California: The Exodus of the Affluent

 Don Lee at LAT: 

In 2021 and 2022, about 750,000 more people left the state than moved in, according to recently released Census Bureau data. That was about as many as the total net loss of residents for all five years before the COVID-19 pandemic in early 2020.

But it’s not just the sheer numbers of people who have left. What’s different is that in each of the prior two years, more than 250,000 Californians with at least a bachelor’s degree moved out, while an average of 175,000 college graduates from other states settled in California, according to an analysis of census data by William Frey, a demographer at the Brookings Institution.

In prior periods over the last two decades, that balance was about even or slightly in California’s favor, even though the state consistently lost many more residents overall to other states than it gained from them. The recent out-migration has been particularly pronounced among Californians with graduate and professional degrees.

California is heavily dependent on high earners to meet government fiscal needs. Tax filers in the top 1% of income, earning around $1 million and above, have typically accounted for 40% to 45% of the state’s total personal income tax revenue, said Brian Uhler, deputy legislative analyst at California’s Legislative Analyst’s Office, which estimated the $68-billion budget deficit.
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In the tax filing years 2020 and 2021, the average gross income of taxpayers who had moved from California to another state was about $137,000. That was up from $75,000 in 2015 and 2016, according to migration and personal income data from the Internal Revenue Service.

IRS and other data show that Texas has long been, by far, the top destination for Californians. And in the years 2015-16, an individual or couple who had moved from California to Texas reported an average income of $78,000, about the same as Texans who relocated to California. But by 2020-2021, California transplants in Texas reported an average income of about $137,000, while tax returns from former Texans who moved to California showed an average income of $75,000.

The income gap between those coming into California and those going out is even bigger when it comes to Florida, which, as far away as it is, has become a top five destination for emigrating Californians. Statistics show more older Californians are likely to move there. Florida, like Texas and Nevada and Tennessee, another more recent hot spot for Californians, doesn’t have a personal income tax.

In California, the top tax rate for personal income is 12.3%.

Progressivity

Timothy Vermeer et al. at the Tax Foundation:

• The U.S. system of taxes and transfers is highly progressive.
• Measuring comprehensive income, inclusive of market-based income and government taxes and transfers, illustrates the total fiscal burden created by a fiscal system.
• Income transfer programs amplify the U.S. federal tax system’s progressivity, move the state and local system from moderate regressivity to moderate progressivity, and result in a highly progressive fiscal system overall.
• The lowest quintile experienced a combined tax and transfer rate of negative 127.0 percent, meaning that for each dollar they earned, they received an additional $1.27 from the government, netting transfers (gains) and taxes (losses), while the top quintile had a rate of positive 30.7 percent, meaning on net they paid just under $0.31 for every dollar earned.
• The top quintile funded 90.1 percent, or $1.6 trillion, of all government transfers in 2019. For each dollar of taxes paid, the top quintile received $0.11 in gross government transfers.
• Government transfers account for 59 percent of the bottom quintile’s comprehensive income. For each dollar of taxes paid by the bottom quintile, they received $6.17 in gross government transfers.
• Before transfers, total effective fiscal incidence rates were generally progressive: 24.6 percent for the bottom quintile, 24.7 percent for the middle quintile, and 34.5 percent for the top quintile.
• After transfers, total effective fiscal incidence rates were markedly progressive: 10.1 percent for the bottom quintile, 22.4 percent for the middle quintile, and 41.4 percent for the top quintile.
• Including transfers in income decreased the effective state and local fiscal incidence rate for the bottom quintile by more than 11 percentage points to 7.8 percent. The middle quintile saw a 1 percentage point decrease to 9.9 percent, while the top quintile saw an increase of 2 percentage points to 12.1 percent.
• About one-sixth of the tax burden borne by households in the lowest quintile is not personal taxes—like income, sales, and property taxes—but taxes remitted by businesses that are economically borne by taxpayers—like corporate income taxes, tariffs, severance taxes, and a variety of taxes on capital. Property taxes account for nearly one-third of the tax liability for this cohort, which includes both property taxes remitted directly by lower-income homeowners and those borne indirectly by renters.

New York and California are Losing Affluent Taxpayers

 Justin Fox at Bloomberg:

New York has been losing people to other states for a while. But something new happened during the pandemioc: The people who left had higher incomes than those who stayed behind — much higher.

