An Interesting ‘Factoid’

According to Wallet Hub, a personal finance site

When Barack Obama won Indiana’s electoral votes in 2008, it was an anomaly: Indiana, which went Republican in every presidential election from 1968-2004, is one of the most conservative states in the Midwest and is much more Republican than Minnesota, Wisconsin, Illinois or Michigan. Pundits have often said that when it comes to politics, Indiana is “more southern than the South.” But the disdain that Indiana Republicans often express for “big government” rings false because according to Wallet Hub, Indiana receives $2.01 from the federal government for every federal tax dollar it contributes and receives 33% of its funding from Uncle Sam. Indiana Republicans can hate coastal Democrats all they want, but without the federal tax revenue Democratic areas generate, Indiana would have a hard time functioning.

It reminded me of this exchange from The West Wing (a show that has to rank as one of the all-time greats), during a Presidential campaign debate:

Governor Robert Ritchie, R-FL: My view of this is simple: we don’t need a Federal Department of Education telling us our children have to learn Esperanto, they have to learn Eskimo poetry. Let the states decide, let the communities decide on health care, on education, on lower taxes, not higher taxes. Now, he’s going to throw a big word at you – “unfunded mandate.” He’s going to say if Washington lets the states do it, it’s an unfunded mandate. But what he doesn’t like is the federal government losing power. But I call it the ingenuity of the American people.

Moderator: President Bartlet, you have 60 seconds for a question and an answer.

President Josiah “Jed” Bartlet: Well, first of all, let’s clear up a couple of things. “Unfunded mandate” is two words, not one big word. There are times when we’re fifty states and there are times when we’re one country, and have national needs. And the way I know this is that Florida didn’t fight Germany in World War II or establish civil rights. You think states should do the governing wall-to-wall. That’s a perfectly valid opinion. But your state of Florida got $12.6 billion in federal money last year – from Nebraskans, and Virginians, and New Yorkers, and Alaskans, with their Eskimo poetry. 12.6 out of a state budget of $50 billion. I’m supposed to be using this time for a question, so here it is: Can we have it back, please?

If Hoosiers had to give back the excess funds we get from the Feds, we’d be up that proverbial creek without that equally proverbial paddle….


Are We Really Talking About Taxes?

I’m beginning to suspect that all the anger/righteous indignation/resentment directed at the subject of taxes isn’t really about taxes at all.

If Americans were really discussing the tax system, surely they would know more about it. And I’m not just referring to the ludicrous arguments being made by the televised talking heads in the wake of the healthcare decision. (Hint: the Supreme Court ruled that the imposition of a penalty for noncompliance was an appropriate exercise of Congress’s taxing power–they didn’t rule that the penalty was a tax.) I’m talking about far more basic information.

A recent poll of Tea Party folks found that 90% of them believed taxes had either gone up or remained flat under Obama; only 2% answered (correctly) that taxes had gone down, which they have for 95% of American taxpayers. Bill Maher noted the irony: members of an organization formed to oppose taxes and named after a historical group known for its anti-tax activism don’t know whether taxes have gone up or down.

Nor is this an anomaly. Discussion of taxes rarely include definition of the term. So people will assert, with a straight face, that “the bottom half” of Americans “don’t pay taxes.” This is hogwash–they pay lots of taxes. Poor people may not make enough money to owe federal income taxes, but they pay federal payroll taxes, gas taxes, sales taxes, utility taxes, property taxes (even renters pay property taxes, which are part of the rent)…In fact, the percentage of their income that the poor pay in state and local taxes is far higher than the percentage paid by the wealthy.

So–we have people who don’t know whether taxes have increased or decreased, and pundits whose calculations of the tax burden conveniently or mistakenly leave numerous taxes out of the equation. But my biggest pet peeve is the folks who discuss tax rates without distinguishing between the marginal rate and the effective rate.

Right now, we are arguing about the wisdom of returning to the marginal rates under Clinton–approximately 39%. Listen to the bloviators on your favorite talk show and you are likely to get the impression that such a rate translates to taking 39% of the taxpayer’s income in taxes. Of course, it means no such thing. It means that once an individual has made enough to be in the highest income bracket, each dollar in that bracket will be taxed at that rate. The effective rate is the actual percentage of overall income paid, after averaging out the rates applied to each income bracket. That–plus lots of loopholes aka “incentives”–is why Mitt Romney’s effective rate was in the neighborhood of 13%, and why corporations that are theoretically subject to 30%+ tax rates actually paid 12.6% in 2008.

My point here is not to advocate for any particular tax policy–we can all agree or disagree about what an optimum tax system would look like. My concern is more basic. It seems to me that if we were really arguing about taxes, we would know much more about them. And if we aren’t really arguing about taxes–if taxes are just a useful surrogate for whatever it is that actually has our collective panties in a bunch–what is that sore spot?

What’s the real source of our sour national disposition?