Fiscal responsibility? Or Fiscal lying?

I saw a local political advertisement last night, in which two women are in a diner, talking. One has had a fight with her husband, because she broke the family budget by spending too much on the kids’ school supplies. It seems that she had been hoping the STAR rebate check would come in to cover it.

STAR — the New York State School TAx Relief program — is a program that reduces school taxes for homeowners. The first $30,000 of the assessed value of your primary residence, if you own it, is not subject to school tax (and there are further rules for older people).

In the ad, after the two women set up the situation, the waitress comes over:

Waitress: So, what can I get you girls?

Woman: How about my STAR rebate check? [Smirks.]

Waitress: Can’t help you there. Last year, Senator Suzi Oppenheimer did away with them. [She enunciates the senator’s name especially clearly.]

Woman: So, while I’m trying to make ends meet, Senator Oppenheimer is making it even harder?

Waitress: Can you believe it?

Voice over: Paid for by New Yorkers for Fiscal Responsibility.

Can you believe it, indeed? You shouldn’t.

First, of course, Senator Oppenheimer did nothing all by herself. The New York State Senate has 62 members, and any repeal has to pass with a majority vote.

But what is it that they did away with, according to the advert? The STAR program?

No, look at it carefully. They did away with the STAR rebate checks. The program is still there, reducing our school tax just as it had been.

[Update, 16:00: I’ve made an important error below, and part of the tax reduction has been repealed. Please see the comments.]

See, what used to happen is that we had to pay the full tax, and we had to apply for the rebate. And then, later, the state would send us rebate checks. But that meant that we paid the money up front and got it back later. It also meant that the state had to spend a lot of money processing applications and issuing checks.

What has changed is that we keep the money all along. The STAR rebate has now become a STAR exemption, and it’s calculated into our school taxes from the beginning. There’s no rebate check because we never had to pay the money in the first place. That’s better than a rebate check, and it saves the state a significant expense.

That sounds like fiscal responsibility to me. And this group with the misleading ad is just full of crap.

Sales tax and the Internet

It’s long been popular to buy things mail-order from an out-of-state concern, in order to avoid paying sales tax on the items. Mail-order houses are often not required to charge out-of-state customers sales tax, the shipping charges are usually less than the sales tax would have been (and are sometimes waived entirely), and consumers think they’re getting away without paying sales tax.

What we often didn’t know is that when sales tax is not charged and paid to the state by the seller, the buyer is legally responsible for paying it anyway. We didn’t know that because states didn’t generally publicize that fact, and didn’t enforce it either.

New York decided to start enforcing it a few years ago. The trouble is that now they’re doing some double dipping.

First they set up a new line on the state income tax form, a line for declaring “sales or use tax” that you owe. Here’s the line from the 2009 tax form:

The instructions explicitly forbid you from leaving that line blank — you can fill it in with zero, but that has to be explicit, and there’s a strong implication that doing so might result in an audit. Here’s the applicable page from the instructions (PDF), and here are some excerpts:

You owe sales or compensating use tax if you:

• purchased an item or service subject to tax that is delivered to you in New York State without payment of New York State and local tax to the seller; or
• purchased an item or service outside New York State that is subject to tax in New York State (and you were a resident of New York State at the time of purchase) with subsequent use in New York State.

[...]

An unpaid sales or use tax liability commonly arises if you made purchases through the Internet, by catalog, from television shopping channels, or on an Indian reservation, or if you purchased items or services subject to tax in another state and brought them back to New York for use here.

Example 1: You purchased a computer over the Internet that was delivered to your house in Monroe County, New York, from an out-of-state company and did not pay sales tax to that company.

Example 2: You purchased a book on a trip to New Hampshire that you brought back to your residence in Nassau County, New York, for use there.

[...]

Failure to pay sales or use tax may result in the imposition of penalty and interest. The Tax Department conducts routine audits based on information received from third parties, including the U.S. Customs Service and other states.

Then they give you a nice, convenient table that shows how much sales and use tax you should pay if you want to take the easy way out and not have to document everything: $23 if your adjusted gross income is between $30,000 and $50,000, for example, and $44 if your AGI is between $75,000 and $100,000.

And that’s all fine for what it is: it’s always been the law that these taxes be paid — though we can certainly argue that the example of buying a book while on a trip to New Hampshire is stretching the point too far (and they picked New Hampshire because that state has no sales tax of its own) — and this is a convenient way for the state to enforce it, and for the taxpayers to cope with it.

