Originally published in Synapse on April 15, 2010.
April 15 is Tax Day. For most UCSF students, this has less than ominous import; in fact, most UCSF students have received or are going to receive a check from the government. This might be a tax refund of previous withholding or even a tax credit as a result of the earned income tax credit (the so called negative income tax).
Nevertheless, there will be many stories in the media about midnight lines at the post office, how to file an extension, and the tax burden on the average citizen.
According to The Tax Foundation, Tax Freedom Day in California is April 14. In other words, 28.4% of all income generated in California is collected by the government.
Although clearly designed for publicity purposes, this measure is representative of the average tax burden, but every individual’s circumstances vary.
For UCSF students (not counting fees paid to UC, which some conservatives consider a tax), the major tax burden is likely to be sales taxes if they are not working and social insurance taxes (FICA and Medicare) if they are working.
Even though basic economic courses often leave the impression that American taxes are highly progressive (the more you earn, the higher percentage or your income goes to taxes), the truth is that we are closer to a flat tax (everyone pays a fixed percentage of earnings) than most people realize.
The perception is likely left over from the period from 1917 to 1986 when the top marginal federal tax rate was over 50%. There was a reason Al Capone didn’t want to pay his taxes.
One might think that your attitude about taxes is a function of how much you pay but going back all the way to the original Boston Tea Party, it is obvious that is not true.
The Tea Act actually lowered prices for British tea in the Colonies and the rate due was only about 1% of the price. The fact is that ideology drives how you think about your tax burden much more than your tax burden drives ideology.
It’s not hard to find people who pay no taxes and receiving almost all their support from government programs railing about taxes being too high. Similarly, Warren Buffett has often come out sharply critical of a tax system that leaves him paying too little.
One of the problems with articles about taxes is that they exist in a vacuum, but taxes definitely do not. There is no tax without spend and vice-versa.
Unfortunately, these two intertwined functions are generally reported on separately leading to compartmentalized thinking. Survey after survey shows the majority of California wanting more services and lower taxes.
Little information exists about what trade-offs people are actually willing to make and pollsters (and economists) cannot even agree how to properly ask the question.
For UCSF, the benefits are fairly obvious. Although most students think that California should be increasing support of the UC system, it is still true that over $2.5 billion flows from the general fund to the 10 UC campuses.
In addition, almost $500 million per year in research grants are awarded to UCSF by the federal government via the NIH.
Most students could not afford to attend without financial support provided by grants and student loans subsidized by the government. So it’s no surprise that UCSF as a government entity could not function without taxes.
There is no escaping government taxes and fees but the intuitive feeling that taxes are bad is not borne out by any objective measure.
The paradox is that those societies such as Sweden that have the largest tax burdens also report the highest levels of satisfaction with government and the highest levels of happiness in general.
In addition, several objective measures of quality of life are better in higher taxed countries including life expectancy, literacy, and poverty rates.
Academic studies of the United States tax system have shown little or even negative correlations between tax rates and measures of economic activity such as unemployment and GDP growth.
Perhaps even though it is not talked about much, Americans really are not as anti-tax as conventional wisdom suggests. A recently reported Fox News poll shows that more Americans have a favorable view of the IRS than unfavorable (49% vs. 38%).
That kind of support easily bests opinions about Congress, Democrats or Republicans.