The 2020-21 numbers here were released in late April by the Internal Revenue Service. They sort taxpayers by whether and where they moved between filing their taxes in 2020 and filing them in 2021; the adjusted gross incomes are for the 2020 tax year. It has been two years since May 17, 2021 — that year’s belated income tax filing deadline — and a lot has changed. But New York has continued to lose population, and if the trend depicted above were to continue, even in less extreme form, it would be disastrous for the finances of a state that relies on income taxes paid by those making $200,000 or more a year for almost half its revenue. (That is, before the pandemic in 2019, personal income taxes accounted for 65% of state revenue, and those making $200,000 or more paid 71% of the income taxes.)

...

The role of taxes in driving interstate migration is often exaggerated, but it’s not nothing. In a couple of recent papers, Joshua Rauh of the Stanford Graduate School of Business has shown that the percentage of very-high-income taxpayers leaving California jumped in the wake of one, a 2013 increase in the state’s top income tax rate, two, the 2017 Tax Cuts and Job Act’s curtailing of state and local tax deductions and three, the pandemic. Still, that’s not many people and for years those leaving California and New York have been mainly lower— and middle-income residents for whom expensive housing and other cost-of-living issues probably played a bigger role than tax rates per se.

In New York, the initial pandemic exodus was led by those who could afford to leave quickly and could work remotely. The composition seems to have shifted since then, with affluent Manhattan gaining population from mid-2021 to mid-2022, according to Census Bureau estimates, and the state’s poorest county, the Bronx, losing the biggest percentage of population. (The recent New York Times analysis showing an accelerating exodus of college graduates from the New York City metro area relies on different Census numbers that aren’t available yet for 2022.) New York has been finding all sorts of different ways to drive away all sorts of different people — and it looks as if that’s about to start seriously hampering the state’s ability to pay its bills.

Prop 13 and Education in California

 From The Orange County Register

The U.S. Department of Education publishes data on per-pupil spending in public elementary and secondary schools by state and by year, comparing the annual spending in constant 2021-22 dollars. The data can be found online in the National Center for Education Statistics’ Digest of Education Statistics, in table 236.70.

In the 1969-70 school year, California’s per-pupil spending was $6,474. (That’s the inflation-adjusted number. The nominal dollar amount at the time was $867.)

Proposition 13 was adopted in 1978. In the 1979-80 school year, per-pupil spending in California went up to $8,238. It rose to $9,752 in 1989-90, to $10,663 in 1999-2000, and to $12,596 in 2009-10.In 2019-20, the most recent year for which statistics are available on the U.S. government site, per-pupil spending in California was $15,860.

The state’s Department of Finance projects per-pupil spending will be $17,444 for the nearly 5.9 million students enrolled in grades K-12 in California’s public schools in 2023-24.

According to the May revision of the governor’s budget, the state will spend a total of $127.2 billion on K-12 education.

Anyone who believes California would be better off if only we could go back to the school funding level before Proposition 13 should consider this: If per-pupil spending was restored to the pre-Proposition 13 level in 1969-70, the state’s total spending on K-12 education for 2023-24 would be approximately $38.2 billion.

That’s $89 billion less than we’re paying now.

Maybe the Legislature should focus on where the money is going.

Marijuana Policy Problems

 Zusha Elinson  and Jimmy Vielkind at WSJ:

The illegal marijuana trade is booming in California, seven years after the state legalized its possession, cultivation and distribution. Unlicensed sales totaled $8.1 billion last year, dwarfing legal sales of $5.4 billion, according to estimates by New Frontier Data, a cannabis analytics firm.

Lawmakers in New York are concerned their state is headed in a similar direction. New York legalized cannabis possession in small amounts in 2021. Two years later, just five shops sell marijuana legally in New York City, while 1,400 bodegas, smoke shops and other outlets without licenses do, according to an estimate by the city sheriff.

The persistence of the illegal pot business in the face of state legalization reflects a variety of forces. Slow rollouts of dispensary licenses leave unmet demand that unlicensed outlets are happy to serve. Police and prosecutors, facing pressing problems such as violent crime, give little priority to stopping illegal pot. And high taxes on legal sales fan the embers of illicit ones.

“When you start seeing tax rates that are approaching 30 to 40 percent on products, it’s really going to be difficult to compete against the remnants of an illegal market,” said Mason Tvert, a consultant who played a role in several state campaigns to legalize cannabis.

