Tag Archives: taxes

Per Capita Tax Revenue Down, Down, Down – Who Cares?

When I was working in direct marketing we would spend weeks writing the sales copy for our letters and sales brochures. One thing we always looked at was how we would describe any discount we might be offering.  Say we were offering a 20% discount on a $1,000 item, we'd try and figure out which would have more impact, writing "You can save $200 by ordering right now" or "You can save 20% by ordering right now."  We didn't have a hard and fast rule, but generally the lower the dollar amount the more likely we were to use a percentage instead.  Saying you saved someone 30% is a whole lot better than saying you saved them $3 on a $10 purchase.

That memory hit me when I read this post on Tax.com by my go-to guy on taxes, David Cay Johnston:

We take you now to the official data for important news. Federal tax revenues in 2010 were much smaller than in 2000. Total individual income tax receipts fell 30 percent in real terms. Because the population kept growing, income taxes per capita plummeted.

Individual income taxes came to just $2,900 per capita in 2010, down 36 percent from more than $4,500 in 2000. Total income taxes and income taxes per capita declined even though the economy grew 16 percent overall and 6 percent per capita from 2000 through 2010.

Corporate income tax receipts fell 27 percent and declined 34 percent per capita, even though profits boomed, rising 60 percent.

Payroll taxes increased slightly overall, but slipped per capita because the nation's population grew five times faster than the number of people with any work. The average wage also declined slightly.

You read it here first. Lowered tax rates did not result in increased tax revenues as promised by politician after pundit after professional economist. And even though this harsh truth has been obvious from the official data for some time, the same politicians and pundits keep prevaricating. Some of them even say it is irrelevant that as a share of GDP, income tax revenues are at their lowest level since 1951, when Harry S. Truman was president.

So to compare this to my direct marketing work, in this case we have one side of the political aisle saying "Hey we cut taxes AND raised revenue" while on the other side they're saying "Whoa, we have more revenue only because we have more people and those people are paying a LOT less in taxes than they did 10 years ago."  My reaction?  So what!?

I know sometimes I sound like a broken record, but I really wish we could start arguing about the right things.  Instead of worrying about whether or not lower tax rates generate more tax revenue, let's worry about what we do with that tax revenue.  In other words it's totally irrelevant to me that the per capita tax rate is lower; what's relevant is that we're taking in less money per person BUT we haven't reduced how much we're spending on each person.  As I wrote in a previous post, we get caught up arguing about issues that really are irrelevant in and of themselves and lose sight of the big picture. In this particular case I think it's disingenuous of any leader to focus on how much our tax receipts have grown in the gross sense or shrunk in the per capita sense, without putting it into context by comparing it to a growth in expenses, both gross and per capita.  

To be fair, as Johnston points out later in his post, it's not that politicians aren't also talking about government spending – he highlights several conservative leaders saying that we don't have a revenue problem, we have a spending problem – it's just that we continually get bombarded with arguments like this one about tax revenues that really don't make a hill of beans of difference in and of themselves. Johnston concludes his post by saying it is a revenue problem, but between those two points he also writes that there's a need to figure out what we need our government to do and how we should pay for it. I'm going to disagree with both sides and say what I think is pretty obvious: it's a revenue and a spending problem. 

So if you made me king for a day what would I do? I'd mandate that we all agree that the real questions that need to be answered are:

  • What's the proper scope of government services for our society? Should it just be the basics like fire, public safety, defense of our borders, etc. or should it include healthcare, retirement, etc? 
  • Once we determine the proper scope of our government how should we finance it? Flat tax of 10% on everyone but those living under the poverty line and with zero deductions, a progressive tax structure, or a VAT?

That's it. Simple, huh?  Yeah and if you believe that I have a bridge in Brooklyn I'll sell you.  Honestly I can't think of a tougher nut to crack than determining the role of government in our society, and how much that should cost us.  Everyone has their own ideas, and everyone has their government program that they think is essential.  For every person who thinks we simply can't live without the FDA there's probably someone who thinks the FDA is just another example of over-regulation.  So no it's not a simple problem, but getting distracted by silly arguments over how we measure revenue only makes it worse.

America’s Top 400

The IRS annually produces a report that shows the tax rate for the 400 families with the highest household income and compares it to the tax rates for the other tens of millions of households.  The Clinton administration was the first to publicize the report, the Bush administration stopped the practice (surprise!) and the Obama administration has once again started to publicize them.  So what do you think happened?

The incomes of the top 400 American households soared to a new record high in dollars and as a share of all income in 2007, while the income tax rates they paid fell to a record low, newly disclosed tax data show. 

