The anti-tax Tax Foundation gets a lot of attention each year when it announces its annual calculation for what it calls "Tax Freedom Day."
I don't understand why we're supposed to take this seriously. What they do, more or less, is divide total tax collections by total income to arrive at a rough estimate of the difference between gross pay and after-tax net income. They calculate what percentage of the total that difference is, then pretend the calendar is a pie chart. The difference between gross income and net take-home pay this year is about 28.2 percent, so "Tax Freedom Day" falls 28.2 percent of the way through the year, or April 13.
Ooookay. Um. So what?
This certainly doesn't mean what dozens of reports yesterday and today said it means — that everything you earn this year up until April 13 goes to taxes, but that everything you earn from April 14 on is yours to keep. That's silly and obviously not the case. That's not how taxes, or paychecks, or rent/mortgage and utility bills work. That's not how the economy or the world works. Most of us aren't paid in a single, annual paycheck. We get paid every two weeks, or every month, and something like 28.2 percent of our gross income from each paycheck goes to taxes while we keep the other 71.8 or-so percent.
The foundation's larger point is even sillier and more obviously not the case. They're suggesting that in a world without taxes, you'd get to take home 100 percent of your current gross pay, and that this larger income would have exactly the same purchasing power as it would have here in this world — the real world that you really live in.
The Tax Foundation's Bad Economics thus parallels something we've discussed here quite a bit regarding Bad Writing. One of the many failures of the Left Behind series is that they don't explore, appreciate or allow for the implications or repercussions of their own premise. The World's Worst Books begin with the disappearance of 2 billion people, including every child on earth, and yet the story from then on proceeds as though daily life, politics, culture and the economy were wholly unaffected by such a cataclysm.
The pseudo-economists of the Tax Foundation, likewise, propose a radical alteration of the world as we know it, but fail to explore, appreciate or allow for the implications of that alteration. They propose a world without taxes, which is to say a world without government. Yet in their very next breath they suggest that this alternate reality — this world without any taxes, without any government — would be so utterly similar to our current reality that easy comparisons can be made.
That's insane.
What they want to argue is something like this: Here in reality, the median hourly wage is roughly $15. Due to the burdensome and onerously oppressive existence of government and taxes, that means the median hourly take-home pay is something more like $10.75. Therefore, the Tax Foundation says, if we were liberated from the existence of government and taxes, someone now making $15 in gross pay would make $15 in net pay.
I don't know which half of that assumption is crazier — the idea that equivalent jobs would exist with equivalent wages in life Beyond Thunderdome, or the idea that $15 here would have exactly the same purchasing power as 15 units of whatever barter-currency the regional warlords would be accepting in the Hobbesian jungle of the Tax Foundation's idea of utopia.
Spend just five minutes thinking about all of the things that would not exist in anything like their present form in the post-apocalyptic anarchy of TF's alternate reality and you'll start to think that 28.2 percent might be something of a bargain for all that it yields in return.
Yet for all the crazy magical thinking underlying their annual press release on "Tax Freedom Day," the Tax Foundation always manages to garner lots of attention because journalists seem to find the gimmick irresistible. Ooh, look! Someone's using a calendar as a pie chart! Isn't that clever?
Not really. For example, the poverty line here in the United States is determined by the percentage of income a household spends on food. Households that spend more than 1/3 of their income on food are considered below the poverty line. So we could say, I suppose, that for poor families right on the poverty line, May 1 is Food Freedom Day.
I'm just not sure why we'd want to say that, though, since I'm not sure that "Food Freedom Day" is any more meaningful a bit of nonsense than "Tax Freedom Day" is.
More to the point, no matter what form of pie chart they use to express their data, I'm not sure the Tax Foundation can be trusted. In 2009, they say, "Americans will pay more in taxes than they will spend on food, clothing and housing combined." Really? They also tell us that, "This year … taxes will amount to 28.2 percent of our income."
Forget clothing — do your food and housing expenses combined add up to less than 28.2 percent of your household budget?
Probably not. According to the Center for Housing Policy, American homeowners in 2006 spent an average of 26.2 percent of their income on housing expenses, while renters spent an average of 29.4 percent. So do you think the average homeowner spends only 2 percent of their income on food and clothing? Do you really believe the average renter spends negative 1.2 percent of their income on food and clothing? Me neither.
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