Is it “fair”? $44 represents, at my local tax rate, sales tax on about $600 worth of purchases. So they’re assuming that someone making, say, $90,000/year will buy around $600 worth of things by mail order (to oversimplify a bit). Just using my own purchases from 2009 as a guide, that seems close enough, though, obviously, different people will have vastly different purchase patterns. Some people buy a lot of things online, and some do almost none of their shopping that way.

But then New York did something else. They passed a law requiring that out-of-state companies that sell products to be shipped to New York charge sales tax on those purchases, and remit the tax to New York. The result was that some sellers stopped selling to New York residents, and others, such as Amazon, started adding New York sales tax to the bills.

In 2009, all of the out-of-state purchases I made were from vendors that charged me New York sales tax. Yet there’s still that pesky line 59 on the tax form, isn’t there? I put a zero on that line, but they’re clearly trying to intimidate us into not doing that, and into using the table to determine what should go there.

But if we do that, we are, for the most part, being taxed twice for our Internet purchases. By having both the new law and line 59 on the tax form (along with the ominous text in the instructions), New York state is trying to have it both ways, to have the vendors tax us and to have us voluntarily pay the tax again when we file our income taxes.

That’s why I can’t fully agree with the New York Times editorial blasting Amazon for resisting New York’s efforts. Amazon’s reasons may seem lame, but it’s trying to keep things equitable.

The right answer is for all vendors to charge sales tax, and for the state to stop trying to extort it from us after the fact.

Marginal tax brackets

As we’ve just had income tax time in the U.S., I’ve been hearing a bunch of silliness associated with it. I thought I’d talk about two of my favourite (well, for some value of “favourite”) tax fallacies.

It doesn’t pay for me to get a raise! It’ll just put me in a higher tax bracket, I’ll pay more taxes, and in the end I’ll wind up making less than I did before.

I haven’t worked out every possibility, and maybe there’s really a way that can happen, but I can’t imagine what it could be. The “tax brackets” in the U.S. are marginal — you only pay the higher tax on the portion of your income that put you into the next bracket.

Let’s suppose you’re single and your taxable income is $33,000 in 2009. You’re in the 15% tax bracket. A 3% increase in your taxable income would make it $33,990, and that would put you into the 25% tax bracket. 15% tax on $33,000 would be $4,950. 25% tax on $33,990 would be $8497.50. The difference is more than $3500, well more than your rise in pay!

Only, that’s not the way the tax works. In fact, for 2009 you pay 10% on the first $8,350 of taxable income, and only pay the 15% on the amount between that and $33,950. And the 25% is only levied on any amount between $33,951 and $82,250.

So, in the example above, the tax bill at $33,000 of taxable income would be 10% of $8,350 ($835) plus 15% of $24,650 ($3,697.50), totalling $4,532.50. And the tax on $33,990 would be 10% of $8,350 ($835) plus 15% of $25,600 ($3,840), plus 25% of only $40 ($10), totalling $4,685. The guy’s taxes went up by $152.50. [Corrected; thanks, Ray, for pointing out privately that I put the wrong number here.]

I’m sure he wasn’t thrilled to pay that extra money, but it didn’t come anywhere close to eating up the whole $990 raise: he still came out with more than $800 more in his pocket.

Variant 1: Yay! I’m getting a big refund this year. That’s great!

Variant 2: Oh, no! I have to pay the feds $1000. That’s horrible! I’d rather get money back.

When you get a tax refund, you have given the government a free loan of your money. On the other hand, if you get more in each paycheck and wind up paying a bit of money at tax-filing time, then you have had the use of more of your money in the interim. Doesn’t the latter seem to make more sense, when you look at it that way?

À chacun, son goût, of course, but I’d much rather pay a little bit in April, knowing that it means that my money was mine that much longer.

Some people worry that if they set it up so that they owe money, when it comes time to pay it they won’t have it to hand. An easy way to fix that is to open a bank account just for that purpose, and “withhold” your own taxes — put a certain amount into that account with each paycheck. You still have the money, and it’s earning interest for you. You can invest it any way you like, as long as you can turn it into cash by 15 April.

Separation of Church and Tax

The New York Times recently had a long-ish article on how churches came together to defeat California’s Proposition 8 — especially the Mormon church, but not just that one:

First approached by the Roman Catholic archbishop of San Francisco a few weeks after the California Supreme Court legalized same-sex marriage in May, the Mormons were the last major religious group to join the campaign, and the final spice in an unusual stew that included Catholics, evangelical Christians, conservative black and Latino pastors, and myriad smaller ethnic groups with strong religious ties.

