tag:theconversation.com,2011:/es/topics/taxes-12592/articlesTaxes – The Conversation2024-03-22T12:31:14Ztag:theconversation.com,2011:article/2260922024-03-22T12:31:14Z2024-03-22T12:31:14ZWhy March Madness is a special time of year for state budgets<figure><img src="https://images.theconversation.com/files/582647/original/file-20240318-24-4tudw6.jpg?ixlib=rb-1.1.0&rect=6%2C6%2C4390%2C3045&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Feeling lucky?</span> <span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/SportsBetting-ThingstoKnow/d07b68af393548588b8a646d5cdd79e9/photo?Query=sports%20betting&mediaType=photo&sortBy=arrivaldatetime:desc&dateRange=Anytime&totalCount=1985&currentItemNo=2">Wayne Parry/AP Photo</a></span></figcaption></figure><p>March Madness – the time when the <a href="https://www.ncaa.com/march-madness-live/watch?cid=ncaa_mml_nav_men">best men’s</a> and <a href="https://www.ncaa.com/womens-di-championship?mml=1&cid=ncaa_mml_nav_women">women’s college</a> basketball teams challenge each other – is a made-for-television spectacle <a href="https://www.sportsmediawatch.com/2023/04/ncaa-national-championship-ratings-record-low-uconn-sdsu-cbs-mens/">watched by millions</a>. While <a href="https://www.ncaa.com/news/basketball-men/article/2023-03-08/march-madness-history-comprehensive-guide-mens-tournament">March Madness has been around for decades</a>, one of the tournament’s biggest changes happened in 2018, when the <a href="https://www.archerlaw.com/en/news-resources/client-advisories/landmark-u-s-supreme-court-decision-paves-the-way-for-legalized-sports-betting">Supreme Court struck down the ban on sports betting</a>. </p>
<p>Since then, legal sports betting has skyrocketed. Americans <a href="https://www.americangaming.org/resources/aga-commercial-gaming-revenue-tracker/">made US$120 billion of legal sports bets</a> in 2023, according to the American Gaming Association, which promotes gambling. In 2024, <a href="https://www.espn.com/espn/betting/story/_/id/39730969/estimate-projects-272b-wagers-ncaa-basketball-tournaments">the group predicts</a> Americans will place <a href="https://www.vox.com/2024/3/18/24102300/march-madness-sports-betting">$2.7 billion of legal bets</a> on March Madness alone.</p>
<p><a href="https://www.bu.edu/questrom/profile/jay-zagorsky/">I am</a> a <a href="https://www.bu.edu/questrom/">business school</a> professor fascinated by <a href="https://theconversation.com/what-is-march-madness-and-the-nonprofit-that-manages-the-mayhem-93202">March Madness</a> and <a href="https://theconversation.com/market-for-illegal-sports-betting-in-us-is-not-really-a-150-billion-business-96618">sports betting</a>. Studying sports betting has shown me <a href="https://theconversation.com/could-gambling-be-the-secret-to-saving-when-rates-are-so-low-57961">how valuable it is</a> for states short on cash. Unfortunately, it also has significant drawbacks, especially for <a href="https://www.ncpgambling.org/help-treatment/help-by-state/">gambling addicts</a> and their families. </p>
<h2>Why lawmakers love sports betting</h2>
<p>As of March 2024, <a href="https://www.americangaming.org/research/state-gaming-map/">38 states allow</a> some form of sports gambling, and six more are debating the issue. State lawmakers are interested in sports gambling because they have a fiscal problem. State spending over time has <a href="https://www.taxpolicycenter.org/statistics/state-and-local-direct-general-expenditures">increased in both absolute</a> and <a href="https://www.taxpolicycenter.org/statistics/state-and-local-direct-general-expenditures-capita">per-person terms</a> after <a href="http://businessmacroeconomics.com">adjusting for inflation</a>.</p>
<p>While state spending is increasing, state revenue from so-called “sin taxes” has flatlined after adjusting for inflation. <a href="https://www.lung.org/research/trends-in-lung-disease/tobacco-trends-brief/overall-tobacco-trends">People are smoking</a> and <a href="https://news.gallup.com/poll/353858/alcohol-consumption-low-end-recent-readings.aspx">drinking less</a>, reducing <a href="https://www.taxpolicycenter.org/statistics/state-and-local-tobacco-tax-revenue">revenue from cigarette</a> and <a href="https://www.taxpolicycenter.org/statistics/state-and-local-alcohol-tax-revenue">alcohol taxes</a>. Even <a href="https://www.taxpolicycenter.org/statistics/lottery-revenue">lottery revenue has flattened out</a> after growing strongly for decades.</p>
<p>Increased spending combined with a reluctance to raise taxes has led to a push to find new sources of revenue. That <a href="https://www.taxpolicycenter.org/publications/are-states-betting-sin-murky-future-state-taxation">makes sports betting an appealing</a> option to politicians.</p>
<h2>The statehouse always wins</h2>
<p><a href="https://www.nbcnews.com/news/sports/march-madness-basketball-sports-betting-rcna143773">Billions of dollars are wagered</a> on sports each year. More than 90% of the money bet goes to paying out winning gamblers. Gambling operators keep the rest, which they share with the states. The percentage kept, called the hold rate, has been <a href="https://www.legalsportsreport.com/111012/analysis-2023-us-sports-betting-hold-trend/">steadily climbing over time</a>, with 2023’s <a href="https://www.americangaming.org/wp-content/uploads/2024/01/CY-2024_CGRT_v2.pdf">national average at 9.1%</a> of the money bet.</p>
<p>State governments now collect <a href="https://www.census.gov/library/stories/2024/02/legal-sports-betting.html">about half a billion dollars each quarter</a>, or about $2 billion a year, from sports gambling. That’s roughly one-fifth of that 9.1%.</p>
<p>If gamblers bet around $3 billion on March Madness, then states will pocket over $50 million dollars in extra revenue just from a three-week basketball tournament.</p>
<h2>The ugly side of sports betting</h2>
<p>Gambling is wonderful for state revenues and <a href="https://www.espn.com/espn/betting/story/_/id/39563784/sports-betting-industry-posts-record-11b-2023-revenue">gaming-company profits</a>. However, it has <a href="https://www.independent.co.uk/news/uk/home-news/gambling-addiction-million-white-paper-b2322452.html">a dark side</a>: While many people enjoy gambling, <a href="https://theconversation.com/millions-of-americans-are-problem-gamblers-so-why-do-so-few-people-ever-seek-treatment-197861">millions of Americans have a gambling problem</a>. </p>
<p>Studies suggest <a href="https://link.springer.com/article/10.1007/s10899-014-9471-4">between 1% and 2%</a> of adults fall into this category. In Massachusetts, where I teach, a 2018 survey found that about 2% of adults were already problem gamblers, and <a href="https://www.umass.edu/seigma/sites/default/files/Seigma-GamblingHarm-Fact-Sheet-F2-2018%20copy.pdf">a further 8% were at risk</a>.</p>
<p><iframe id="IIfQP" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/IIfQP/2/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<p>Meanwhile, the number of calls to the <a href="https://www.ncpgambling.org/help-treatment/about-the-national-problem-gambling-helpline/">National Problem Gambling Helpline</a> lasting more than a minute <a href="https://public.tableau.com/app/profile/national.council.on.problem.gambling.ncpg/viz/NationalProblemGamblingHelplineDashboard-IncomingTraffic/IncomingTraffic">has increased sharply in recent years</a>. While this doesn’t mean that problem gambling has become more common – among other issues, correlation isn’t causation – the increase very closely matches the <a href="https://www.cbssports.com/general/news/u-s-sports-betting-here-is-where-all-50-states-currently-stand-on-legalizing-online-sports-betting-sites/">steady rollout of online sports betting</a> across the U.S.</p>
<h2>Two possible policy solutions</h2>
<p>Betting on sports was illegal before 2018. <a href="https://www.americangaming.org/illegal-sports-betting/">This forced gamblers</a> to either bet with a bookie or an offshore site. Betting with a bookie before 2018 was a relatively slow process. Gamblers typically needed to pay for their bets upfront with cash and ran the risk their bookie would be arrested or shut down.</p>
<p>Today, <a href="https://theconversation.com/sports-betting-how-in-play-betting-features-could-be-leading-to-harmful-gambling-new-research-177872">in-play or live betting</a> is legal and almost instantaneous. Bettors sitting on their couches at home can make multiple types of bets, such as which <a href="https://www.si.com/nba/mavericks/news/bad-beat-kristap-porzingis-missed-layup-cost-a-man-76000-dallas-mavericks">player will make the first shot</a> in a basketball game. In business terms, sports gambling went from extreme friction to a completely <a href="https://www.forbes.com/sites/shephyken/2019/06/09/are-you-providing-a-frictionless-customer-experience">frictionless experience</a>.</p>
<p>To reduce the harms of sports betting, I propose two ways to reinject friction into the system. The first is to prevent <a href="https://www.forbes.com/advisor/credit-cards/sports-betting/">credit cards from being used for online gambling</a>. While not every state and bank allows credit cards to fund a sports betting account, many do. Those credit cards that allow it often treat gambling payments as a <a href="https://www.citizensbank.com/learning/what-is-a-cash-advance.aspx">cash advance, which is very costly</a>.</p>
<p>The <a href="https://www.gamblingcommission.gov.uk/news/article/gambling-on-credit-cards-to-be-banned-from-april-2020">U.K. banned credit cards for remote gambling</a> in 2020, noting that people who used credit cards to gamble were <a href="https://consult.gamblingcommission.gov.uk/author/consultation-on-gambling-with-credit-cards/supporting_documents/Print%25252520the%25252520whole%25252520consultation%25252520%25252520gambling%25252520with%25252520credit%25252520cards.pdf">disproportionately likely to be problem gamblers</a>. <a href="https://ministers.dss.gov.au/media-releases/13411">Australia has also banned</a> online bets made with credit cards. A few U.S. states, <a href="https://www.wfmj.com/story/50551277/pa-lawmakers-introduce-bill-limiting-payment-options-for-online-gambling">such as Massachusetts and Tennessee</a>, have also instituted these sorts of bans, but most have not.</p>
<p>The second idea, which I prefer, is to <a href="https://podcasts.apple.com/au/podcast/the-case-for-cash-a-counterpoint-to-cashless/id1464022779?i=1000634760222">revert to common practice before 2018</a> of using cash to bet. The idea is simple. Anyone with an online gambling account would need to prefund their account with cash. Winners would never have to stop gambling.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/582643/original/file-20240318-16-qsxrnc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Bags of cash and printout of a March Madness schedule are seen on a police evidence table." src="https://images.theconversation.com/files/582643/original/file-20240318-16-qsxrnc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/582643/original/file-20240318-16-qsxrnc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=391&fit=crop&dpr=1 600w, https://images.theconversation.com/files/582643/original/file-20240318-16-qsxrnc.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=391&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/582643/original/file-20240318-16-qsxrnc.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=391&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/582643/original/file-20240318-16-qsxrnc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=491&fit=crop&dpr=1 754w, https://images.theconversation.com/files/582643/original/file-20240318-16-qsxrnc.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=491&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/582643/original/file-20240318-16-qsxrnc.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=491&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">In this 2006 file photo, the Brooklyn district attorney’s office presents evidence used to arrest 10 men in a sports betting ring. New Yorkers can now legally bet on March Madness.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/the-brooklyn-district-attorneys-office-presents-evidence-news-photo/526086920">Ramin Talaie/Corbis via Getty Images</a></span>
</figcaption>
</figure>
<p>Losers, however, would be forced to temporarily stop betting when their account runs out of money. Needing to take a break to go to a bank or simply pull money out of your wallet and hand it to someone would give people a chance to think about what they’re doing instead of being stuck in the <a href="https://dolby.io/blog/revolutionizing-microbetting-in-sports-with-real-time-streaming/">moment of a bet-bet-bet mindset</a>.</p>
<p>In theory, people could deposit cash into their accounts at any of the <a href="https://www.naspl.org/faq">roughly 223,000 locations across the country that sell lottery tickets</a>. To implement this idea, however, the federal government would need to change a law. <a href="https://www.ecfr.gov/current/title-26/chapter-I/subchapter-D/part-44">Since 1955</a>, it has imposed a <a href="https://www.ecfr.gov/current/title-26/chapter-I/subchapter-D/part-44/subpart-C/section-44.4411-1">special yearly tax of $50 on each person</a> who accepts bets for profit. </p>
<p><a href="https://www.ecfr.gov/current/title-26/chapter-I/subchapter-D/part-44/subpart-B/section-44.4402-1">The law</a> <a href="https://www.irs.gov/pub/irs-tege/eotopice99.pdf">exempts charities and state lotteries</a>. This tax doesn’t raise much revenue already, <a href="https://www.bls.gov/oes/current/oes393019.htm">since so few people are subject</a> to it. It also reduces employment, as well as gambling companies’ interest in allowing in-person prefunding of accounts.</p>
<p>If you’re watching March Madness and betting on the tournament, I hope you win. But even if you don’t, at least your state government will.</p><img src="https://counter.theconversation.com/content/226092/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jay L. Zagorsky does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>When the US Supreme Court legalized sports betting, states were quick to get in on the action. But as lawmakers grow reliant on taxes from betting, what do they owe problem gamblers?Jay L. Zagorsky, Associate Professor of Markets, Public Policy and Law, Boston UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2253442024-03-18T17:38:17Z2024-03-18T17:38:17ZDonor-advised funds: US regulators are scrambling to catch up with the boom in these charitable giving accounts<figure><img src="https://images.theconversation.com/files/582340/original/file-20240316-18-84zsoq.jpg?ixlib=rb-1.1.0&rect=0%2C817%2C4767%2C3172&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">DAFs more or less operate as a mini foundation.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/photo/golden-piggy-bank-and-golden-coins-3d-render-royalty-free-image/1484749250?adppopup=true">Wong Yu Liang/Moment via Getty Images</a></span></figcaption></figure><p>A <a href="https://www.philanthropy.com/article/a-short-history-of-the-fast-and-furious-rise-of-dafs">revolution in charitable giving</a> is underway due to the growth of donor-advised funds in the United States.</p>
<p>Known widely as DAFs, these <a href="https://www.nptrust.org/what-is-a-donor-advised-fund/">financial accounts are designated for charitable giving</a>. Donors can get an immediate tax deduction by putting money or other assets into the accounts, and advise the accounts’ managers to give away the money at a later date.</p>
<p>After years of concerns about how quickly the money reserved for charity gets distributed and whether donor-advised funds need to operate more transparently, <a href="https://www.federalregister.gov/documents/2023/11/14/2023-24982/taxes-on-taxable-distributions-from-donor-advised-funds-under-section-4966">proposed new federal regulations</a> are now pending. Though the regulations would not create new requirements for how rapidly these funds distribute money, they do provide some new guidelines for what <a href="https://www.nptrust.org/what-is-a-donor-advised-fund/grantmaking-rules/">uses for DAFs are allowed</a> by law.</p>
<p>As <a href="https://fisher.osu.edu/people/mittendorf.3">an accounting researcher</a> <a href="https://theconversation.com/donor-advised-funds-charities-with-benefits-74516">who studies DAFs</a>, I believe these new changes may mark the start of what could become a series of reforms.</p>
<h2>Nearly $230 billion</h2>
<p>DAFs have been <a href="https://cof.org/sites/default/files/documents/files/DAF-timeline.pdf">around since the 1930s</a> but got off to a slow start. After decades of being concentrated in community foundations, DAFs became more widely accessible with the introduction of <a href="https://www.investmentnews.com/industry-news/news/fidelity-charitable-reveals-record-year-in-philanthropic-giving-249461">Fidelity Charitable</a> – a DAF-sponsoring organization tied to Fidelity Investments – in 1991.</p>
<p>Many more DAF sponsors <a href="https://www.thinkadvisor.com/2023/07/20/5b-in-giving-shows-rapid-rise-of-donor-advised-funds-schwab-charitable/">connected to investment companies</a> have since emerged. </p>
<p>Because donors <a href="https://www.investopedia.com/articles/managing-wealth/080216/donoradvised-funds-benefits-and-drawbacks.asp">get tax breaks when they put money in them</a> and can then wait a long time before distributing it to nonprofits, DAFs essentially operate as <a href="https://www.taxpolicycenter.org/taxvox/should-congress-curb-donor-advised-funds">streamlined foundations</a>.</p>
<p>DAFs are not, however, subject to the same restrictions.</p>
<p>Foundations have to disclose their donors to the public and also have to distribute minimum amounts for charitable use each year. <a href="https://www.givedirectly.org/donor-advised-funds/">DAFs face</a> <a href="https://www.philanthropyroundtable.org/behind-the-debate-examining-the-measures-of-daf-payout/">neither requirement</a>.</p>
<p><a href="https://philanthropynewsdigest.org/news/daf-grants-to-charities-totaled-52-billion-in-2022-report-finds">DAFs held nearly US$230 billion in assets by the end of 2022</a> and distributed some $52 billion to charities that year. Those are significant sums as giving of all kinds <a href="https://theconversation.com/us-charitable-donations-fell-to-499-billion-in-2022-as-stocks-slumped-and-inflation-surged-207688">totaled about $500 billion that year</a>.</p>
<p>As of 2023 there were about <a href="https://www.nptrust.org/reports/daf-report/">2 million donor-advised funds</a>, according to the National Philanthropic Trust.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/582341/original/file-20240316-22-v60hk0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Set of diverse hands and payment methods. Arms with cash, credit cards, banknotes, wallet, putting coins into piggy bank. Hand drawn vector illustration isolated on light background, flat cartoon style." src="https://images.theconversation.com/files/582341/original/file-20240316-22-v60hk0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/582341/original/file-20240316-22-v60hk0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=375&fit=crop&dpr=1 600w, https://images.theconversation.com/files/582341/original/file-20240316-22-v60hk0.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=375&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/582341/original/file-20240316-22-v60hk0.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=375&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/582341/original/file-20240316-22-v60hk0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=471&fit=crop&dpr=1 754w, https://images.theconversation.com/files/582341/original/file-20240316-22-v60hk0.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=471&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/582341/original/file-20240316-22-v60hk0.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=471&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">There are few DAF regulations in place, but that could soon change.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/illustration/set-of-diverse-hands-and-payment-methods-royalty-free-illustration/1491990624?adppopup=true">Olena Zagoruyko/iStock via Getty Images Plus</a></span>
</figcaption>
</figure>
<h2>40% don’t distribute a dime</h2>
<p>Critics of DAFs say that the government should require them to <a href="https://www.vox.com/recode/2019/7/25/8891899/john-arnold-billionaire-criticism-donor-advised-funds-silicon-valley-philanthropic-loophole">regularly disburse at least some of their charitable funds</a>.</p>
<p>Foundations have faced that kind of obligation for more than five decades. They must pay out at least <a href="https://www.nptrust.org/donor-advised-funds/daf-vs-foundation/">5% of their assets</a> each year – although some of that money can be used to pay for their operations or even be set aside in a donor-advised fund.</p>
<p>Supporters of DAFs counter that the payout rate for those accounts is already much higher than the foundation floor of 5%. It <a href="https://www.givechariot.com/post/breaking-down-the-donor-advised-fund-market-in-2022">hovers around 20%</a>.</p>
<p>However, that statistic applies to all the money held in DAFs, not what happens with each one of them. <a href="https://johnsoncenter.org/wp-content/uploads/2024/02/DAFRC_Executive_Summary_Key_Findings.pdf">And almost 40% of them don’t distribute any money at all</a> in a given year. </p>
<h2>Calling for change</h2>
<p>Other changes have been proposed over the years, including:</p>
<ul>
<li><p><a href="https://inequality.org/great-divide/private-foundations-dafs-2021/">Not letting foundations count money they put in a DAF</a> toward their annual 5% payout requirement.</p></li>
<li><p><a href="https://www.philanthropy.com/article/an-unlikely-event-the-israel-hamas-war-could-finally-spark-daf-reform">Introducing new disclosure requirements</a> because currently the public, the charity that gets money from a DAF and even the IRS have <a href="https://apnews.com/article/silent-donor-tim-sanders-daf-privacy-9e499583181ed0c8b7d6685fbea31ecb">no way of knowing</a> for sure who originally provided those funds.</p></li>
<li><p><a href="https://www.philanthropy.com/article/donor-advised-funds-let-wall-street-steer-charitable-donations/">Reining in</a> the <a href="https://www.propublica.org/article/the-wall-street-takeover-of-charity">commercial investment companies</a> that have been at the center of much of the growth in DAFs, by limiting the fees they can earn or <a href="https://ssir.org/articles/entry/the_problem_with_donor_advised_fundsand_a_solution">restricting the ties</a> between them and their affiliated charities.</p></li>
</ul>
<h2>IRS regulations</h2>
<p>The IRS released <a href="https://www.federalregister.gov/documents/2023/11/14/2023-24982/taxes-on-taxable-distributions-from-donor-advised-funds-under-section-4966">proposed new DAF regulations</a> at the end of 2023, and gave the <a href="https://www.regulations.gov/document/IRS-2023-0053-0001/comment">public an opportunity comment</a> on them.</p>
<p>The <a href="https://www.philanthropy.com/article/proposed-irs-regulations-of-donor-advised-funds-fall-short-critics-say">proposed regulations</a> <a href="https://nonprofitlawblog.com/proposed-donor-advised-fund-regulations-what-is-a-donor-advised-fund/">would clarify what constitutes a DAF</a>, who is considered a fund’s adviser, and restrictions on DAF disbursements.</p>
<p>Though largely focused on definitions, these proposed regulations are not without teeth. Nor <a href="https://www.philanthropy.com/article/proposed-irs-regulations-of-donor-advised-funds-fall-short-critics-say">have they been immune to controversy</a>.</p>
<p>The proposed regulations would identify certain distributions as taxable and declare that donors are not the only parties considered DAF advisers – the <a href="https://www.mcguirewoods.com/client-resources/alerts/2024/2/donor-advised-funds-proposed-regulations/">donors’ personal financial advisers</a> are, too. This means the financial advisers, like donors, cannot receive any benefits from a DAF.</p>
<p>In identifying taxable distributions, the regulations include the possibility that funds used to support <a href="https://www.taxnotes.com/research/federal/other-documents/public-comments-regulations/nonprofits-group-targets-trouble-spots-donor-advised-fund-regs/7j6vy#7j6vy-0000011">lobbying or activities tied to political campaigns</a> could lead to penalties for both the donor and the fund’s manager. And <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4744533">evidence suggests</a> DAFs are commonly used to support lobbying.</p>
<p>A <a href="https://www.mossadams.com/articles/2024/01/proposed-regulations-on-donor-advised-funds">tax would be levied on the DAF totaling 20% of the distribution and another 5%</a> charged to a participating fund manager.</p>
<p>By including <a href="https://www.investmentnews.com/regulation-and-legislation/news/industry-awaits-an-answer-on-proposed-donor-advised-fund-regulations-250293">a donor’s personal financial adviser</a> in the group considered advisers to the DAF, investment fees paid to such financial advisers for their services would become <a href="https://www.cadwalader.com/brass-tax/index.php?nid=79&eid=336">impermissible “excess benefit” transactions</a>. As such, the proposed new rules would require the <a href="https://www.mcguirewoods.com/client-resources/alerts/2024/2/donor-advised-funds-proposed-regulations/">repayment of their compensation plus a 25% penalty</a>.</p>
<p><a href="https://www.philanthropyroundtable.org/roundtable-submits-comment-letter-on-proposed-rules-for-donor-advised-funds/">Some DAF proponents</a> have objected to the proposed regulations. A key concern they’ve expressed has to do with what the regulations could mean for <a href="https://www.sifma.org/resources/submissions/irs-proposed-rule-taxes-on-taxable-distributions-from-donor-advised-funds/">financial advisers</a>. </p>
<p>Since financial advisers often oversee investments of both the donor and the donor’s charitable funds, such dual advisory roles may be eliminated by the threat of penalties. </p>
<h2>Changes possible in Congress</h2>
<p>Additional, bigger, changes could occur in the near future through legislation.</p>
<p>Possibilities include requiring DAFs to disclose donors and connect them with distributions so <a href="https://www.philanthropy.com/article/an-unlikely-event-the-israel-hamas-war-could-finally-spark-daf-reform">the public can follow the money</a> or <a href="https://acceleratecharitablegiving.org/reforms/">delaying tax benefits</a> when donations to DAFs are not immediately distributed to charities to encourage donors with DAFs to dispatch their gifts quickly.</p>
<p>Although legislation aimed at requiring faster payouts was <a href="https://nonprofitquarterly.org/do-donor-advised-funds-require-regulatory-attention/">first proposed in 2014</a>, few lawmakers have made it a priority.</p>
<p>The most recent bill, the <a href="https://www.reuters.com/legal/legalindustry/ace-act-legislation-would-significantly-affect-donor-advised-funds-2021-11-11/">Accelerating Charitable Efforts Act</a>, was first proposed by <a href="https://www.king.senate.gov/newsroom/press-releases/king-grassley-introduce-legislation-to-ensure-charitable-donations-reach-working-charities">Sens. Angus King and Chuck Grassley</a> in 2021. It did not <a href="https://www.investmentnews.com/industry-news/news/daf-payout-bill-stalls-in-congress-229779">amass enough support</a> to garner a vote. At this point, it is <a href="https://inequality.org/research/donor-advised-fund-blocking-reform/">unclear whether the lawmakers will reintroduce</a> that measure.</p>