Some of the 22 states that have legalized marijuana possession have had better luck extinguishing the black market, said industry observers, because they have permitted more legal retail shops, streamlined the process of going legal or didn’t have such entrenched networks of dealers or growers at the outset. At the federal level, marijuana remains illegal.

Income Taxes Are Progressive

As many posts have pointed out, the federal tax system is more progressive than many people believe:

 

Explore the latest federal income tax data: https://t.co/jJhzcDRWei @ericadyork

— Tax Foundation (@TaxFoundation) February 15, 2023

CBO data:

Average Federal Tax Rates, by Income Group, 1979 to 2019

Abusing the IRS

Previous posts have discussed the IRS.  The story below has precedents.

Michael S. Schmidt at NYT:

While in office, President Donald J. Trump repeatedly told John F. Kelly, his second White House chief of staff, that he wanted a number of his perceived political enemies to be investigated by the Internal Revenue Service, Mr. Kelly said.

Mr. Kelly, who was chief of staff from July 2017 through the end of 2018, said in response to questions from The New York Times that Mr. Trump’s demands were part of a broader pattern of him trying to use the Justice Department and his authority as president against people who had been critical of him, including seeking to revoke the security clearances of former top intelligence officials.

Mr. Kelly said that among those Mr. Trump said “we ought to investigate” and “get the I.R.S. on” were the former F.B.I. director James B. Comey and his deputy, Andrew G. McCabe. His account of Mr. Trump’s desires to use the I.R.S. against his foes comes after the revelation by The Times this summer that Mr. Comey and Mr. McCabe had both been selected for a rare and highly intrusive audit by the tax agency in the years after Mr. Kelly left the White House.

Mr. Trump has said he knows nothing about the audits. The I.R.S. has asked its inspector general to investigate, and officials have insisted the two men were selected randomly for the audits.

Mr. Kelly said he made clear to Mr. Trump that there were serious legal and ethical issues with what he wanted. He said that despite the president’s expressed desires to have Mr. Comey and Mr. McCabe investigated by the I.R.S., he believes that he led Mr. Trump during his tenure as chief of staff to forgo trying to have such investigations conducted.

After Mr. Kelly left the administration, Mr. Comey was informed in 2019 that his 2017 returns were being audited, and Mr. McCabe learned in 2021 that his 2019 returns were being audited. At the time both audits occurred, the I.R.S. was led by a Trump political appointee.

Mr. Trump regularly made his demands in response to news reports in which he thought his perceived enemies made him look bad. The president would carry on about having them investigated to the point that Mr. Kelly thought he needed to tell the president that what he wanted was highly problematic, explaining, in sometimes heated conversations, that what Mr. Trump wanted was not just potentially illegal and immoral but also could blow back on him.

Not Enforcing the Johnson Amendment

John R. Vile at The First Amendment Encyclopedia:

.The Johnson Amendment is an addition, adopted in 1954, to the Internal Revenue Code, 501(c)(3). As a condition for maintaining exception from income taxes and other taxes, charitable organizations including churches and affiliated groups, were forbidden from participating or intervening in “any political campaign on behalf of (or in opposition to) any candidate for public office” (Davidson 1998, 17).

The amendment is named after then Senator (later President) Lyndon B. Johnson, who introduced the amendment out of concern about the Facts Forum and the Committee for Constitutional Government. Both were tax-exempt organizations that had imitated the tactics of Senator Joseph R. McCarthy (R., WI) in campaigning against politicians like Johnson who were more liberal in their political orientations

Jeremy Schwartz and Jessica Priest at The Texas Tribune:

At one point, churches fretted over losing their tax-exempt status for even unintentional missteps. But the IRS has largely abdicated its enforcement responsibilities as churches have become more brazen. In fact, the number of apparent violations found by ProPublica and the Tribune, and confirmed by three nonprofit tax law experts, is greater than the total number of churches the federal agency has investigated for intervening in political campaigns over the past decade, according to records obtained by the news organizations.

In response to questions, an IRS spokesperson said that the agency “cannot comment on, neither confirm nor deny, investigations in progress, completed in the past nor contemplated.” Asked about enforcement efforts over the past decade, the IRS pointed the news organizations to annual reports that do not contain such information.

...