In 2007 the top 400 taxpayers had an average income of $344.8 million, up 31 percent from their average $263.3 million income in 2006, according to figures in a report that the IRS posted to its Web site without announcement that were discovered February 16. (For the report, see Tax Analysts Doc 2010-3372 .)…

Payroll taxes did not add a significant burden to the top 400, not changing the rounding of rates by even one decimal. With payroll taxes taken into account, the effective tax rate of the top 400 would be 17.2 percent in 2006 and 16.6 percent in 2007, my analysis shows — the same as not counting payroll taxes. As a point of comparison, about two-thirds of Americans pay more in Social Security, Medicare, and unemployment taxes than in federal income taxes…

Most of the income going to the top 400 tax returns is from capital. Salaries and wages accounted for only 6.5 percent of the top 400's income in 2007, down from 7.4 percent in 2006 and 26.2 percent in 1992. The average salary rose from 2006 to 2007, however, just at a slower rate than overall income growth. 

The biggest source of income was capital gains, which are taxed at a maximum rate of 15 percent. Gains accounted for 66.3 percent of 2007 income for the top 400, up from 62.8 percent in 2006 and 36.1 percent in 1992…

The report shows that the number of the top 400 who paid an effective tax rate of 0 percent to 10 percent declined slightly, to 25 in 2007 from 31 in 2006. In 1992 only 6 of the top 400 paid an effective income tax rate of less than 10 percent. 

Another 127 paid 10 percent to 15 percent in 2007, up from 113 in 2006. 

 Only 33 of the top 400 paid an effective tax rate of 30 percent to 35 percent, which is the maximum federal tax rate.  

Winston-Salem City Council Needs to Be Aware of the Law of Unintended Consequences

According to this story on WXII's site the Winston-Salem city council is considering a new set of fees for Internet cafes.  From the story:

The city of Winston-Salem could stand to generate more than a $500,000 if City Council members approve new taxes on Internet cafes.

The City Council has proposed a $2,500 license fee and a fee of $500 per machine for the nearly 50 new locations operating inside the city. Currently, the businesses pay no taxes to the city or state.

"We're getting no revenues from these very rapidly growing businesses that are in our communities," Winston-Salem Mayor Allen Joines said. "Our budget is very difficult right now, so any revenue enhancement we can come up with that will not really impact a business, we're trying to look at. We believe these are very lucrative businesses and could easily afford this fee we are proposing." 

I haven't seen the actual proposal so I can't speak to the specifics, but what worries me about this is the definition of "Internet cafe".  If the definition is too loose then here are some of the businesses that could get sucked into this:

  • Any business that charges for wi-fi access – for instance Starbucks – could conceivably be charged for each person that pays to access the network.
  • Hotels that charge for internet access in rooms, or that provide internet access on computers in their business centers and lobbies.
  • Even coffee shops that provide free wi-fi could get hit for $3,000 – $2,500 for the fee and $500 for the computer/router.  They aren't making a dime off the wi-fi, but if the proposal isn't worded correctly they could get hit with the fee regardless.

It sounds to me like the City Council is trying to target a specific type of business (essentially legal gambling parlors), but sometimes when fees or ordinances are adopted to target specific types of businesses then other "innocent" businesses get caught in the crossfire.

I can guarantee you this: if every company that offers free wi-fi learns that it's going to be hit with a $2,500 fee then you can bet your bottom dollar that free wi-fi will disappear in Winston-Salem.  Paid wi-fi might survive, but you'd have to sell a LOT of daily access passes to justify it.  As for hotels that charge $15.95 a night for internet access in your room?  I'd like nothing better than to say "Hit 'em with your best shot!" since that's one of the most annoying business practices in the hospitality sector, but if you do they'll just pass it along as a higher daily rate.

That Winston-Salem is looking for additional sources of revenue is not surprising, and neither is the fact that the targeted industry is a "sin" business, but let's hope the City Council is smart enough not to tax itself.  After all, this is the city that just a few years proudly unveiled its own free wi-fi on Fourth Street.  The description of the free wi-fi service from the city's own website sounds to me suspiciously like what the rest of the world considers an Internet cafe:

Fourth Street Wireless Internet access is a free service provided by the City of Winston-Salem. Citizens in restaurants and businesses along Fourth Street can access the Internet through high-speed connections and enjoy browsing the Web, checking and sending e-mail, or chatting through instant messaging services.

Like I said, I just hope the City Council is very careful with this thing.  

One last thought: Can anyone think of other fees that are targeted at specific industries?  I'm sure there are some out there, but my fatigue-fogged mind isn't hitting on any right now.