<p>But <a href="https://blog.candid.org/post/donor-advised-funds-daf-growth-popularity-in-philanthropy/">as DAFs play an ever larger</a> role in charitable giving, I believe that Congress will eventually have to take action if it wants to meaningfully regulate this new charitable environment.</p><img src="https://counter.theconversation.com/content/225344/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Brian Mittendorf does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Big changes would require an act of Congress but lawmakers have not stepped up. And there’s been pushback against new rules the IRS has proposed for these accounts reserved for giving.Brian Mittendorf, Professor of Accounting, The Ohio State UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2258572024-03-15T12:10:30Z2024-03-15T12:10:30ZWhy do airlines charge so much for checked bags? This obscure rule helps explain why<p>Five out of the six <a href="https://www.oag.com/blog/biggest-airlines-in-the-us">biggest U.S. airlines</a> have <a href="https://www.cnbc.com/2024/03/05/delta-is-the-latest-airline-to-raise-its-checked-bag-fee.html">raised their checked bag fees</a> since January 2024.</p>
<p>Take American Airlines. In 2023, it cost US$30 to check a standard bag in with the airline; <a href="https://www.usatoday.com/story/travel/airline-news/2024/02/20/american-airlines-bag-fees-mileage-earning/72669245007/">today, as of March 2024, it costs $40</a> at a U.S. airport – a whopping 33% increase.</p>
<p>As a <a href="https://www.bu.edu/questrom/">business school</a> <a href="https://www.bu.edu/questrom/profile/jay-zagorsky/">professor who studies travel</a>, I’m often asked why airlines alienate their customers with baggage fees instead of bundling all charges together. <a href="https://www.vox.com/2015/4/16/8431465/airlines-carry-on-bags">There are</a> <a href="https://www.usatoday.com/story/travel/columnist/2023/06/21/bag-fees-will-stay-a-while-cruising-altitude/70338849007/">many reasons</a>, but an important, often overlooked cause is buried in the U.S. tax code.</p>
<h2>A tax-law loophole</h2>
<p>Airlines pay the federal government <a href="https://www.ecfr.gov/current/title-26/chapter-I/subchapter-D/part-49/subpart-D">7.5% of the ticket price</a> when <a href="https://www.pwc.com/us/en/services/tax/library/aircraft-club-nov-2023-air-transport-excise-tax-rates-for-2024.html">flying people domestically, alongside other fees</a>. The airlines dislike these charges, with their <a href="https://www.airlines.org/dataset/government-imposed-taxes-on-air-transportation/">trade association arguing</a> that they boost the cost to the consumer of a typical air ticket by around one-fifth.</p>
<p>However, the U.S. Code of Federal Regulations <a href="https://www.ecfr.gov/current/title-26/chapter-I/subchapter-D/part-49/subpart-D/section-49.4261-8">specifically excludes baggage</a> from the 7.5% transportation tax as long as “the charge is separable from the payment for the transportation of a person and is shown in the exact amount.”</p>
<p>This means if an airline charges a combined $300 to fly you and a bag round-trip within the U.S., it owes $22.50 in tax. If the airline charges $220 to fly you plus separately charges $40 each way for the bag, then your total cost is the same — but the airline only owes the government $16.50 in taxes. Splitting out baggage charges saves the airline $6.</p>
<p>Now $6 might not seem like much, but it can add up. Last year, passengers took <a href="https://www.transtats.bts.gov/Data_Elements.aspx?Data=1">more than 800 million trips on major airlines</a>. Even if only a fraction of them check their bags, that means large savings for the industry.</p>
<p>How large? The government has <a href="https://www.bts.dot.gov/topics/airlines-and-airports/baggage-fees-airline-2023">tracked revenue from bag fees</a> for decades. In 2002, airlines charged passengers a total of $180 million to check bags, which worked out to around 33 cents per passenger. </p>
<p>Today, as any flyer can attest, bag fees are a lot higher. Airlines collected over 40 times more money in bag fees last year than they did in 2002.</p>
<p>When the full data is in for 2023, <a href="https://www.bts.dot.gov/baggage-fees">total bag fees</a> will likely top $7 billion, which is about $9 for the average domestic passenger. <a href="https://viewfromthewing.com/the-real-reason-airlines-charge-checked-bag-fees-and-its-not-what-you-think">By splitting out the cost of bags</a>, airlines avoided paying about half a billion dollars in taxes just last year.</p>
<p>In the two decades since 2002, flyers paid a total of about $70 billion in bag fees. This means separately charging for bags saved airlines about $5 billion in taxes.</p>
<p><iframe id="88MYD" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/88MYD/2/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<p>It seems clear to me that tax savings are one driver of the unbundling of baggage fees because of a quirk in the law.</p>
<p>The U.S. government doesn’t apply the 7.5% tax to <a href="https://www.ecfr.gov/current/title-26/chapter-I/subchapter-D/part-49/subpart-D/section-49.4261-3">international flights that go more than 225 miles</a> beyond the nation’s borders. Instead, there are fixed <a href="https://www.airlines.org/dataset/government-imposed-taxes-on-air-transportation">international departure and arrival taxes</a>. This is why major airlines charge $35 to $40 <a href="https://www.aa.com/i18n/travel-info/baggage/checked-baggage-policy.jsp">for bags if you’re flying domestically</a>, but don’t charge a bag fee when you’re flying to Europe or Asia.</p>
<h2>Do travelers get anything for that money?</h2>
<p>This system raises an interesting question: Do baggage fees force airlines to be more careful with bags, since customers who pay more expect better service? To find out, I checked with the Bureau of Transportation Statistics, which has been <a href="https://www.bts.gov/content/mishandled-baggage-reports-filed-passengers-largest-us-air-carriersa">tracking lost luggage for decades</a>. </p>
<p>For many years, it calculated the number of mishandled-baggage reports per thousand airline passengers. The government’s data showed mishandled bags peaked in 2007 with about seven reports of lost or damaged luggage for every thousand passengers. That means you could expect your luggage to go on a different trip than the one you are taking about once every 140 or so flights. By 2018, that estimate had fallen to once every 350 flights.</p>
<p>In 2019, the government <a href="https://www.bts.gov/topics/airlines-and-airports/number-30a-technical-directive-mishandled-baggage-amended-effective-jan">changed how it tracks</a> mishandled bags, calculating figures based on the total number of bags checked, rather than the total number of passengers. The new data show about six bags per thousand checked get lost or damaged, which is less than 1% of checked bags. Unfortunately, the data doesn’t show improvement since 2019.</p>
<p>Is there anything that you can do about higher bag fees? Complaining to politicians probably won’t help. In 2010, two senators <a href="https://www.nj.com/business/2010/04/us_senators_present_bill_to_ba.html">tried to ban bag fees</a>, and their bill went nowhere.</p>
<p>Given that congressional action failed, there’s a simple way to avoid higher bag fees: <a href="https://www.cnn.com/travel/article/packing-expert-travel-world-handbag/index.html">travel light</a> and <a href="https://www.nytimes.com/2023/07/08/opinion/carry-on-packing-airlines-lost-luggage.html">don’t check any luggage</a>. It may sound tough not to have all your belongings when traveling, but it might be the best option as bag fees take off.</p><img src="https://counter.theconversation.com/content/225857/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jay L. Zagorsky does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The answer lies in the tax code.Jay L. Zagorsky, Associate Professor of Markets, Public Policy and Law, Boston UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2253152024-03-12T17:51:13Z2024-03-12T17:51:13ZA beginner’s guide to the taxes you’ll hear about this election season<figure><img src="https://images.theconversation.com/files/580913/original/file-20240311-18-u3336k.jpg?ixlib=rb-1.1.0&rect=198%2C66%2C5304%2C3597&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/young-caucasian-family-having-debt-problems-550887700">Cast Of Thousands/Shutterstock</a></span></figcaption></figure><p>National insurance, income tax, VAT, capital gains tax, inheritance tax… it’s easy to get confused about the many different ways we contribute to the cost of running the country. The budget announcement is the key time each year when the government shares its financial plans with us all, and announces changes that may make a tangible difference to what you pay. </p>
<p>But you’ll likely be hearing a lot more about taxes in the coming months – promises to cut or raise them are an easy win (or lose) for politicians in an election year. We may even get at least one <a href="https://www.bbc.co.uk/news/business-66897881">“mini-budget”</a>. </p>
<p>If you’ve recently entered the workforce or the housing market, you may still be wrapping your mind around all of these terms. Here is what you need to know about the different types of taxes and how they affect you.</p>
<p>The UK broadly uses three ways to collect tax:</p>
<p><strong>1. When you earn money</strong> </p>
<p>If you are an employee or own a business, taxes are deducted from your salary or profits you make. For most people, this happens in two ways: income tax, and national insurance contributions (or NICs).</p>
<p>If you are self-employed, you will have to pay your taxes via an annual tax return assessment. You might also have to pay taxes this way for interest you earn on savings, <a href="https://www.investopedia.com/terms/d/dividend.asp">dividends</a> (distribution of profits from a company or shares you own) received and most other forms of income not taxed before you get it. </p>
<p>Around <a href="https://www.gov.uk/government/statistics/hmrc-tax-and-nics-receipts-for-the-uk/hmrc-tax-receipts-and-national-insurance-contributions-for-the-uk-new-annual-bulletin">two-thirds of taxes collected</a> come from people’s or business’ incomes in the UK. </p>
<p><strong>2. When you spend money</strong> </p>
<p>VAT and excise duties are taxes on most goods and services you buy, with some exceptions like books and children’s clothing. About 20% of the total tax collected is VAT.</p>
<p><strong>3. Taxes on wealth and assets</strong> </p>
<p>These are mainly taxes on the money you earn if you sell assets (like property or stocks) for more than you bought them for, or when you pass on assets in an inheritance. In the latter case in the UK, the recipient doesn’t pay this, it is the estate paying it out that must cover this if due. These taxes contribute only about 3% to the total tax collected.</p>
<p>You also likely have to pay council tax, which is set by the council you live in based on the value of your house or flat. It is paid by the user of the property, no matter if you own or rent. If you are a full-time student or on some apprenticeship schemes, you may <a href="https://www.gov.uk/council-tax/who-has-to-pay">get a deduction</a> or not have to pay council tax at all.</p>
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<img alt="Quarter life, a series by The Conversation" src="https://images.theconversation.com/files/451343/original/file-20220310-13-1bj6csd.png?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/451343/original/file-20220310-13-1bj6csd.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=600&fit=crop&dpr=1 600w, https://images.theconversation.com/files/451343/original/file-20220310-13-1bj6csd.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=600&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/451343/original/file-20220310-13-1bj6csd.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=600&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/451343/original/file-20220310-13-1bj6csd.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=754&fit=crop&dpr=1 754w, https://images.theconversation.com/files/451343/original/file-20220310-13-1bj6csd.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=754&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/451343/original/file-20220310-13-1bj6csd.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=754&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<p><em><strong><a href="https://theconversation.com/uk/topics/quarter-life-117947?utm_source=TCUK&utm_medium=linkback&utm_campaign=UK+YP2022&utm_content=InArticleTop">This article is part of Quarter Life</a></strong>, a series about issues affecting those of us in our 20s and 30s. From the challenges of beginning a career and taking care of our mental health, to the excitement of starting a family, adopting a pet or just making friends as an adult. The articles in this series explore the questions and bring answers as we navigate this turbulent period of life.</em></p>
<p><em>You may be interested in:</em></p>
<p><em><a href="https://theconversation.com/if-you-get-your-financial-advice-on-social-media-watch-out-for-misinformation-222196?utm_source=TCUK&utm_medium=linkback&utm_campaign=UK+YP2022&utm_content=InArticleTop">If you get your financial advice on social media, watch out for misinformation</a></em></p>
<p><em><a href="https://theconversation.com/future-graduates-will-pay-more-in-student-loan-repayments-and-the-poorest-will-be-worst-affected-222840?utm_source=TCUK&utm_medium=linkback&utm_campaign=UK+YP2022&utm_content=InArticleTop">Future graduates will pay more in student loan repayments – and the poorest will be worst affected</a></em></p>
<p><em><a href="https://theconversation.com/selling-on-vinted-etsy-or-ebay-heres-what-you-need-to-know-about-paying-tax-220988?utm_source=TCUK&utm_medium=linkback&utm_campaign=UK+YP2022&utm_content=InArticleTop">Selling on Vinted, Etsy or eBay? Here’s what you need to know about paying tax</a></em></p>
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<p>Put together, these totalled almost £790 billion in 2022-23, which the <a href="https://ifs.org.uk/taxlab/taxlab-key-questions/what-does-government-spend-money">government spends</a> on <a href="https://www.gov.uk/government/statistics/public-spending-statistics-release-february-2024/public-spending-statistics-february-2024">public services</a> such as the NHS, schools and social care. The government collects taxes from all sources and sets its spending plans accordingly, borrowing to make up any difference between the two.</p>
<h2>Income tax</h2>
<p>The amount of income tax you pay is determined by where your income sits in a <a href="https://www.gov.uk/income-tax-rates">series of “bands”</a> set by the government. Almost everyone is entitled to a “personal allowance”, currently £12,570, which you can earn without needing to pay any income tax. </p>
<p>You then pay 20% in tax on each pound of income you earn (across all sources) from £12,570-£50,270. You pay 40% on each extra pound up to £125,140 and 45% over this. If you earn more than £100,000, the personal allowance (amount of untaxed income) <a href="https://www.gov.uk/government/publications/rates-and-allowances-income-tax/income-tax-rates-and-allowances-current-and-past#tax-rates-and-bands">starts to decrease</a>. </p>
<p>If you are self-employed, the same rates apply to you. You just don’t have an employer to take this off your salary each month. Instead, you have to make sure you have enough money at the end of the year to pay this directly to the government.</p>
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<strong>
Read more:
<a href="https://theconversation.com/taxes-arent-just-about-money-they-shape-how-we-think-about-each-other-223889">Taxes aren't just about money – they shape how we think about each other</a>
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<p>The government can increase the threshold limits to adjust for inflation. This tries to ensure any wage rise you get in response to higher prices doesn’t lead to you having to pay a higher tax rate. However, the government announced in 2021 that they would freeze these thresholds until 2026 (extended <a href="https://www.ftadviser.com/your-industry/2022/11/17/income-tax-bands-frozen-until-2028/">now to 2028</a>), arguing that it would help repay the costs of the pandemic. </p>
<p>Given wages are now rising for many to help with the cost of living crisis, this means many people will pay more income tax this coming year than they did before. This is sometimes referred to as <a href="https://commonslibrary.parliament.uk/research-briefings/cbp-9687/">“fiscal drag”</a> – where lower earners are “dragged” into paying higher tax rates, or being taxed on more of their income.</p>
<h2>National insurance</h2>
<p>National insurance contributions (NICs) are a second “tax” you pay on your income – or to be precise, on your earned income (your salary). You don’t pay this on some forms of income, including savings or dividends, and you also don’t pay it once you reach state retirement age (currently 66).</p>
<p>While Jeremy Hunt, the current chancellor of the exchequer, didn’t adjust income tax meaningfully in this year’s budget, he did announce a cut to NICs. This was a surprise to many, as we had already seen rates fall from 12% to 10% on incomes higher than £242/week in January. It will now fall again to 8% from April.</p>
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<strong>
Read more:
<a href="https://theconversation.com/budget-2024-experts-explain-what-it-means-for-taxpayers-businesses-borrowers-and-the-nhs-225194">Budget 2024: experts explain what it means for taxpayers, businesses, borrowers and the NHS</a>
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<p>While this is charged separately to income tax, in reality it all just goes into one pot with other taxes. Some, including the chancellor, say it is time to merge these two deductions and make this simpler for everyone. In his budget speech this year, Hunt said he’d like to see this tax go entirely. He thinks this isn’t fair on those who have to pay it, as it is only charged on some forms of income and on some workers. </p>
<p>I wouldn’t hold my breath for this to happen however, and even if it did, there are huge sums linked to NICs (<a href="https://www.gov.uk/government/statistics/hmrc-tax-and-nics-receipts-for-the-uk/hmrc-tax-receipts-and-national-insurance-contributions-for-the-uk-new-annual-bulletin">nearly £180bn</a> last year) so it would almost certainly have to be collected from elsewhere (such as via an increase in income taxes, or a lot more borrowing) to make sure the government could still balance its books. </p>
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<img alt="A young black man sits at a home office desk with his feet up, looking at a mobile phone" src="https://images.theconversation.com/files/580917/original/file-20240311-26-i6orsk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/580917/original/file-20240311-26-i6orsk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/580917/original/file-20240311-26-i6orsk.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/580917/original/file-20240311-26-i6orsk.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/580917/original/file-20240311-26-i6orsk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/580917/original/file-20240311-26-i6orsk.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/580917/original/file-20240311-26-i6orsk.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Do you know how much tax you pay?</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/mobile-stock-application-young-black-man-2044261055">Alex from the Rock/Shutterstock</a></span>
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<h2>Other taxes</h2>
<p>There are likely to be further tweaks to the UK’s tax system soon, perhaps by the current government before the election – and almost certainly if there is a change of government. </p>
<p>Wealth taxes may be in line for a change. In the budget, the chancellor reduced capital gains taxes on sales of assets such as second properties (from 28% to 24%). These types of taxes provide only a <a href="https://www.gov.uk/government/statistics/hmrc-tax-and-nics-receipts-for-the-uk/hmrc-tax-receipts-and-national-insurance-contributions-for-the-uk-new-annual-bulletin">limited amount</a> of money to the government, as quite high thresholds apply for inheritance tax (<a href="https://www.thetimes.co.uk/money-mentor/income-budgeting/tax/inheritance-tax-threshold-uk-what-is">up to £1 million</a> if you are passing on a family home).</p>
<p>There are calls from many quarters though to look again at these types of taxes. Wealth inequality (the differences between total wealth held by the richest compared to the poorest) in the UK is very high (much higher than <a href="https://equalitytrust.org.uk/scale-economic-inequality-uk">income inequality</a>) and rising. </p>
<p>But how to do this effectively is a matter of much debate. A <a href="https://www.lse.ac.uk/News/Latest-news-from-LSE/2020/L-December/Wealth-Commission-report">recent study</a> suggested a one-off tax on total wealth held over a certain threshold might work. But wealth taxes are challenging to make work in practice, and both main political parties have already said this isn’t an option they are considering currently.</p><img src="https://counter.theconversation.com/content/225315/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Andy Lymer and his colleagues at the Centre for Personal Financial Wellbeing at Aston University currently or have recently received funding for their research work from a variety of funding bodies including the UK's Money and Pension Service, the Aviva Foundation, Fair4All Finance, NEST Insight, the Gambling Commission, Vivid Housing and the ESRC, amongst others. </span></em></p>Everything you need to know about income tax, national insurance and more.Andy Lymer, Professor of Taxation and Personal Finance, Aston UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2238892024-03-06T17:01:07Z2024-03-06T17:01:07ZTaxes aren’t just about money – they shape how we think about each other<figure><img src="https://images.theconversation.com/files/579923/original/file-20240305-30-oxcats.jpg?ixlib=rb-1.1.0&rect=0%2C11%2C7916%2C3808&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Whose contribution is 'worth' more?</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/crowd-diverse-people-walking-city-street-2224776143">Stokkete/Shutterstock</a></span></figcaption></figure><p>Taxes – raising them, cutting them, creating them – are useful <a href="https://theconversation.com/jeremy-hunts-budget-the-problem-for-labour-explained-225030">political tools</a> in an election year (as Chancellor Jeremy Hunt’s decision to <a href="https://www.bbc.co.uk/news/live/uk-politics-68465603">cut national insurance</a> shows). But they are always pertinent, even if some people don’t think about taxes more than once or twice a year. </p>
<p>How do we raise money for the NHS? How much inheritance tax is fair to pay? What level of value-added tax (VAT) is right for our economy? And who benefits from these decisions? </p>
<p>These are not just questions of money, or even about who would or should get more or less of it. My <a href="https://www.ucl.ac.uk/anthropology/research/sociality-tax">ongoing research</a> shows that tax systems have deep effects on our <a href="https://www.berghahnbooks.com/title/MakovickyBeyond">social relationships</a>, shaping our understanding of <a href="https://www.anthroencyclopedia.com/entry/tax">who contributes to society</a>, and what “counts” as a contribution. </p>
<p>I have been exploring the social effects of tax since 2018, speaking with taxpayers, business owners, workers, tax officials and others in Bolivia, the UK and Sweden. </p>
<p>Research participants in the UK and Sweden, across different groups of taxpayers (pensioners, students, high earners and benefit recipients), perceive paying income tax and national insurance as contributing as a citizen. They view it as an act of sharing the wealth, produced through labour, for the purpose of common public good. </p>
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Read more:
<a href="https://theconversation.com/tax-cuts-in-an-election-year-they-can-boost-consumer-confidence-and-work-wonders-for-a-governing-party-224887">Tax cuts in an election year? They can boost consumer confidence and work wonders for a governing party</a>
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<p>Meanwhile, VAT is not so strongly linked to being a contributing citizen, despite most parts of the world having some sort of VAT, or sales tax, that people pay as part of consuming goods and services. </p>
<p>It is often “less visible” than income tax because, in most places, it is not separated out from the price you pay for goods when shopping. In other words, there is no mention on your receipt of the VAT you have paid when you do your weekly food shop (the US being a notable exception).</p>
<p>This matters, because millions of people on low incomes (<a href="https://ifs.org.uk/sites/default/files/output_url_files/BN253-Characteristics-and-Incomes-Of-The-Top-1%252525.pdf">43% of adults in the UK</a>) pay little to no income tax or national insurance due to the <a href="https://www.gov.uk/income-tax-rates">personal allowance</a>. VAT, on the other hand, is a <a href="https://taxfoundation.org/taxedu/glossary/regressive-tax/">regressive tax</a>, because people on low incomes pay a proportionally larger amount of their incomes in VAT than people on higher incomes. </p>
<p>If we apply my research findings here, the result is that the contributions of people on lower incomes are not viewed as having the same social value as those paid by people on higher incomes. How contribution is “calculated” by the general population is not, then, about the amount of money paid in taxes, but about the ideas connected to different types of taxes. </p>
<h2>A global view</h2>
<p>Fiscal and tax systems have <a href="https://www.cambridge.org/gb/universitypress/subjects/politics-international-relations/comparative-politics/taxation-and-state-building-developing-countries-capacity-and-consent?format=PB&isbn=9780521716192">different social effects</a> from country to country. In the UK and many <a href="https://journals.sagepub.com/doi/10.1177/0192512104043018">European countries</a> there tends to be a strong link between income tax and national belonging. But in other places, especially countries that were formerly occupied by colonial powers, the opposite is true.</p>
<p>In Bolivia, people have <a href="https://www.tandfonline.com/doi/abs/10.1080/02757206.2017.1281266">historically associated</a> taxes paid with exploitation, rather than inclusion. This was because the indigenous population were forced to pay taxes on their land in the form of slave labour, while the middle classes of European descent were exempt. </p>
<p>This unpaid labour, called the <em>Mit'a</em>, was a tribute system established by the Incas and intensified by the colonial Spanish government for the purposes of collecting revenue for the respective empires. </p>
<p>My research participants <a href="https://www.berghahnjournals.com/view/journals/social-analysis/64/2/sa640202.xml">in Bolivia</a> did not see paying income tax or even VAT as an act of contributing to society. Instead they preferred to contribute to non-state organisations, <a href="https://journals.sagepub.com/doi/full/10.1177/0308275X221139154">such as unions or churches</a>, in order to build collective public goods (<a href="https://www.berghahnjournals.com/view/journals/social-analysis/64/2/sa640203.xml">there are similar attitudes in places like Ghana</a>). </p>
