Financial Freedom Is Not Free

For example, USgovernmentspending.com reports that in 2011, the cost of all federal, state and local social welfare programs was an estimated $745 billion; $473 billion of that at the federal level. Even in Hawaii, with a population of only 1.3 million people, the state’s department of human services provided almost $5,200 a year in food stamps to 77,133 households, or more than $401 million/year. We as a country can’t continue at this pace. The government can’t keep mandating that hard-working families who behave responsibly and make good financial decisions pay more, while reinforcing to others in our society that someone else will be responsible for you and that “financial freedom is free.”

Similarly, clients often ask me how it’s possible that half of American households pay no federal income tax. As a CPA, I can tell you that it’s quite possible, even on income well above welfare-qualifying limits. For instance, in 2011, a married couple with four children all under age 17 could have earned roughly $66,100/year without paying any federal income tax. This is calculated as follows:  

• Adjusted gross income of $66,100 – six exemptions at $3,700 each = a $22,200 deduction
• Married, filing joint standard deduction of $11,600 = taxable income of $32,300
• Four children under the age of 17 =  $4,000 child tax credit ($1,000/child)

The tax credit completely cancels out the federal tax burden on their taxable income of $32,300. While that tax code works to the benefit of this hard-working family, it doesn’t support our country’s need for true financial freedom long-term.  

Yes, raising children is expensive; trust me, I have three of my own. However, assuming that a family of six versus a family of two without children should keep, at a minimum, $4,000 more for having children rather than not, raises the question, “Whose financial responsibility are the children?” Is it the government or the parents who freely chose to have children?

Are we creating a society where the financially responsible segment of our society is forced to pay in some way for the other 50% of our society? I’m in no way advocating we let anyone go hungry, but we have to make people at least somewhat financially responsible for their choices. My concern is that government has created an expectation that the cost of financial freedom is sometimes free – if not totally free in some instances, often paid for by someone else. 

As financial advisors, we help families accumulate wealth, invest it prudently and retire securely. But given the state of our government and society, it seems our services will be more valuable than ever if we want to help the best country in the world maintain its financial freedom. I’d urge all of us as advisors to find more ways to educate every American on how to live within their means, become overly self-sufficient and save more than they ever dreamed possible, because our country’s future growth and financial freedom depend on it.  True financial freedom require a sacrificial cost of today for the future benefit of tomorrow, but remember, it is never free.