Author Topic: Lowering my childcare bills in a morally dubious way...need input  (Read 1825 times)

havregryn

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In Luxembourg, the government decides how much they're gonna help you with (very steep) childcare fees based on your taxable income and in order to show it you can bring two types of documents. One is your joint tax return and one is last three payslips for each of the spouses. We've always been doing the payslips and paying a fortune in childcare.

This year I'm making a tax declaration for husband (where I also appear as a spouse whose taxable income is zero) as I've optimised the hell out of it and he should get about 5000 back. Thanks to my smart interventions into his pre-tax savings and eligible deductions, his taxable income was more or less reduced to shreds and if I show up with this tax return I will get the "poor man's" rate.

The trick here is that my income is from a tax exempt international organisation and is not taxable as such, meaning that for all legal intents and purposes it's 0. For real life purposes it's rather generous.
So how ethical is this?

I don't know, I am ambivalent. It's perfectly legal, and it's not like I'd be taking something away from someone else but I don't know...it feels weird showing up there and walking away with nearly free childcare just because we have such an exceptionally good deal when it comes to earning income and making tax optimizations. On the other hand, their entire system seems to be built on the idea that the richer you are the more tax benefits you can reap (which is how I optimized this thing in the first place) so why should I pay more than legally necessary for childcare? The state gives enormous tax subsidies to millionaires who are destroying the property market here, why do I care about them overpaying for my childcare. Especially given that they are so worried over their pathetic fertility rate per woman and I have 3 kids (so I've done my part, ha!).

I am interested to hear what other people think. Anyone I talked to here aligns very strongly with one of these options...my husband's Swedish family is appalled that I would even consider using this "loophole", my friends from eastern and southern Europe think I'm an idiot for even considering not doing it...which tells me to most people this is an ideological question. So I'm curious where do Mustachians stand on this?

elliha

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Re: Lowering my childcare bills in a morally dubious way...need input
« Reply #1 on: February 14, 2020, 03:00:49 AM »
I'm Swedish and I would use the loophole so I don't think it is necessarily a cultural thing all together. If you are questioning the decision, why not do it and save the money and if you decide it is just too immoral donate it to a good cause or something and go back to your old ways next year. I personally think it is OK if it is legal and if people don't want it to be legal they should work against it politically.

Hula Hoop

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Re: Lowering my childcare bills in a morally dubious way...need input
« Reply #2 on: February 14, 2020, 04:24:26 AM »
IMO it would be morally wrong to take advantage of this loophole.  We have a similar childcare situation here in Italy.  I know people who work for international organizations and they earn high salaries and pay no tax so they aren't really contributing to the system the way us poor schmucks who pay high taxes are.  I'd be really angry to learn that while my entire income is counted when they calculate my kids' daycare fees and some high rollers who pay no tax are counted as "poor people" for the purposes of daycare fees.  That's just not fair.

havregryn

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Re: Lowering my childcare bills in a morally dubious way...need input
« Reply #3 on: February 14, 2020, 05:05:34 AM »
IMO it would be morally wrong to take advantage of this loophole.  We have a similar childcare situation here in Italy.  I know people who work for international organizations and they earn high salaries and pay no tax so they aren't really contributing to the system the way us poor schmucks who pay high taxes are.  I'd be really angry to learn that while my entire income is counted when they calculate my kids' daycare fees and some high rollers who pay no tax are counted as "poor people" for the purposes of daycare fees.  That's just not fair.

Yeah, I agree with this in principle, that's why I am torn.
However, I am also now intimately familiar with the tax system here (after working on my husband's declaration)and I am rather appalled by it, so I kind of feel my issue is rather trivial. Luxembourg is infamous for giving mega tax breaks to companies like Amazon so even just that makes you feel like an idiot for not using their loopholes as a private person, but it's not even that that had me reeling, it was when I was calculating how to declare rental income. I found out that the rules on rental income are so generous that not only do I not need to pay tax on any of our rental income, I can claim it as a loss and offset it against other tax.
But our rental income is meagre so whatever... however all the local milllionaires are buying properties left and right and skinning young dreamy eyed expats alive and now I know why.


LWYRUP

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Re: Lowering my childcare bills in a morally dubious way...need input
« Reply #4 on: February 14, 2020, 05:08:02 AM »
It's not your fault the system is stupid.  If it's legal and you are not being hypocritical (like public figures that advocate one thing and do another), I would go ahead.  This is the consensus view of the American judiciary FWIW. 