<p>As the local tax authorities did not have the resources to enforce all taxes in rural areas and the outskirts of urban areas, people with incomes from formal and informal labour arrangements were able to avoid paying taxes. </p>
<p>However, their tax avoidance was not about just saving money (indeed, in their income brackets, the tax burden was low). Instead, it was motivated by what organisations they trusted to use that money best. </p>
<figure class="align-center ">
<img alt="A young woman sits at a desk looking at financial papers and her laptop" src="https://images.theconversation.com/files/579927/original/file-20240305-26-knp60g.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/579927/original/file-20240305-26-knp60g.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=385&fit=crop&dpr=1 600w, https://images.theconversation.com/files/579927/original/file-20240305-26-knp60g.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=385&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/579927/original/file-20240305-26-knp60g.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=385&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/579927/original/file-20240305-26-knp60g.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=484&fit=crop&dpr=1 754w, https://images.theconversation.com/files/579927/original/file-20240305-26-knp60g.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=484&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/579927/original/file-20240305-26-knp60g.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=484&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Some taxes are viewed as contributing more than others, regardless of their actual value.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/young-busy-business-woman-manager-lawyer-2223351521">insta_photos/Shutterstock</a></span>
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</figure>
<h2>What is taxable?</h2>
<p>Though most countries tax labour, consumption, profit and wealth in some combination and to some degree, views on what can (and should) be taxed vary between countries. </p>
<p>That helping a neighbour by walking their dog in return for babysitting could be considered a form of tax evasion might seem shocking to many. But this is the kind of debate that tax authorities and taxpayers in Sweden have been having since 1991, when economic reform <a href="https://www.sciencedirect.com/science/article/pii/S1045235415000520#bbib0065">made barter taxable</a>, leaving it up to the tax authorities to interpret the law responsibly.</p>
<p>Such an example helps us think through the role that taxes play in society, how an activity or a product is taxable or not, and what happens when something is taxed for the first time or stops being taxed. </p>
<p>When Sweden scrapped inheritance tax in <a href="https://sweden.se/life/society/taxes-in-sweden">2005</a>, it transformed inherited property from being a profitable asset to being a personal or family belonging. This is not just a question of money paid or not paid, but about the value and meaning of that thing. </p>
<p>Tax systems are complex, and are often most beneficial to those who know how to <a href="https://theconversation.com/explainer-what-are-tax-havens-57244">exploit them</a>. While it is easy to look at announcements like a national insurance cut as simply more money in your pocket, my research shows that taxes are about much more than money. How we implement them can cause harm or make positive change for how society works.</p><img src="https://counter.theconversation.com/content/223889/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Miranda Sheild Johansson receives funding from the UKRI, a Future Leaders Fellowship (Grant Ref: MR/V022261/1). </span></em></p>In the UK, taxpayers see paying income tax as part of contributing as a citizen.Miranda Sheild Johansson, Senior Research Fellow in Social Anthropology, UCLLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2242322024-02-23T13:49:52Z2024-02-23T13:49:52ZLouisiana governor makes it easier for companies to receive lucrative tax breaks that take money away from cash-strapped schools<figure><img src="https://images.theconversation.com/files/577468/original/file-20240222-20-bvvxzi.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">ExxonMobil has been granted nearly $580 million in tax abatements in Louisiana since 2000.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/oil-refinery-owned-by-exxon-mobil-is-the-second-largest-in-news-photo/1225711980">Barry Lewis/Getty Images</a></span></figcaption></figure><p>Louisiana Gov. Jeff Landry <a href="https://gov.louisiana.gov/assets/ExecutiveOrders/2024/JML-Executive-Order-23.pdf">signed an executive order</a> on Feb. 21, 2024, removing school boards’ veto power over corporate property tax breaks that take money away from schools. It also did away with a requirement that projects granted the tax breaks create jobs and retain jobs. </p>
<p>Now, companies that apply for Louisiana’s Industrial Tax Exemption Program, which can grant property tax breaks of 80% over 10 years, will go to a local industrial board, then a state industrial board, for approval. If the local and state boards disagree on whether to grant a tax break, the governor will be the tiebreaker.</p>
<p>The order nullified a previous governor’s 2016 order allowing schools to have more of a say in approving tax breaks that could harm their students.</p>
<p>We are a group of researchers who <a href="https://theconversation.com/students-lose-out-as-cities-and-states-give-billions-in-property-tax-breaks-to-businesses-draining-school-budgets-and-especially-hurting-the-poorest-students-222940">wrote for The Conversation</a> about the <a href="https://www.doi.org/10.1080/15575330.2022.2148171">billions of dollars</a> students and schools lose out on yearly when cities and states grant corporate property tax abatements.</p>
<p>Tax abatement programs have long been controversial, and their economic value is at best unclear: Studies show most companies <a href="https://research.upjohn.org/up_workingpapers/289/">would have made the same location decisions</a> without these taxpayer subsidies. Meanwhile, schools make up the largest cost item in these communities, meaning they suffer most when companies are granted breaks in property taxes.</p>
<p>One of the areas we focused on was East Baton Rouge Parish, Louisiana, which is facing budgetary woes including shortages of <a href="https://www.theadvocate.com/baton_rouge/news/education/baton-rouge-school-bus-crisis-could-lead-to-budget-crisis/article_a24d6502-5fdb-11ee-ad9c-c378e2276bbf.html">bus drivers</a> and <a href="https://www.wafb.com/2023/06/20/program-aimed-help-teacher-shortage/">teachers</a>.</p>
<p>Since 2000, Louisiana has granted a total of <a href="https://fastlaneng.louisianaeconomicdevelopment.com/public/reports">US$35 billion in corporate property tax breaks</a> for 12,590 projects.</p>
<p>Former Louisiana Gov. John Bel Edwards <a href="https://gov.louisiana.gov/assets/ExecutiveOrders/JBE16-26.pdf">signed the 2016 executive order</a> that gave local taxing bodies – such as school boards, sheriffs and parish or city councils – the ability to vote on their own individual portions of the tax exemptions.</p>
<p>In 2019, the East Baton Rouge Parish School Board <a href="https://www.theadvocate.com/baton_rouge/news/education/itep-critics-defeat-exxonmobil-tax-break-requests-at-school-board-here-are-next-steps/article_09cb2d54-1a68-11e9-a672-7f6ee09f1f74.html">exercised its power</a> to vote down an abatement. In 2022, a year where ExxonMobil made a record $55.7 billion in profit, the company asked for a tax break from the cash-starved East Baton Rouge school district. After a <a href="https://www.youtube.com/watch?v=E-9hbVfhZRQ">lively debate</a>, including comments from 49 citizens, the board voted to grant the tax rate.</p>
<p><iframe id="8PBGX" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/8PBGX/3/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<p>Throughout the U.S., <a href="https://doi.org/10.1080/15575330.2022.2148171">school boards’ power over the tax abatements</a> that affect their budgets vary, and in some states, including Georgia, Kansas, Nevada, New Jersey and South Carolina, school boards lack any formal ability to vote or comment on tax abatement deals that affect them.</p>
<p>Landry’s recent order added Louisiana to the list.</p>
<p><em>Read the full investigation here: <a href="https://theconversation.com/students-lose-out-as-cities-and-states-give-billions-in-property-tax-breaks-to-businesses-draining-school-budgets-and-especially-hurting-the-poorest-students-222940">Students lose out as cities and states give billions in property tax breaks to businesses − draining school budgets and especially hurting the poorest students</a></em></p><img src="https://counter.theconversation.com/content/224232/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Christine Wen worked for the nonprofit organization Good Jobs First from June 2019 to May 2022 where she helped collect tax abatement data.</span></em></p><p class="fine-print"><em><span>Nathan Jensen has received funding from the John and Laura Arnold Foundation, the Smith Richardson Foundation, the Ewing Marion Kauffman Foundation and the Washington Center for Equitable Growth. He is a Senior Fellow at the Niskanen Center.</span></em></p><p class="fine-print"><em><span>Danielle McLean and Kevin Welner do not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Louisiana’s governor made it easier for companies to receive property tax breaks – and schools will likely pay the price.Christine Wen, Assistant Professor of Landscape Architecture & Urban Planning, Texas A&M UniversityDanielle McLean, Freelance Reporter and Editor, The ConversationKevin Welner, Professor of Education Policy & Law; Director of the National Education Policy Center, University of Colorado BoulderNathan Jensen, Professor of Government, The University of Texas at AustinLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2213822024-01-22T13:28:57Z2024-01-22T13:28:57ZCongress is close to expanding the child tax credit again − with a smaller boost for families this time<figure><img src="https://images.theconversation.com/files/570367/original/file-20240119-25-35ut1k.jpg?ixlib=rb-1.1.0&rect=94%2C83%2C6903%2C4395&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The costs of raising children can strain a household's budget.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/photo/mother-and-daughter-shopping-school-supplies-in-a-royalty-free-image/1585987057?adppopup=true">Phynart Studio/E+ via Getty Images</a></span></figcaption></figure><p><em><a href="https://www.axios.com/2024/01/16/child-tax-credit-reduce-poverty">Influential lawmakers have struck a deal</a> that could increase the extent to which low-income U.S. families can benefit from the child tax credit for three years. The Conversation asked <a href="https://fordschool.umich.edu/faculty/natasha-pilkauskas">Natasha Pilkauskas</a> and <a href="https://fordschool.umich.edu/faculty/katherine-michelmore">Katherine Michelmore</a>, public policy researchers at the University of Michigan, to explain what may change and why.</em></p>
<h2>Why does Congress want to expand the child tax credit?</h2>
<p>The child tax credit, <a href="https://www.ncsl.org/human-services/child-tax-credit-overview">first enacted in 1997</a>, was originally designed to help middle-class families with the costs of raising kids by giving them and upper-class families a tax credit of US$400 per child.</p>
<p>After several changes, this credit grew to as much as $2,000. Then the government temporarily expanded the credit in two main ways for the 2021 tax year. </p>
<p>Families could get up to $3,600 for each child, and nearly all low-income families could obtain it. In addition, half of this money was disbursed in monthly payments in the second half of 2021.</p>
<p>In 2022, the credit reverted to its previous terms, in accordance with the tax reform package that President Donald Trump <a href="https://www.taxpolicycenter.org/sites/default/files/briefing-book/what-is-the-child-tax-credit.pdf">signed into law in late 2017</a>.</p>
<p>The maximum credit is currently worth $2,000. Families must earn at least $2,500 to claim any credit, but their earnings must be higher to get the full credit. For example, a family with two children must earn at least about $40,000 to receive the full $4,000 in child tax credits. Families with three or more children have to earn even more to get the full benefits.</p>
<h2>What could change this time?</h2>
<p>A bipartisan group of House and Senate <a href="https://gop-waysandmeans.house.gov/wp-content/uploads/2024/01/The-Tax-Relief-for-American-Families-and-Workers-Act-of-2024-Technical-Summary.pdf">lawmakers agreed on Jan. 16, 2024</a>, to expand the credit again. If Congress <a href="https://www.nytimes.com/2024/01/16/us/politics/tax-deal-congress.html">passes the $33 billion measure</a> and President Joe Biden signs it into law, the credit would still be smaller than the 2021 version, and it would not be available to all low-income families.</p>
<p>The new proposal would adjust the earnings requirements. These changes would make it easier for many lower-income families – those earning roughly between $10,000 and $50,000 – to get the full credit. These families would get an <a href="https://www.vox.com/future-perfect/2024/1/16/24035922/child-tax-credit-wyden-smith-deal">average credit that is about $1,130 higher</a> than in 2022.</p>
<p>Families with higher incomes will also see larger benefits in future years if this expansion is passed, because the credit would be indexed to inflation to help families keep pace with rising expenses.</p>
<p>Unlike the 2021 expansion, which gave families monthly checks for six months, this credit would come only at tax time as a lump sum.</p>
<p>The Center on Budget and Policy Priorities <a href="https://www.cbpp.org/sites/default/files/1-16-24tax.pdf">projects that this policy would boost benefits</a> for 16 million kids. That’s more than <a href="https://www.childstats.gov/americaschildren/demo.asp">1 in 5 of the nation’s 72 million children</a>.</p>
<p>Families who would <a href="https://www.investopedia.com/financial-edge/0411/5-groups-that-dont-pay-taxes.aspx">not otherwise have to file their taxes</a> will need to do so to claim the child tax credit. In our own research, we found that almost 25% of lower-income families <a href="https://doi.org/10.1257/pandp.20231089">didn’t receive any of the monthly child tax credits</a>, perhaps because they didn’t file their taxes. </p>
<p>For parents who worked in 2023 and have kids younger than 17 who live with them, it may be worth filing taxes in 2024.</p>
<h2>What’s the rationale for this expansion?</h2>
<p>Raising children can be very expensive.</p>
<p>Consider a mother who is working year-round in a full-time, minimum-wage job who has two kids. Assuming she earns the <a href="https://www.usa.gov/minimum-wage">federal minimum wage of $7.25 an hour</a>, she would <a href="https://www.indeed.com/career-advice/pay-salary/how-much-does-a-minimum-wage-job-pay-a-year">earn just over $15,000 each year</a>. Once she pays her rent, food and utility bills, she likely has very little money left for other important expenses like child care or school fees.</p>
<p>For this woman, getting a bigger check at tax time could really help her make ends meet. This new plan would nearly double her child tax credit <a href="https://www.cbpp.org/sites/default/files/1-16-24tax.pdf">from about $1,875 to $3,600</a>.</p>
<p>There’s also widespread support to expand the child tax credit because the 2021 child tax credit lifted <a href="https://www.census.gov/library/stories/2022/09/record-drop-in-child-poverty.html">3 million children out of poverty</a>. </p>
<p>Many researchers, including us, have found that most <a href="https://doi.org/10.1257/pandp.20231089">families with low incomes</a> spent the 2021 credit on bills, <a href="https://doi.org/10.3386/w31339">rent</a>, <a href="https://doi.org/10.3386/w30533">food and clothing</a>.</p>
<p>We also determined that the expanded child tax credit made <a href="https://doi.org/10.1016/j.ssmph.2023.101420">parents less anxious and depressed</a>.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/570384/original/file-20240119-25-yp90kj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="A group of children sit and stand in front of a banner that says 'hungry for the child tax credit.'" src="https://images.theconversation.com/files/570384/original/file-20240119-25-yp90kj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/570384/original/file-20240119-25-yp90kj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/570384/original/file-20240119-25-yp90kj.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/570384/original/file-20240119-25-yp90kj.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/570384/original/file-20240119-25-yp90kj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/570384/original/file-20240119-25-yp90kj.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/570384/original/file-20240119-25-yp90kj.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">The children of advocates for changes to the child tax credit gathered in front of the White House in September 2022.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/parents-and-caregivers-with-the-economic-security-project-news-photo/1425648693?adppopup=true">Larry French/Getty Images for SKDK</a></span>
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<h2>Who wants this expansion to go into effect?</h2>
<p>In the past, bipartisan coalitions have voted to expand the child tax credit. Republicans and Democrats alike have proposed making it more generous over the years.</p>
<p>The current expansion also has bipartisan support, even though <a href="https://www.washingtonpost.com/business/2024/01/15/child-tax-credit-increase-2024/">progressive lawmakers would have preferred</a> a return to the 2021 version of the credit, which was larger, available to more low-income families and disbursed in monthly installments. </p>
<p>Some conservatives worry that bigger credits <a href="https://www.aei.org/center-on-opportunity-and-social-mobility/tax-extenders-package-would-cut-the-child-tax-credits-annual-work-requirement-in-half/">make people less likely to work</a>. There’s not much evidence to support that claim. </p>
<p>Instead, <a href="https://doi.org/10.1002/pam.22528">there’s ample evidence</a> that the <a href="https://www.nber.org/papers/w29823">2021 tax credit expansion</a> <a href="https://www.aeaweb.org/articles?id=10.1257/pandp.20231087">didn’t make parents less likely to earn money</a>.</p>
<p>And it’s important to remember that families will still have to work in order to receive any benefit from the child tax credit under this proposal.</p>
<h2>How long would the expansion last?</h2>
<p>To be clear, <a href="https://www.washingtonpost.com/business/2024/01/15/child-tax-credit-increase-2024/">there is no guarantee that Congress will approve</a> this measure. It’s part of a <a href="https://www.politico.com/news/2024/01/16/tax-chiefs-reach-deal-on-child-credit-business-breaks-00135631">larger array of tax changes</a> subject to other partisan battles.</p>
<p>Should Congress pass the tax package and Biden sign it by Jan. 29, American families would be able to claim this expanded credit in 2024 on their 2023 taxes.</p>
<p>Even so, this expansion would be short-lived. The current child tax credit <a href="https://www.taxpolicycenter.org/taxvox/evidence-suggests-expanding-child-tax-credit-could-ease-hardship-among-families-kids">is slated to become smaller after the 2025 tax year</a> unless Congress takes further action. It’s one of the many 2017 tax reforms that will expire in 2026.</p>
<p>After that point, the child tax credit will <a href="https://www.taxpolicycenter.org/briefing-book/what-child-tax-credit">decline to a maximum of $1,000</a> per child.</p><img src="https://counter.theconversation.com/content/221382/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Natasha Pilkauskas has received funding from the Charles and Lynn Schusterman Family Philanthropies and the Washington Center for Equitable Growth.</span></em></p><p class="fine-print"><em><span>Katherine Michelmore has received funding from the Washington Center for Equitable Growth</span></em></p>Republicans and Democrats have committed to making this family-friendly government benefit a little more generous. Unless lawmakers act, it will get much smaller in 2026.Natasha Pilkauskas, Associate Professor of Public Policy, University of MichiganKatherine Michelmore, Associate Professor of Public Policy, University of MichiganLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2185852023-11-29T10:00:24Z2023-11-29T10:00:24ZGhana wants to restrict imports on 22 products – an economist explains how, why and what else must be done<p><em>Ghana’s Ministry of Trade and Industry has <a href="https://www.modernghana.com/news/1275386/licensing-regime-for-import-restrictions-archaic.html">tabled</a> in parliament a proposed ban or restrictions on imports of certain goods, including rice, sugar, poultry, fruit juices and animal intestines (tripe). The proposed legislation empowers the trade minister to issue licences to potential importers of goods. Critics of the policy say it will give too much power to the minister and create room for corruption. The Conversation Africa’s Godfred Akoto Boafo spoke to development economist <a href="https://theconversation.com/profiles/adu-owusu-sarkodie-774216">Adu Owusu Sarkodie</a> about the policy.</em></p>
<h2>What are import restrictions?</h2>
<p>These refer to the various schemes, mechanisms and regulations that a government can impose to restrict or limit the importation of goods and services. They come in different forms.</p>
<p><strong>Tariffs</strong>: These are taxes imposed on imported goods and services. They can be specific taxes (a fixed amount per unit) or ad valorem (a percentage of the value) or both. </p>
<p><strong>Quotas</strong>: This means a direct restriction on the quantity of a particular good that can be imported at a specified period of time. It is enforced by issuing licences to individuals or firms.</p>
<p><strong>Embargos and sanctions</strong>: This involves a ban on the importation of a particular good. Importing a banned good is illegal. </p>
<p><strong>Quality standards and technical barriers</strong>: A country can set stringent requirements that imported goods must meet.</p>
<p><strong>Local content requirements</strong>: In terms of this regulation a specified fraction of a final good must be produced domestically, either in physical units or in value terms.</p>
<p>The choice of a particular form of import restriction depends on the geopolitical, economic and social characteristics of the country.</p>
<h2>What role does it play as an economic strategy?</h2>
<p><strong>Protection of domestic and infant industries</strong>: Restrictions such as tariffs and quotas can raise the prices of imported goods and make domestic goods more <a href="https://corporatefinanceinstitute.com/resources/economics/protectionism/">competitive</a>. This can stimulate local producers to produce more, grow and develop.</p>
<p><strong>Revenue to the government</strong>: Import restrictions such as tariffs are a source of revenue for the government. </p>
<p><strong>Balance of payments and trade deficits management</strong>: Import restrictions help in correcting balance of payment issues and can reduce <a href="https://libertystreeteconomics.newyorkfed.org/2018/08/do-import-tariffs-help-reduce-trade-deficits/">trade deficits</a>. This can help countries achieve <a href="https://libertystreeteconomics.newyorkfed.org/2018/08/do-import-tariffs-help-reduce-trade-deficits/">economic gains</a> needed for long term growth and development.</p>
<p><strong>Environmental and health considerations</strong>: These restrictions can also help address <a href="https://idrc-crdi.ca/en/news/taxation-sugar-sweetened-beverages-win-win-ghanas-public-health-strategy#:%7E:text=The%20tax%20bill%20was%20approved,tea%2C%20sodas%20and%20energy%20drinks">environmental and health concerns</a>. </p>
<p>Excessive import restrictions can backfire, however, if foreign countries retaliate.</p>
<h2>Why is Ghana considering import restrictions?</h2>
<p>A number of reasons have led to this.</p>
<p><strong>Health concerns</strong>: There have been concerns about the <a href="https://www.ghanaweb.com/GhanaHomePage/business/Government-to-restrict-the-importation-of-rice-yemuadie-and-other-products-1884650">quality</a> of some of the imported food items and pharmaceuticals. </p>
<p><strong>Protection of domestic and infant industries</strong>: Cheap imports are leading to the collapse of <a href="https://mpra.ub.uni-muenchen.de/117982/1/Performan">domestic firms</a>. They are suffering from <a href="https://thebftonline.com/2023/11/27/govt-borrowing-risks-choking-private-sector/">high borrowing costs</a> and eroding capital as a result of inflation. The government can protect them by placing restrictions on some of these cheap imports. That will make them competitive, and save foreign exchange.</p>
<p><strong>Trade deficits and balance of payments support</strong>: These restrictions will reduce imports. All else being equal, they will improve the country’s trade balance and balance of payments. The government will have enough foreign exchange reserves and be able to finance its developmental agenda. </p>
<p><strong>Revenue to the government</strong>: One of the International Monetary Fund <a href="https://www.bloomberg.com/news/articles/2023-04-14/imf-director-says-ghana-has-taken-enough-pain-to-unlock-aid?embedded-checkout=true">conditions</a> for financial assistance to Ghana is that government must increase tax revenues. It can do this through tariffs. </p>
<p><strong>Stabilise the currency</strong>: These restrictions will reduce the amount of <a href="https://theconversation.com/ghanas-cedi-is-under-stress-some-long-medium-and-short-term-solutions-178063">foreign currency used for imports</a>. This increases the forex supply and helps to stabilise the currency.</p>
<h2>Have other African countries done this?</h2>
<p>The <a href="https://www.eac.int/">East African Community</a>, comprising Kenya, Rwanda, Burundi, Tanzania, Uganda, South Sudan and the Democractic Republic of Congo, has numerous import restrictions. These countries have a common external tariff on the cost, insurance and freight value of imports. And they ban some goods such as some pharmaceuticals, narcotic drugs, firearms and ammunition, explosives, pornography, genetically modified products and plastic bags.</p>
<p>South Africa, Botswana, Lesotho, Eswatini and Namibia as part of the <a href="https://www.sacu.int/">Southern African Customs Union</a> also administer a common external tariff on imports from other countries. They ban or have quotas on some goods such as narcotics and habit-forming drugs.</p>
<p>Nigeria has its own <a href="https://www.trade.gov/country-commercial-guides/nigeria-prohibited-and-restricted-imports">restrictions</a> on some products. These include rice, pork, beef, live or dead birds including frozen poultry, cocoa butter, spaghetti and some pharmaceuticals.</p>
<h2>What is the way forward?</h2>
<p>In addition to the import restrictions, the following recommendations could assist Ghana.</p>