Among the violations the newsrooms identified: In January, an Alaska pastor told his congregation that he was voting for a GOP candidate who is aiming to unseat Republican U.S. Sen. Lisa Murkowski, saying the challenger was the “only candidate for Senate that can flat-out preach.” During a May 15 sermon, a pastor in Rocklin, California, asked voters to get behind “a Christian conservative candidate” challenging Gov. Gavin Newsom. And in July, a New Mexico pastor called Democratic Gov. Michelle Lujan Grisham “beyond evil” and “demonic” for supporting abortion access. He urged congregants to “vote her behind right out of office” and challenged the media to call him out for violating the Johnson Amendment.

Andrew Whitehead, a sociologist at the University of Indiana-Purdue, who studies Christian nationalism, said the ramping up of political activity by churches could further polarize the country. “It creates hurdles for a healthy, functioning, pluralistic democratic society,” he said. “It’s really hard to overcome.”

Debt: Pay Now or Pay More Later

CBO analyzes the effects of waiting to stabilize the federal debt.

• Regardless of when the process was begun, stabilizing federal debt as a percentage of GDP would require that income tax receipts or benefit payments change substantially from their currently projected path.
• The longer policymakers waited to implement a policy change, the more debt would grow in relation to GDP, and the greater the policy changes needed to stabilize it would be.
• If the option of increasing income tax rates was chosen, the effects of delaying implementation would be greater than they would be under the option of cutting benefits: Increases in interest costs would be larger, GDP and household consumption would be lower, and debt as a percentage of GDP would be higher in the long run.
• Under either option, the negative effects of delaying the implementation of policy changes on people’s consumption and labor supply would be disproportionately borne by younger people and lower-income people.

 

Tax Returns Were Briefly Public Documents

 Ronald G. Shafer at WP:

As Americans send off their tax returns by Monday’s deadline, they don’t have to worry about their neighbors knowing how much they earned or paid. But for a while in the 1920s, everybody’s tax payments were public records for all to see. And the richest Americans were not happy about it.

One goal of the 1924 tax publicity law was to show whether wealthy Americans and large corporations were paying their fair share of taxes. Newspapers published big stories on the first release of tax payments. Oil heir John D. Rockefeller Jr. was America’s biggest taxpayer, with a tax bill of $7,435,160.41, equal to about $123 million now. Next was automaker Henry Ford, who paid $2,467,400.10, or $41 million today. Douglas Fairbanks and Gloria Swanson were the highest-paying movie stars. Incomes weren’t disclosed, though they could be roughly inferred.

The Big Reveal was short-lived. In 1926, Republican President Calvin Coolidge, under pressure from rich taxpayers, got Congress to end the public tax payments.

Blue Inequality

 From The New York Times:

It’s easy to blame the other side. And for many Democrats, it’s obvious that Republicans are thwarting progress toward a more equal society. But what happens when Republicans aren’t standing in the way? In many states — including California, New York and Illinois — Democrats control all the levers of power. They run the government. They write the laws. And as we explore in the video above, they often aren’t living up to their values. In key respects, many blue states are actually doing worse than red states. It is in the blue states where affordable housing is often hardest to find, there are some of the most acute disparities in education funding and economic inequality is increasing most quickly. Instead of asking, “What’s the matter with Kansas?” Democrats need to spend more time pondering, “What’s the matter with California?”

Income and Taxes

 From CBO:

According to CBO’s estimates, between 1979 and 2018, average household income before transfers and taxes grew more among households at the top of the income distribution than among those at the bottom. Among households in the highest quintile, average real (inflation-adjusted) income in 2018 was 111 percent higher than it was in 1979. In comparison, among households in the lowest quintile, average income before transfers and taxes was 40 percent greater in 2018 than in 1979, and among households in the middle three quintiles, it was 37 percent greater in 2018 than in 1979 (see Figure S-1, lower panel). Because of those differences in cumulative growth rates, income inequality was greater in 2018 than it was in 1979.

 Trends in the Distribution of Income Before Transfers and Taxes, 1979 to 2018

... 

Average federal tax rates generally rise with income. Households in the highest income quintile, which received about 55 percent of all income in 2018, paid more than two-thirds of federal taxes that year. In contrast, households in the lowest quintile, which received about 4 percent of all income, paid about 0.01 percent of federal taxes, on net, that year. Among households in the lowest two quintiles, individual income taxes are negative, on average, because they include refundable tax credits, which can result in net payments from the government.

