The Fraser Institute has released the tenth edition of their annual report on economic freedom in North America. The report considers how such factors as size of government, takings and discriminatory taxation, and labor market freedom affect people’s freedom to choose how to produce, sell, and use their own resources, while respecting others’ rights to do the same. Read the report below to see where your state ranks.
A federal court of appeals has rejected an atheist group’s lawsuit seeking to strike down a 60-year-old tax provision protecting ministers, notes the Becket Fund. The ruling allows ministers of all faiths to continue receiving housing allowances. “This is a great victory for separation of church and state,” said Luke Goodrich, Deputy General Counsel of the Becket Fund of Religious Liberty. “When a group of atheists tries to cajole the IRS into raising taxes on churches, it’s bound to raise some eyebrows. The court was right to send them packing.”
Aside from the question of constitutionality, the clergy exemption raises a question that many people — whether religious or not — are likely to be wondering: Why exactly do ministers receive a tax exemption for their housing allowance?
To answer the question we must first consider how taxation of church property, including clergy housing, has historically been considered.
Thomas Piketty’s new book, Capital in the Twenty-First Century, has created quite the stir, and with its overwhelming size (700 pages) and corresponding array of commentaries and critiques, it’s tough to know where to start.
Cutting through such noise, Russ Roberts provides his usual service on EconTalk, chatting one-on-one with Piketty about the key themes, strengths, and weaknesses of the book. The interview is just over an hour, and I encourage you to listen to the whole thing.
Piketty lays out his argument quite concisely in the beginning, followed by a fruitful back-and-forth led by Roberts. For those who aren’t aware, the book chronicles a recent rise in economic inequality, wherein, by Piketty’s account, wealthy elites sit on their stashes while those at the bottom increasingly struggle to keep pace. His solution: Tax, baby, tax.
In response to such an approach, there are many areas to poke and prod, but Roberts zeroes in on one of the more fundamental and overarching questions: What about those who accumulate their wealth by helping those at “the bottom”? (more…)
According to Ham, Ms. Gardner purchased a 1930s bungalow more than 20 years ago, and the artist apparently can’t understand why her tax bill is so high. In this regard, Ms. Gardner resembles the Nuns on the Bus and other religious shareholder activists who submit proxy shareholder resolutions on a plethora of feel-good (but, in reality, harmful) agenda items through investment groups As You Sow and the Interfaith Center on Corporate Responsibility.
Similarly, voters in Acton’s Grand Rapids, Mich., front yard have approved a $10 million income tax increase, seemingly unaware of how this additional burden will impact the city and its residents negatively. Oh wait, did I forget to mention the $30 million parks millage approved by voters last year? While we’re at it, let’s toss in the 2011 mass transit millage approval, which will top out at $15.6 million annually. One day, however, Grand Rapids taxpayers may wake up like some allegorical David Byrne character, tapping their arm and asking, “Well, how did I get here?” as they ponder how much less money they take home, save or have available for philanthropic activities. (more…)
Speaking of Thomas Piketty, here’s a very helpful and revealing interview with Matthew Yglesias, “Thomas Piketty doesn’t hate capitalism: He just wants to fix it.” (HT: PEG)
A few highlights with some comment:
On the need for a historical perspective in economics:
Thomas Piketty: … It’s not only economists’ fault. Historians and sociologists are too often are leaving the study of economic issues to economists. Sometimes nobody does it.
In an attempt to trap Jesus, some Pharisees and Herodians asked him, “Is it lawful to pay taxes to Caesar, or not? Should we pay them, or should we not?” In response, Jesus said,
“Why put me to the test? Bring me a denarius and let me look at it.” And they brought one. And he said to them, “Whose likeness and inscription is this?” They said to him, “Caesar’s.” Jesus said to them, “Render to Caesar the things that are Caesar’s, and to God the things that are God’s.”
The Pharisees and Herodians “marveled” at Jesus answer, but had they asked an agent of the Roman IRS they likely would have been given a similar answer.
Governments have always had to contend with citizens who make what are considered “frivolous tax arguments” to avoid complying with tax laws. Such arguments rarely work (it’s usually not effective to try to present a creative interpretation of tax law to the people who interpret tax laws) but people keep trying.
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.
When it comes to political policy, Christians in America have a wide-range of opinions about what should be done. Even when we agree on a general principle, we tend to disagree about how that informs our policy choices. We recognize, for instance, that we have an obligation to care for the poor but differ on the type and degree of government involvement.
