It’s been said that there are two certainties in life — death and taxes. With February nearly upon us, I’m starting to seriously think about paying my federal income taxes. That can certainly feel like death.
In the United States, paying taxes can be a pretty complicated affair — with hundreds of possible deductions, credits, write-offs, and tricky maneuvers that can be used to avoid paying taxes. Wealthy people frequently find ways to avoid paying taxes by employing tax accountants that are experts in traversing the complicated tax laws.
It’s just another way the rich keep getting richer….
But what about the other taxes? What about the hidden taxes that both the rich and the poor pay without realizing it?
Can they be avoided, worked-around, or otherwise erased by the savvy individual? Let’s find out!
The Convenience Tax
You could say that convenience is one of the single largest economic forces in our modern world. People want things the easy way and they they’re willing to pay for it. From premade microwavable food to same-day deliveries from Amazon, convenience is the “killer app” of our modern world.
But another way to look at it is a tax. All convenience comes at a higher price, and it’s a tax that can be avoided (albeit with additional effort)
Here’s some examples:
- Instead of picking up take-out for dinner, you could cook the same meal for less at home.
- Instead paying for that snow-removal service, you could shovel the snow yourself.
- Instead of going to the hairdresser for a trim, you could simply cut your hair yourself.
- Instead of paying for a data-plan for your phone, you could simply wait until you’re in wifi range.
- Instead of driving to work every day, you could walk or take the bus.
And so on…
Convenience is literally everywhere you look! But it comes at a cost — There’s an economic choice to be made here, and convenience is the choice that’s going to cost more.
Frequently I hear the argument from people that “it’s not worth my time” to do things the inconvenient way… but in my experience what they end-up doing with all that spare time amounts to sitting on a couch and watching Netflix for multiple hours a day.
Do we really need more leisure time?
The Last Minute Tax
This kind of tax I see most frequently in the travel industry. Have you ever wondered why plane tickets cost more the closer you are to the travel date? It obviously doesn’t cost the airline more to fly the plane because you purchased the tickets later. Neither is it a malicious on the part of the airline, they’re simply charging more based on supply and demand around a given date.
This is what I like to call “The Last Minute Tax” — a tax on individuals who make snap decisions or those who don’t plan far enough ahead. If you plan far enough ahead, supply will be plentiful enough you’ll be able to score tickets at affordable prices. But, if you wait until the last minute, the supply of available airline seats becomes very limited. Thus higher prices.
This tax starts about 30 days out and climbs steadily the closer you get to the current date. There are exceptions to this rule (such as a airline trying to fill an empty plane on a unpopular date), but for the most part it holds true — The closer you are to the travel date, the more expensive it’s going to be.
Concert tickets, hotel rooms, and other entertainment venues with variable pricing are good examples of where The Last Minute Tax can bite.
Avoiding this tax can be as simple as planning ahead of the actual event by a few additional weeks.
The Impatient Tax
Have you ever paid for faster shipping to get a package across the country? How about paying for faster internet speeds? Or, maybe you pay to drive on a fast toll road? Then you’ve definitely paid the impatient tax.
The impatient tax is paid when we trade money for additional speed. This happens more often than you might think, because we live in a society absolutely addicted to speed. Speed is everything these days! When we want something, we want it yesterday not next week!
All this speed comes at an economic cost, and this cost is what I call the Impatient Tax.
As a general rule, humans *hate* standing in line or waiting around. Business owners know this and they almost always make a faster option available… if you’re willing to pay. This is why you can pay for priority boarding at the airport, buy additional Fast Passes at Disney World, get high-speed fiber optic lines to your home, or have nearly anything delivered to your door in less than 24 hours.
All that speed is addicting too — Once you’ve had a taste of same-day shipping, it’s hard to go back to waiting an entire week with free shipping. This is exactly why Amazon offers free 30 day Prime trials. It’s hard to go back to slow once you’ve gone fast.
On the flip-side, there are slower and cheaper option available, but you have to be patient. Think of a package shipping by train instead of airline. Or the slow-boat from China. It’s slow, but it’s also cheap.
Patience in this day and age is rare, but it truly is the only way to avoid the Impatient Tax.
The Pink Tax
This is a hidden tax that’s sure to irk the ladies reading this post. The so-called “Pink Tax” is a higher price given to female versions of products or services. It doesn’t happen on all products, but it certainly does happening often enough that women are noticing.
Take for example, a razor. A men’s razor might cost $5 — for some bits of plastic and a very sharp blade. A nearly identical razor marketed at women (perhaps the product is pink instead of blue) might cost $7. A higher price for essentially identical bits of plastic and a sharp blade.