<p><strong>Diversification of the economy</strong>: Ghana must support industries beyond traditional sectors like agriculture and mining. Investing in technology, innovation and value-added production can contribute to a more resilient economy. </p>
<p><strong>Investment in education and skills development</strong>: This can involve investments in science, technology, engineering and mathematics education to meet the demands of a modern and diverse economy.</p>
<p><strong>Infrastructure development</strong>: Invest in critical infrastructure such as roads, ports and energy to reduce transportation costs, enhance connectivity and attract investment.</p>
<p><strong>Promotion of export-oriented industries</strong>: By focusing on products and services that have demand in the international market, Ghana can boost its export earnings and improve its trade balance.</p>
<p><strong>Trade facilitation and ease of doing business</strong>: Simplify trade processes and make it easier to do business. Streamlining customs procedures, reducing bureaucratic hurdles, and enhancing the overall business environment can attract investments and promote economic growth.</p>
<p><strong>Enhanced agricultural productivity</strong>: Invest in research and development. Promote sustainable farming practices, introduce modern technologies and improve access to markets for farmers.</p>
<p><strong>Corruption mitigation</strong>: An environment of good governance can attract investments and build confidence in the business community.</p>
<p><strong>Continuous policy review</strong>: Economic policies must adapt to changing circumstances. Flexibility and responsiveness to economic conditions are crucial for effective governance.</p>
<p>Inward looking or import substitution strategies have been adopted by many countries at the early stages of their development. The critical question is how much to produce to meet demand, and what quality. All stakeholders must ensure production to meet demand while ensuring quality.</p><img src="https://counter.theconversation.com/content/218585/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Adu Owusu Sarkodie does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The policy is the latest strategy to grow Ghana’s weak industrial base.Adu Owusu Sarkodie, Lecturer, Department of Economics, University of GhanaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2134332023-09-28T05:39:02Z2023-09-28T05:39:02ZIn fractious debate, GOP candidates find common ground on cause of inflation woes and need for school choice<figure><img src="https://images.theconversation.com/files/550803/original/file-20230928-19-kzxcm.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C2634%2C1825&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Florida Gov. Ron DeSantis and entrepreneur Vivek Ramaswamy debate the finer points.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/republican-presidential-candidates-florida-gov-ron-desantis-news-photo/1705132466?adppopup=true">Justin Sullivan/Getty Images.</a></span></figcaption></figure><p><em>It was a night in which even “<a href="https://www.reaganfoundation.org/education/virtual-learning-hub/the-great-communicator/">the great communicator</a>” himself may have struggled to be heard.</em></p>
<p><em>At the Ronald Reagan Presidential Library in California on Sept. 27, 2023, seven Republican candidates looking to become the leading challenger to the absent GOP front-runner Donald Trump <a href="https://www.npr.org/2023/09/27/1201848640/second-republican-debate-california">interrupted, cross-talked and bickered</a> – often to the exasperation of the presidential debate moderators.</em></p>
<p><em>And yet, between the heated exchanges, important economic and business issues were discussed – from national debt and government shutdowns to labor disputes and even school choice. One thing the candidates agreed on: They aren’t fans of <a href="https://www.washingtonpost.com/business/energy/2023/08/15/what-is-bidenomics-president-biden-s-economic-philosophy-explained/e9ba8398-3b9b-11ee-aefd-40c039a855ba_story.html">Bidenomics</a>.</em></p>
<p><em>Listening in for The Conversation were economists <a href="https://www.gonzaga.edu/school-of-business-administration/faculty/detail/herzogr">Ryan Herzog</a> of Gonzaga University and University of Tennessee’s <a href="https://web.utk.edu/%7Eccarrut1/">Celeste K. Carruthers</a>. Here are their main takeaways from the debate.</em></p>
<h2>Inflation talk assigns blame, falls flat on solutions</h2>
<p><strong>Ryan Herzog, Gonzaga University</strong></p>
<p>The <a href="https://www.foxnews.com/official-polls/fox-news-poll-voters-white-house-doing-more-harm-than-good-inflation">most recent Fox News survey</a> showed that 91% of Americans are worried about inflation and 80% about rising housing costs. I tuned into the second GOP debate hoping to hear how the candidates would solve these problems. I was left disappointed. </p>
<p>Not a single candidate mentioned rising housing costs, and few even acknowledged inflation. Given how much the issue has dominated the news, I assumed the candidates would mention it more than the <a href="https://rollcall.com/2023/08/24/transcript-gop-presidential-hopefuls-debate-in-milwaukee">eight times</a> they did in the prior debate. I was wrong. </p>
<p>First, let’s check some inflation facts. Former South Carolina Gov. Nikki Haley claimed that the average household is spending US$7,000 more per year on groceries and gas because of inflation. I believe she also meant to include <a href="https://www.cnn.com/2023/08/11/economy/inflation-rate-spending/index.html">housing costs</a>. The latest data shows the annual inflation for food at home – as opposed to restaurant meals – is rising less than 3% per year. While that’s up 24% <a href="https://fred.stlouisfed.org/graph/?g=19mVB">since the start of the pandemic</a>, it’s far below what you’d need for an increase of nearly $600 per month. </p>
<p>Next, former Vice President Mike Pence said that recent wage gains have not kept up with inflation. But according to the most recent data, average wage growth has actually <a href="https://www.nytimes.com/2023/09/01/business/economy/wage-growth-inflation.html">outpaced inflation</a>. Indeed, workers in lower-wage industries that are seeing labor shortages, such as the leisure and hospitality sector, have seen <a href="https://www.politico.com/news/2023/05/29/low-income-wages-employment-00097135">very substantial pay increases</a>. </p>
<p>Nearly every candidate blamed inflation on <a href="https://www.wsj.com/articles/government-spending-fuels-inflation-covid-relief-pandemic-debt-federal-reserve-stimulus-powell-biden-stagflation-11645202057">excessive federal spending</a>. Under Presidents Donald Trump and Joe Biden, the total level of U.S. government debt increased by nearly $8 trillion and $4.5 trillion, <a href="https://fred.stlouisfed.org/graph/?g=18YJx">respectively</a>. As expected, most candidates proposed cutting government spending and taxes to help struggling families. But it’s unclear whether those policies, taken together, would be effective at lowering inflation.</p>
<p>The candidates also agreed on the need to promote U.S. energy independence – through drilling, fracking and coal – to promote low and stable inflation. But while reducing energy costs would support lower inflation, there was zero discussion of how new technologies like artificial intelligence could be used to fight inflation – for example, by improving productivity. In the end, most candidates resorted to old arguments and avoided debate on 21st-century solutions.</p>
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<h2>School choice is common refrain, but evidence on impact is mixed</h2>
<p><strong>Celeste K. Carruthers, University of Tennessee</strong> </p>
<p>Before a commercial break midway through the debate, moderators teased viewers to return for questions on education in the U.S. It’s understandable that voters would want to hear what candidates have to say on the issue. Younger students have <a href="https://www.nationsreportcard.gov/highlights/ltt/2022/">a long way to go</a> to recover from COVID-era learning losses, and many families are dissatisfied with public education to the point that they are <a href="https://www.urban.org/research/publication/where-kids-went-nonpublic-schooling-and-demographic-change-during-pandemic">leaving public schools</a> for home school and private school options. The education portion of the debate ended up being a short exchange, however, with more focus on immigration, inflation, border security, foreign policy and the opioid epidemic. </p>
<p>One common theme across candidates was at least a brief mention of school choice. School choice describes a variety of different policies that give the parents of pre-K-12 students more options for where they send their kids to school. These options can include charter schools, magnet schools, public schools outside of a student’s school zone or in another district, or even private schools. </p>
<p>Gov. Haley voiced a <a href="https://www.hoover.org/research/school-vouchers-next-great-leap-forward">commonly held view</a> among school choice supporters that providing students with more schooling options improves education by encouraging competition. Gov. DeSantis referenced “universal school choice” in his home state of Florida, which <a href="https://www.the74million.org/article/florida-just-became-the-nations-biggest-school-choice-laboratory/">recently passed legislation</a> that allows any student to apply for several thousand dollars in state funds that can be used toward private school tuition. </p>
<p>Researchers have found that earlier phases of private school vouchers in Florida led to <a href="https://www.nber.org/system/files/working_papers/w26758/w26758.pdf">improvements</a> in public school student test scores, absenteeism and suspensions, which supports the idea that competition from private schools can benefit students who opt not to use vouchers and stay in public schools.</p>
<p>Private school vouchers are, however, a contentious topic. Opponents of vouchers and school choice policies more generally argue that they put traditional public schools at a <a href="https://www.cbpp.org/research/state-budget-and-tax/state-policymakers-should-reject-k-12-school-voucher-plans">financial disadvantage</a>. Critics have also noted that some of the early voucher advocates viewed them as a way to <a href="https://www.chalkbeat.org/2017/7/23/21107262/critics-of-vouchers-say-they-re-marred-by-racism-and-exacerbate-segregation-are-they-right">avoid racial integration</a>. </p>
<p>Additionally, school choice can theoretically lead to sorting, where higher-achieving or higher-income students group together, and this can be detrimental to lower-achieving students who are left behind. There is <a href="https://www.doi.org/10.1257/jel.20150679">evidence of sorting like this</a>, particularly in large-scale voucher systems outside the U.S. </p>
<p>Florida’s newly expanded model of school choice is <a href="https://www.the74million.org/article/florida-just-became-the-nations-biggest-school-choice-laboratory/">one of the most comprehensive</a> in the country. <a href="https://www.vox.com/politics/23689496/school-choice-education-savings-accounts-american-federation-children">Several other states</a> have also recently revised their school choice policies, generally extending eligibility for vouchers and education savings accounts beyond needy populations. In time, we can expect the evidence on school choice to grow substantially and perhaps occupy more attention in future debates.</p><img src="https://counter.theconversation.com/content/213433/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>With Donald Trump absent again, Republican presidential hopefuls took potshots at each other but agreed that Bidenomics isn’t cutting it.Ryan Herzog, Associate Professor of Economics, Gonzaga UniversityCeleste K. Carruthers, Professor of Economics, University of TennesseeLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2139382023-09-27T19:56:29Z2023-09-27T19:56:29ZGOP shutdown threat is the wrong way to win a budget war − history shows a better strategy for reducing the deficit<figure><img src="https://images.theconversation.com/files/549427/original/file-20230920-19-i4o0j8.jpg?ixlib=rb-1.1.0&rect=25%2C0%2C5725%2C3837&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Past as prologue: October could bring yet another government shutdown.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/photo/united-states-capitol-building-washington-dc-with-royalty-free-image/1094765660">Jorge Villalba/iStock via Getty Images</a></span></figcaption></figure><p>Congress has just days to keep the federal government from grinding to a halt, and a last-minute deal seems increasingly unlikely. The problem is that lawmakers <a href="https://theconversation.com/congress-needs-to-pass-12-funding-bills-in-11-days-to-avert-a-shutdown-heres-why-that-isnt-likely-212520">need to pass a dozen appropriations bills</a> – or a single continuing resolution – by Sept. 30, 2023, in order to keep the government’s lights on. But a key group of House Republicans is refusing to pass anything without steep <a href="https://www.washingtonpost.com/politics/2023/09/26/inside-spending-cuts-house-republicans-are-fighting/">spending cuts</a>. No bills, no government – at least for <a href="https://theconversation.com/what-happened-during-the-last-government-shutdown-4-essential-reads-169003">a few days or weeks</a>, anyway. </p>
<p>While fiscal discipline has long been the <a href="https://www.washingtonpost.com/business/2023/09/24/government-shutdown-congress-budget/">rallying cry</a> for shutdown supporters, the tactic isn’t necessarily effective at reducing the government’s deficit. </p>
<p>I’ve been following efforts to shut down the U.S. government for one reason or another for more than 40 years, first from various perches at the Congressional Budget Office, then at the National Governors Association, and now as a <a href="https://www.linkedin.com/in/raymond-scheppach-19b98536">professor of public policy</a>. History shows that shutdowns are counterproductive – at least as measured by their own defenders’ goals. Fortunately, the past also provides a proven way to reduce the deficit, which I agree is a laudable goal.</p>
<h2>Deficits are too high</h2>
<p>When House Republicans say America’s finances are in bad shape, they do have a point. The deficit, currently estimated at <a href="https://www.cbo.gov/topics/budget/outlook-budget-and-economy">US$1.5 trillion</a>, and debt held by the public, estimated at $25.8 trillion, are both dangerously high.</p>
<p>Why is the status quo so risky? For one thing, large deficits are inflationary and put pressure on the Federal Reserve to raise interest rates. For another, interest on public debt is now estimated to be <a href="https://www.cbo.gov/publication/58848">$663 billion</a> a year, which is slightly over 10% of total spending – a huge fiscal burden.</p>
<p>Finally, and most importantly, at some point individuals and foreign countries may <a href="https://theconversation.com/us-debt-default-could-trigger-dollars-collapse-and-severely-erode-americas-political-and-economic-might-198395">dump U.S. treasury bills</a> and bonds on the market because of a loss in confidence. That would make interest rates spike and could create a major economic collapse.</p>
<p>Because of these risks, members of the House Freedom Caucus have threatened to shut down the federal government on Oct. 1, the beginning of the next fiscal year, if they aren’t able to get big cuts to domestic discretionary spending. </p>
<p>Negotiations are further complicated by some House Republicans’ desires to add riders about the border and culture war issues to the must-pass spending bills, as well as the Biden administration’s request for <a href="https://www.reuters.com/world/us/biden-asks-us-congress-40-billion-including-24-billion-ukraine-2023-08-10/">$24 billion for Ukraine</a>, which not all party members support. </p>
<h2>Fighting the wrong battle</h2>
<p>I would argue that now is the wrong time for Republicans to take a stand on reducing the deficit, for two reasons. </p>
<p>First of all, shutdowns don’t get results. The U.S. has had 21 shutdowns over the past five decades, three of which have been major. These have all caused real harm to the U.S. economy, but they haven’t led to the spending levels Republicans wanted. </p>
<p>What’s more, in each case, the public <a href="https://fivethirtyeight.com/features/government-shutdown-polls/">blamed Republicans</a> for the shutdowns, polls show. Some historians have even suggested that the fallout from the weekslong 1995-96 shutdown contributed to then-speaker <a href="https://www.nytimes.com/1998/11/07/us/the-speaker-steps-down-the-career-the-fall-of-gingrich-an-irony-in-an-odd-year.html">Newt Gingrich having to resign</a> in 1998.</p>
<p>Second, the cuts Republicans are seeking aren’t all that significant. The bottom line is that they’re ignoring national defense and mandatory spending, which together represent <a href="https://www.cbo.gov/system/files/2023-02/58848-Outlook.pdf">75% of total spending</a>. The current effort aims only to trim domestic discretionary spending, which makes up a small and shrinking slice of the federal-spending pie – less than 15% in 2023.</p>
<p>At the same time, mandatory spending, including entitlements, totals nearly <a href="https://www.cbo.gov/system/files/2023-02/58848-Outlook.pdf">$4 trillion annually</a> and is growing rapidly. So, even if Democrats agreed to the domestic discretionary-spending cuts advocated by the House Freedom Caucus, those savings would be overtaken by growth in entitlement spending – primarily Social Security, Medicare and Medicaid – within a year. </p>
<p>What’s more, any serious plan to reduce the federal deficit must consider increasing the <a href="https://www.cbpp.org/research/federal-budget/where-do-our-federal-tax-dollars-go">$4.8 trillion of federal revenue</a>. The House Freedom Caucus has expressed no interest in raising taxes. </p>
<p>The bottom line, in my view, is that the shutdown strategy is more about creating drama, publicity and campaign fundraising for certain lawmakers than it is about seriously reducing the deficit. </p>
<h2>How to get results</h2>
<p>While it’s never politically easy to cut entitlements or raise taxes, the reconciliation provision in the <a href="https://www.govinfo.gov/content/pkg/COMPS-10356/pdf/COMPS-10356.pdf">1974 Congressional Budget and Impoundment Control Act</a> was enacted specifically for this purpose. It allows entitlement cuts and tax increases to be incorporated into the same bill, which cannot be filibustered in the Senate and only needs a majority for passage.</p>
<p>Over the past 40 years, there have been six serious budget negotiations that resulted in deficit reductions. One in 2011, negotiated by then-President Barack Obama and House Majority Leader John Boehner, was likely the <a href="https://manhattan.institute/article/getting-to-yes-a-history-of-why-budget-negotiations-succeed-and-why-they-fail">most successful</a> from a fiscal perspective. When it was finally enacted, it generated $1.95 trillion in deficit reduction over nine years. </p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/550083/original/file-20230925-17-z6u5k.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="In a 2011 photograph, Barack Obama and John Boehner are seen in sitting at a table at Cabinet Room of the White House. Boehner has a slight smile; Obama, about to speak, has an expression of satisfaction." src="https://images.theconversation.com/files/550083/original/file-20230925-17-z6u5k.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/550083/original/file-20230925-17-z6u5k.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=407&fit=crop&dpr=1 600w, https://images.theconversation.com/files/550083/original/file-20230925-17-z6u5k.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=407&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/550083/original/file-20230925-17-z6u5k.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=407&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/550083/original/file-20230925-17-z6u5k.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=512&fit=crop&dpr=1 754w, https://images.theconversation.com/files/550083/original/file-20230925-17-z6u5k.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=512&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/550083/original/file-20230925-17-z6u5k.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=512&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">House Minority Leader Nancy Pelosi, House Speaker John Boehner, U.S. President Barack Obama and Senate Majority Leader Harry Reid discuss the budget and debt limit during negotiations at the White House on July 11, 2011.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/president-barack-obama-meets-with-house-minority-leader-rep-news-photo/118825556">Roger Wollenberg/Getty Images</a></span>
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</figure>
<p>A similarly successful negotiation came <a href="https://media4.manhattan-institute.org/sites/default/files/R-0619BRdl.pdf">in 1997</a> during the Clinton administration. Lawmakers cut national defense spending by $247 billion, nondefense discretionary spending by $273 billion and entitlements by $374 billion, with interest savings of $142 billion. They also reduced taxes by $220 billion, mostly for low-income individuals, which brought the net total to $816 billion in deficit reduction over 10 years. </p>
<p>In addition to those successes, there were four other negotiations in 1993, 1990, 1985 and 1983 that averaged over $400 billion in deficit reduction, albeit over different timelines. </p>
<p>These examples show that budget negotiations without threatening a shutdown can be effective at enacting major deficit-reduction plans into law. The one during the Clinton administration even led to the budget surpluses in the years from 1998 to 2001, the <a href="https://clintonwhitehouse4.archives.gov/WH/New/html/19981028-13004.html">first surpluses since 1969</a>. </p>
<p>History indicates that there are three major requirements for a successful budget negotiation. First, lawmakers must be seriously committed to the goal of deficit reduction. Second, everything needs to be on the table, including revenues, entitlements and national defense. Third, there must be trust among the negotiators. </p>
<p>Unfortunately, I don’t believe any of these requirements can be met today.</p><img src="https://counter.theconversation.com/content/213938/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Raymond Scheppach does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Shutting down the government won’t help reduce the deficit. Here’s what would.Raymond Scheppach, Professor of Public Policy, University of VirginiaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2086272023-09-07T12:23:45Z2023-09-07T12:23:45ZIRS is using $60B funding boost to ramp up use of technology to collect taxes − not just hiring more enforcement agents<figure><img src="https://images.theconversation.com/files/546509/original/file-20230905-27-mt9e4u.jpg?ixlib=rb-1.1.0&rect=695%2C396%2C5177%2C3407&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The IRS has relied on technology for decades, as this 1965 photo taken in its Philadelphia office shows.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/view-of-employees-in-the-computer-room-of-a-regional-irs-news-photo/926365314?adppopup=true">US News & World Report Collection/Marion S Trikosko/PhotoQuest via Getty Images</a></span></figcaption></figure><p>The Internal Revenue Service is getting a funding boost thanks to the <a href="https://www.irs.gov/inflation-reduction-act-of-2022">Inflation Reduction Act</a>, which President Joe Biden signed into law in 2022.</p>
<p>That legislative package originally included about US$80 billion to expand the tax collection agency’s budget over the next 10 years. Congress and the White House have since agreed to <a href="https://www.politico.com/newsletters/weekly-tax/2023/07/31/irs-funding-battles-loom-large-in-september-00108882">pare this total by about $20 billion</a>, but $60 billion is still a big chunk of change for an agency that until recently had <a href="https://www.irs.gov/statistics/irs-budget-and-workforce">about $14 billion in annual funding</a>. </p>
<p>I’m a <a href="https://scholar.google.com/citations?user=9hhC4q8AAAAJ&hl=en&oi=ao">tax researcher</a> who studies how the <a href="https://doi.org/10.2308/AAHJ-2022-014">IRS uses technology</a> and how taxpayers respond to the agency’s growing reliance on it. While the number of IRS enforcement personnel will surely grow as a result of additional funding, I think that the agency can get more mileage out of emphasizing technological improvements.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/546514/original/file-20230905-19-5ho46d.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Three men in suits and Janet Yellen stand around a computer and a sign on the wall reading 'digital intake center.'" src="https://images.theconversation.com/files/546514/original/file-20230905-19-5ho46d.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/546514/original/file-20230905-19-5ho46d.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/546514/original/file-20230905-19-5ho46d.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/546514/original/file-20230905-19-5ho46d.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/546514/original/file-20230905-19-5ho46d.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/546514/original/file-20230905-19-5ho46d.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/546514/original/file-20230905-19-5ho46d.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Director of Enterprise Digitalization of 22nd Century Technologies Harrison Smith, left, demonstrates the digital intake initiative, a scanning technology for IRS paperless processing, as Secretary of the Treasury Janet Yellen and IRS Commissioner Daniel Werfel, right, look on in August 2023.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/director-of-enterprise-digitalization-of-22nd-century-news-photo/1588274665?adppopup=true">Alex Wong/Getty Images</a></span>
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<h2>Making enforcement more efficient</h2>
<p>The IRS plans to use most of these new funds to step up <a href="https://crsreports.congress.gov/product/pdf/IN/IN11977">enforcement and improve customer service</a> for taxpayers. </p>
<p>There’s been <a href="https://www.nytimes.com/2022/08/19/us/politics/more-money-for-irs-spurs-conspiracy-theories-of-shadow-army.html">plenty of conjecture</a> about what the added enforcement will look like and <a href="https://www.theguardian.com/commentisfree/2022/sep/08/republicans-irs-shadow-army-fearmongering">no shortage of fearmongering</a> about the tens of thousands of <a href="https://apnews.com/article/fact-check-irs-agents-inflation-reduction-act-871970314297">new agents the IRS might hire</a>.</p>
<p>Often left out of this discussion is the fact that the agency’s staffing <a href="https://www.cbpp.org/research/federal-tax/the-need-to-rebuild-the-depleted-irs">was cut by 22% between 2010 and 2021</a>. Much of the agency’s hiring spree will replace these labor shortages rather than fill new posts. Further, the IRS expects <a href="https://www.reuters.com/world/us/republicans-call-it-an-army-irs-hires-will-replace-retirees-do-it-says-treasury-2022-08-19/">over 50,000 of its employees to retire within five years</a>.</p>
<p>The agency aims to hire <a href="https://www.reuters.com/world/us/us-irs-hire-30000-staff-over-two-years-it-deploys-80-bln-new-funding-2023-04-06/">20,000 people over the next two years</a>, of which one-third will work in enforcement.</p>