Shortly after receiving the invitation from the San Francisco Archdiocese, the Mormon leadership in Salt Lake City issued a four-paragraph decree to be read to congregations, saying “the formation of families is central to the Creator’s plan,” and urging members to become involved with the cause.

“And they sure did,” Mr. Schubert said.

And, yet, despite the political clout that these churches wield, despite the money they caused to be raised to limit the civil rights of a group of people, despite the obvious activism of church officials, all of these churches enjoy tax-exempt status as religious institutions.

Now, the churches, of course, are well aware of the problem:

Leaders were also acutely conscious of not crossing the line from being a church-based volunteer effort to an actual political organization.

“No work will take place at the church, including no meeting there to hand out precinct walking assignments so as to not even give the appearance of politicking at the church,” one of the documents said.

That, though, is no more than the thinnest veneer of separation; it certainly doesn’t convince me of anything (and the fact that they’re trying to smooth it over that way makes me question their ethics). Churches are clearly involved in political action, and not just on this issue. And it’s only natural that they be so: they are gathering points for groups of people who share common ideals, and, likely, common political views. It makes sense that they would use those gathering points as places to recruit people sympathetic to a political cause.

The problem is that they do that and still enjoy exemption from taxes. That’s abuse of the system.

I don’t agree with the general question of tax exemption in the first place. It is not, in any reasonable sense, state interference to require religious organizations to pay the same sorts of taxes that any other organizations would pay. Property taxes should certainly be levied on church land and buildings.[1] Income taxes should certainly be due on huge profits that are not fed back into charitable works (Lord knows, there are certainly some people making it rich by preaching The Word, whether or not those people stand in front of your particular congregation). It must be fair, of course: their tax bill has to be the same as a non-religious organization’s would be in the same situation.

In fact, quite the opposite: exempting “approved” religious organizations from taxes only serves to give them preference over other religious organizations to which we don’t give our approval. Why would the followers of Martin Luther get the nod, while those of David Koresh or Jim Jones not? If those are too far “out there”, what about Sun-Myung Moon and his Unification Church; what about the Church of Scientology? Scientology’s tax-exempt status in the U.S. is certainly full of controversy, and their status as an accepted “religion” in different countries varies.

The point is that as soon as we decide that her religion gets tax-exempt status and his doesn’t, even if it’s the case that pretty much all of us agree on the relative legitimacy of the two, we have interfered by making that decision.

But even if you accept the concept of exempting religious organizations from paying taxes in order to avoid government interference in religion, how can you accept, at the same time, obvious religious interference in the workings of the government, and in the laws the government creates?
 

---

[1] Though, to be realistic, it’s not clear how one assesses the value of some of the massive churches, cathedrals, and temples that are around and about.

Are tax laws “biblical”?

The New York Times headline is provocative: Professor Cites Bible in Faulting Tax Policies. The blurb in the Atom feed also piqued my curiosity.

The work of a professor at the University of Alabama Law School has prompted some other scholars to scour religious texts to explore the moral basis of tax and spending policies.

My first thought was, “Yeah, right. Let’s try to fit one more bit of modern society into a millennia-old fanciful storybook.”

Professor Susan Pace Hamill teaches at the University of Alabama Law School and “holds a degree in divinity from a conservative evangelical seminary” (to which my first thought was, “A degree in what? And how does that qualify her for anything?”; but to continue on that path would be a significant digression, so let’s stay on track here).

Professor Hamill asserted that 18 states seriously violate biblical principles in the way they tax and spend. She calls Alabama, Florida, Louisiana, Nevada, South Dakota, Texas “the sinful six” because they require the poor to pay a much larger share of their income than the rich while doing little to help the poor improve their lot.

Professor Hamill’s point is that the bible represents “the moral compass chosen by most Americans”, and so it makes sense to compare public policy with that “moral compass”, and see how it measures up.

OK, this seems as good a place as any to point out that we generally “seriously violate biblical principles” all over the place, by not keeping slaves, not beating disrespectful children to death, and other sorts of things like that. Of course, there are those who think that more’s the pity with regard to those too, but, well, we generally consider them to be right nutters.

In other words, it should surprise no one that public policy, made recently and by legislators with many yokes of oxen to gore, does not match some biblical “ideal”, which if you looked at it at all closely wouldn’t turn out to be ideal anyway. We’ve tossed out a load of things that we’d consider barbaric in today’s light. We’ve eschewed plenty of things that, while they still exist in our morality, don’t have a place in our system of laws. And we’ve made some mistakes along the way, of which the tax laws she cites might be examples.

