Posts tagged with: tax

Blog author: jballor
Tuesday, February 19, 2013
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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.

This week I wrote about the dignity of paying taxes (among other ways of contributing to social flourishing). But as we know, not all taxes are created equal. Indeed, as Antony Davies and James Harrigan write this week at US News, “Politicians are in the business of buying votes with tax breaks and sweetheart deals for their preferred constituencies, and they have to offset these deals by taxing disfavored constituencies at increased rates. The longer this game is played, the more convoluted the tax code becomes.”

As I argued previously at Capital Commentary, this amounts to a kind of back door social engineering (as well as playing favorites, picking winners, and so on). The fundamental purpose of taxation is not to buy votes and give preference to lobbies and special constituencies. Instead, as I write, “The point of taxation is to raise funds to enable the government to fulfill its moral, political, and social responsibilities.” Such a view is ultimately at odds with a Utilitarian theory, which considers taxation to be a tool rather used “to maximize overall well-being in society.” Matthew Weinzierl argues for greater attention to a theory of Equal Sacrifice, which on Weinzierl’s account “assumes individuals have the first claim to their output, and that they voluntarily agree to form societies that collect taxes in order to purchase public goods.”
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On his albums Bruce Springsteen may pose as a working-class hero. But as Bruce Edward Walker notes, in his real life he’s a crony corporatist:
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Blog author: jcarter
Thursday, March 15, 2012
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As society becomes more secularized, the calls for churches to pay their “fair share” become more vocal. Erik Stanley, senior legal counsel for the Alliance Defense Fund, explains why churches should remain exempt from paying taxes:

Why is your church tax exempt? Why should it continue to be tax exempt? If I were to sit down and ask you these questions, would you have a clear and coherent answer? I suspect this is something we seldom think about. After all, tax exemption for churches has always been given and we assume, because of its historical longevity, it always will be given.

The fact that many Americans cannot explain why churches are tax exempt indicates a forgotten history and is emblematic of a society that has systematically devalued the church as a beneficial societal institution.

Read more . . .

Kishore Jayabalan, the Acton Institute’s Rome office director, was interviewed by the Zenit news agency in an article titled, “Is Taxing the Church a Real Solution for Italy?” In the article, Jayabalan discusses the history of the Italian state and its imposition of property taxes on the Roman Catholic Church’s land holdings, residences and non-profit businesses.

Sometimes in the past, particularly under Napoleonic rule and before the Lateran Pacts, the institution of property tax was often a subject of state persecution of the Church in economic terms. Mr. Jayabalan answers critical questions about the reasons behind Italy’s evolving (or rather “revolving”) fiscal policies and historic land expropriations to the Church’s detriment.

The Church has traditionally been exempt from paying ICI [property tax] on non-commercial entities because they serve a social purpose. The old law actually exempted entitles that were ‘predominantly’ non-commercial. The new law exempts simply non-commercial entities, so there will be some re-defining of what is non-commercial or not by the Italian Ministry of the Economy. Jewish, Muslim, and other religious, and for that matter secular, non-profits were also ICI-exempt, so this was not a case of special pleading for the Catholic Church in Italy, even though Catholic institutions dwarf the others numerically…

Of course this is not the first time the Church has been muscled out of land. Napoleon’s massive cash taxes upon his conquest of Italy were designed to force noble families (generally with very close ties to the Church) out of their lands and titles. Napoleon spared the Church the niceties of taxes, choosing to simply expropriate the property. The unification of Italy as well saw Church lands, art and lives lost as the new nation was formed. But even this was nothing new. After all Nero had blamed the Christians for a fire he set to clear some land in downtown Rome, so in the end Sts. Peter and Paul and 900 other Christians were killed for a real estate deal.

To read Jayabalan’s full interview, go here.

Much has been made already about President Obama’s comments yesterday at the National Prayer Breakfast concerning the Christian faith’s teachings about social responsibility. During his time at the breakfast, the president opined that getting rid of tax breaks for wealthy Americans amounted to a Christian obligation:

In a time when many folks are struggling and at a time when we have enormous deficits, it’s hard for me to ask seniors on a fixed income or young people with student loans or middle-class families who can barely pay the bills to shoulder the burden alone. And I think to myself, if I’m willing to give something up as somebody who’s been extraordinarily blessed and give up some of the tax breaks that I enjoy, I actually thinks that’s going to make economic sense. But for me as a Christian, it also coincides with Jesus’ teaching that, from to whom much is given, much shall be required.