<p>But IRS Commissioner Daniel Werfel has indicated that better enforcement won’t just rely on more tax agents and auditors. He <a href="https://www.irs.gov/pub/irs-pdf/p3744.pdf">released a plan in early 2023 promising</a> that “technology and data advances will allow us to focus enforcement on taxpayers trying to avoid taxes, rather than taxpayers trying to pay what they owe.”</p>
<p>And <a href="https://www.reuters.com/world/us/us-irs-hire-30000-staff-over-two-years-it-deploys-80-bln-new-funding-2023-04-06/">U.S. Deputy Treasury Secretary Wally Adeyemo</a> has said that “the IRS is going to hire more data scientists than they ever have for enforcement purposes,” with the goal of using data analytics in audits.</p>
<p>At least initially, the agency was aiming to <a href="https://taxfoundation.org/irs-funding-plan-inflation-reduction-act/">increase its spending on enforcement by 69%</a>, from about <a href="https://crsreports.congress.gov/product/pdf/IN/IN11977">$6.6 billion in 2022 to $11 billion in annual spending projected through 2031</a>.</p>
<p>Technology, including the electronic filing of tax returns and a growing portfolio of online tools, transfers work from agents to computers. Online tools include <a href="https://www.irs.gov/newsroom/irs-begins-new-digital-intake-initiative-form-940-scanning-process-off-to-strong-start-other-forms-to-start-soon">the IRS’ digital scanning program</a>, which expedites the processing of the roughly 1 in 5 federal tax <a href="https://www.irs.gov/statistics/returns-filed-taxes-collected-and-refunds-issued">returns that weren’t filed electronically in 2022</a>. </p>
<p><a href="https://www.irs.gov/pub/irs-pdf/p3744.pdf">Werfel says</a> the IRS workforce is becoming more efficient by ramping up its reliance on technology to provide <a href="https://www.irs.gov/newsroom/irs-modernization-plan-provides-plan-to-improve-services-for-taxpayers-tax-community">services for taxpayers</a> and <a href="https://www.bloomberg.com/opinion/articles/2023-03-09/ai-can-help-the-irs-catch-wealthy-tax-cheats#xj4y7vzkg">spot tax cheats</a>.</p>
<p>The IRS has tapped one form of data analytics or another to select people and companies to audit <a href="https://www.gao.gov/products/100316">since the late 1960s</a>. As early as 1986, it had researched ways to <a href="https://www.thefreelibrary.com/IRS+artificial+intelligence+projects+(close+encounters+of+an+AI+kind).-a012740196">use artificial intelligence</a> to improve how it selects its auditing targets.</p>
<p>At the same time, outdated technology is hampering the Internal Revenue Service’s effectiveness. It <a href="https://www.gao.gov/blog/irss-efforts-modernize-60-year-old-tax-processing-system-almost-decade-away">relies on a 60-year-old computer system</a> to maintain and process data. That undercuts its technological agility and <a href="https://www.cnn.com/2023/01/11/politics/republican-irs-funding-87000-agents/index.html">customer service</a>.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/546511/original/file-20230905-9214-ndfr8i.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="A 2014 1040 U.S. tax form displayed on a laptop" src="https://images.theconversation.com/files/546511/original/file-20230905-9214-ndfr8i.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/546511/original/file-20230905-9214-ndfr8i.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/546511/original/file-20230905-9214-ndfr8i.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/546511/original/file-20230905-9214-ndfr8i.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/546511/original/file-20230905-9214-ndfr8i.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/546511/original/file-20230905-9214-ndfr8i.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/546511/original/file-20230905-9214-ndfr8i.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Nearly all taxpayers have been filing electronically for years.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/view-of-an-irs-1040-tax-form-on-a-laptop-computer-screen-news-photo/550448599?adppopup=true">Robert Barnes/Getty Images</a></span>
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</figure>
<h2>3 sources of data</h2>
<p>When the IRS collects better data, its ability to use <a href="https://www.tx.cpa/docs/default-source/communications/2019-today%27s-cpa/january-february/taxtopics-irs-bigdata-jan-feb2019-today%27scpa.pdf?sfvrsn=a165f2b1_4">data analytics to make predictions about noncompliance</a> improves.</p>
<p>Beyond data reported on tax forms themselves, like 1099s, the IRS has three main sources of data it assesses to learn more about taxpayers. </p>
<p><strong>1. Past tax returns</strong></p>
<p>The IRS’s National Research Program collects data to support what it calls “<a href="https://www.irs.gov/irm/part4/irm_04-022-001">strategic decisions</a>” to better enforce compliance. </p>
<p>The program first relies on its vast stores of taxpayer data, <a href="https://www.irs.gov/businesses/small-businesses-self-employed/irs-audits#:%7E:text=Selection%20for%20an%20audit%20does,%22norms%22%20for%20similar%20returns">including prior audit results</a>, to develop an expectation of what a given tax return may include, like a tuition tax credit for a taxpayer with a history of claiming the child tax credit. Filed returns are compared against those standards to identify potential outliers. Outliers aren’t necessarily dodging taxes or misrepresenting their tax liabilities, but big departures from the norms can indicate a higher likelihood of mistakes or evasion. </p>
<p><strong>2. Publicly available data</strong></p>
<p>The IRS relies on publicly available data associated with each tax return when <a href="https://www.irs.gov/irm/part4/irm_04-022-001">it’s building a case</a> for an audit. </p>
<p>The data, which is available to anyone who wants to find it, has <a href="https://www.gao.gov/products/gao-22-106096">increased tremendously</a> with the rise of social media and the growing role of the internet for commerce and advertising. A social media presence can alert the IRS to a business with potential income in a way that the agency could not have identified before the internet emerged.</p>
<p>This includes methods that might surprise you.</p>
<p>As far back as 2010, for example, IRS training materials instructed agents to use a band’s social networking sites to compare musicians’ reported income with their likely <a href="https://www.computerworld.com/article/2756433/irs--doj-use-social-media-sites-to-track-deadbeats--criminal-activity.html">income from their past performances</a>. IRS training materials instruct agents to predict musicians’ gig income based on the number of shows a band advertises through its social media posts.</p>
<p>People make all sorts of financial information public today, including their side hustles and Venmo ledgers. The IRS can access and use this data like anyone else. </p>
<p><strong>3. Third-party data</strong></p>
<p>The IRS can also buy data.</p>
<p>For example, a 2020 government contract with the company Chainalysis is described, perhaps clumsily, as a contract for “<a href="https://www.usaspending.gov/award/CONT_AWD_2032H820C00041_2050_-NONE-_-NONE-">pilot IRS cryptocurrency tracing</a>.” This type of contract gives the IRS information related to otherwise untraceable income sources so that agents can detect underreporting.</p>
<p>What has changed in recent years is the volume of data it can access, <a href="https://scholarship.law.vanderbilt.edu/cgi/viewcontent.cgi?article=1131&context=jetlaw">which has skyrocketed</a>.</p>
<p>Sometimes, widespread underreporting results in legislation which requires third parties to report income information to the IRS, rather than requiring the agency seek it out. </p>
<p>Recent legislation includes requiring third-party payment agencies like Venmo, PayPal and Uber to issue a 1099 tax form to <a href="https://theconversation.com/you-cant-hide-side-hustles-from-the-irs-anymore-heres-what-taxpayers-need-to-know-about-reporting-online-payments-for-gig-work-199952">anyone making over $600 on the app in one year</a>. These 1099s are issued to taxpayers – and the IRS.</p>
<p>Similar legislation was recently proposed for <a href="https://www.cnbc.com/2023/08/25/biden-administration-unveils-new-crypto-tax-reporting-rules.html">cryptocurrency transactions</a>. </p>
<h2>What might change</h2>
<p>What does this increase in IRS spending on technology mean for taxpayers? </p>
<p>When the <a href="https://www.irs.gov/pub/irs-pdf/p3744.pdf">IRS detailed how it wanted to use the new funds</a> in April 2023, it emphasized improving taxpayers’ experiences and increasing compliance. By using <a href="https://www.irs.gov/about-irs/using-voice-and-chat-bots-to-improve-the-collection-taxpayer-experience">chatbots to respond to taxpayer questions</a>, providing online portals for real-time processing, and letting taxpayers <a href="https://home.treasury.gov/system/files/136/IRStechnologySOPOnePager.pdf">respond to notices online</a>, the IRS could substantially decrease the time taxpayers spend corresponding with the agency or waiting on hold while attempting to speak to a staffer.</p>
<p>Technology-boosted enforcement could help the agency <a href="https://www.irs.gov/pub/irs-pdf/p3744.pdf">collect more revenue to fund government programs</a>. </p>
<p>And the agency also hopes to use data to make paying taxes less onerous for the majority of Americans who follow the rules.</p>
<p>For example, when a taxpayer has a child or experiences another kind of life change that will change their tax status, the IRS wants to gain the ability to proactively notify people about the consequences – whether it’s <a href="https://www.irs.gov/pub/irs-pdf/p3744.pdf">paying more, owing less or getting a new tax credit</a>. </p>
<p>Most people want to pay what they owe, no more and no less. I believe the IRS intends to make good use of its new funding to help people do just that.</p><img src="https://counter.theconversation.com/content/208627/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Erica Neuman does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The agency hopes to make paying taxes less onerous for the majority of Americans who follow the rules.Erica Neuman, Assistant Professor of Accounting, University of DaytonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2019002023-04-19T12:45:25Z2023-04-19T12:45:25ZTo understand American politics, you need to move beyond left and right<figure><img src="https://images.theconversation.com/files/520636/original/file-20230412-18-9xinwa.jpeg?ixlib=rb-1.1.0&rect=20%2C0%2C6968%2C4000&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">There's a more sophisticated way to understand how Americans divide themselves politically.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/photo/close-up-us-election-badges-with-the-national-flag-royalty-free-image/1340786091?phrase=right%20and%20left%20in%20politics%20U.S.%20&adppopup=true">Torsten Asmus/ iStock / Getty Images Plus</a></span></figcaption></figure><p>Are Americans really as politically polarized as they seem – and everybody says? </p>
<p>It’s definitely true that Democrats and Republicans <a href="https://doi.org/10.1146/annurev-polisci-051117-073034">increasingly hate and fear one another</a>. But this animosity seems to have more to do with tribal loyalty than liberal-versus-conservative <a href="https://doi.org/10.1093/poq/nfy005">disagreements about policy</a>. Our research into what Americans actually want in terms of policy shows that many have strong political views that can’t really be characterized in terms of “right” or “left.” </p>
<p>The media often talks about the American political landscape as if it were a line. Liberal Democrats are on the left, conservative Republicans on the right, and a small sliver of moderate independents are in the middle. But <a href="https://www.brandeis.edu/cmjs/about/people/wright.html">political scientists</a> <a href="https://cssh.northeastern.edu/student/sasha-volodarsky/">like us</a> have long argued that a line is a bad metaphor for how Americans think about politics. </p>
<p>Sometimes scholars and pundits will argue that views on economic issues like taxes and income redistribution, and views on so-called social or cultural issues like abortion and gay marriage, actually represent two distinct dimensions in <a href="https://doi.org/10.1146/annurev-polisci-060314-115422">American political attitudes</a>. Americans, they say, can have liberal views on one dimension <a href="https://news.gallup.com/poll/351494/americans-divided-social-economic-issues.aspx">but conservative views on the other</a>. So you could have a pro-choice voter who wants lower taxes, or a pro-life voter who wants the government to do more to help the poor. </p>
<p>But even this more sophisticated, two-dimensional picture doesn’t reveal what Americans actually want the government to do – or not do – when it comes to policy. </p>
<p>First, it ignores some of the most contentious topics in American politics today, like <a href="https://www.npr.org/2022/10/31/1131789230/supreme-court-affirmative-action-harvard-unc">affirmative action</a>, the <a href="https://www.washingtonpost.com/politics/democratic-convention-embraces-black-lives-matter/2020/08/18/f1de2ce8-e0f7-11ea-b69b-64f7b0477ed4_story.html">Black Lives Matter movement</a> and <a href="https://www.politico.com/news/2023/03/16/desantis-anti-woke-law-00087483">attempts to stamp out “wokeness”</a> on college campuses.</p>
<p>Since 2016, when Donald Trump won the presidency while simultaneously <a href="https://www.washingtonpost.com/politics/a-fresh-look-back-at-2016-finds-america-with-an-identity-crisis/2018/09/15/0ac62364-b8f0-11e8-94eb-3bd52dfe917b_story.html">stoking racial anxieties</a> and bucking Republican orthodoxy on <a href="https://www.msnbc.com/rachel-maddow-show/trump-breaks-gop-orthodoxy-taxes-msna670121">taxes</a> and <a href="https://www.nbcnews.com/feature/nbc-out/trump-says-he-s-fine-gay-marriage-60-minutes-interview-n683606">same-sex marriage</a>, it has become clear that what Americans think about politics can’t really be understood without knowing what they think about racism, and what – if anything – they want done about it. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/520635/original/file-20230412-20-95tq6.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="A man in a white shirt and tie with gray hair, standing at a lectern outside." src="https://images.theconversation.com/files/520635/original/file-20230412-20-95tq6.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/520635/original/file-20230412-20-95tq6.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/520635/original/file-20230412-20-95tq6.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/520635/original/file-20230412-20-95tq6.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/520635/original/file-20230412-20-95tq6.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=502&fit=crop&dpr=1 754w, https://images.theconversation.com/files/520635/original/file-20230412-20-95tq6.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=502&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/520635/original/file-20230412-20-95tq6.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=502&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">‘Racial Justice Communitarians’ have liberal views on economic issues and moderate or conservative views on moral issues; some Black evangelicals supported Barack Obama but were troubled by his support for same-sex marriage.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/president-barack-obama-speaks-at-capital-university-on-news-photo/160056112?adppopup=true">Charles Ommanney/Getty Images</a></span>
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</figure>
<p>Recently, some political scientists have argued that views on racial issues represent a <a href="https://academic.oup.com/sf/article/96/4/1757/4781058">third “dimension” in American politics</a>. But there are other problems with treating political attitudes as a set of “dimensions” in the first place. For example, even a “3D” picture doesn’t allow for the possibility that Americans with conservative economic views tend to also hold conservative racial views, while Americans with liberal economic views are deeply divided on issues related to race. </p>
<h2>A new picture of American politics</h2>
<p>In our new <a href="https://doi.org/10.1111/soin.12517">article in Sociological Inquiry</a>, we analyzed public opinion data from 2004 to 2020 to develop a more nuanced picture of American political attitudes. Our aim was to do a better job of figuring out what Americans actually think about politics, including policies related to race and racism. </p>
<p>Using a new analytic method that doesn’t force us to think in terms of dimensions at all, we found that, over the past two decades, Americans can be broadly divided into five different groups.</p>
<p>In most years, slightly less than half of all Americans had consistently liberal or conservative views on policies related to the economy, morality and race, and thus fall into one of two groups. </p>
<p>“Consistent Conservatives” tend to believe that the free market should be given free rein in the economy, are generally anti-abortion, tend to say that they support “traditional family ties” and oppose most government efforts to address racial disparities. These Americans almost exclusively identify themselves as Republicans.</p>
<p>“Consistent Liberals” strongly support government intervention in the economy, tend to be in favor of abortion rights and pro-same-sex marriage and feel that the government has a responsibility to help address discrimination against Black Americans. They mostly identify as Democrats.</p>
<p>But the majority of Americans, who don’t fall into one of these two groups, are not necessarily “moderates,” as they are often characterized. Many have very strong views on certain issues, but can’t be pigeonholed as being on the left or right in general. </p>
<p>Instead, we find that these Americans can be classified as one of three groups, whose size and relationship to the two major parties change from one election cycle to the next: </p>
<p>“Racial Justice Communitarians” have liberal views on economic issues like taxes and redistribution and moderate or conservative views on moral issues like abortion and same-sex marriage. They also strongly believe that the government has a responsibility to address racial discrimination. This group likely includes many of the Black evangelicals who strongly supported Barack Obama’s presidential campaign, but were also deeply uncomfortable with his expression of <a href="https://www.npr.org/sections/itsallpolitics/2012/05/10/152442748/black-voters-likely-to-stick-with-obama-despite-gay-marriage-stance">support for same-sex marriage in 2012</a>.</p>
<p>“Nativist Communitarians” also have liberal views on economics and conservative views on moral issues, but they are extremely conservative with respect to race and immigration, in some cases even more so than Consistent Conservatives. Picture, for instance, <a href="https://www.npr.org/2017/08/24/545812242/1-in-10-sanders-primary-voters-ended-up-supporting-trump-survey-finds">those voters in 2016</a> who were attracted to both Bernie Sanders’ economic populism and Donald Trump’s attacks on immigrants. </p>
<p>“Libertarians,” who we find became much more prominent after the tea party protests of 2010, are conservative on economic issues, liberal on social issues and have mixed but generally conservative views in regard to racial issues. Think here of <a href="https://www.politico.com/news/magazine/2023/03/18/d-c-silicon-valley-00087611">Silicon Valley entrepreneurs and venture capitalists</a> who think that the government has no business telling them how to run their company – or telling gay couples that they can’t get married.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/520633/original/file-20230412-18-ejntu7.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="A large collection of colorful campaign signs placed in the ground." src="https://images.theconversation.com/files/520633/original/file-20230412-18-ejntu7.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/520633/original/file-20230412-18-ejntu7.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=407&fit=crop&dpr=1 600w, https://images.theconversation.com/files/520633/original/file-20230412-18-ejntu7.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=407&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/520633/original/file-20230412-18-ejntu7.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=407&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/520633/original/file-20230412-18-ejntu7.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=512&fit=crop&dpr=1 754w, https://images.theconversation.com/files/520633/original/file-20230412-18-ejntu7.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=512&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/520633/original/file-20230412-18-ejntu7.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=512&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Three groups of Americans have a difficult time fitting in with either of America’s two major parties.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/campaign-signs-are-shown-near-voters-waiting-in-line-at-news-photo/1244613234?adppopup=true">Ronda Churchill/AFP via Getty Images</a></span>
</figcaption>
</figure>
<h2>Five groups – but only two parties</h2>
<p>These three groups of Americans have a difficult time fitting in with either of the two major parties in the U.S. </p>
<p>In every year we looked, the Racial Justice Communitarians – who include the largest percentage of nonwhite Americans – were most likely to identify as Democrats. But in some years up to 40% still thought of themselves as Republicans or independents.</p>
<p>Nativist Communitarians and Libertarians are even harder to pin down. During the Obama years they were actually slightly more likely to be Democrats than Republicans. But since Trump’s rise in 2016, both groups are now slightly more likely to identify as Republicans, although large percentages of each group describe themselves as independents or Democrats.</p>
<p>Seeing Americans as divided into these five groups – as opposed to polarized between the left and right – shows that both political parties are competing for coalitions of voters with different combinations of views.</p>
<p>Many Racial Justice Communitarians disagree with the Democratic Party when it comes to cultural and social issues. But the party probably can’t win national elections without their votes. And, unless they are willing to make a strong push for promoting “racial justice,” the Republican Party’s national electoral prospects probably depend on attracting significant support from either the economically liberal Nativist Communitarians or the socially liberal Libertarians. </p>
<p>But perhaps most importantly, these five groups show how diverse Americans’ political attitudes really are. Just because American democracy is a two-party system doesn’t mean that there are only two kinds of American voters.</p><img src="https://counter.theconversation.com/content/201900/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>We often talk about the American political landscape as if it were a line – Democrats on the left, Republicans on the right. Two political scientists say that view doesn’t reflect reality.Graham Wright, Associate Research Scientist, Maurice & Marilyn Cohen Center for Modern Jewish Studies, Brandeis UniversitySasha Volodarsky, Ph.D. Student in Political Science, Northeastern UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2027082023-04-14T12:18:23Z2023-04-14T12:18:23ZLow-cost, high-quality public transportation will serve the public better than free rides<figure><img src="https://images.theconversation.com/files/520876/original/file-20230413-14-9lul24.jpg?ixlib=rb-1.1.0&rect=11%2C0%2C2485%2C1665&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Chicago's Washington-Wabash station opened in 2017 – the first new stop on the city's elevated rail system in 20 years.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/train-arrives-at-the-washington-wabash-station-in-chicago-news-photo/1159260224">Youngrae Kim/The Washington Post via Getty Images</a></span></figcaption></figure><p>Public transit systems face daunting challenges across the U.S., from pandemic ridership losses to traffic congestion, fare evasion and pressure to keep rides affordable. In some cities, including <a href="https://www.politico.com/news/2022/06/15/inflation-free-public-transportation-00039644">Boston</a>, <a href="https://www.governing.com/community/what-can-cities-learn-from-kansas-citys-fare-free-transit-program">Kansas City</a> and <a href="https://www.voanews.com/a/free-public-transportation-accelerates-in-some-us-cities/6966994.html">Washington</a>, many elected officials and advocates see fare-free public transit as the solution. </p>
<p><a href="https://www.transit.dot.gov/cares-act">Federal COVID-19 relief funds</a>, which have subsidized transit operations across the nation at an unprecedented level since 2020, offered a natural experiment in free-fare transit. Advocates applauded these changes and are now pushing to make <a href="https://dcist.com/story/23/03/01/fare-free-buses-in-jeopardy-as-d-c-revenue-projections-drop/">fare-free bus lines</a> <a href="https://qns.com/2023/03/queens-legislators-urge-governor-to-include-mta-fare-freeze-free-bus-funding-in-final-state-budget/">permanent</a>.</p>
<p>But although these experiments aided low-income families and <a href="https://www.wgbh.org/news/local-news/2023/03/06/ridership-on-fare-free-mbta-buses-more-than-doubled-in-programs-first-year">modestly boosted ridership</a>, they also created new political and economic challenges for beleaguered transit agencies. With ridership still <a href="https://transitapp.com/APTA">dramatically below pre-pandemic levels</a> and temporary federal support expiring, transportation agencies face <a href="https://www.vox.com/future-perfect/23653855/covid-transit-fares-buses-subways-crisis">an economic and managerial “doom spiral</a>.” </p>
<p>Free public transit that doesn’t bankrupt agencies would require a revolution in transit funding. In most regions, U.S. voters – <a href="https://www.thetransportpolitic.com/databook/travel-mode-shares-in-the-u-s/">85% of whom commute by automobile</a> – have resisted deep subsidies and expect fare collection to cover a portion of operating budgets. Studies also show that transit riders are likely to prefer <a href="https://doi.org/10.17610/T6WC8Z">better, low-cost service to free rides</a> on the substandard options that exist in much of the U.S. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/520884/original/file-20230413-22-u4m1ow.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="A bright blue light rail train collect passengers" src="https://images.theconversation.com/files/520884/original/file-20230413-22-u4m1ow.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/520884/original/file-20230413-22-u4m1ow.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/520884/original/file-20230413-22-u4m1ow.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/520884/original/file-20230413-22-u4m1ow.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/520884/original/file-20230413-22-u4m1ow.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/520884/original/file-20230413-22-u4m1ow.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/520884/original/file-20230413-22-u4m1ow.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">The KC Streetcar is a free two-mile route running along Main Street in downtown Kansas City, Mo. The city also offers free bus rides, but infrequent service is a concern.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/kansas-city-missouri-the-kc-streetcar-is-a-free-two-mile-news-photo/1459409750">Michael Siluk/UCG/Universal Images Group via Getty Images</a></span>
