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Wednesday, April 23, 2014

April Tax-Cast Now Available

The Tax Justice Network's Tax-Cast has just been released, with stories on US states fighting against tax havens, an interview with TJN's John Christensen, and a discussion of a new paper by Paris School of Economics professor Gabriel Zucman's (yes, he's a student of Piketty's) estimating the amount of financial wealth held in tax havens ($5.9 trillion in 2008, on the low end of most estimates, but still quite substantial). You can hear it at the link above or just click here to go directly to YouTube.

Monday, April 21, 2014

Everything You Need to Know About Tax Freedom Day®

Today, April 21, is 2014 Tax Freedom Day®, according to the Tax Foundation. The Tax Foundation is not exactly known for unbiased research, and its promotion of Tax Freedom Day® is no exception.

The Foundation claims that Tax Freedom Day® is "a vivid, calendar-based illustration of the cost of government." In other words, instead of saying that its analysts expect total taxes in the United States (including social insurance) to reach 30.2% of net national income (NNI) in 2014, they say that Tax Freedom Day® arrives three days later than last year. Precise, huh?

Of course, the word "freedom" tips us off to the fact that the Tax Foundation is actually trying to create an emotional response. Something along the lines of, "Oh boy, after today I'm working for myself rather than the greedy government!" The implication further is that the later Tax Freedom Day® occurs, the worse it is for the country. The thing is, neither of these insinuations is true.

As the Center on Budget and Policy Priorities points out every year, that emotional response, frequently picked up directly by the media, is not true for the vast majority of Americans. As CBPP's Figure 1 below shows, for the federal portion of taxes, more than 80% of Americans are paying less than the 20.1% federal component of Tax Freedom Day® would suggest. (In addition, the burden of some taxes does not fall on individuals at all.) The Tax Foundation responds that it's not trying to mislead anyone, it's just comparing "total U.S. tax collections with total U.S. income." Of course, if that were all it was really trying to do, it could just say that projected tax collections equal x% of NNI. But no, it trumpets Tax Freedom Day®.

Moreover, a relatively late Tax Freedom Day® is usually a sign that incomes are increasing, so taxes are, too. As the Foundation writes this year,
Tax Freedom Day is three days later than last year due mainly to the country’s continued slow economic recovery, which is expected to boost tax revenue especially from the corporate, payroll, and individual income tax.
 Despite the dig "slow," the Foundation is saying that economic recovery boosts tax revenue. Another example should make this clearer. The same document continues, "The latest ever Tax Freedom Day was May 1, 2000, meaning Americans paid 33.0 percent of their total income in taxes." Horrors! Such confiscatory taxation obviously meant that the economy was in the tank in 2000. You know I'm joking: Actually, the economy was booming and the federal government had a budget surplus. Again, higher incomes and profits boosted tax revenue. Indeed, the economy in 2000 created 2,088,000 jobs, way more than during the entire George W. Bush administration (1,282,000). Maybe the Tax Foundation should pay attention.

This brings me to the ultimate point about Tax Freedom Day®. It's all there in the ®. As it indicates, Tax Freedom Day® is a trademark registered with the U.S. Patent and Trademark Office. If it were a serious concept, there would be no reason to trademark it at all. What the ® tells us is that Tax Freedom Day® is just a marketing gimmick.

Class dismissed.

Sunday, April 20, 2014

Reading Piketty

Like everyone else, it seems, I'm reading Thomas Piketty's (many good links there, including the technical appendix) Capital in the Twenty-First Century. I can't remember when I last looked forward to reading a 650-page non-fiction book with such anticipation. I'll report back soon if work doesn't intrude too much.

In the meantime, take a look at Paul Krugman's review of the book here, and the roundup of reactions at Bill Moyers' blog.