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Ways of the World

Carol Stone, business economist & active Episcopalian, brings you "Ways of the World". Exploring business & consumers & stewardship, we'll discuss everyday issues: kids & finances, gas prices, & some larger issues: what if foreigners start dumping our debt? And so on. We can provide answers & seek out sources for others. We'll talk about current events & perhaps get different perspectives from what the media says. Write to Carol. Let her know what's important to you:

Monday, April 30, 2007

Tax Freedom Day

Today, April 30, is "Tax Freedom Day". If, beginning January 1, Americans devoted all of our income to meeting our various tax obligations for the year, today is the day we would pay them off. Now, beginning May 1, we'll finally be working for ourselves!

This has nothing directly to do with April 17, that formidable deadline two weeks ago when we had to file our income tax returns. That's "just the paperwork". We're also talking about all of our taxes: social security, our share of corporate income taxes, sales taxes, everything, including those daunting income taxes. So, turned around, this is about how long it takes to pay the total cost of government that is imposed on the American people.

Depending on tax laws and the strength of the economy, the date for "Tax Freedom Day" varies. In 2000, just at the peak of the tech boom and with income tax rates higher than they are now, it didn't come until May 5. Right after the Bush tax cuts were fully effective and with income squeezed by the after-effects of recession, the 2003 date was April 12. Last year, it was April 28.

This calculation is devised by the Tax Foundation, a nonpartisan think-tank in Washington that researches the impact of taxes. Their economists have tabulated the dates for each state as well. In high-tax states, it is later: May 20 in Connecticut, May 16 in New York. In contrast, in Texas, the date came April 19 and as early as April 12 in neighboring Oklahoma.

For the nation as a whole, federal income taxes take 33 days of the year to pay off and state and local income taxes another 10. Social security, unemployment insurance and other "social insurance" levies absorb another 30 days. All taxes, at 120 days, take longer to provide for than our private outlays for the necessities of food (30 days), clothing (13) and shelter (62) put together (105 days).

Questions about Taxes
If taxes, obligatory payments to the government, take one-third of our national income, it's worth asking some questions about them! What do they pay for? Are they fair? What about people who don't pay any taxes?

How tax dollars are spent opens up the whole hornet's nest of government budgets. That topic will take its own blog-post or three or five and is an issue, like a hornet's nest, that we will approach very carefully. Stay tuned for that one!

Is the tax system "fair"? This question is complex because tax systems are used for more purposes than simply raising government revenue. Excise taxes, for instance, are applied to certain imports to regulate foreign trade. Gasoline taxes in most locales are applied directly to road-building and maintenance; ironically, the spreading popularity of fuel efficient vehicles has begun to eat into these state tax receipts. What's the fair answer to that? The social security tax is meant to finance that system, but soon it won't be enough and the longer we wait to make some changes, the more drastic those changes will have to be. Simply raising that tax rate may not cover the entire need, and besides, many people already pay more of that tax than they do of income tax. Is that fair? We'll revisit these issues, you can be sure.

But since we've just finished filing our income tax returns, let's talk about them and their fairness for a bit. The IRS publishes a barrel of detailed data, so we can see how much tax is paid by income bracket, what various types of income are reported, what deductions and so on. The latest of the detailed information covers 2004.

A quick glance at our graph shows that the top 10% of taxpayers shell out the vast majority of income taxes, more than 68%. The top half of taxpayers pay 96.7%. This means, of course, that the bottom half, more than 66,000,000 taxpayers, is responsible for a mere 3.3% of all federal income taxes.

In an eMo on March 15 called "Taxman", Mother Crafton tells that she believes it is a privilege to pay taxes. Here is surely one reason: she and many others of us could just as easily find ourselves in the lower half of income earners who pay no taxes. So, hard and distasteful as we might find it to pay Uncle Sam, the mere fact that we do is one sign of our own good fortune.

Tax Avoidance? Or Low Income . . . .
Sometimes, though, people take a different tack with "nonpayment of taxes". Many believe that those who don't pay taxes get out of it through some trickery. This may be the case on occasion, when people participate in some elaborate tax-avoidance scheme, not technically breaking any law, but violating the spirit of our common life as a nation. In 2004, the Tax Foundation points out, some 43 million tax returns carried no tax liability – almost one-third of all returns. Is tax avoidance this widespread?

In a survey for the Tax Foundation taken in March, the Harris Poll organization told the survey respondents this number and asked them what they thought of it. Only 24% think it is "fair" while 61% agree with the statement that "everyone should be required to pay some minimum".