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<h2>Why isn’t transit free?</h2>
<p>As I recount in my new book, “<a href="https://press.uchicago.edu/ucp/books/book/chicago/G/bo191431990.html">The Great American Transit Disaster</a>,” mass transit in the U.S. was an unsubsidized, privately operated service for decades prior to the 1960s and 1970s. In the 19th and early 20th centuries, prosperous city dwellers used public transit to escape from overcrowded urban neighborhoods to more spacious “<a href="https://www.governing.com/context/the-fascinating-rise-and-fall-of-streetcar-suburbs">streetcar suburbs</a>.” Commuting symbolized success for families with the income to pay the daily fare. </p>
<p>These systems were self-financing: Transit company investors made their money in suburban real estate when rail lines opened up. They charged low fares to entice riders looking to buy land and homes. The most famous example was the Pacific Electric “red car” transit system in Los Angeles that <a href="https://ohiostatepress.org/books/BookPages/FriedricksHenry.htm">Henry Huntingdon</a> built to transform his vast landholdings into profitable subdivisions.</p>
<p>However, once streetcar suburbs were built out, these companies had no further incentive to provide excellent transit. Unhappy voters felt suckered into crummy commutes. In response, city officials retaliated against the powerful transit interests by taxing them heavily and charging them for street repairs. </p>
<p>Meanwhile, the introduction of <a href="https://www.history.com/this-day-in-history/fords-assembly-line-starts-rolling">mass-produced personal cars</a> created new competition for public transit. As autos gained popularity in the 1920s and 1930s, frustrated commuters swapped out riding for driving, and private transit companies like Pacific Electric began failing. </p>
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<iframe width="440" height="260" src="https://www.youtube.com/embed/AwKv3_WwD4o?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
<figcaption><span class="caption">In the early 20th century, Los Angeles had a world-class public transit system – here’s how it went off the rails.</span></figcaption>
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<h2>Grudging public takeovers</h2>
<p>In most cities, politicians refused to prop up the often-hated private transit companies that now were begging for tax concessions, fare increases or public buyouts. In 1959, for instance, politicians still forced Baltimore’s fading private transit company, the BTC, to <a href="https://press.uchicago.edu/ucp/books/book/chicago/G/bo191431990.html">divert US$2.6 million in revenues annually</a> to taxes. The companies retaliated by slashing maintenance, routes and service.</p>
<p>Local and state governments finally stepped in to save the ruins of the hardest-strapped companies in the 1960s and 1970s. Public buyouts took place only after decades of devastating losses, including most streetcar networks, in cities such as Baltimore (1970), Atlanta (1971) and Houston (1974). </p>
<p>These poorly subsidized public systems continued to lose riders. Transit’s <a href="https://www.thetransportpolitic.com/databook/travel-mode-shares-in-the-u-s/">share of daily commuters</a> fell from 8.5% in 1970 to 4.9% in 2018. And while low-income people <a href="https://www.pewresearch.org/fact-tank/2016/04/07/who-relies-on-public-transit-in-the-u-s/">disproportionately ride transit</a>, a 2008 study showed that roughly 80% of the working poor <a href="https://www.brookings.edu/research/commuting-to-opportunity-the-working-poor-and-commuting-in-the-united-states/">commuted by vehicle instead</a>, despite the high cost of car ownership.</p>
<p>There were exceptions. Notably, San Francisco and Boston began subsidizing transit in 1904 and 1918, respectively, by sharing tax revenues with newly created public operators. Even in the face of significant ridership losses from 1945 to 1970, these cities’ transit systems kept fares low, maintained legacy rail and bus lines and modestly renovated their systems.</p>
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<figcaption><span class="caption">Tax policies and subsidies have promoted highway development across the U.S. for the past century, creating car-centric cities and steering funding away from public transit.</span></figcaption>
</figure>
<h2>Converging pressures</h2>
<p>Today, public transit is under enormous pressure nationwide. Inflation and driver shortages are driving up operating costs. Managers are <a href="https://www.latimes.com/california/story/2023-02-24/overdose-deaths-on-metro-trains">spending more money on public safety</a> in response to <a href="https://www.nytimes.com/2022/04/25/us/public-transit-crime.html">rising transit crime rates</a> and unhoused people <a href="https://www.axios.com/local/raleigh/2023/03/23/the-future-of-fare-free-buses-in-raleigh">using buses and trains for shelter</a>. </p>
<p>Many systems are also contending with decrepit infrastructure. The American Society of Civil Engineers gives U.S. public transit systems a grade of D-minus and estimates their national backlog of <a href="https://infrastructurereportcard.org/cat-item/transit-infrastructure/">unmet capital needs at $176 billion</a>. Deferred repairs and upgrades reduce service quality, leading to events like a 30-day <a href="https://www.nbcboston.com/news/local/boston-braces-for-transit-emergency-as-orange-line-shutdown-looms-ahead/2809005/">emergency shutdown of an entire subway line</a> in Boston in 2022.</p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1641767980395626499"}"></div></p>
<p>Despite flashing warning signs, political support for public transit <a href="https://theconversation.com/why-is-the-u-s-unwilling-to-pay-for-good-public-transportation-56788">remains weak</a>, especially <a href="https://www.governing.com/now/driving-on-the-right-americas-polarized-transportation-policy">among conservatives</a>. So it’s not clear that relying on government to make up for free fares is sustainable or a priority. </p>
<p>For example, in Washington, <a href="https://dcist.com/story/23/03/01/fare-free-buses-in-jeopardy-as-d-c-revenue-projections-drop/">conflict is brewing</a> within the city government over how to fund a free bus initiative. Kansas City, the largest U.S. system to adopt fare-free transit, faces a new challenge: finding funding to expand its small network, which <a href="https://www.governing.com/community/what-can-cities-learn-from-kansas-citys-fare-free-transit-program">just 3% of its residents use</a>. </p>
<h2>A better model</h2>
<p>Other cities are using more targeted strategies to make public transit accessible to everyone. For example, “Fair fare” programs in San Francisco, <a href="https://www.nyc.gov/site/fairfares/index.page">New York</a> and Boston offer discounts based on income, while still collecting full fares from those who can afford to pay. Income-based discounts like these reduce the political liability of giving free rides to everyone, including affluent transit users. </p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1556635710693810176"}"></div></p>
<p>Some providers have initiated or <a href="https://transitforwardri.com/pdf/Strategy%20Paper%2025.%20Fare%20Integration%20190725%20FINAL.pdf">are</a> <a href="https://www.seamlessbayarea.org/integrated-fare-vision">considering</a> <a href="https://www.transitchicago.com/new-agreement-will-streamline-and-enhance-cta-and-pace-unlimited-ride-passes-in-2023/">fare integration</a> policies. In this approach, transfers between different types of transit and systems are free; riders pay one time. For example, in Chicago, rapid transit or bus riders can transfer at no charge to a suburban bus to finish their trips, and vice versa. </p>
<p>Fare integration is less costly than fare-free systems, and lower-income riders stand to benefit. Enabling riders to pay for all types of trips with a single <a href="https://www.securetechalliance.org/smart-cards-applications-transportation/">smart card</a> further streamlines their journeys. </p>
<p>As ridership grows under Fair Fares and fare integration, I expect that additional revenue will help build better service, attracting more riders. Increasing ridership while supporting agency budgets will help make the political case for deeper public investments in service and equipment. A virtuous circle could develop.</p>
<p>History shows what works best to rebuild public transit networks, and free transit isn’t high on the list. Cities like Boston, San Francisco and New York have more transit because voters and politicians have supplemented fare collection with a combination of property taxes, bridge tolls, sales taxes and more. Taking fares out of the formula spreads the red ink even faster.</p><img src="https://counter.theconversation.com/content/202708/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Nicholas Dagen Bloom does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Everyone likes getting something for nothing, but history shows why the math behind free public transit doesn’t add up.Nicholas Dagen Bloom, Professor of Urban Policy and Planning, Hunter CollegeLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2037072023-04-13T19:26:32Z2023-04-13T19:26:32ZWhy is Tax Day on April 18 this year? And how did early spring become tax season, anyhow?<figure><img src="https://images.theconversation.com/files/520926/original/file-20230413-28-prjdsv.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C4000%2C2646&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">A red-letter day? Hardly!</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/photo/tax-payment-day-marked-on-a-calendar-april-18-2023-royalty-free-image/1461423007?phrase=tax%20deadline%202023&adppopup=true">iStock / Getty Images Plus</a></span></figcaption></figure><p>Mid-April has arrived. And along with the spring sunshine, that means the often dreaded civic duty of finishing off one’s taxes.</p>
<p>It’s an arduous time for many, characterized by navigating increasingly confusing rules to arrive at the best refund possible. For some, it means <a href="https://theconversation.com/i-tried-to-pay-my-taxes-in-cash-heres-what-happened-and-why-the-irs-should-make-it-easier-to-do-so-203282">writing a check</a> to the federal government. Not fun.</p>
<p>On a brighter note, the tax deadline has been pushed back to April 18 this year, giving those leaving it to the last minute a few extra days. Usually, the day falls on April 15.</p>
<p>But why is Tax Day in April anyway? Well, it hasn’t always been.</p>
<p>The federal individual income tax was permanently enacted by the <a href="https://www.reaganlibrary.gov/constitutional-amendments-amendment-16-income-taxes#:%7E:text=The%20Congress%20shall%20have%20power,to%20any%20census%20or%20enumeration.">16th Amendment in 1913</a>. Before that, the only federal individual income tax that existed was in place for <a href="https://guides.loc.gov/this-month-in-business-history/april/tax-day">about a decade beginning in 1861 to ease the financial burden of the Civil War</a> on the government.</p>
<h2>Extending the deadline</h2>
<p>The tradition of filing tax returns in early spring has historically been a practical one. Since individual tax returns encompass a calendar year, Congress sought to allow time for individuals to fully account for all of their income, deductions and credits.</p>
<p>The original due date for individual income tax returns was March 1, just over a year following the adoption of the 16th Amendment on Feb. 3, 1913.</p>
<p>Back then, not many taxpayers needed to file a tax return, since the filing requirement applied only to <a href="https://www.crf-usa.org/bill-of-rights-in-action/bria-11-3-b-the-income-tax-amendment-most-thought-it-was-a-great-idea-in-1913.html">single filers with income over US$3,000</a> and married filers with income over $4,000 – about $90,000 and $120,000 in today’s dollars, respectively.</p>
<p>In 1914, this threshold represented approximately the top 4% of earners, so filing a tax return was a burden reserved for the wealthy.</p>
<p>Quickly realizing that many taxpayers needed more time to complete their returns, Congress pushed the tax deadline back to March 15, effective in 1919.</p>
<p>And on that date Tax Day stood for over 30 years. </p>
<p>But with more taxpayers needing to file returns <a href="https://www.irs.gov/pub/irs-soi/02inpetr.pdf">as the filing threshold declined</a> and the tax laws grew in complexity, Americans needed even more time to correctly complete their returns.</p>
<p>So in 1954, Congress overhauled the tax system and adopted a major revision to the <a href="https://www.census.gov/history/www/reference/privacy_confidentiality/title_26_us_code_1.html">Internal Revenue Code</a>.</p>
<p>This change also came with another extension of the tax deadline for individuals, pushing the due date back again to the familiar April 15.</p>
<p>The intent of giving taxpayers an extra month to prepare their returns was to allow more people the ability to file on time – and often get refunds more quickly. Not only did this change assist taxpayers, but it also allowed the Internal Revenue Service <a href="https://taxprof.typepad.com/taxprof_blog/2017/04/weekly-tax-highlight-and-roundup-1.html">more time to spread out its workload</a>.</p>
<p>The April 15 deadline proved to be a more reasonable deadline, and it has stuck with U.S. taxpayers for almost 70 years.</p>
<p>Since 1955, the IRS has established earlier due dates for many information returns that provide numbers feeding into Form 1040, such as Forms 1099 and W-2, both of which are due Jan. 31, to ensure that most taxpayers are able to file by Tax Day.</p>
<p>In 2016, the IRS pushed the due date of <a href="https://www.journalofaccountancy.com/news/2015/jul/tax-return-due-dates-changed-201512746.html">other returns forward a month to March 15</a>, again in an effort to allow more individuals to timely file.</p>
<h2>So why later this year?</h2>
<p>The mid-April date seems to work for the majority of taxpayers – in most years, anyhow. According to the IRS, <a href="https://www.irs.gov/statistics/filing-season-statistics">about 90% of taxpayers</a> were able to file their returns by the deadline in 2021, with the other 10% requesting <a href="https://www.irs.gov/forms-pubs/extension-of-time-to-file-your-tax-return#:%7E:text=Individual%20tax%20filers%2C%20regardless%20of,until%20the%20next%20business%20day.">a six-month extension to file</a>.</p>
<p>But for the tax year 2022, <a href="https://www.forbes.com/advisor/taxes/how-to-file-a-tax-extension-with-the-irs/#:%7E:text=Millions%20of%20Americans%20file%20federal,season%2C%20according%20to%20the%20IRS.">about 19 million taxpayers extended their returns</a>, a significant increase from prior years due to the increased complexity of the tax code brought on by temporary provisions relating to the COVID-19 pandemic.</p>
<p>So why is Tax Day this year April 18 instead of April 15?</p>
<p>Any time a deadline falls on a Saturday or Sunday, the IRS pushes the due date to the following Monday, which would be April 17, 2023. However, any federal holiday also pushes the date back by a day. Since <a href="https://emancipation.dc.gov/#:%7E:text=It%20is%20this%20legislation%2C%20and,April%2016%2C%20DC%20Emancipation%20Day.">Emancipation Day, which usually falls on April 16</a>, is observed in Washington, D.C., on April 17 this year, Tax Day was pushed back an additional day to Tuesday, April 18, 2023.</p>
<p>While having a tax deadline of April 18 happens only about every six years, the IRS occasionally pushes back the filing deadline for emergency situations like natural disasters, although these are often local. For example, the IRS extended the original due date of individual tax returns in disaster areas in <a href="https://tax.thomsonreuters.com/news/california-alabama-georgia-may-15-disaster-relief-deadline-extended-to-october-16/">Alabama, California and Georgia until Oct. 16, 2023</a>. Similarly, the IRS pushed the national deadline <a href="https://www.irs.gov/newsroom/payment-deadline-extended-to-july-15-2020">back to July 15, 2020</a>, in the early stages of the COVID-19 pandemic.</p>
<p>So use your extra days of tax preparation time wisely in 2023 and be sure to file your individual income tax return, or request an extension to file by April 18.</p>
<p>Although this time of year can often be <a href="https://www.cnn.com/2019/04/12/health/tax-day-money-stress/index.html">stressful and confusing because of complicated tax laws</a>, it will be over soon enough.</p><img src="https://counter.theconversation.com/content/203707/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Thomas Godwin does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The federal government wanted to give taxpayers a couple months to prepare the year’s taxes. But as filing became more complex, the date was pushed back.Thomas Godwin, Assistant Professor of Accounting, Purdue UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2036162023-04-13T12:24:02Z2023-04-13T12:24:02ZAmericans spend more time and money filing their taxes than residents of other countries — but there are some benefits to a complex tax code<figure><img src="https://images.theconversation.com/files/520568/original/file-20230412-22-xymmgt.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The average U.S. taxpayer spends 13 hours filing their return.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/photo/forms-royalty-free-image/109504675">Mehmed Zelkovic/Moment Collection/Getty Images</a></span></figcaption></figure><p>Tax Day falls on April 18 in 2023. But if you’re one of the <a href="https://www.irs.gov/pub/irs-utl/filing-season-statistics-2009-to-current-year.csv">20%-25% of Americans</a> who wait until the last minute to file, don’t panic – you still have time.</p>
<p>The IRS estimates that the average taxpayer spends <a href="https://www.irs.gov/pub/irs-pdf/i1040gi.pdf">13 hours</a> to complete their return. If you own a business, the estimate increases to <a href="https://www.irs.gov/pub/irs-pdf/i1040gi.pdf">25 hours</a>. That said, filing can be tricky.</p>
<p>As <a href="https://scholar.google.com/citations?user=9MFrZwUAAAAJ&hl=en">accounting</a> <a href="https://scholar.google.com/citations?user=kR0qeI4AAAAJ&hl=en&oi=ao">professors</a> and hosts of the podcast “<a href="https://www.taxes-for-the-masses.com">Taxes for the Masses</a>,” we know the U.S. tax system is more complex than many other countries. That complexity, however, has benefits as well as drawbacks.</p>
<h2>Simpler tax systems abroad</h2>
<p>Although the U.S. income tax system asks individuals to devote their time to complete a tax return each year – or pay someone to do it for you – dozens of countries have found another way. </p>
<p>Some nations, <a href="https://www.taxpolicycenter.org/briefing-book/what-other-countries-use-return-free-filing">such as the U.K.</a>, offer return-free systems where taxpayers have the exact correct amount of income tax withheld from their earnings during the year. </p>
<p>Other countries, <a href="https://www.oecd.org/tax/administration/36280368.pdf">such as Denmark and Spain</a>, offer tax reconciliation systems whereby the tax authority fills out the return for the taxpayer using information from third parties, such as employers and banks, with knowledge of your financial goings-on. All the taxpayer must do is review the form and submit any corrections. These systems shift the costs of determining one’s tax bill – currently estimated to be over <a href="https://www.gsa.gov/cdnstatic/54121D%20Tax%20Preparation%20Services%20in%20the%20US%20Industry%20Report.pdf">US$11 billion</a> a year in the U.S. – <a href="https://www.jstor.org/stable/40913156">from taxpayers to the government</a>. </p>
<p>The goal of return-free and tax reconciliation systems is to withhold the exact right amount of tax during the year so there’s no need to true up these amounts to the actual tax liability. So why can’t the U.S. do something similar? Well, exact withholding is easiest to do when the tax code is simple. And the U.S. tax code is not simple.</p>
<p>In fact, when the Treasury Department reported to Congress in 2003 on the feasibility of a return-free system in the U.S., the report was titled <a href="https://home.treasury.gov/system/files/131/Report-Return-Free-2003.pdf">Tax Simplification is a Prerequisite</a>.</p>
<h2>What makes the US system so complex?</h2>
<p>A simpler system taxes each individual separately. The U.S., however, taxes single individuals and married couples differently. This approach makes it difficult to withhold the right amount of tax because the applicable tax rate depends on more than just your income. It includes, for example, that of your spouse, which your bank or employer may not know.</p>
<p>A simpler system would also have flat or fewer tax rates. Instead, the U.S. has numerous tax brackets, with the goal of ensuring that higher earners pay higher rates of income tax. Although progressive rate structures like this <a href="https://us.aicpa.org/content/dam/aicpa/advocacy/tax/downloadabledocuments/tax-policy-concept-statement-no-1-global.pdf">are aimed at fairness</a>, in that those who can afford to pay more do pay more, this type of tax system adds complexity. </p>
<p>Other countries retain progressive systems with fewer tax brackets. For example, the U.K. currently has <a href="https://www.gov.uk/income-tax-rates">four tax brackets</a>, compared with <a href="https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2022">seven in the U.S</a>.</p>
<p>The U.S. also has different rates for ordinary income such as wages versus income such as dividends and capital gains, which are typically taxed at lower rates – in part to spur investment and also because investment income has arguably already been taxed. But the U.S. system adds complexity because capital gains on investments held for less than a year and some dividends are not taxed at preferential rates. These different rates – from different levels and types of income – reduce the chances of getting withholding right. </p>
<p>The U.S. system also adds complexity with the <a href="https://www.irs.gov/credits-deductions-for-individuals">sheer number of deductions and credits</a> available to taxpayers. Deductions reduce the amount of taxable income you have, thereby reducing your tax liability. Say a single individual has $80,000 of wage income and $15,000 of deductions. Their taxable income is $65,000. At 2022 rates, their tax liability is $9,617. Those $15,000 of deductions saved them $3,300 in taxes. </p>
<p>Fortunately, there are a lot deductions. Unfortunately, taxpayers often have to jump through hoops to qualify. You can deduct <a href="https://www.irs.gov/taxtopics/tc419">gambling losses</a> but only if you have gambling winnings, <a href="https://www.irs.gov/taxtopics/tc503">state income taxes</a> but only up to $10,000 each year, and <a href="https://www.irs.gov/taxtopics/tc456">student loan interest</a> but only if you make less than $85,000 or $175,000, depending on your marital status. </p>
<p>Further, these deductions come in different flavors: “above-the-line” deductions and “below-the-line” deductions, which themselves come in two flavors – itemized and standard. Taxpayers itemize deductions only if those amounts exceed the standard deduction. That means you might spend several hours tallying receipts for <a href="https://theconversation.com/whats-the-charitable-deduction-an-economist-explains-162647">itemized charitable donations</a> only to find you can’t deduct any of them because the total is less than your standard deduction. </p>
<p>Credits are another valuable element of the tax system because they reduce your tax liability dollar for dollar. Let’s go back to our single taxpayer with $65,000 in taxable income and a $9,617 tax liability before credits. A $1,000 credit – say for higher education or renewable energy – reduces their tax liability to $8,617. But credits also add complexity because they can be reduced as your income increases, and they can have extensive eligibility requirements.</p>
<h2>Benefits of a complex system</h2>
<p>One benefit of all this complexity is that it gives the tax system flexibility to provide economic stimulus and other responses to current events, like a global pandemic. For example, Congress allowed taxpayers to receive <a href="https://theconversation.com/a-300-charitable-deduction-explained-138247">guaranteed tax benefits</a> for some <a href="https://taxfoundation.org/charitable-deduction-tax-incentives/">charitable contributions</a> made during the pandemic as above-the-line deductions, instead of the usual requirement that taxpayers first determine whether they could itemize the charitable contribution as a below-the-line deduction. </p>
<p>Even if the U.S. could drastically simplify its tax system, a return-free or tax reconciliation system comes with its own problems. Transitioning would require a significant investment in IRS resources, and although in 2022 Congress passed an <a href="https://www.cbo.gov/publication/57444">$80 billion boost to IRS funding</a> over the next 10 years, much of this amount is needed to shore up the current system. </p>
<p>And estimates suggest that, at best, a return-free or tax reconciliation system in the U.S. would work for only <a href="https://www.taxpolicycenter.org/briefing-book/what-are-benefits-return-free-filing">62 million taxpayers</a>, meaning the majority of U.S. taxpayers would still have to complete a tax return because the withholding or pre-populated return wouldn’t be right. </p>
<p>Meanwhile, a simpler tax system potentially makes it more difficult for Congress to use tax policy to stimulate the economy or encourage certain desirable behaviors, such as investing in <a href="https://www.epa.gov/green-power-markets/inflation-reduction-act">renewable energy</a>. </p>
<p>Finally, exact withholding, when it works correctly, takes away the sizable refunds <a href="https://www.researchgate.net/publication/228272373_An_Investigation_of_Why_Taxpayers_Prefer_Refunds_A_Theory_of_Planned_Behavior_Approach">some Americans enjoy</a>. </p>
<p>In the end, no tax system is perfect. The U.S. must decide whether the complexity of its tax system is worth the time and the <a href="https://www.irs.gov/pub/irs-pdf/i1040gi.pdf">average $250 cost</a> taxpayers spend on filing their own returns instead of spending that on more pleasant activities.</p><img src="https://counter.theconversation.com/content/203616/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The co-hosts of the ‘Taxes for the Masses’ podcast explain the upside and downside of all those credits and deductions.Bridget Stomberg, Associate Professor of Accounting, Indiana UniversityLisa De Simone, Associate Professor of Accounting, The University of Texas at AustinLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2032822023-04-07T17:29:51Z2023-04-07T17:29:51ZI tried to pay my taxes in cash – here’s what happened, and why the IRS should make it easier to do so<figure><img src="https://images.theconversation.com/files/519957/original/file-20230407-24-e52vep.jpg?ixlib=rb-1.1.0&rect=176%2C193%2C5431%2C3539&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">It turns out paying taxes in cash ain't easy.