Yet another argument for keeping the tax and benefits system simple and streamlined.  If you make it overly complex, strategic people will structure their affairs to take maximum advantage.  (See also USA bloggers with millions getting ACA subsidies.  Not saying I wouldn't but it's evidence of flaws in the system.)

#4  Any one may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one's taxes.

Gregory v. Helvering, 69 F.2d 809, 810 (2d Cir. 1934)


#5  Over and over again courts have said that there is nothing sinister in so arranging one's affairs as to keep taxes as low as possible. Everybody does so, rich or poor; and all do right, for nobody owes any public duty to pay more than the law demands: taxes are enforced exactions, not voluntary contributions. To demand more in the name of morals is mere cant.

Commissioner v. Newman, 159 F.2d 848, 851 (2d Cir. 1947) - dissenting opinion

LWYRUP

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Re: Lowering my childcare bills in a morally dubious way...need input
« Reply #5 on: February 14, 2020, 05:09:44 AM »
IMO it would be morally wrong to take advantage of this loophole.  We have a similar childcare situation here in Italy.  I know people who work for international organizations and they earn high salaries and pay no tax so they aren't really contributing to the system the way us poor schmucks who pay high taxes are.  I'd be really angry to learn that while my entire income is counted when they calculate my kids' daycare fees and some high rollers who pay no tax are counted as "poor people" for the purposes of daycare fees.  That's just not fair.

Yeah, I agree with this in principle, that's why I am torn.
However, I am also now intimately familiar with the tax system here (after working on my husband's declaration)and I am rather appalled by it, so I kind of feel my issue is rather trivial. Luxembourg is infamous for giving mega tax breaks to companies like Amazon so even just that makes you feel like an idiot for not using their loopholes as a private person, but it's not even that that had me reeling, it was when I was calculating how to declare rental income. I found out that the rules on rental income are so generous that not only do I not need to pay tax on any of our rental income, I can claim it as a loss and offset it against other tax.
But our rental income is meagre so whatever... however all the local milllionaires are buying properties left and right and skinning young dreamy eyed expats alive and now I know why.

I guarantee you that system was specifically imposed so that locals could extract maximum "rent" (in economic parlance) from the newcomers.

havregryn

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Re: Lowering my childcare bills in a morally dubious way...need input
« Reply #6 on: February 14, 2020, 05:16:09 AM »
IMO it would be morally wrong to take advantage of this loophole.  We have a similar childcare situation here in Italy.  I know people who work for international organizations and they earn high salaries and pay no tax so they aren't really contributing to the system the way us poor schmucks who pay high taxes are.  I'd be really angry to learn that while my entire income is counted when they calculate my kids' daycare fees and some high rollers who pay no tax are counted as "poor people" for the purposes of daycare fees.  That's just not fair.

Yeah, I agree with this in principle, that's why I am torn.
However, I am also now intimately familiar with the tax system here (after working on my husband's declaration)and I am rather appalled by it, so I kind of feel my issue is rather trivial. Luxembourg is infamous for giving mega tax breaks to companies like Amazon so even just that makes you feel like an idiot for not using their loopholes as a private person, but it's not even that that had me reeling, it was when I was calculating how to declare rental income. I found out that the rules on rental income are so generous that not only do I not need to pay tax on any of our rental income, I can claim it as a loss and offset it against other tax.
But our rental income is meagre so whatever... however all the local milllionaires are buying properties left and right and skinning young dreamy eyed expats alive and now I know why.

I guarantee you that system was specifically imposed so that locals could extract maximum "rent" (in economic parlance) from the newcomers.

Yeah, I have no doubts about that, but I was a bit confused why these rental investments were seen as such a good deal, as the gross rental return you can earn here is maybe 3% annually (so where is that from what people talk about here). Now I get it. If you are making hundreds of thousands in some kind of income from something else, you can use these rentals to obliterate your tax obligations. Because 3% annual rental return is going to register as a loss on your return. However your property will keep appreciating because the government is working hard on keeping this bubble alive. But even with 3% you are still charging very high rents as property costs A LOT here and you're charging them to poor schmucks who make 5000 pre-tax and think they are earning a fortune because salaries in most of Europe are not that high.

LWYRUP

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Re: Lowering my childcare bills in a morally dubious way...need input
« Reply #7 on: February 14, 2020, 05:21:07 AM »
IMO it would be morally wrong to take advantage of this loophole.  We have a similar childcare situation here in Italy.  I know people who work for international organizations and they earn high salaries and pay no tax so they aren't really contributing to the system the way us poor schmucks who pay high taxes are.  I'd be really angry to learn that while my entire income is counted when they calculate my kids' daycare fees and some high rollers who pay no tax are counted as "poor people" for the purposes of daycare fees.  That's just not fair.