And then she jumps right off the deep end, with the fallacy that we’re amoral without religion to keep us in line:

“The Bible commands that the law promote justice because human beings are not good enough to promote justice individually on their own,” she said. “To assume that voluntary charity will raise enough revenues to meet this standard is to deny the sin of greed.”

Bull. Shit.

There are greedy people, indeed. There are also robbers and murderers and child molesters. But most of us are none of those. Even if we stipulate that there’s some aspect of greed in all of us, most of us still, as individual human beings, have enough of a moral foundation to do what’s right most of the time, and to take a part in helping people. Some of us get the motivation for that from religion, and some of us do not. But I don’t think for a moment that if religion were out of the picture, we’d round up all the homeless and push them into the East River.

I’m often puzzled that the New York Times gives ink to this sort of junk.

Oops. I just did too.

The alternative minimum wealthy

On the Brian Lehrer show, yesterday on WNYC, the local public radio station, Brian talked with Alvin Hall, “personal finance expert and author of You and Your Money: It’s More Than Just the Numbers.” As they took calls from listeners, they got into comments about the alternative minimum tax. Listen to the segment 15:23 into the audio stream, where they take a call from Helen in Manhattan:

Helen: I have a kind of political take on this. My husband and I together earn a little over $200,000 a year, and we’re constantly getting stuck with the alternate [sic] minimum tax. And of course, we don’t get help on college tuition, and we have high property taxes, so... we’re not rich. So I checked the New York Times cost of living comparison, and I saw that $200,000 in New York is really a middle-class income elsewhere in the country. And the alternate minimum tax seems to hit hardest on people living in big cities, in cost-of-living areas. And they also happen to be heavily Democratic areas, so I’m wondering if it may be a disincentive to the Republicans to adjust the... or abolish the alternate minimum tax because it seems that they’re hitting the hardest on the urban middle class, and I know if you’re making $30,000 a year, $200,000 sounds like a lot, but when you do...

Brian: And... but, to be fair, I think at $200,000 you’re probably in the top 5% of earners in this area.

Alvin: Yes, you are... yes.

Helen: Well, in the... in the area, but I notice that after we’ve paid all of our bills, and we’ve paid our property taxes, which are about $20,000 a year, and we pay our college tuition, and we pay for our medical insurance because we don’t get help... uh, much help because we’re professionals, and obviously our...

Brian: I hear what you’re saying, and I have to go because we’re running out of time, but... we just have 30 seconds left, Alvin. Is it in effect a “blue state” tax?

Alvin: It does seem that way, given the number of people who are hit in these areas, but in reality it’s much more general than that. It’s that we feel it more because the cost of living here is higher for us. Whether you’re earning that money in California, Kansas, or Missouri, you’re gonna get hit with that tax.

Now, Alvin Hall sort of ignored Helen’s point in his answer: what she’s saying is that the amount of income that qualifies as “Holy crap, you make how much?” varies based on where you live, and that someone earning that money and living in Kansas can afford to toss some extra money Uncle Sam’s way, whereas in New York the money doesn’t take one as far.

And that’s true enough: it does cost more to live in New York City than in many other places.

What’s also true, though, is that people like Helen are exactly those for whom the alternative minimum tax was designed: people who make lots of money and have an unreasonable sense of entitlement about it. Helen, really, how can you take a thought like, “I know if you’re making $30,000 a year, $200,000 sounds like a lot,” and stick a “but” after it?

There’s no “but” on that one, Helen. I’m awfully sorry that your property taxes are bothering you, that those designer cocktail dresses kind of run into some real money, and that you can only see three plays a week, I really am. But, as Mr Lehrer says, you’re already in the 95th percentile in income, even for New York City, and be honest here: you do have some money tucked away in long-term investments, hm? Yes, there you go, I knew you did.

And you gave yourself away there, with that “I know... but” statement. Because you do know, and yet you think you deserve a break anyway. Helen, you and the Mister already have all the breaks. Be very happy that you can send the kids to Columbia and Cornell (I know you’re not talking about college tuition at CCNY), drive a couple of expensive German cars, and still have an occasional meal at Le Bernardin.

While you’re thinking about that, have a glance at the lady who cleans your apartment. She’s got no college tuition to worry about, because even CCNY for her kids is just not in the budget. No property taxes, because she can’t afford to buy. Probably no health insurance either, nor much in her savings account. She takes the bus, and her rice-to-meat ratio is very different to yours. And she lives in New York City too.