Priorities

One thing that truly gets my goat is the debate over taxes.  For too long our leaders have engaged in a simplistic, name-calling exchange in which supporters of lower taxes get labeled as mean-spirited robber barons looking out for the rich and those in favor of higher taxes on more government services get labeled as the expletive du jour, socialists.  It's overly simplistic and it doesn't get to the heart of the matter, which is that we will always have to pay some taxes because we will always need the government to provide some services.  The rub is that we need to agree on which services the government provides and then somehow create a tax structure that will fund those services.

Unfortunately our leaders have been totally negligent in, well, leading us in the essential debate on the role of government.  It's easy to blame one side or the other, but in the end it's a two way street and all of our leaders are responsible, as are we for not calling "BS" on them a long time ago.  

I bring this up today because of a couple of news items that Ed Cone pointed to.  One is about Greensboro's budget gap, and the other is about the drastic service cuts that "tax averse" Colorado Springs is having to make. From the second article:

More than a third of the streetlights in Colorado Springs will go dark Monday. The police helicopters are for sale on the Internet. The city is dumping firefighting jobs, a vice team, burglary investigators, beat cops — dozens of police and fire positions will go unfilled.

The parks department removed trash cans last week, replacing them with signs urging users to pack out their own litter.

Neighbors are encouraged to bring their own lawn mowers to local green spaces, because parks workers will mow them only once every two weeks. If that.

Water cutbacks mean most parks will be dead, brown turf by July; the flower and fertilizer budget is zero.

City recreation centers, indoor and outdoor pools, and a handful of museums will close for good March 31 unless they find private funding to stay open. Buses no longer run on evenings and weekends. The city won't pay for any street paving, relying instead on a regional authority that can meet only about 10 percent of the need.

I don't know what the leaders of Colorado Springs have been saying about taxes and city spending over the last couple of years, but if that city is like the vast majority of the country the issue was framed as a choice between paying higher taxes so that "welfare mothers" could soak the system and lower taxes that would spur a dynamic business environment.  I'm simplifying, but hopefully I'm also making a point.  


For too long our leaders have failed to do the hard work of explaining the relationship between taxes and services.  I'm sure that if you asked the citizenry you could pretty quickly come up with a list of "must have" services like fire departments, police departments and public works departments.  The harder part is getting citizens to agree on what's more important; health clinics for the poor or one more park;  a new library or a homeless shelter; adding more lanes to the roads or starting a light rail system.  


That's where leadership comes in. Explain to us the consequences of choosing the library over of the homeless shelter, or if we choose both explain to us how that will affect our taxes.  We won't all agree on the priorities, but if we're engaged in a serious discussion and treated like the adults that we are, then maybe, just maybe, we'll re-elect you even when you make the unpopular but necessary decision to raise our taxes and give us a community to safely and happily live in.

One of Those Health Reform Arguments

One of the arguments I hear about health reform proposals is that it will inevitably lead to socialized medicine and eventually the only people who will get "good" doctors will be those who can afford to pay cash for access to them.  Well I hate to tell you but we've had a "have vs. have not" health system in place here in the US of A for quite a while and I'm pretty sure it's only going to get worse with or without reform.  Check out this piece from a Greensboro blogger (h/t to Ed Cone for the lead):

I recently received a form letter saying that Dr. James Kindl, my physician for the past two decades, is joining MDVIP, "a national network of physicians who focus on personalized preventative healthcare." His letter goes on to say "In order to provide enhanced proactive care, I will be reducing the size of my practice to no more than 600 patients who may join on a first-come, first-served basis."

What his letter doesn't say, and what doesn't become apparent until one goes to his new website and actually tries to sign up for his new practice, is that this members-only service has an annual fee of $1,500, and that this fee only pays for membership; all the usual charges will still apply, billed to your insurance company.

Right now if you don't have health insurance your "safety net" is the emergency room and they must treat you if you show up.  Unfortunately if you have any assets at all the provider will take them in return for services rendered and you'll end up without much to enjoy with your (hopefully) good health.  Of course there are the free clinics but those offer inconsistent care at best.  That's what I mean when I say that we are a nation of haves and have nots with regards to health care. I'm flummoxed by the arguments against reform that say we need to resist "socialized medicine" so we can keep seeing our doctors without interminable waits for service and we can continue to have access to cutting edge medical equipment.

As for the anti-reformers' warning that my taxes will go up with any kind of public option, well I have a hard time believing that the tax burden can be any worse that what my health insurer does to me each year.  Right now my health care burden is about 15% of my gross income and it is only that low because my family has been extraordinarily healthy the last couple of years (knock on wood) and since our premiums tend to rise at a higher annual rate than inflation or my wages then I'm fairly certain that my health care burden will be approaching 20% of my income within a couple of years.

I'm not necessarily arguing for the reforms currently being proposed by Congress, but I'm pleading for the powers that be to do something because we're drowning out here in the real world.  And don't get me started about the impact on small business because we could be here all day.