The extensive IRS details tell us about the returns that carry no tax, and we looked over those figures. Frankly, we wouldn't want to be the people filing those returns. Their average adjusted gross income was only $15,200, compared with $80,400 for returns with taxes due. The portion of returns showing wage and salary income was about the same with or without tax liability, around 85%, but the amount of wages and salaries averaged only $11,000 for the ones not owing tax, compared with $76,500 for those who do. A number of the no-tax filers reported that they engaged in their own business activities, a larger proportion, 18%, than on the taxable returns, 14%. But the no-tax returns showed average net income from the business of just over $5,200, while the taxable returns made $16,500 from it. Farming is the category with the biggest loss: returns paying taxes had an average net loss of $5,800 from farming; those without tax lost $8,200 in that activity. Finally, non-taxed returns reported social security and pension benefits as major income sources, so retirees obviously make up a sizable portion of "taxpayers" who pay no taxes.

Thus, the no-tax returns come from workers with low-paying jobs, from small business owners who didn't fare well, from farmers who did very poorly indeed and from retirees. In several of these, the filers of the returns took business risks that didn't work out. So the conclusion of our analysis here is that the vast majority of tax return filers, even if they owe no tax, have made legitimate efforts to generate income. They probably wish they had done better and they, like Mother Crafton, would probably find it a privilege to pay income taxes.

Monday, April 23, 2007

A Green(-er) City

Yesterday, Earth Day, the Mayor of New York put forth an elaborate plan to address environmental sustainability in the City.

This is not a simple notion for New York. The population of the city is projected to grow by 1 million people over the next 25 years, and these people will not, by and large, be those who can afford $500,000 for a studio or one-bedroom apartment. Their mere addition will also add to pollution and waste and existing congestion.

Mayor Bloomberg's "PlaNYC" encompasses 127 proposals – a massive and intricate wish list. We'd guess that many of its concepts will fall by the wayside. Even so, this is a laudable project and includes some fascinating ideas. [Visit the website here.]

First, the process itself was pitched at grass roots – so to speak – New Yorkers. An outline was presented in December and public hearings were conducted in neighborhoods throughout the city. Then the plan itself was compiled promptly, based on this citizen feedback. These mayoral staff members sound serious. We hope it wasn't just an Earth Day show under the whale at the American Museum of Natural History.

Second, this planning process highlights the role of local government. Many have bemoaned the lack of federal leadership on such a crucial issue. That may well have delayed effective action. At the same time, smaller institutions, public and private, profit and nonprofit, have picked up the baton. [The metaphor is deliberate: "banner" isn't enough. We're not just advertising, or leading a marching band. We're running a race.] While the environment is clearly a macro problem, developing solutions at a micro level means they fit local circumstances better and enable the involvement of the people who must carry them out. The new rules aren't just imposed from faraway, on-high.

Individual companies are taking new initiatives every day. As we noted in our article "Green Business" on February 27, they are offering more ecology-friendly products and conducting business in a less wasteful way. No Washington bureaucracy could possibly envision all the combinations of anti-pollution actions business can innovate.

Similarly, New York City can pitch its actions at its biggest concerns. The most visible perhaps is traffic congestion. And of Mr. Bloomberg's 127 proposals, the one getting the most attention is "traffic congestion pricing", the charging of a toll to drive around in Manhattan during business hours Monday through Friday. Eight dollars a day for a car, they recommend. More for commercial trucks. This isn't farfetched. Singapore has had a version of this plan since 1975! And it's been used in London since 2003. Both urban areas report less traffic and faster, more efficient journeys. Our ubiquitous Easy-Pass devices and spreading coverage by traffic cameras mean some of the tools are already in place.

Other transportation projects would play important roles. It's probably not a coincidence that today, the day after Earth Day, construction began in earnest on the 2nd Avenue Subway. PlaNYC promises significant expansion of mass transit, both within the city and on commuter lines.

Work is planned toward more reliable provision of electric power in the summer and toward a greater variety of energy sources. The program highlights the conservation of water resources and the maintenance of water quality. The Mayor expresses distress over air quality by pointing out that children in the Bronx, Brooklyn and Harlem are hospitalized for asthma at rates four times the national average.

In today's eMo, Mother Crafton expresses her own distress over our lack of concern as individual consumers for the proper use of Creation. Indeed. The advantage of these local initiatives by New York City is that they are, for the most part, tangible, understandable proposals. Getting a handle on today's environmental concerns begins with us, where we are. Technology is bringing us a wider array of choices in how we can accomplish this. So perhaps, in the end, we won't have to feel the outrage of perceived deprivation Mother Crafton fears some will complain about tomorrow, if we make good choices today.