The same goes for services — a pair of pants cleaned and pressed at your local dry cleaners might cost $5, but a dress might cost $10 instead. Does your local dry cleaners hate women?
While the Pink Tax seems entirely unfair towards women, we can’t tell if there is a real economic reason why the feminine version of a product costs more. Maybe that particular shade of pink plastic costs more? Or, perhaps the marketing costs around female targeted products is higher due to higher demand in the advertising channels that women view. We just don’t know.
My point is, it seems like gender discrimination if we look at price alone, but we might not understand the full economics around product pricing. Vote with your dollars instead. Buy the blue version. If the two different colored products are truly identical it shouldn’t matter.
Another option is to skip brands that appear to use gender-based pricing. Eventually manufacturers will figure out “The Pink Tax” just doesn’t work anymore and they’ll make adjustments — either by lowering the price of the pink version, raising the price of the blue version, or some combination of the two.
The Kid Tax
Unless you have kids, you likely have no idea how much new clothing costs for kids. It’s incredibly expensive, and the clothes are tiny!
Take for example, a kid’s pair of tennis shoes — they cost about $52. That’s more than I would pay for an adult version of that shoe ($45), and my feet are size 11. A shoe that fits my foot probably requires twice as much material as a child’s shoe, yet the adult version still costs less.
Kids clothing and shoes frequently cost the same (or more) than adult versions despite the smaller sizes. How unfair is that?
Just like The Pink Tax, we don’t exactly know all the economic forces at play here, but screaming “It’s a bloody ripoff!!!” in the shoe store isn’t going to solve anything. (I know, I’ve tried!) Kids still need shirts and shoes; even though they grow out of them frequently.
With two boys, our family knows The Kid Tax very well — my kids are constantly growing out of shoes, pants, and other clothing. We avoid the Kid Tax primarily by using hand-me-downs, and thrift stores. Kids outgrow stuff so fast there’s usually A TON of used clothing available at very reasonable prices.
But shoes are a tough one I don’t have a solution to. Finding good quality used shoes for kids is really hard (next to impossible) for some reason. So, we try to carefully shop for shoe sales. Occasionally we find kid’s shoes at half-price when a good sale happens.
It’s also possible to find ‘unbranded’ or little-known brand shoes that sell for much less than popular brands like Nike or Reebok. For some reason the popular brands seem to have a large markup on kids shoes.
The Safety Tax
Every night of the year, every home in my neighborhood has outside lights on. When I ask my neighbors why they do this, they claim “Oh it’s safer, so we keep the lights on.” (I should also add that these homes all have security systems and pay a regular monthly fee for the monitoring service.)
These costs used in the name of “additional safety” are what I call the Safety Tax.
While we do live in a nice neighborhood, crime is a reality even in high-price neighborhoods like mine. Cars have been broken into, bikes have been stolen, packages have gone missing, and prowlers have been seen in our neighborhood.
I even have one neighbor that’s had his car broken into three times. Walking past his house at night is like walking past the sun — he’s got extremely powerful lights setup to deter thieves.
While all of these extra costs (security systems, lights, extra locks, etc) might provide additional deterrents, they certainly won’t completely stop skilled thieves. They only provide the illusion of safety.
Before you suggest that NOT having lights, security systems, and fancy locks when a neighbor does is going to make ME a target, I would like to counter with the fact that I live on the exact same street and I’ve never had a break-in. I don’t even have a security system. The locks on my house are pathetic and old. We don’t even keep outside lights on.
According to conventional thinking, I should be the perfect target. Yet I’ve never had a break-in in all of the 10 years we’ve live here.
Why? If I was a thief, I’d skip my house too — My cars are parked safely in the garage and not visible from the street. My landscaping is less than perfect. We have nothing valuable visible from the windows. By all appearances we look poor compared to my neighbor who parks his BMW and Mercedes outside, and then spends money on fancy lights and locks to deter criminals.
Perhaps the best crime deterrent is simply not showing off.
Well, this post got rather long! Thanks for sticking through to the end! I feel like I’ve barely scratched the surface of all the “hidden taxes” out there too. While not taxes in the traditional sense of the word, there are certainly plenty of categories in life that are big economic drags on the pocketbook.
The worst part is, we don’t really need to pay most of them! With a little extra effort and planning many of these “hidden taxes” I’ve discussed can be reduced or avoided entirely. This can be an incredible tool to find additional savings for anyone on the path to financial independence!
Now it’s your turn — Are there any more hidden taxes you can think of? Let me know in the comments below!