Daddy, why do we pay taxes?

March 5, 2006

View from Silicon Valley- "Daddy, why do we pay taxes?"

I spent my "spare" time the last week or so ensconced in the home office working on our tax return. (Sadly, by now, the IRS has made it extremely difficult to claim a home office on your tax return.) A final eight-hour dance with TurboTax on Saturday got the most tedious of the data entry stuff done (see forthcoming rant on a popular on-line banking firm). Pending review of year-end credit card summaries for any missed expenses, the return is "done." (Or at least to the point where we could safely "shoot the engineer and go into production" by sending in the return.

My daughter was a trooper. Even though Saturday is the day she finally gets to "play with daddy," except for a short Frisbee tossing session in the morning, she bravely left me alone to work on the taxes all day.

As an aside, I always marvel at what kids pick up. Awhile back at school they went around asking the kids what their parents did for a living. One by one, the teacher picked out the raised hands and the child excitedly shouted out "teacher" or "engineer" (hey this is still Silicon Valley). When it came to be my daughter's turn she excitedly told them, "he works for the money!" Yes, and don't we all...

Back to the story at hand, while I was tucking my daughter into bed last night, instead of our usual discussion about the day, she surprised me by asking a really interesting question.

"Daddy, why do we pay taxes?"

"That's a good question! It's because the government needs money to pay the school teachers, policemen and firemen and to build our roads," I explained. (Trying to keep it on an eight-year-old's level although, when you think about it, that should be pretty much the gist of it.)

"Why don't they just spend their own money?," she asked as though our family was being singled out for a special burden.

"Because they get their money from our taxes," which I assume is obvious to adults, even the ones who complain about taxes.

But then she surprised my by asking, "But why doesn't the government just make more money when they need it?"

"How would they do that?," I asked, anticipating a very interesting discussion about to take place.

"With their money machine,"

"That's a great point! You're absolutely right, the government does print money. They can print more whenever they need it. A lot of people believe the government already prints too much money," I said beaming, as proud parents everywhere do when their child starts to ask about how money really works. (Or maybe that's just me?)

I tried to explain, "If the government did just print money every time they wanted more, it wouldn't be worth as much."

"I don't get it," she said, furrowing her forehead into a frown.

Racking my brain for an example, what I came up with was not perfect but it was what I had. (I've found myself doing a lot of that since becoming a parent.)

"OK, let's think of it this way. How much is a rock worth?," I started out.

"Not much. Maybe one cent? Or nothing?," she answered after a moment's consideration.

I followed with, "Then how much is a piece of coal worth? After all, it's still a rock but a different kind of rock."

"I don't know. Maybe ten cents," she said as she shrugged her shoulders, lying on her Power Puff Girls pillow.

"OK, then how much is diamond worth? After all, diamonds are basically another type of rock," I went on, building my case.

"Ohhh! Diamonds are valuable! That would be worth-- $75!," she commented excitedly. I could just tell she was visualizing diamonds

"Alright, then what if somebody had a machine that could turn all those worthless rocks in the world into diamonds? How much would diamonds be worth then?"

"Well, then diamonds wouldn't be worth that much if they were so easy to get," she said, seeming to lower her opinion of diamonds.

"Yes, you're exactly right! So how much would dollars be worth if they just printed as many as they wanted?"

"I don't know," she replied.

"Neither do I," I agreed, shaking my head.

"You know, some day you could be an economist!," I told her encouragingly.

"What's an economist?," she asked as she often does when hearing a new word. This led to another round of questions and a chance for her dad to encourage her to study math and science (and maybe a little psychology). Now tell me, does it get any better than that?

I happily concluded with reminding her how much she liked to join me on trips to the gold shop. (I have to admit it could just be the candy they give her when we visit.) Nobody can just make more gold when they need it.

Conclusion: Sorry to send out something not unique to Silicon Valley but I was so excited about this conversation that I had to share it with somebody and you are the lucky winners. We'll go back to our "regular programming" in the next missive.