Monday, April 09, 2007

Happy Easter!

Dear Readers,

Easter Blessings to you all!

Last week, we deigned to apply economic analysis to the scope and spirit of Holy Week, but today, we will just enjoy Easter. "Welcome" the "Happy Morning" with Deacon Joanna at More or Less Church and then vicariously enjoy an "awesome" Easter dinner with Mother Crafton in today's eMo.

We'll return here only too soon with more mundane fare about taxes – ugh! - and upcoming Earth Day. Meantime,

Alleluia! Christ Is Risen!
The Lord Is Risen Indeed! Alleluia!


Monday, April 02, 2007

Holy Week: About the Whole Person

What could an economist have to say during Holy Week? Isn't all that worldly stuff irrelevant this week? Not really; as we move through this week, we are walking the way of the Cross with Jesus. The people of Trinity Church Wall Street, for example, will walk the way of the Cross around Lower Manhattan on Friday afternoon, praying for all the worldly institutions that surround it.

We ourselves are still thinking about John Chervokas, the former advertising manager whose Pinstripe Prayers we quoted last week. Among his intercessions is one for the office cleaning lady. As he prays, he notices an interesting thing about her: she is happy in her work. He, even with his status and high income, is clearly uptight and nervous over his own responsibilities, but she seems content, and he might be just a little envious of that.

Robert W. Fogel, an economic historian and winner of the Nobel Prize in 1993, suggests that such a disparity is no accident. Besides inequality of income and wealth, there is also inequality in spiritual values and resources, and these have distinct and uneven impacts. Fogel argues, "The agenda for egalitarian polices that has dominated reform movements for most of the past century – … the modernist egalitarian agenda – was based on material redistribution. The critical aspect of a postmodern egalitarian agenda is not the distribution of money income . . . or consumer durable goods. . . . [T]the most intractable maldistributions in rich countries such as the United States are in the realm of spiritual or immaterial assets." The struggle against chronic poverty needs to account for its principal component, spiritual estrangement from mainstream society. Fogel also notes that many who are materially rich are spiritually deprived, a feeling Mr. Chervokas may sense in himself.

This isn't just the case in rich countries either. A rapidly growing area of study for economists is "subjective well being", known more informally as "happiness". Researchers at Oxford University's Centre for the Study of African Economies analyzed a 1993 survey about this by the South African Labour and Development Research Unit of the University of Cape Town; the survey questions included one on people's sense of their own personal well-being: in general, are you very satisfied with your life, somewhat satisfied, neutral, not satisfied or very unsatisfied. The Oxford professors divided the responses by income category. While it was broadly the case that higher income was associated with higher life satisfaction, the correlation was very loose, with at most 39% of respondents in the same category for both income and life satisfaction. Some very poor people reported being in fact quite satisfied with their lives (17.5% of the lowest income group), and some relatively well-to-do are pretty dissatisfied. This study is very interesting, and we will look at it again, particularly because it is one of the few dealing with poor people in a poor land. Other of the survey's criteria for well-being include whether homes have iron roofs, whether roads are consistently passable, what race a household is and whether the household is a racial minority in its own neighborhood. These authors, Geeta Kingdon and John Knight, can thus distinguish between the terms "income poverty" and "well-being poverty", the same way Professor Fogel does.

Economists care about all this because part of what they try to do is assess social welfare and recommend policies to improve it. We see here that in contemporary efforts toward this end, they are broadening their own horizons beyond simple income/consumption considerations, and they have begun to take the whole person into account, encompassing emotional, social and spiritual dimensions. Holy Week is a time when we experience the same process in ourselves: worshipping together socially and praying alone emotionally through heart-wrenching scenarios which build toward the Perfect Spiritual Ending that raises welfare for the whole world.

+ + + +

Robert W. Fogel, The Fourth Great Awakening and the Future of Egalitarianism. Chicago: University of Chicago Press, 2000. Pp. 2, 3, 177.

Geeta Gandhi Kingdon and John Knight, "Subjective Well-Being Poverty versus Income Poverty and Capabilities Poverty?" Economic and Social Research Council: Global Poverty Research Group. December 2004.

Daniel Kahneman and Alan B. Krueger, "Developments in the Measurement of Subjective Well-Being". Journal of Economic Perspectives, Volume 20, Number 1, Winter 2006, Pp. 3-24.

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