Shares of Federal Taxes, 1979 to 2018

 Percent

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In 2018, average federal tax rates were higher among higher-income groups than among lower-income groups. The highest quintile’s average federal tax rate was 24 percent, compared with 13 percent for the middle quintile. The lowest quintile’s average federal tax rate was less than 0.1 percent, on net, as refundable credits offset the taxes paid by that group (see Exhibit 13). Within the highest quintile, average tax rates were higher at the top of the distribution, averaging 30 percent among households in the top 1 percent.

Average Federal Tax Rates, by Income Group, 1979 to 2018

 

Justice Thomas on Federalism and the Inconsistencies of Marijuana Law

 Cite as: 594 U. S. ____ (2021) 1 Statement of THOMAS, J. SUPREME COURT OF THE UNITED STATES STANDING AKIMBO, LLC, ET AL., v. UNITED STATES ON PETITION FOR WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE TENTH CIRCUIT No. 20–645. Decided June 28, 2021

Sixteen years ago, this Court held that Congress’ power to regulate interstate commerce authorized it “to prohibit the local cultivation and use of marijuana.” Gonzales v. Raich, 545 U. S. 1, 5 (2005). The reason, the Court explained, was that Congress had “enacted comprehensive legislation to regulate the interstate market in a fungible commodity” and that “exemption[s]” for local use could undermine this “comprehensive” regime. Id., at 22–29. The Court stressed that Congress had decided “to prohibit entirely the possession or use of [marijuana]” and had “designate[d] marijuana as contraband for any purpose.” Id., at 24–27 (first emphasis added). Prohibiting any intrastate use was thus, according to the Court, “‘necessary and proper’” to avoid a “gaping hole” in Congress’ “closed regulatory system.” Id., at 13, 22 (citing U. S. Const., Art. I, §8).

Whatever the merits of Raich when it was decided, federal policies of the past 16 years have greatly undermined its reasoning. Once comprehensive, the Federal Government’s current approach is a half-in, half-out regime that simultaneously tolerates and forbids local use of marijuana. This contradictory and unstable state of affairs strains basic principles of federalism and conceals traps for the unwary

Thomas notes that the federal government outlaws marijuana even though 36 states have legalized it for medical use and 18 allow recreational use.

Yet, as petitioners recently discovered, legality understate law and the absence of federal criminal enforcement do not ensure equal treatment. At issue here is a provision of the Tax Code that allows most businesses to calculate their taxable income by subtracting from their gross revenue the cost of goods sold and other ordinary and necessary business expenses, such as rent and employee salaries. See 26 U. S. C. §162(a); 26 CFR. 1.61–3(a) (2020). But because of a public-policy provision in the Tax Code, companies that deal in controlled substances prohibited by federal law may subtract only the cost of goods sold, not the other ordinary and necessary business expenses. See 26 U. S. C. §280E. Under this rule, a business that is still in the red after it pays its workers and keeps the lights on might nonetheless owe substantial federal income tax. 

...

This disjuncture between the Government’s recent laissez-faire policies on marijuana and the actual operation of specific laws is not limited to the tax context. Many marijuana-related businesses operate entirely in cash because federal law prohibits certain financial institutions from knowingly accepting deposits from or providing other bank services to businesses that violate federal law. Black & Galeazzi, Cannabis Banking: Proceed With Caution, American Bar Assn., Feb. 6, 2020. Cash-based operations are understandably enticing to burglars and robbers. But, if marijuana-related businesses, in recognition of this, hire armed guards for protection, the owners and the guards might run afoul of a federal law that imposes harsh penalties for using a firearm in furtherance of a “drug trafficking crime.” 18 U. S. C. §924(c)(1)(A). A marijuana user similarly can find himself a federal felon if he just possesses a firearm. §922(g)(3). Or petitioners and similar businesses may find themselves on the wrong side of a civil suit under the Racketeer Influenced and Corrupt Organizations Act. See, e.g., Safe Streets Alliance v. Hickenlooper, 859 F. 3d 865, 876– 877 (CA10 2017) (permitting such a suit to proceed).

 

Tax Gap

From the Committee for a Responsible Federal Budget:

One of the most fair and efficient ways for policymakers to raise revenue would be to close some portion of the “tax gap.” The tax gap is the difference between taxes paid and taxes owed by law. In this primer, we answer the following questions:

• How Big is the Tax Gap?
• Why Is There a Tax Gap?
• Which Unpaid Taxes Contribute to the Tax Gap?
• Who Contributes to the Tax Gap?