</span> <span class="attribution"><span class="source">nikom khotjan/Moment via Getty Images</span></span></figcaption></figure><p><a href="https://www.irs.gov/newsroom/filing-season-statistics-for-week-ending-december-30-2022">About two-thirds of all U.S. residents who file</a> federal income taxes typically get a refund. Unfortunately, this year I am among the other third who owe the Internal Revenue Service money. </p>
<p>So I tried something I’ve never done before and few people do: I wanted to <a href="https://theconversation.com/is-doing-your-taxes-making-you-crazy-heres-why-it-shouldnt-114572">pay my tax bill</a> in cash – that is, with real paper currency. </p>
<p>In our <a href="https://www.pcbb.com/bid/2023-02-15-is-the-us-moving-toward-a-cashless-society">nearly cashless society</a>, this might sound like a hassle.</p>
<h2>Why pay taxes in cash</h2>
<p>For one thing, I’m an economist <a href="https://blogs.bu.edu/zagorsky/">writing a book</a> explaining the <a href="https://theconversation.com/in-defense-of-cash-why-we-should-bring-back-the-500-note-and-other-big-bills-85880">advantages of using cash</a>, and I was simply curious what might happen. </p>
<p>But beyond my own <a href="http://businessmacroeconomics.com/">book-related</a> interest in paying taxes in cash, I had other reasons for wanting to do so. For years while teaching students about money, I noted the front of every piece of U.S. currency declares: “This note is legal tender for all debts public and private.”</p>
<p>The statement seemed ironic since I couldn’t <a href="https://theconversation.com/if-cash-is-king-how-can-stores-refuse-to-take-your-dollars-63516">figure out how to pay</a> income taxes, one of people’s most significant public debts, with currency. </p>
<p>I also wondered how difficult it is for the unbanked to pay taxes. <a href="https://www.fdic.gov/analysis/household-survey/index.html">Federal Deposit Insurance Corp. data shows</a> about 6 million households have no connection to the formal banking system.</p>
<p>The IRS does not publish data on the methods people use to pay their taxes, but several IRS employees I spoke with told me almost no one pays the IRS in cash. </p>
<figure class="align-center ">
<img alt="a one dollar bill" src="https://images.theconversation.com/files/519952/original/file-20230407-3779-6wvjhi.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/519952/original/file-20230407-3779-6wvjhi.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=277&fit=crop&dpr=1 600w, https://images.theconversation.com/files/519952/original/file-20230407-3779-6wvjhi.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=277&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/519952/original/file-20230407-3779-6wvjhi.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=277&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/519952/original/file-20230407-3779-6wvjhi.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=348&fit=crop&dpr=1 754w, https://images.theconversation.com/files/519952/original/file-20230407-3779-6wvjhi.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=348&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/519952/original/file-20230407-3779-6wvjhi.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=348&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Every U.S. bill declares that it can be used to pay any debt.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/photo/one-us-dollar-bill-royalty-free-image/87243724?phrase=close%20up%20of%20dollar%20bill">Peter Dazeley/The Image Bank via Getty Images</a></span>
</figcaption>
</figure>
<h2>How to pay in cash</h2>
<p>The IRS certainly doesn’t make it easy to do so.</p>
<p>Recently, a student of mine pointed out where the <a href="https://www.irs.gov/payments/what-to-expect-when-you-pay-cash-at-an-irs-office">instructions for paying the government with paper money</a> are buried, so I gave it a try. The five-step set of instructions hinted that paying cash directly is a time-consuming process and that I needed to start a month or two before taxes are due.</p>
<p>Following the instructions, <a href="https://theconversation.com/why-most-of-us-procrastinate-in-filing-our-taxes-and-why-it-doesnt-make-any-sense-39766">I completed my taxes early</a> and learned I owed a bit more than US$1,000. Then I called on the phone to <a href="https://www.irs.gov/help/contact-your-local-irs-office">schedule a face-to-face appointment</a> with the IRS to see when and where I could pay.</p>
<p>The operator, who told me her name was “Ms. Johnson,” was cheerful and helpful – but tried her very best to dissuade me from paying in cash. She offered to walk me through the steps on the phone so that I could <a href="https://www.irs.gov/payments/direct-pay">pay online</a> and not have to come into my local IRS office.</p>
<h2>Alternative ways to pay ‘in cash’</h2>
<p>For example, the IRS suggests cash payers can “<a href="https://www.irs.gov/payments/pay-your-taxes-with-cash">Buy a prepaid credit card and pay online</a>.” </p>
<p>This sounds easy but turns out to be costly. For example, Walmart, one of the largest U.S. retailers, offers a <a href="https://www.walmartmoneycard.com/">reloadable basic debit card</a>. The <a href="https://www.walmartmoneycard.com/legal-info/fee-plan">card costs</a> $1 to buy, $6 per month in fees and $3 to load with cash. Once the card is loaded with money, the <a href="https://www.irs.gov/payments/pay-your-taxes-by-debit-or-credit-card">businesses the IRS uses to accept debit card payments charge</a> around $2.50 for each payment, with payments <a href="https://www.irs.gov/payments/frequency-limit-table-by-type-of-tax-payment">limited to two per year</a>.</p>
<p>The <a href="https://www.irs.gov/payments/pay-with-cash-at-a-retail-partner">IRS also has partnered with national chains</a> like CVS, Walgreens, 7-Eleven and Family Dollar to accept cash on its behalf. Their service fees are less, either $1.50 or $2.50 per payment. However, the steps needed to <a href="https://fed.acipayonline.com/index.jsp">navigate the online program</a> before you can show up at a retailer seemed almost as difficult as filling in the tax forms.</p>
<p>More importantly, this program has a $500 per payment limit and a $1,000 maximum amount accepted per year. This made the method impractical for me and for most people who owe the IRS money. <a href="https://www.irs.gov/pub/irs-soi/20in33ar.xls">The latest IRS figures</a> show people who owe income taxes on average pay over $6,000.</p>
<p>Or, I could <a href="https://www.irs.gov/payments/pay-by-debit-or-credit-card-when-you-e-file">use a credit or debit card</a>, but these methods charged around 2.5% more for the convenience. </p>
<p>After I declined all of Ms. Johnson’s alternative payment offers, she told me I was lucky. There was an appointment available at the downtown Boston <a href="https://apps.irs.gov/app/office-locator/">taxpayer assistance center</a> in a few days. Her schedule showed many other centers around the country were booked until May, long after taxes were due.</p>
<figure class="align-center ">
<img alt="a stone block has the letters internal revenue service carved into it behind the green leaves of a tree" src="https://images.theconversation.com/files/519958/original/file-20230407-18-iuxkz7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/519958/original/file-20230407-18-iuxkz7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/519958/original/file-20230407-18-iuxkz7.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/519958/original/file-20230407-18-iuxkz7.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/519958/original/file-20230407-18-iuxkz7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/519958/original/file-20230407-18-iuxkz7.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/519958/original/file-20230407-18-iuxkz7.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The author had to go to an IRS assistance center to try to pay his taxes in cash.</span>
<span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/TaxSeasonBegins/98cf9ddeb9214107ad0fd1318e7bb74b/photo?Query=irs&mediaType=photo&sortBy=arrivaldatetime:desc&dateRange=Anytime&totalCount=2485&currentItemNo=43">AP Photo/Patrick Semansky</a></span>
</figcaption>
</figure>
<h2>An arduous process – but a successful one</h2>
<p>I had cash at home, but not enough. I went to the bank and made sure I got exact change in crisp new bills to make the transaction as easy as possible.</p>
<p>My goal was not to cause pain like the Virginia man who <a href="https://www.bbc.com/news/world-us-canada-38603615">used 300,000 coins to pay his motor vehicle bill</a> or the California man who pushed in <a href="https://abcnews.go.com/blogs/headlines/2013/01/california-man-pays-off-13000-property-tax-bill-in-coins-dollar-bills">wheelbarrows filled with $1 coins to pay his $13,000 property tax bill</a>. Nor was I interested in recreating the famous but fictional <a href="https://cap-press.com/sites/pj/articles/ThePractice2.htm">British case of Board of Inland Revenue v. Haddock</a>, in which Haddock tried paying his tax bill by writing a check on the side of a cow. <a href="https://www.snopes.com/fact-check/check-on-side-of-cow/">Although it never happened</a>, the case is still cited in legal circles.</p>
<p>I made it to the IRS building, went through airport-style screening and checked in on time. The receptionist was polite and again told me all the ways to pay without cash. After I declined, he asked me to take a seat in the waiting area filled with people clutching paperwork. As I walked away, the receptionist did a facepalm while shaking his head, which was not a positive sign.</p>
<p>After a 30-minute wait, another polite IRS worker came out and told me they could not accept cash that day because no courier was scheduled. Current IRS rules require that a courier take all cash immediately to the bank because they said “holding cash was not safe.” This is surprising given the federal office building was swarming with armed guards and required screening to enter.</p>
<p>I came back a week later when another cash payer was showing up. This time I had more success. It took 30 minutes, but after completing a multipart carbon form by hand, I got a receipt that said my taxes were paid.</p>
<h2>A simple solution</h2>
<p>Paying the IRS with cash is possible, but it turned out to be onerous and time-consuming. </p>
<p>I believe there is a simple solution. The <a href="https://www.law.cornell.edu/uscode/text/26/6302">Code of Federal Regulations</a>, which governs the IRS and other agencies, allows authorized banks to accept tax payments. The law doesn’t specify payment only by check or other methods. This means if procedures existed, taxpayers could walk into major banks, hand the teller cash and have the bank inform the IRS of the amount paid.</p>
<p>For people without bank accounts, their only option for paying taxes shouldn’t require paying fees to credit card processors or retailers – especially since they are likely among the poorest taxpayers.</p>
<p>If the government wants everyone to pay their taxes, why doesn’t it make it as easy as possible?</p><img src="https://counter.theconversation.com/content/203282/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jay L. Zagorsky does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>As the US increasingly becomes a cashless society, it’s getting harder to use currency to pay for things – including taxes. One fearless economist gave it a try.Jay L. Zagorsky, Clinical Associate Professor, Boston UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1999522023-04-04T12:17:19Z2023-04-04T12:17:19ZYou can’t hide side hustles from the IRS anymore – here’s what taxpayers need to know about reporting online payments for gig work<figure><img src="https://images.theconversation.com/files/518802/original/file-20230331-14-y6616v.jpg?ixlib=rb-1.1.0&rect=0%2C206%2C5620%2C4022&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Dog-walking income is taxable.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/professional-dog-walker-holds-the-leashes-for-13-dogs-april-news-photo/670072734?adppopup=true">Robert Nickelsberg/Getty Images</a></span></figcaption></figure><p>Do you rent out your home a few weekends a year through Airbnb? Sell stuff on Etsy? Get paid for pet-sitting? If you, like many Americans, make at least US$600 a year with a side hustle of any kind, the way you pay taxes may soon change.</p>
<p>New rules are going to <a href="https://www.cnn.com/2022/12/23/investing/irs-delays-threshold-increase-for-business-transactions/index.html">make sure the Internal Revenue Service gets more information</a> about payments made to Venmo and other apps often used for informal work. And this new system will enhance the agency’s ability to detect any underreported taxable income.</p>
<p>I am a <a href="https://scholar.google.com/citations?user=m-piTBwAAAAJ&hl=en&oi=ao">tax researcher</a> studying the IRS’ use of technology and how that affects taxpayers. I think it’s important that everyone understand why this may matter to them now or in the near future.</p>
<h2>Why you should care</h2>
<p>For people who earn most of their income through steady jobs, these changes probably don’t make much of a difference. The IRS has received the same information from employers about the income that goes on <a href="https://www.finance.senate.gov/download/1946/03/04/legislative-history-of-the-current-tax-payment-act-of-1943">W-2 and 1099 forms since the 1940s</a>.</p>
<p>However, that’s not true of income from other sources. If you make money cleaning houses, catering out of your own kitchen or through another informal side hustle in exchange for cash, chances are this work has been “<a href="https://www.investopedia.com/articles/markets/032916/how-big-underground-economy-america.asp">under the table</a>.”</p>
<p>It’s been up to you, not your customers, to report any income earned this way to the IRS for tax purposes. And there is a good chance that you didn’t, given that the underground economy makes up <a href="https://www.dickinson.edu/news/article/3136/understanding_the_shadow_economy">at least one-tenth of the overall economy</a>. </p>
<p>That’s changing, in part because of how informal transactions happen. It’s far more common these days for <a href="https://www.pewresearch.org/fact-tank/2022/09/08/payment-apps-like-venmo-and-cash-app-bring-convenience-and-security-concerns-to-some-users/">customers to make these payments through apps</a> like Venmo, Stripe and Square or online platforms such as Etsy, Poshmark, Rover and Upwork than to use cash or checks.</p>
<p>This can even include illicit activities, like drug dealing. And believe it or not, even when you make money through illegal transactions, the IRS still requires these <a href="https://taxfoundation.org/irs-guidance-thieves-drug-dealers-and-corrupt-officials">payments to be reported for tax purposes</a>.</p>
<p>The IRS has long identified informal payments as a significant source of the “<a href="https://www.irs.gov/newsroom/the-tax-gap">tax gap</a>” – the difference between what taxpayers owe and what they pay.</p>
<p>Modern technology makes it easier to get paid for side hustles and odd jobs without having to keep track of stacks of bills and piles of coins. It also better equips the agency to collect taxes on those underreported sources of income. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/518803/original/file-20230331-24-zkce9c.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="A person hands another person a stack of cash under a table." src="https://images.theconversation.com/files/518803/original/file-20230331-24-zkce9c.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/518803/original/file-20230331-24-zkce9c.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/518803/original/file-20230331-24-zkce9c.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/518803/original/file-20230331-24-zkce9c.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/518803/original/file-20230331-24-zkce9c.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/518803/original/file-20230331-24-zkce9c.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/518803/original/file-20230331-24-zkce9c.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Unless you’re getting paid in cash for your ‘under the table’ gigs or make less than $600, the IRS is going to find out about them.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/photo/bribery-corruption-collecting-money-from-business-royalty-free-image/1436894263?adppopup=true">Jirapong Manustrong/iStock via Getty Images Plus</a></span>
</figcaption>
</figure>
<h2>What’s changing</h2>
<p>The amount of information that the IRS will receive about traditionally “under the table” work is growing.</p>
<p>That’s because the <a href="https://www.congress.gov/bill/117th-congress/house-bill/1319/text">$1.9 trillion COVID-19 relief package</a> President <a href="https://theconversation.com/the-us-delivers-1-9-trillion-jolt-of-economic-relief-4-essential-reads-156930">Joe Biden signed in March 2021</a> lowered the threshold for what third-party payment companies like Venmo will report to taxpayers and the IRS. </p>
<p>Individuals, businesses and nonprofits that earn more than $600 through various online merchants will receive a summary of that income data on a <a href="https://www.irs.gov/businesses/understanding-your-form-1099-k">Form 1099-K</a> – as of the 2023 tax year – and importantly, the IRS will too. </p>
<p>That means companies like Venmo, Etsy and Airbnb will be required to issue these tax documents to anyone earning more than $600 on their sites.</p>
<p>Through 2022, the threshold for these companies to report income to the IRS was $22,000. The much lower cutoff, starting in 2023, means that many Americans who don’t make much money on these sites – and possibly didn’t feel the need to report it on their tax returns – will be forced to change their ways. Taxpayers were, in fact, always required to report this income, and now the IRS will also receive a summary of these earnings that should show up as well on tax returns.</p>
<p>The change to a $600 threshold was supposed to occur for taxes owed on 2022 income but was <a href="https://www.irs.gov/newsroom/irs-announces-delay-for-implementation-of-600-reporting-threshold-for-third-party-payment-platforms-forms-1099-k">delayed at the federal level by a year</a> because of <a href="https://www.taxpayeradvocate.irs.gov/news/nta-blog-heard-loud-and-clear-irs-postpones-implementation-of-600-form-1099-k-reporting-by-a-year/">taxpayer confusion and a lack of clear guidance</a>.</p>
<p>Companies like Venmo are getting ready to make the change by withholding taxes from business payments as soon as <a href="https://help.venmo.com/hc/en-us/articles/4407389460499-2023-Tax-FAQ">June 2023</a>.</p>
<h2>What taxpayers need to do</h2>
<p>If you use an app like Venmo for both personal and business use, creating a <a href="https://help.venmo.com/hc/en-us/articles/4407389460499-2023-Tax-FAQ">separate business account may ease record-keeping</a>. That way, you can separate the non-taxable money you received from relatives who were chipping in for that group gift you bought your grandma for her birthday from the <a href="https://www.cnbc.com/2022/12/27/what-to-know-about-the-1099-k-tax-reporting-change-for-venmo-paypal-.html">taxable payments you got</a> for mowing your neighbor’s lawn. </p>
<p>Anyone earning more than $600 from a side hustle through an online platform in 2023 should be on the lookout for a 1099-K in early 2024. That form may make record-keeping easier, just like getting a W-2 from an employer does. </p>
<p>If you are a taxpayer with earnings not currently reported to you on a tax form like a W-2 or a 1099, one of the most helpful things that you can do to ensure compliance with tax law is to keep good records of all your income. The <a href="https://www.irs.gov/publications/p525">IRS and other sources publish excellent resources</a> to help you understand what income is and is not taxable.</p>
<p>From now on, as before, you should record all of your earnings from every source – and keep in mind that the IRS is getting more access to data regarding transactions than it used to have.</p><img src="https://counter.theconversation.com/content/199952/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Erica Neuman does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>An accounting expert points out that income Americans previously thought was invisible to the IRS will now be tallied up and reported by Venmo and similar apps.Erica Neuman, Assistant Professor of Accounting, University of DaytonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2013032023-03-27T15:47:02Z2023-03-27T15:47:02ZGhana’s e-levy is unfair to the poor and misses its revenue target: a lesson in mobile money tax design<figure><img src="https://images.theconversation.com/files/516007/original/file-20230317-3164-vqytnx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Ghana's e-levy has hit traders in the country's informal sector the hardest.