The president is referring to the passage that concludes Jesus’ explanation of the parable of the watchful servants in Luke 12. It’s a good thing that the president isn’t the theologian-in-chief!

As Breanne Howe has pointed out (HT: The Transom), the text itself has to do with the basic idea of stewardship (the best resource for exploring the truly biblical conception of stewardship in its fullness is the NIV Stewardship Study Bible). I do think Howe draws a bit too sharply the lines between obligations and giving, as she writes, “Giving out of obligation is not truly giving, it’s merely following the rules.” There’s a complex relationship between legal requirements, moral obligations, and Christian gratitude that can’t be summed up by simply juxtaposing Christian charitable giving and government taxation.

But at the same time, paying your taxes can’t be simply conflated with meeting Christian social obligations, either. Christians are to pay taxes, certainly, but that doesn’t mean that Christian social responsibility is reducible to paying taxes.

More problematic, perhaps, is this latter identification, with our responsibilities before God being transferred to our responsibilities to government. If the president can use a text like Luke 12:48 to argue for progressive taxation, then what kind of tax policy should we implement on the basis of Luke 19:24-26?

Then he said to those standing by, ‘Take his mina away from him and give it to the one who has ten minas.’

“‘Sir,’ they said, ‘he already has ten!’

“He replied, ‘I tell you that to everyone who has, more will be given, but as for the one who has nothing, even what they have will be taken away.

It’s too easy and sometimes irresistibly tempting to move directly from the text of Scripture to the text of legislation.

Prooftexting for the purpose of political posturing does violence to the Scriptures and damages our public discourse. That might be the most important political lesson arising from yesterday’s breakfast.

Amid the hustle and bustle of preparing for tonight’s Acton Institute annual dinner, I’m trying to carve out some time to make final preparations for my participation in the 9th Annual Christian Scholars’ Symposium hosted by the Christian Legal Society. Tomorrow afternoon I’ll be debating with Gideon Strauss of the Center for Public Justice on the question, “Justice, Poverty, Politics & the State: Is There a Christian Perspective?”

One of the pressing issues related to the size and scope of government is the complex nature of today’s tax system, particularly at the federal level. Regardless of what you think of Herman Cain’s “9-9-9″ tax plan, Arthur Laffer’s opening observations in a WSJ op-ed yesterday summarize well where we find ourselves:

It used to be that the sole purpose of the tax code was to raise the necessary funds to run government. But in today’s world the tax mandate has many more facets. These include income redistribution, encouraging favored industries, and discouraging unfavorable behavior.

To make matters worse there are millions and millions of taxpayers who are highly motivated to reduce their tax liabilities. And, as those taxpayers finagle and connive to find ways around the tax code, government responds by propagating new rules, new interpretations of the code, and new taxes in a never-ending chase. In the process, we create ever-more arcane tax codes that do a poor job of achieving any of their mandates.

Gideon was kind enough to ask me to contribute to CPJ’s Capital Commentary a few months back on the question of getting back to first principles with respect to the tax code. And in that piece, “Back Door Social Engineering,” I made the following case, taking my own point of departure with another quote from Laffer:

A return to a first-principles discussion of taxation in America requires a return to the fundamental purposes of taxation. Notwithstanding the current size of the federal tax code, the fundamental purpose of government taxation is not to encourage or discourage particular behaviors. The point of taxation is to raise funds to enable the government to fulfill its moral, political, and social responsibilities. It is true, as economist Arthur Laffer has made famous, that “when you tax something you get less of it, and when you reward something you get more of it.” But this reality, which takes into account how people respond to incentives, is secondary to the basic function of taxation.

It is immoral for a government to chronically run up deficits and lack the willpower to actually raise the funds it needs to do what it sets before itself. Michael Munger put it well: “Deficits are future taxes.” Quite apart from the question of what the government ought to be doing is the issue of paying for what it actually does, and our government has failed miserably on that latter point.

