Understanding Taxes

Taxes are unavoidable —whether it’s your paycheck, morning coffee, or the house you just bought, Taxes are everywhere. If you’ve ever wondered where your money goes after payday or why buying property comes with extra fees, this post is for you. I’ll keep it simple without diving into complicated legal stuff.

1. Tax journey 101
2. Types of Taxes
3. How do they work?
4. Why do we pay taxes?
5. A new perspective

Tax journey 101

1. When you earn:
   • Personal Income Tax: Deducted from your salary.
   • Social Security Contributions: For healthcare, pensions, and unemployment.
   • Self-Employment Tax: Covers taxes and social security for freelancers.
2. When you spend:
   • Value-Added Tax (VAT): Adds 10%-25% to most goods and services.
   • Excise Tax: Extra charges on fuel, alcohol, tobacco, and luxury items.
3. When you own:
   • Property Tax: Paid annually on owned real estate.
   • Wealth Tax: Charged on substantial assets in some countries.
   • Road Tax: Annual fee for owning or operating a vehicle.
4. When you transfer or inherit:
   • Transfer Tax: Applied to purchases like second-hand properties.
   • Inheritance/Gift Tax: Payable on inherited assets or large gifts.
5. When you sell:
   • Capital Gains Tax: On the profit when selling property, stocks, or investments.
   • Land Value Increase Tax: On the increase in land value during ownership.
6. When you use services:
   • Local Fees: For waste collection, car registration, or building permits.
   • Tourism/Travel Tax: For lodging or certain tourist-related services.
7. When you win the lottery:
   • Lottery Tax: A substantial portion of your winnings goes to the government.

Types of taxes

Consider Taxes as a three-course meal: direct, indirect, and special.

Direct taxes: What you earn and own

These Taxes are based on your income, assets, or gains:

• Income Tax: This is the big one. It’s progressive, meaning the more you earn, the higher your pay rate. Income Tax applies to salaries, freelancing income, rental earnings, and investment gains.
• Corporate Tax: This Tax is paid on businesses’ profits. Rates vary by country, but a general rate of 20-30% is common.
• Wealth Tax: Some countries tax high-net-worth individuals on their total assets, like properties or savings. Rates and exemptions depend on where you live.
• Inheritance and Gift Tax: When you inherit assets or receive a significant gift, you must pay taxes. The rate often depends on your relationship with the giver.

Indirect taxes: What you spend

These Taxes are baked into the price of goods and services:

• Value-Added Tax (VAT): A Tax on almost everything you buy. Standard rates range from 10-25% in most countries, though essential goods like food and medicine often have reduced rates.
• Excise Taxes: Special Taxes on products like alcohol, tobacco, and fuel. They’re designed to raise revenue while discouraging consumption.

Property and local taxes: Owning stuff costs money

If you own, rent, or sell property, these Taxes come into play:

• Property Tax: Paid annually based on the value of your home or land.
• Transfer Tax: When buying a 2nd-hand property, you might pay a % of its price.
• Capital Gains Tax: When selling a property or other assets for a profit.

Other Taxes and fees: The little extras

These include fees for registering vehicles, paying for waste collection, and obtaining permits. They might seem minor, but they add up over time.

How do they work?

Taxes are usually a mix of national, regional, and local responsibilities:

• National taxes have standardized rates, like income Tax or VAT.
• Regional taxes vary depending on where you live, like wealth or inheritance taxes.
• Local taxes are specific to your city or town, like property or waste fees.

Taxes are often deducted directly from employees’ paychecks. Freelancers and business owners, on the other hand, need to calculate and pay their Taxes regularly.

Why do we pay taxes?

Taxes are meant to pay for public services like roads, healthcare, schools, and pensions to make life better for everyone. But the system’s complexity and how the money is spent often make it feel unfair.

Are Taxes fair?

This depends on two big questions: Who should pay? How much is fair?

The case for taxes

• Taxes fund essential services we all use, like hospitals and schools.
• Progressive taxes, where higher earners pay more, help reduce inequality and create stronger communities.

The case against taxes

• Some taxes, like wealth or inheritance taxes, feel unfair —they take money that’s already been earned.
• Worse, when governments waste Tax money on corruption or bad decisions, people feel like they’re paying for nothing.

It feels unfair when governments waste the money. If services don’t improve or funds are mismanaged, it’s frustrating to see your money disappear without benefit.

Taxes would seem much fairer if people trusted their money was being spent wisely. Without trust, paying Taxes feels like throwing money into a black hole.

A new perspective

Taxes are supposed to fund critical public services, but the biggest problem with taxes—and big governments—is that they often lead to inefficiency and corruption. The more power a government has, the more likely it is to misuse it. That’s why governments should be (for me) small, focused, and efficient, providing essential services without overcomplicating things or overreaching into people’s lives.

Here is where Bitcoin offers an interesting alternative. Bitcoin is decentralized, which means no one controls it—not governments, banks, or anyone; this removes the risk of corruption or mismanagement by powerful institutions. Every Bitcoin transaction is recorded on a public ledger that anyone can verify, so it’s transparent and resistant to manipulation.

While most countries (desire) tax Bitcoin transactions, using Bitcoin gives people more control over their money. Unlike traditional currencies that governments can print endlessly —causing inflation and lowering the value of savings— Bitcoin has a limited supply, so its value can’t be diluted similarly. It’s also borderless, meaning you can send and receive money without relying on banks or other intermediaries that might take a cut or add delays.

Inflation: The hidden tax

Inflation is often called a “hidden tax,” and for good reason. When governments print money endlessly to fund their spending, the value of the existing money drops. This means your hard-earned savings can buy less over time.

While politicians benefit in the short term by having more money to spend without directly raising taxes, ordinary people pay the price through higher living costs. Inflation is theft, as it quietly takes value away from everyone’s money to cover the government’s poor financial decisions.

With its fixed supply of 21 million coins, Bitcoin cannot be inflated in this way. Its scarcity ensures that no one, including politicians, manipulates its value. For people frustrated by rising prices and shrinking savings, Bitcoin offers a way to protect their wealth from the damaging effects of inflation. It’s a system designed to reward savers, not punish them.

Final thoughts

Bitcoin doesn’t eliminate Taxes or public services but challenges how we think about money and power. It gives people more control over their wealth and shows how financial systems work without needing large, often corrupt institutions. It’s a step toward a world where individuals have more freedom and governments focus on being small, efficient, and fair.

Related readings

• 21 Lessons “What I’ve learn from falling down the Bitcoin rabbit hole” by Gigi
• The Genesis Book “The story of the people and projects that inspired Bitcoin” by Aaron van Wirdum