Reducing the tax gap could raise additional revenue without increasing taxes and should be a key legislative priority for both parties. In future pieces, we will discuss ideas and options for how to close it.

How Big is the Tax Gap?

The Department of the Treasury recently estimated a "gross tax gap" of $630 billion in tax year 2019, with over $3.6 trillion of taxes owed but only about $3 trillion paid voluntarily. After accounting for $76 billion of additional revenue from Internal Revenue Service (IRS) enforcement activities and late payments, Treasury estimates the “net tax gap” totaled $554 billion in 2019, which is 2.6 percent of Gross Domestic Product (GDP), or 15.2 percent of total tax revenue owed.

Ideology and Perception of Taxes

Frank Newport at Gallup:

Our analysis, as we have seen, shows modest support for the hypothesis that views of one's income tax burden directly reflect what one pays in taxes. When we turn to ideology, however, we find significantly more powerful relationships -- including a 26-percentage-point difference between conservatives' and liberals' perceptions that their income tax is too high (58% of conservatives say it is, compared with 32% of liberals) in Gallup's most recent data, from 2021. Similar ideological differences are evident in views of the fairness of one's taxes. (And Gallup's recent review found almost identical differences between Republicans and Democrats.)

Thus, many Americans answer this question about their taxes based on their underlying ideological views of the concept of taxes in general and/or their views of the taxes others pay. This is not surprising, given that much research shows that Americans' ideology -- along a conservative-to-liberal spectrum -- appears to be a fundamental factor in determining their views on much that goes on around them across a variety of social, cultural, economic and personal dimensions. (Why some people end up being conservative and some liberal is itself the subject of much research, including some provocative suggestions that ideological differences reflect underlying genetic differences1.)

Misunderstanding Tax Brackets

 Jason L. Saving and Alan D. Viard at AEI:

A simple example illustrates how tax brackets work for the 2020 tax returns that are due on May 17. (For simplicity, we assume that taxpayers compute their taxes from the exact tax rate schedule rather than the tables that the IRS has constructed to approximate the rate schedule.) For married couples filing jointly, the bottom 10 percent bracket applies to the first $19,750 of taxable income, so that a couple with an income of $19,750 owes $1,975 in tax.

The 12 percent tax bracket then begins. This has no effect on the first $19,750 of income, which is still taxed at the 10 percent rate. Only income above $19,750 is taxed at the 12 percent rate. So, a couple with an income of $19,751 owes the $1,975 mentioned in the previous paragraph plus 12 cents from the additional dollar earned, for a total of $1,975.12.
...


The example also illustrates how tax brackets do not work. Taxpayers in the 12 percent bracket do not pay the 12 percent rate on their entire taxable income. If the brackets did work that way, a couple with an income of $19,751 would owe tax equal to 12 percent of that amount, or $2,370.12. In that case, the final dollar of income would trigger $395.12 of additional tax, so that the couple would have ended up with $394.12 more money without the dollar.

That abrupt jump in tax liability presents a stark contrast with the actual tax-liability increase of $0.12. ...

Unfortunately, many Americans mistakenly think that tax brackets operate in such a capricious manner. One of us (Viard) repeatedly encountered — and sought with partial success to correct — that misconception among his undergraduate public finance students. Professor Joel Slemrod of the University of Michigan has described similar experiences with his students.

A recent survey commissioned by Credello and conducted using the online platform Pollfish confirms that the misconception is not limited to students. A sample of 1,000 Americans aged 18 to 56 was asked to choose which of the following statements is true: “You pay your marginal tax rate on all of your income” or “You pay the same rate as others on income up to a certain amount, then a higher rate on every dollar up to the next threshold.”

Disturbingly, 51 percent incorrectly chose the first statement, with 49 percent correctly choosing the second statement. Although better question wording and survey methodology might have yielded a more rigorous measure of public beliefs, the results clearly reveal widespread misunderstanding. And this misunderstanding can slow economic growth if it leads people to work less or turn down pay raises because they think that slightly increasing their earnings will force them to pay a higher tax rate on all of their income.

