Archive for October, 2008

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Maybe the rich do work harder…

October 28, 2008

…but part of what they work at seems to be under-reporting their taxable incomes.  A paper (pdf) from economists Andrew Johns and Joel Slemrod estimates that folks with “adjusted gross income” below $50,000 understate their incomes by less than 7%, whereas those “earning” $200,000 to $1,000,000 understate by 21% or 22%.  One reason is that the government monitors some types of income very strictly, whereas others are virtually unrecorded.  So they estimate that 99% of the “tax liability” on wage and salary income actually shows up on the tax forms, compared to only 88% for capital gains, 48% for rent and royalty income and 28% for farm income. The research is based on 2001 tax year data.

It’s a bizarre subject to study. Researchers cannot know what “true income” actually is, but can only estimate it by looking at what IRS agents found in a sample of returns selected for intense audit.  One intriguing assumption they make is that the IRS examiner’s ability to find hidden income is correlated with her pay grade.

Very high income taxpayers, over $2,000,000, are estimated to have a much lower propensity to underreport than their $200K to $1 million brethren.  Do they hide less?  Perhaps, but there remains “the plausible possibility that the misreporting of upper-income taxpayers is more sophisticated and thus harder to detect.”

All the estimates of under-reporting are looking at the tax laws as they actually exist, and do not consider the various special-interest loopholes to be anything other than part of the rules (pretending, of course, that someone actually understands the income tax code).

A surprising result follows from the “progressive” nature of the income tax:  Even tho low income taxpayers hide relatively little income, their underreporting actually reduces their taxes by a much greater percentage than does that of the high income folks. [This is because, if your income is low, only a small part of it is actually subject to income tax.]

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Taxing your genes

October 27, 2008

might be the logical application of the “ability-to-pay” principle in a technologically advanced society.

[W]e consider how progress in genetics – specifically, the proliferation of knowledge about the human genome – may influence the feasibility and  desirability of a tax that is based on individual human endowments, or, to use the economist’s preferred term, a tax based on ability.

Too scary for me to read right now, but you can find the paper here.  I hope it turns out to be an Onion satire, but I’m afraid it probably isn’t.

From the U of Michigan Office of Tax Policy Research.

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How to thaw credit

October 26, 2008

That’s the title of the newest work from Mason Gaffney(pdf), who doesn’t like all the credit-creating and deficit-expanding by which our rulers pretend the economy will be healed.

New money without real goods behind it means inflation, more imports with fewer exports, devaluation, and a real risk that our foreign creditors will rebel.

So how to free up credit? Read the rest of this entry ?

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Can you measure what doesn’t happen?

October 20, 2008

If global warming is a problem, and if it can be restrained by reducing emissions of greenhouse gases, then Georgists suggest a tax on emissions would be the way to go.  Proceeds of this tax can be used to reduce taxes on productive activity, benefitting everyone who works.

The alternative “cap and trade” approach gives existing polluters a tradeable right to pollute, tho not quite so much as they have been doing.  These emitters can either clean up their operations, or buy credits from others who have reduced net emissions.

And that’s where the problem comes up, how do you measure emissions which didn’t occur?  Today’s WSJ describes how some landfill operators can get credit for capturing methane emissions from their facilities.  The fact that they might already be harvesting the methane and selling it is irrelevant, so WSJ considers that a “double-dip.”  The article notes that not all landfills are eligible, only those small enough that they aren’t legally required to capture methane.

Describing the experience of one Pennsylvania landfill operator, WSJ notes “its first carbon-credit sale, netting $26,600 after paying $11,900 in fees and commissions…”  31% of the revenue goes to the traders.  There’s the free market in action.

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What LVT is and why it is such a good thing

October 18, 2008

A “not so concise explanation of Land Value Tax and some brief responses to some of its most common objections” at Jock’s Place

A good balance between failing to adequately describe it and going beyond the readers’ attention span.  British, but comprehensible.

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Presidential candidate endorses Georgist reform– sort of

October 18, 2008

The present adjustment of Henry George’s celebrated land tax could also be considered.

From Ralph Nader’s position on taxation.  Unfortunately it’s so far down in the document that even folks who read the position won’t likely notice it.  And I don’t quite know what “present adjustment” means.  Earlier in the text he does seek to replace taxes on “work and consumer essentials” with taxes on “the clearly addictive industries (alcohol and tobacco), pollution, speculation, gambling, extreme luxuries…[and] [t]iny taxes (a fraction of the conventional retail sales percentage) on stock, bond, and derivative transactions…”  Can’t say I agree with all of this, but at least there is some recognition that taxing work is a bad thing, and that Henry George might have something to contribute to today’s tax debates.  Which, as far as I know, puts him ahead of the other candidates.

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Real estate tax inequities aren’t inherent

October 14, 2008

Last month I used Illinois Department of Revenue data to blog about the Cook County Assessor’s failure to properly value vacant land.  Our good buddies at the Civic Federation took that data a couple of steps further to estimate the effective tax rates (pdf) paid by homeowners in a dozen suburban Cook County communities.  The effective tax rate is the percentage of actual property value that is paid in taxes.  And, no surprise, the rates in Chicago Heights and Harvey are more than double the rates in Glenview and Barrington.

This discrepancy isn’t due to any inherent problem with the real estate tax, but may have something to do with the fragmentation of taxing units, particularly school districts.  Areas with relatively little taxable real estate need to collect a greater percentage of its value than do areas with a larger tax base, other things being equal.  But there’s no reason we couldn’t have an equalization system under which the strong-tax-base communities share revenue with the others, as has been done since 1971 in Minnesota.

It is said that lower-income neighborhoods have a greater share of their real estate value in improvements rather than land, in which case exemption of improvements from the tax would also tend to equalize the burden.

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