certain kinds of spending and “save” on expenses.

For instance, when my wife, the ever comely Suzanne Hall, and I moved up to this middle class area and bought our first apartment almost thirty years ago, we decided to get rid of our car. Indeed, we decided we could not afford to own an apartment and a car. So we opted for the former and ditched the latter.

By not buying new cars every four years or so, we probably saved about $10,000 a year in total costs. Over 30 years, that is $300,000 we never spent on cars. This was a tremendous saving that was never taxed.

It was money we have been able to use for purchases as well as putting about half of it into index funds. But what would it have cost us if we had “earned” an extra $300,000 to pay for cars?

Uncle Sam and Others Expect Their Cut

To bring an extra $300,000 into our household, we would have likely had to earn $400,000 or $425,000 or possibly more depending on our tax bracket. Here, we can reverse Franklin’s adage: The dollar saved, or not spent, is actually much better than a dollar earned, which is nowhere near a dollar after Uncle Whiskers and his tax collectors are finished.

But if these gluttonous governments could, they would also tax spending discipline. That’s because, with the enormous growth of the welfare/warfare state in my lifetime (I’m 63 but most people say I look 133), governments have figured out new ways to raise taxes on many things. In some cases, they started taxing things that had never been taxed before.

For instance, at one time people weren’t taxed on savings’ interest. And, in those days of yore, people saved more. That’s logical.

Obscene Taxes

The more you tax something, the less you get of it. And the less you tax something, the more you get of it. That’s why, in part, Americans have on average saved at a lower rate than earlier generations. But in my opinion it is obscene to tax work, discouraging savings and the spirit of self-improvement. Oh, and one more thing. It also hurts society. More savings lowers the costs of capital, otherwise known as interest rates.

The government is taxing away new capital formation. Yes, the welfare state needs some taxes. But, because it regularly overspends, it ends up overtaxing. The government is taxing away a prosperous future; it is discouraging work, savings and investment. This is not how our republic was when it was young and its constitution embodied the ideas of limited government.

Said Thomas Jefferson, in his first presidential inaugural address of 1801, “A wise and frugal government, which shall restrain men from injuring one another, shall leave them otherwise free to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labor the bread it has earned.”

Earning, then saving and investing have been the traditional ways that billions of people have improved themselves and their families over centuries.

Creating Your Own Welfare Fund

Savings and capital formation are good things. They make our economy stronger and society better as people in low tax environments—Texas, Florida, etc.—more easily achieve economic goals than those who are forever wondering if additional income will lead to higher taxes as well as more tax compliance rules. These people are either led to become French waiters or trade services for cash without any record.

By the way, this may sound incredible. It may sound like something I dreamed up after drinking from the wrong bottle, but it is nevertheless true.

At one time Social Security payments, a big source of retirement income for millions of Americans, were not taxed and rightly so. You paid into this mandatory government retirement income program, which many of its early advocates wrongfully called “insurance,” or “social insurance.”

Here was clearly an example of falsehood in advertising. That’s something the government penalizes in the private sector, but who penalizes governments when they have itchy palms? Then, after years of “earning” this program through tax payments every pay period, you received your Social Security payments.

For the first forty or fifty years of the program that was how it worked. Social Security recipients paid no taxes on Social Security payments. That was because the worker had already paid into the system for decades. This was not a dole. The taxpayer was now entitled to his or her entire Social Security payments. But a funny thing happened on the way to welfare state utopia.

The Social Security “Trust” fund—which taxpayers paid into whether they liked the program or not—went from big surpluses to big deficits. This was in part because governments both republican and democratic had “borrowed” from the trust fund to pay for other things and because the birthrate started to slow down over the past generation at the same time that people were living longer.

More people were collecting as opposed to paying into Social Security. That’s even though the program’s taxes were raised numerous times over the 1970s and 1980s. For many low and moderate income young people the payroll tax—-which funded Social Security—was the biggest tax they paid (In my 20s, when I was just starting out and making very little, I can remember asking what this FICA thing was on my pay stub that took so much of my low wages).

So, since the 1980s and a “bi-partisan” deal between both of America’s major parties, almost everyone collecting Social Security today pays taxes on the payments. That’s even though they paid into Social Security for decades as workers.

They paid taxes as workers and they paid more taxes as retirees. What’s next? They’ll pay Social Security taxes after they die?

I should speak sotto voce. Some of our Potomac Poloniuses may be reading this and get ideas to raise “more revenue” for the government (Ever notice that pols never call them taxes but “revenues.” “We’re not raising taxes,” our Tweeds tell us time and again, “we’re raising taxes.”)

Cuidado! Gregorio Is Cursing!

Valgame Dios, senor!

Paying for a program like Social Security you already paid for is an example of double taxation. By the way, as the system runs deeper in the red can you guess how program supporters want to save it? Right. Raise taxes on the workers and make the people receiving pay more taxes.

In a welfare state with scandalously higher and higher taxes on every kind of income—from Social Security to investment income and everything in between—a penny or dollar not earned is not as good as the dollar not earned.

Many times you’re better off not earning that extra dollar because you have found a way to save, or avoid spending, the extra dollar. The sad fact is that so often in the modern welfare state people are penalized for working hard and earning the extra dollar.

Anyone for a Pint and Some Skittles?

But we’ve come a long way from the ideas of the early republic and an original constitution that contained no income tax. That was a republic that was limited and de-centralized. However, today our government is highly centralized and our welfare state, the same as welfare states around the globe, has unlimited powers, especially when reaching into our wallets.

Anger over “taxation without representation” was how America began. But the history of at least the last century has established a frightening truth: Taxation with representation isn’t beer and skittles.

Ben Franklin and Thomas Jefferson would not have approved.



About The Author

Gregory Bresiger

Gregory Bresiger is an independent business journalist from Queens, New York. His Personal Finance articles have appeared in publications such as The New York Post & Financial Advisor Magazine. He is the author of the eBooks “Personal Finance For People Who Hate Personal Finance” and “MoneySense”.