Such differences can lead us to believe that there is nothing we can agree on. But I don’t believe that is true. There are indeed some issues that all Bible-believing Christians should be able to agree on.
One such area of potential agreement is paying debts. The Bible is clear that believers are to pay what we owe. The Apostle Paul tells us, “Pay to all what is owed to them: taxes to whom taxes are owed . . .” (Romans 13:7). Similarly, the Psalmist warns that, “The wicked borrows but does not pay back . . .” (Psalm 37:21). And Proverbs tells us, “Do not withhold good from those to whom it is due, when it is in your power to do it. Do not say to your neighbor, “Go, and come again, tomorrow I will give it”—when you have it with you.” (Proverbs 3:27-28).
The Bible is clear that when an individual incurs a debt they are required, to the best of their ability, to pay what they owe. But does this same principle apply to governments?
My friend John Teevan of Grace College sends out a monthly newsletter, “Economic Prospect.” He passes along this in the current edition:
I found this note from a newly retired accountant (age 66) who has not gone on social security yet. His income as a part-time accountant in his town was $60,000.
“My income is $60,000 and my IRS taxes are 10,000, my FICA deduction is $8,000, my state income tax is $2500, and my property tax is $6000. So I pay a total of $26,500 in taxes leaving me $33,500.
However, I have additional costs that I would like to (but can’t) deduct from my income. As I watch ‘government accounting’ I realize that these should be considered real costs.
I have saved $200,000 and invested the money in bonds earning 1% ($2000).
I could have invested that money in CDs earning 5% (10,000), but as the Fed has lowered the interest rate the cost to me is the difference: $8000.
In addition I am now entitled to social security and at my level of income over the years I would have received $28,000 this year, but I have chosen not to take Social Security saving Uncle Sam that money.
So I have contributed a total of $36,000 to Uncle Sam in foregone interest and foregone Social Security payments. Who got the benefit of that $36,000?
Uncle Sam; not me.
So if I add up my total contributions to the government this past year I paid $26,500 in taxes and paid $36,000 in lost income. These two come to $62,500…more than the $60,000 I earned.
While I enjoy my new job, when I think about this, I start to feel like one of Pharaoh’s slaves toiling to roll immense stones up from the Nile to his pyramid.”
Send John a message if you’d like to be added to his “Economic Prospect” list. It’s always a great read.
As occurrences of preventable diseases increase and the debt deepens, some look to “sin taxes” as an easy to solution to both problems. Thirty-three states have even gone as far as to implement a soda tax in an attempt to curb obesity. At first glance sin taxes seem to be a good idea, but they can actually cause more harm than good.
The Mercatus Center at George Mason University has just published a working paper on sin taxes and their negative effects. The study was conducted by Adam J. Hoffer, William F. Shughart II, and Michael D. Thomas. They have found that taxing specific goods or services based on perceived “negative externalities their consumption generates” is an ineffective source of revenue.
The authors summarize their findings in a recent U.S. News and World Report op-ed:
- Lobbying: Millions of dollars have been spent to thwart taxation of the soft drink industry’s products and to prevent existing taxes from being raised. In 2009 alone, the industry spent more than $57 million on lobbying. Such lobbying expenditures are socially wasteful. How much money is now being spent attempting to block Mayor Bloomberg’s ban on 32-ounce soft drink containers?
- Regressive taxation: Far from being income-neutral, such taxes are regressive because their burden falls most heavily on people with the fewest options—the poor. Low-income households who continue to purchase goods that are sin-taxed will have even less money left over to spend on other items.
- Revenue not used for its intended purpose: Sin taxes raise revenue by transferring money from those who continue to buy the taxed items straight to the coffers of the public treasury. Taxing sin might be reasonable if the revenue from these taxes was used to address the underlying negative consequences of consumption. In the real world, however, money generated by the tobacco settlement financed general spending and not smoking cessation programs or treating smoking-related diseases. The social security trust fund has been replaced with treasury IOUs, and the highway trust fund filled by taxing the sin of driving will fail to meet obligations as early as 2015.
You can read the entire working paper, “Sin Taxes: Size, Growth, and the Creation of the Sindustry” here. Acton president and co-founder, Rev. Robert Sirico has also written about the consequences of sin taxes. You can read his “Hate the Sin, Tax the Sinner?” here.