Acton’s director of research Samuel Gregg has a piece over at The American Spectator that may surprise big government liberals. (We know you read this blog.) In “Free Market Sweden, Social Democratic America,” he lays out the history of Sweden’s social democracy — its nature and its effects on the country’s economy — and then draws lessons for the United States. The Scandinavian country isn’t quite the pinko nanny state Americans like to look down upon, and we’ve missed their reforms of the last two decades.

Gregg explains that Sweden’s dramatic mid-century expansions of government were portrayed as rooted in the traditional values of the homeland, so Social Democrat governments escaped the soft-Marxism tag, and were able to do pretty much as they pleased. Social programs were also characterized as coverage of universal rights, to be imposed by general taxation. Then came

the decision of governments in the 1970s to hasten Sweden’s long march towards the Social Democratic nirvana. This included expanding welfare programs, nationalizing many industries, expanding and deepening regulation, and — of course — increasing taxation to punitive levels to pay for it all.

Over the next twenty years, the Swedish dream turned decidedly nightmarish. The Swedish parliamentarian Johnny Munkhammar points out that “In 1970, Sweden had the world’s fourth-highest GDP per capita. By 1990, it had fallen 13 positions. In those 20 years, real wages inSweden increased by only one percentage point.” So much for helping “the workers.”

Economic reality was painful, but Sweden responded, and began to unravel some of its “progress,” reducing the public sector and even allowing private retirement savings. Unemployment was still high though — about 20 percent — in large part because the country’s tax structure encouraged joblessness.

But with a non-Social Democrat coalition government’s election in 2006, Sweden’s reform agenda resumed. On the revenue side, property taxes were scaled back. Income-tax credits allowing larger numbers of middle and lower-income people to keep more of their incomes were introduced.

To be fair, the path to tax reform was paved here by the Social Democrats. In 2005, they simply abolished — yes, that’s right, abolished — inheritance taxes.

But liberalization wasn’t limited to taxation. Sweden’s new government accelerated privatizations of once-state owned businesses. It also permitted private providers to enter the healthcare market, thereby introducing competition into what had been one of the world’s most socialized medical systems. Industries such as taxis and trains were deregulated. State education and electricity monopolies were ended by the introduction of private competition. Even Swedish agricultural prices are now determined by the market. Finally, unemployment benefits were reformed so that the longer most people stayed on benefits, the less they received.

By 2010, Sweden’s public debt had fallen dramatically and its rate of economic growth was 5.5 percent. Compare that with America’s 2.7 percent growth in 2010, and just try to restrain your jealous impulses.

Gregg cautions that Sweden’s economy is still hampered the Social Democrats’ legacy. High minimum wages keep a full quarter of the country’s youth unemployed, and a carbon tithe to the religion of environmentalism retards growth, but

It’s surely paradoxical — and tragic — that a small Nordic country which remains a byword for its (at times obsessive) commitment to egalitarianism has proved far more willing than America to give economic liberty a chance.

Full article here.

In the discussion of whether the problem with our national public debt is a question of receipts, outlays, or both, I linked to a helpful set of graphs from Anthony Davies, an economics professor at Duquesne University. This data shows that even though a variety of tax rates have changed a great deal over the years, the federal government has basically taken in receipts within the range of 16-20% of GDP over the post-WWII era. If you haven’t looked at this presentation before, you should do so now.

And today, Grove City economics professor and AU faculty lecturer Shawn Ritenour links to another chart, which compares these receipts against historic federal outlays (or spending). He notes (and refutes) Joe Weisenthal’s contention that “any politician who says Washington has a spending problem, rather than a revenue problem, is speaking from a position of anti-tax ideology, rather than empirical data.”

But I think if you look at the history of receipts and outlays a bit closer, you’ll see that the variance in receipts over the last decade are well within the historical norms. But the variance in outlays over that period isn’t outside the norms, either, in the sense that it continues a disturbing trend after 1970. (The data for current and future years is estimated and gleaned from sources here.)
There used to be some correlation between the red and blue lines. But not in today’s Washington.
Again, given this historic perspective, I think it’s hard to blame the blue line for the current debt levels. Keep in mind too that since these figures are a function of GDP, as the economy grows, other things being equal so too does the spending and receipts of the federal government.

In addition to the larger versions of the graphs clickable above, you can download this set of graphs in PDF form here, and visit our “Principles for Budget Reform” page to read more related commentary.