Posts tagged with: Public finance

Blog author: jcarter
Tuesday, December 13, 2016

Note: This is post #13 in a weekly video series on basic microeconomics.

What is a subsidy? A subsidy is really just a negative or reverse tax, explains Alex Tabbarok. Instead of collecting money in the form of a tax, the government gives money to consumer or producers. In this video by Marginal Revolution University, Tabbarok looks at the subsidy wedge and who benefits the most from different subsidies.

(If you find the pace of the videos too slow, I’d recommend watching them at 1.5 to 2 times the speed. You can adjust the speed at which the video plays by clicking on “Settings” (the gear symbol) and changing “Speed” from normal to 1.25, 1.5 or 2.)

Previous in series: Understanding tax revenue and deadweight loss

Note: This is post #12 in a weekly video series on basic microeconomics.

Why do taxes exist? What are their effects? In this video by Marginal Revolution University, economist Alex Tabarrok explains how taxes affect consumer surplus and producer surplus. He also discusses the concept of deadweight by considering a real-world example from the 1990s: taxing luxury yachts.

(If you find the pace of the videos too slow, I’d recommend watching them at 1.5 to 2 times the speed. You can adjust the speed at which the video plays by clicking on “Settings” (the gear symbol) and changing “Speed” from normal to 1.25, 1.5 or 2.)

Previous in series: Who pays the tax?

Blog author: jballor
Monday, October 10, 2016

taxesLast week, before the most recent news about Donald Trump and the current US presidential campaign burst onto the scene, Think Christian ran a short reflection of mine on the question of taxation. As I argue, “There is no duty to pay anything other than what we owe in taxes. But whatever we do owe we must pay in good conscience and out of a spirit of justice.”

If you spend any time on the internet reading about political liberty, you are likely to come across the formula, “Taxation is theft.” The picture the Apostle Paul paints is rather different. The point of departure for my thoughts on taxation is his instruction: “Give to everyone what you owe them: If you owe taxes, pay taxes.”

So the moral status of taxation as such doesn’t seem to be problematic. But as I note in the piece, the question of implementation is different and much more complex. Just because taxation isn’t in itself theft, that doesn’t mean that there aren’t forms or levels of taxation that cannot devolve to that level.

Leo XIII, in his encyclical Rerum Novarum, considers appropriate taxation. He warns of the necessity “that a man’s means be not drained and exhausted by excessive taxation.” He continues,

The right to possess private property is derived from nature, not from man; and the State has the right to control its use in the interests of the public good alone, but by no means to absorb it altogether. The State would therefore be unjust and cruel if under the name of taxation it were to deprive the private owner of more than is fair. (47)

As with so many questions of political economy, the issue turns on the question, “Who decides?” What Paul and Leo make clear, however, is that there is a divine standard of justice to which those who require and those who pay taxes must both adhere.

How-to-Understand-Federal-Tax-FormsAfter almost three decades of filling out increasing complex tax forms, you’d think I’d be used to it (or at least resigned to the onerous task). But every tax season I complain even more than I did the year before. Why do I have to do this?

Perhaps the problem, notes Daniel J. Hurst, is that I’m forgetting that it’s part of my responsibility as a Christian. “While we may have grumbled when filing our taxes this year,” says Hurst, “did we pause to think that giving the government part of our income is a way we honor the Lord and express our trust in his grand design?”

Conservatives are known for arguing about the ill effects of over-regulation, reminding us how it stifles innovation, cramps entrepreneurship, and harms small businesses. Where we’re less effective is connecting this reality to the more fundamental abuses it wields on human dignity in general and the poor and vulnerable in particular.

In a 45-minute talk given at Heritage Action, Senator Ben Sasse of Nebraska offers a detailed critique of over-regulation in America.

Pointing first to the proper scope of regulatory policies, Sasse proceeds to note the increasing overreach of the federal government and the range of reasons to oppose it. Watch an excerpt here:

Although arguments about over-regulation and taxation are bound to involve in depth discussions about numbers and econometrics, Sasse reminds us that our focus must remain on the preservation of freedom and human dignity. (more…)

Blog author: jcarter
Wednesday, April 15, 2015

7figuresToday is tax day, the day when individual income tax returns are due to the federal government. Here are seven figures you should know about tax day:

1. The average federal tax rate for all households (tax liabilities divided by income, including government transfer payments) before taxes is 18.1 percent.

2. Households in the top quintile (including the top percentile) paid 68.8 percent of all federal taxes, households in the middle quintile paid 9.1 percent, and those in the bottom quintile paid 0.4 percent of federal taxes. (Quintiles — fifths — contain equal numbers of people.)

3. Social insurance taxes (e.g., Social Security, Medicare) account for the largest share of taxes paid by households in all but the top quintile.

4. The U.S. tax code is approximately 2,600 pages long (about 1.5 times longer than Tolstoy’s War and Peace and 2.5 times longer than Ayn Rand’s Atlas Shrugged).

5. At midnight, the U.S. Treasury gets an extra $760 million. Taxpayers have three years to claim refunds, so the $760 million that is owed to 918,600 people will, by statute, go to the governments coffers tomorrow.

6. If you’re owed a refund, you won’t get in trouble if you miss the April 15 filing deadline. But if you’re wrong and you actually owe money, you’ll incur a maximum penalty of 5% for each month after the deadline. If you’re more than 60 days late, you’ll be fined $135, or 100% of the unpaid tax — whichever amount is smaller.

7. Examining 30 years of road crash data from the National Highway Traffic Safety Administration, researchers found that fatal car crashes increase 6 percent on April 15.

“You are a slow learner, Winston.”
“How can I help it? How can I help but see what is in front of my eyes? Two and two are four.”
“Sometimes, Winston. Sometimes they are five. Sometimes they are three. Sometimes they are all of them at once. You must try harder. It is not easy to become sane.” – George Orwell, 1984

In a calculation that surely qualifies as “new math,” the government has created an equation in which $29,000 is equal to $69,000. Within the current welfare structure a single mother is better off making $29,000 per year in income and subsequent welfare benefits, than she is making $69,000 per year in income alone. This perverse incentive is what perpetuates the cycle of poverty and condemns impoverished moms to dependence on a paternalistic state. Social Security, Medicare, Medicaid, and SNAP (food stamps) are all larger than ever before with no subsequent reversal in the level or scope of poverty.

The “Welfare Cliff,” an economic model developed by Gary Alexander, the Secretary of Public Welfare in Pennsylvania, shows the amount of net income a person would need to receive in order to match their current net income plus welfare benefits. This is called a cliff, as there are drastic drop-offs in welfare benefits as one increases their income. In this graph, “the single mom is better off earning gross income of $29,000 with $57,327 in net income and benefits than to earn gross income of $69,000 with net income & benefits of $57,045.” In fact, if a single mother were to raise her income from $29,000 to just $30,000, she would lose nearly $10,000 in welfare benefits per year.

The incentives provided under this system replace the desire for individual development with the maintenance of the status quo.  A single mother is highly unlikely to spend the time, effort, or capital in order to gain skills that result in receiving a lower disposable income. (more…)