Yeah, I agree with this in principle, that's why I am torn.
However, I am also now intimately familiar with the tax system here (after working on my husband's declaration)and I am rather appalled by it, so I kind of feel my issue is rather trivial. Luxembourg is infamous for giving mega tax breaks to companies like Amazon so even just that makes you feel like an idiot for not using their loopholes as a private person, but it's not even that that had me reeling, it was when I was calculating how to declare rental income. I found out that the rules on rental income are so generous that not only do I not need to pay tax on any of our rental income, I can claim it as a loss and offset it against other tax.
But our rental income is meagre so whatever... however all the local milllionaires are buying properties left and right and skinning young dreamy eyed expats alive and now I know why.

I guarantee you that system was specifically imposed so that locals could extract maximum "rent" (in economic parlance) from the newcomers.

Yeah, I have no doubts about that, but I was a bit confused why these rental investments were seen as such a good deal, as the gross rental return you can earn here is maybe 3% annually (so where is that from what people talk about here). Now I get it. If you are making hundreds of thousands in some kind of income from something else, you can use these rentals to obliterate your tax obligations. Because 3% annual rental return is going to register as a loss on your return. However your property will keep appreciating because the government is working hard on keeping this bubble alive. But even with 3% you are still charging very high rents as property costs A LOT here and you're charging them to poor schmucks who make 5000 pre-tax and think they are earning a fortune because salaries in most of Europe are not that high.

It seems like the right way to "play" Luxembourg as a foreigner is to live modestly in a tiny place and work really hard, and then GTFO and go back home with a boatload of savings and invest your $$ there.  If you can get a former employer to give you remote work, even better.

former player

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Re: Lowering my childcare bills in a morally dubious way...need input
« Reply #8 on: February 14, 2020, 05:41:33 AM »
Luxembourg is a rich country.  A very rich country, even by European standards.  One of the ways in which it is rich is by hosting international organisations such as the one you work for.  It keeps those international organisations by being a place where those organisations can attract and keep staff, and they can only keep those staff by finding a way to offset their exhorbitant housing and childcare costs.  What you describe as a "loophole" is no such thing: the Luxembourg government knows exactly what is going on with your tax-free salary and has not only not acted to stop it, it has deliberately created the method by which you can make use of the situation.

I think you should claim the childcare rate to which you are entitled, as both your employer and the Luxembourg government intend you to.

Dicey

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Re: Lowering my childcare bills in a morally dubious way...need input
« Reply #9 on: February 14, 2020, 06:11:43 AM »
Use the money saved for good. You get to decide whether "good" means giving more to charity, or even just making sure you and yours are never in need of a handout. In the US, for example, if a landlord doesn't take depreciation on a property, the IRS will still tax you as if you did when you sell it and make you pay it back. I know it's different where you are, but if the tax planners, in their infinite wisdom, created this situation, by all means take advantage of it when you can.

My harsh, but loving, advice is to #shutthefuckup about it. Stop talking about your personal finances with anyone but your spouse. Their opinions are not objective financial advice. If you need to talk about it, that's what we're here for, because we're not in your face in your real life. We are much more easily ignored ;-)

lhamo

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Re: Lowering my childcare bills in a morally dubious way...need input
« Reply #10 on: February 14, 2020, 10:29:02 AM »
I'm in the camp of taking whatever benefits you are legally entitled to.

I was stunned to discover that because we have structured our finances in a certain way we are eligible for 100% subsidized healthcare under the ACA here in the US.  Some people on these forums have tried to shame me for taking advantage of that, while ignoring the fact that if we chose to take more income from our investments and pay for an ACA plan while qualifying for a subsidy they as taxpayers would actually be paying MORE for our coverage and all that money would be going to for-profit insurance companies.  Whatever.  We paid enough in capital gains taxes on a one-time property sale in 2017 to cover what the government pays for our health insurance costs until DH and I both qualify for Medicare, so I'm just going to keep doing what works. 

So I'm with Dicey -- take the benefit and use the money that stays in your pockets for charitable purposes, broadly defined. 

Deedeejay

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Re: Lowering my childcare bills in a morally dubious way...need input
« Reply #11 on: February 17, 2020, 04:42:58 AM »
German working in Luxembourg here. I say go for it.

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TVRodriguez

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Re: Lowering my childcare bills in a morally dubious way...need input
« Reply #12 on: February 18, 2020, 01:57:56 PM »
I'm with the others who say use the regs to your advantage as long as you are not actually violating the law.