A decade ago, Joseph Bishop-Henchman wrote at The Tax Foundation:

As a West Wing fan, I should note that in the fourth season episode “Red Haven’s on Fire,” Lowe’s character makes its last appearance and is replaced by Will Bailey, played by Joshua Malina. In that episode, Bailey makes the case for a surtax on high-income taxpayers, but his argument is sloppy and completely wrong in that he confuses marginal tax rates with effective tax rates. A person in the 35 percent tax bracket does not pay 35 percent on all of his income, but rather only on the income above a certain level.

 

Pandemic Surprise: States Flush with Money

 Reid Wilson at The Hill:

In states across the country, legislators who once stared into a terrifying abyss of red ink now face an embarrassment of riches, funded by a booming stock market, rising wages for those at the upper end of the economic stratosphere and what economists say is an unprecedented shift in the way consumers are spending their money.

Budget cycles differ by state, and legislators everywhere are in different stages of arranging their fiscal houses.

But the trends are clear: Minnesota, which once faced a $1.3 billion deficit, now expects a $1.6 billion surplus. Michigan budget figures earlier this year showed a $2.5 billion surplus. Connecticut’s surplus was estimated at $70 million in January, and $130 million by March.

Colorado’s surplus stands north of $5 billion. Rhode Island will have an extra $44 million to play with. Oregon’s tax revenue came in so far ahead of expectations that the state is expecting to shell out more than $500 million in refunds to taxpayers, a provision in state law known as the “kicker.”

The catastrophe avoided comes in part from a stock market that has exploded during the pandemic. The S&P 500 index is up 81 percent since its nadir on March 20, 2020. The Dow Jones Industrial Average is up 76 percent over the same period. Capital gains from those advances have helped make up for lost revenue growth; in states like California, specific initial public offerings from companies like DoorDash and Airbnb provided their own unique boosts.

State residents also played a role in boosting state revenue. With most service businesses shuttered, consumer spending shifted to goods, especially through e-commerce. A 2018 Supreme Court decision forcing online retailers to collect state sales tax, South Dakota v. Wayfair, meant a sustained infusion of cash headed to state coffers.

Federal expansion of unemployment benefits, first through the $2.2 trillion CARES Act signed by then-President Trump and then again through President Biden’s $1.9 trillion American Rescue Plan, meant even the millions who were unemployed by the pandemic could keep spending.

“Sales tax was a surprise for many states because people, even those who lost their jobs, were still getting unemployment insurance and they could still spend money,” said Lucy Dadayan, a senior researcher at the Urban-Brookings Tax Policy Center who specializes in state budgets. “If the pandemic-induced recession happened prior to Wayfair, the situation might have been very different but the online sales taxation helped a lot.”

Government Pays $1.4 Billion to Dead People

There have been problems with efforts to stimulate the economy in the wake of the coronavirus recession.

From the Government Accountability Office:

Economic impact payments. The Internal Revenue Service (IRS) and the Treasury moved quickly to disburse 160.4 million payments worth $269 billion. The agencies faced difficulties delivering payments to some individuals, and faced additional risks related to making improper payments to ineligible individuals, such as decedents, and fraud. For example, according to the Treasury Inspector General for Tax Administration, as of April 30, almost 1.1 million payments totaling nearly $1.4 billion had gone to decedents. GAO recommends that IRS should consider cost-effective options for notifying ineligible recipients how to return payments. IRS agreed with the recommendation.

US Travel Association and a Senator

Many posts have explained that interest groups encourage lawmakers to introduce favorable legislation, sometimes drafting the bills themselves.

This is not some idea McSally pulled out of thin air. It’s straight from the U.S. Travel Association - https://t.co/IooEuztwDp https://t.co/aIRQzNNaEv

— Kyle Potter (@kpottermn) June 23, 2020

Most Think Their Own Income Taxes Are Fair

Lydia Saad and Justin McCarthy at Gallup:

Americans' views about their taxes are unchanged compared with a year ago, with 59% saying the amount they pay in income taxes is fair.

In a separate question, 48% say the amount they pay in federal income tax is "about right," while 46% say it's too high.

These results are based on Gallup's annual Economy and Personal Finance survey, conducted April 1-14. This survey was fielded about two weeks after the federal government announced it was delaying the April 15 tax-filing deadline to July 15 to give individuals and businesses more time to file, given the disruptions caused by the coronavirus crisis. Additionally, the survey was conducted after Congress passed a $2 trillion COVID-19 relief package -- which included direct payments of $1,200 or more to most Americans -- but before most people received that money.