</span> <span class="attribution"><span class="source">Christophe Gateau/picture alliance via Getty Images</span></span></figcaption></figure><p>In May 2022, the government in Ghana introduced a <a href="https://theconversation.com/new-data-on-the-e-levy-in-ghana-unpopular-tax-on-mobile-money-transfers-is-hitting-the-poor-hardest-189671">deeply unpopular tax</a> on mobile money transactions, known as the e-levy. When it was introduced, the levy was structured as a 1.5% charge on all electronic and mobile money transactions over 100 cedis per day. </p>
<p>The e-levy was designed to raise more money for the government by extracting larger tax contributions from Ghana’s informal sector. About <a href="https://www.wiego.org/sites/default/files/publications/file/WIEGO_Statistical_Brief_N21_0.pdf">90%</a> of total employment in Ghana is informal and politicians have <a href="https://www.ictd.ac/blog/how-e-levy-impact-informal-sector-ghana/">explicitly stated</a> that the e-levy is targeted at the informal sector. </p>
<p>In January 2023, the government <a href="https://www.ictd.ac/blog/ghana-e-levy-rate-reduction-public-acceptance-increase-revenue/#:%7E:text=On%2011%20January%202023%2C%20the,well%20below%20the%20government's%20expectations.">reduced the rate </a> of the tax from 1.5% to 1%. The unique feature of the levy, an exemption threshold for transactions below 100 cedis a day, is expected to be <a href="https://allafrica.com/stories/202211260200.html">removed</a> but remains in place for now, although it’s real value has been eroded by inflation over the past 12 months. </p>
<p>The <a href="https://www.ictd.ac/event/webinar-ghanas-e-levy-two-months-in-what-do-we-know/">levy’s effects</a> – on Ghana’s public finances, its poor, mobile money usage –have been at the centre of intense and polarising public conversations, much of it without empirical basis. </p>
<p>In September 2022 we presented some <a href="https://theconversation.com/new-data-on-the-e-levy-in-ghana-unpopular-tax-on-mobile-money-transfers-is-hitting-the-poor-hardest-189671">early results</a> from a survey of 2,700 self-employed informal sector operators, carried out just before the introduction of the e-levy, where we showed the likely impact of the tax on Accra’s informal sector. </p>
<p>In <a href="https://www.ictd.ac/publication/mobile-money-tax-informal-workers-evidence-ghana-e-levy/">our recent paper</a> we assess how informal sector operators in the country’s capital Accra use mobile money. We also asked the views of informal workers on what they thought of the e-levy’s pending implementation. </p>
<p>Our findings suggest that the e-levy is highly regressive. In other words, our data show that the lowest earning informal sector operators pay a larger share of their earnings towards the levy than higher earners. We also show that most informal workers disapprove of the e-levy.</p>
<p>Our findings suggest that the government should reconsider the design of the e-levy to ensure that the most vulnerable workers in the informal sector are protected. We suggest further that the exemption threshold for low value transactions is an important tool in this regard and should be retained for the sake of equity. </p>
<h2>Lower rate brings relief</h2>
<p>What does the lowered rate of 1% mean for informal workers? In our recent study, we analysed information on the use of mobile money transactions among informal sector operators in Accra. We divided informal sector operators into five equal groups (quintiles), based on their reported earnings. Before the lower rate of 1% was introduced in January 2023, we calculated that e-levy payments would amount to about 4% of reported monthly earnings for the lowest earning quintile. The tax would amount to less than 1% for the two highest earning quintiles. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/515159/original/file-20230314-21-v7tynp.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/515159/original/file-20230314-21-v7tynp.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=312&fit=crop&dpr=1 600w, https://images.theconversation.com/files/515159/original/file-20230314-21-v7tynp.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=312&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/515159/original/file-20230314-21-v7tynp.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=312&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/515159/original/file-20230314-21-v7tynp.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=392&fit=crop&dpr=1 754w, https://images.theconversation.com/files/515159/original/file-20230314-21-v7tynp.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=392&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/515159/original/file-20230314-21-v7tynp.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=392&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption"></span>
<span class="attribution"><span class="source">Authors</span></span>
</figcaption>
</figure>
<p>This shows that the levy takes more from the poorest. And the lowest earners pay a substantial portion of their already meagre earnings towards the levy. </p>
<p>The lower rate brings a small degree of relief for the lowest earners. When the new e-levy rate (1%) is mapped onto our survey data, the lowest earning quintile would pay about 3% (instead of 4%) of their monthly earnings towards this tax, all else remaining equal. </p>
<h2>Threshold an important tool for the poor</h2>
<p>If the protective threshold were to be removed–in line with the <a href="https://allafrica.com/stories/202211260200.html">recent budget statement</a>–the lowest earning quintile would pay, on average, 7% of their monthly earnings towards the e-levy. In other words, even at the new lower rate, the removal of the exemption threshold would more than double the liability of the poorest informal sector operators. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/515164/original/file-20230314-2482-lvhcjw.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/515164/original/file-20230314-2482-lvhcjw.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=340&fit=crop&dpr=1 600w, https://images.theconversation.com/files/515164/original/file-20230314-2482-lvhcjw.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=340&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/515164/original/file-20230314-2482-lvhcjw.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=340&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/515164/original/file-20230314-2482-lvhcjw.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=428&fit=crop&dpr=1 754w, https://images.theconversation.com/files/515164/original/file-20230314-2482-lvhcjw.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=428&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/515164/original/file-20230314-2482-lvhcjw.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=428&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption"></span>
<span class="attribution"><span class="source">Authors</span></span>
</figcaption>
</figure>
<p>The transfer threshold therefore appears to be an important instrument for protecting the lowest earning operators, irrespective of the rate at which the levy is set. But due to inflation, the real value of the threshold, as of January 2023, has been eroded by more than 50%. In other words, the threshold is now only half as effective at shielding the poorest as it was to start with. </p>
<h2>Next steps</h2>
<p>As mobile money taxes gain popularity across the continent, their design requires very careful consideration. Currently there are at least <a href="https://restofworld.org/2022/how-mobile-money-became-the-new-cash-cow-for-african-governments-but-at-a-cost/">ten African countries</a> that are either considering, or have implemented, a similar tax. </p>
<p>Our research suggests that efforts to protect the poorest mobile money users (often the unbanked working in the informal sector) should be the priority. We further argue that Ghana’s use of a protective threshold is an important feature of the policy design–more important than, for example, simply lowering the rate–but that it doesn’t go far enough to protect the poor. </p>
<p>More fundamentally, we reflect on the effectiveness of the tax from a revenue perspective. The new tax measure has performed much more poorly in revenue terms than the government had hoped for. In first 8 months of the levy’s introduction, it raised only 11% of its <a href="https://www.ictd.ac/blog/ghana-e-levy-rate-reduction-public-acceptance-increase-revenue/">revenue target</a> of US $1 billion. </p>
<p>It is therefore worth asking what else the government can do to meet its pressing revenue needs. There is <a href="https://theconversation.com/african-governments-arent-taxing-the-rich-why-they-should-57162">substantial evidence</a> that focusing on higher income earners, including high net worth individuals and extractive industries, can be particularly productive. The development of a unit in the Ghana Revenue Authority that focuses on wealthy individuals is a promising step in this direction, though the outcomes of these efforts remain to be seen. </p>
<p>The experience of the e-levy so far offers important lessons to other countries considering similar taxes. Among the most important is that domestic resource mobilisation cannot be achieved by over-taxing the livelihoods of the most vulnerable workers in the informal sector.</p><img src="https://counter.theconversation.com/content/201303/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Mike Rogan a Research Associate with the Urban Policies Programme in WIEGO (Women in Informal Employment: Globalizing and Organizing). The research described in this article was made possible by generous support from the Swedish International Development Cooperation Agency. </span></em></p><p class="fine-print"><em><span>Max Gallien Max Gallien is a research fellow at the Institute of Development Studies (IDS) and the International Centre for Tax and Development (ICTD). Through the ICTD, the research described in this article has also been supported by the UK Foreign, Commonwealth and Development Office, the Norwegian Agency for Development Cooperation and the Bill & Melinda Gates Foundation.</span></em></p><p class="fine-print"><em><span>Nana Akua Anyidoho is Associate Professor at the Institute of Statistical, Social and Economic Research (ISSER) and Director of the Centre for Social Policy Studies (CSPS), both at the University of Ghana. </span></em></p><p class="fine-print"><em><span>Vanessa van den Boogaard is a Research Fellow at the International Centre for Tax and Development (ICTD) and the Munk School of Global Affairs and Public Policy at the University of Toronto.</span></em></p>Domestic resource mobilisation cannot be achieved by over-taxing the livelihoods of the most vulnerable workers in the informal sector.Mike Rogan, Associate Professor, Rhodes UniversityMax Gallien, Research Fellow, Institute of Development StudiesNana Akua Anyidoho, Associate Professor & Director, Centre for Social Policy Studies, University of GhanaVanessa van den Boogaard, Research Fellow, Institute of Development StudiesLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1999452023-03-22T12:40:12Z2023-03-22T12:40:12ZWho keeps the engagement ring after a breakup? 2 law professors explain why you might want a prenup for your diamond<figure><img src="https://images.theconversation.com/files/515221/original/file-20230314-3889-h0hg2j.jpg?ixlib=rb-1.1.0&rect=56%2C13%2C2836%2C2012&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">A celebrity's engagement ring can cost millions of dollars.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/jennifer-lopez-ring-detail-visits-the-elvis-duran-z100-news-photo/1141458193">Noam Galai/Getty Images Entertainment</a></span></figcaption></figure><p>When Jennifer Lopez and Ben Affleck got engaged the first time, in 2002, he gave her a very pricey ring. That <a href="https://www.harpersbazaar.com/celebrity/latest/a36396344/jennifer-lopez-ben-affleck-relationship-timeline/">engagement ring was reportedly worth as much as $2.5 million</a>, made by luxury jeweler <a href="https://www.harrywinston.com/en">Harry Winston</a> and adorned with a 6.1-carat pink diamond.</p>
<p>After the movie stars broke up in 2004 without getting married, J. Lo said she <a href="https://abcnews.go.com/Entertainment/story?id=116547">intended to return the ring “quietly</a>” to Affleck. Whether or <a href="https://www.yahoo.com/lifestyle/jennifer-lopez-may-still-ben-210155174.html">she ever did that or not</a>, was Lopez entitled to keep the that rock or any of the others she got from her <a href="https://www.womenshealthmag.com/relationships/a27054533/jennifer-lopez-husband-list/">numerous ex-husbands and former fiancés</a>?</p>
<p>The answer can matter to anyone who is engaged, married – or even thinking about tying the knot. No one knows for sure how many engagements end in a breakup, although there are estimates that roughly <a href="https://www.wpdiamonds.com/when-and-why-relationships-end/">1 in 5 do so</a>.</p>
<p>As <a href="https://scholar.google.com/citations?hl=en&user=rUM_0msAAAAJ">law professors who teach property</a> and <a href="https://scholar.google.com/citations?user=gCJEShUAAAAJ&hl=en&oi=ao">family law</a>, we frequently talk to students – and our own relatives – about gifts and marriage. Students often ask us who owns the engagement ring if couples don’t get married or if they eventually divorce. They also want to know what happens if the ring is stolen. </p>
<p>While taxes, laws and insurance are not very sexy topics, marriage has never been only about romance. It’s also a partnership with economic repercussions.</p>
<h2>Rare before the 20th century</h2>
<p>Engagement rings were fairly rare until about 100 years ago, even though the first diamond engagement ring was apparently given by <a href="https://scholarship.law.nd.edu/cgi/viewcontent.cgi?article=1589&context=law_faculty_scholarship">Emperor Maximilian to Mary of Burgundy in 1377</a>. But it wasn’t until the end of the Great Depression that a <a href="https://wizardofads.org/learning-from-legends-when-the-obstacle-is-the-way/">sophisticated advertising campaign created a market</a> for diamond engagement rings in the United States.</p>
<p>By 1940, <a href="https://www.theatlantic.com/international/archive/2015/02/how-an-ad-campaign-invented-the-diamond-engagement-ring/385376/">10% of brides</a> received diamond rings. That share jumped to 80% by 1990. </p>
<p>Perhaps propelled by the belief that a ring should cost <a href="https://www.theknot.com/content/spending-three-months-salary-on-engagement-ring">as much as a man earns in three months</a>, expensive diamond engagement rings grew in popularity from 1935 to 1965. </p>
<h2>No recourse for jilted grooms</h2>
<p><a href="https://scholarship.law.nd.edu/cgi/viewcontent.cgi?article=1589&context=law_faculty_scholarship">Law professor Margaret Brinig has found</a> that legal changes coincided with the new customs around the mid-20th century.</p>
<p>Specifically, Brinig points to the abolition of the lawsuits known as “<a href="https://www.law.cornell.edu/wex/breach_of_promise">breach of promise</a>” actions, which could be filed after broken engagements.</p>
<p>That is, brides could keep rings – even expensive ones – without getting married.</p>
<p>This new convention, Brinig has written, could have served as a form of <a href="https://scholarship.law.nd.edu/cgi/viewcontent.cgi?article=1589&context=law_faculty_scholarship">compensation if the bride had lost her virginity</a> after getting engaged. Should the marriage not happen, she’d at least have <a href="http://ndlawreview.org/wp-content/uploads/2020/05/7.-Carbone.pdf">something of value to hold onto</a>.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/515222/original/file-20230314-3596-zq1rn9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Bride and groom figurines arranged to look angry at each other on either side of a knife cutting a wedding cake in half." src="https://images.theconversation.com/files/515222/original/file-20230314-3596-zq1rn9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/515222/original/file-20230314-3596-zq1rn9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=386&fit=crop&dpr=1 600w, https://images.theconversation.com/files/515222/original/file-20230314-3596-zq1rn9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=386&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/515222/original/file-20230314-3596-zq1rn9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=386&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/515222/original/file-20230314-3596-zq1rn9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=485&fit=crop&dpr=1 754w, https://images.theconversation.com/files/515222/original/file-20230314-3596-zq1rn9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=485&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/515222/original/file-20230314-3596-zq1rn9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=485&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Are they arguing over who gets to keep the ring?</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/photo/bride-and-groom-relationship-breakdown-royalty-free-image/1133839838">Peter Dazeley/The Image Bank via Getty Images</a></span>
</figcaption>
</figure>
<h2>No-fault engagements?</h2>
<p>In the second half of the 20th century, U.S. divorce laws changed, and courts <a href="https://scholarship.law.edu/cgi/viewcontent.cgi?article=3319&context=lawreview">stopped determining who was to blame</a> when married couples broke up. In what came to be known as <a href="https://www.legalzoom.com/articles/what-is-no-fault-divorce">no-fault divorce</a>, neither spouse had to prove the other had cheated or been cruel to them.</p>
<p>And, as <a href="https://openyls.law.yale.edu/handle/20.500.13051/9106">law professor Rebecca Tushnet documents</a>, many courts have applied a similar “no-fault” framework to broken engagements. That means it <a href="https://www.ali.org/publications/show/property-wills-and-other-donative-transfers/">doesn’t matter who broke it off</a>, or why.</p>
<p>In <a href="https://caselaw.findlaw.com/pa-superior-court/1255400.html">addressing that rule in 1997</a>, three judges on a Pennsylvania superior court drew on the story of Adam and Eve, meandered into Roman times and then announced “the gift of the ring to [the bride] at the time of their betrothal was subject to an implied condition requiring its return if the marriage did not take place.”</p>
<p>And that was in a case in which a man who had proposed to his girlfriend called off the engagement twice.</p>
<p>Courts in <a href="https://law.justia.com/cases/iowa/court-of-appeals/1990/89-1570-0.html">Iowa</a>, <a href="https://caselaw.findlaw.com/mi-court-of-appeals/1044071.html">Michigan</a>, <a href="https://casetext.com/case/benassi-v-back-neck-pain-clinic">Minnesota</a>, <a href="https://casetext.com/case/cooley-v-tucker">Mississippi</a> and other states have issued similar rulings.</p>
<h2>Different states, different stakes</h2>
<p>But the <a href="https://casetext.com/case/albinger-v-harris">Supreme Court of Montana</a> held in 2002 that an ex-fiancée could keep her engagement ring after a breakup. Noting that women “often still assume the bulk of pre-wedding costs,” the court expressed concerns that treating engagement rings as gifts conditional upon marriage could perpetuate gender bias. </p>
<p><a href="https://caselaw.findlaw.com/tx-court-of-appeals/1353139.html">And a Texas court</a> ruled a year later that someone who gave an engagement ring to his fiancée and then later called off the wedding was not entitled to its return. </p>
<p>In California, <a href="https://casetext.com/statute/california-codes/california-civil-code/division-3-obligations/part-2-contracts/title-1-nature-of-a-contract/chapter-3-consent/section-1590-recovery-of-gift-or-money-or-property-made-on-assumption-marriage">a state law enacted in 1939 provides</a> that the ring must be returned if the marriage is broken off by mutual consent or the person who received an engagement ring initiates the breakup.</p>
<p>Regardless of where you live, if you’re legally obligated to return an engagement ring and fail to do so, you may be on the hook for <a href="https://caselaw.findlaw.com/in-court-of-appeals/1035723.html">monetary damages</a>. This can lead to financial hardship when rings are lost, stolen or <a href="https://casetext.com/case/harris-v-davis-7">intentionally thrown away</a>.</p>
<h2>Tax consequences</h2>
<p>If one person keeps the ring after a breakup, there may be <a href="https://www.irs.gov/businesses/small-businesses-self-employed/frequently-asked-questions-on-gift-taxes">gift tax consequences</a> for the person who bought the ring. But that’s only if the ring costs more than $17,000, and there are a <a href="https://www.propublica.org/article/more-than-half-of-americas-100-richest-people-exploit-special-trusts-to-avoid-estate-taxes">lot of variables and loopholes</a> that can reduce the chances that a jilted ex would ever owe any money to the Internal Revenue Service.</p>
<p><a href="https://www.kiplinger.com/taxes/gift-tax-exclusion">Anyone can make gifts</a> worth <a href="https://www.irs.gov/businesses/small-businesses-self-employed/frequently-asked-questions-on-gift-taxes">up to $17,000 per year</a>, as of 2023, to anyone else without incurring consequences. Gifts worth more than that threshold are officially subject to a gift tax, and <a href="https://www.schwab.com/learn/story/estate-tax-and-lifetime-gifting">the IRS requires</a> that <a href="https://www.irs.gov/forms-pubs/about-form-709">taxpayers report</a> the amount of those gifts annually.</p>
<p>As of 2023, taxpayers also may give away gifts totaling <a href="https://www.irs.gov/businesses/small-businesses-self-employed/whats-new-estate-and-gift-tax">$12.92 million</a> during their whole lifetimes, or after death in their wills, with no tax-related consequences. </p>
<p>But gifts of $17,000 or more will eat into that credit. </p>
<h2>Planning ahead</h2>
<p>Anyone who gets engaged can <a href="https://www.investopedia.com/how-to-insure-an-engagement-ring-7198192">insure a ring</a>.</p>
<p>And while <a href="https://www.americanbar.org/groups/criminal_justice/disclaimer/">no readers should see this article as a source of personal legal advice</a>, we do note that engaged couples can set their own rules. Courts will generally enforce written agreements reached between two people who plan on getting married that stipulate who gets the ring after a breakup.</p>
<p>Couples can draft or sign a ring-related contract, particularly if that piece of jewelry has great sentimental or monetary value. </p>
<p>We understand that such paperwork might not materialize during a time of bended knees and joyful celebration. We also get that what people do with their rings when an engagement is called off isn’t just a matter of what the law requires.</p>
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<h2>Few such lawsuits</h2>
<p>Perhaps not surprisingly, we have found relatively few cases in which someone sued an ex over this issue.</p>
<p>Not even Ben Affleck did that. Had he tried to sue J. Lo in 2004 in a California court, he might have won. But his success would have turned on how the engagement ended.</p>
<p>Besides, as you may have heard, the <a href="https://www.vox.com/culture/22629442/bennifer-jennifer-lopez-ben-affleck-reunion-explained">high-profile couple reunited in 2021</a> and married in 2022.</p>
<p>The second engagement ring <a href="https://www.brides.com/story/jennifer-lopez-engagement-ring-alex-rodriguez">Affleck gave Lopez is reportedly worth $5 million</a> – probably double that of the first one. J. Lo gets to keep that huge, rare green diamond forever now that she’s saying her name is <a href="https://www.usatoday.com/story/entertainment/celebrities/2022/11/08/jennifer-lopez-ben-affleck-last-name-vogue/8300569001/">Mrs. Jennifer Lynne Affleck</a>.</p><img src="https://counter.theconversation.com/content/199945/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Just like the rest of us, celebrities take different approaches to deciding who gets the engagement ring when they get engaged but never tie the knot.Naomi Cahn, Professor of Law, University of VirginiaJulia D. Mahoney, Professor of Law, University of VirginiaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2013602023-03-16T12:37:05Z2023-03-16T12:37:05ZWhy it’s hard for the US to cut or even control Medicare spending<figure><img src="https://images.theconversation.com/files/515188/original/file-20230314-3582-48y9sf.jpg?ixlib=rb-1.1.0&rect=77%2C94%2C5673%2C2862&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The number of Americans covered by Medicare is growing.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/photo/female-friends-walking-with-nordic-walking-poles-in-royalty-free-image/1339068107">OR Images/DigitalVision via Getty Images</a></span></figcaption></figure><p>President Joe Biden’s 2024 proposed budget includes plans to <a href="https://www.whitehouse.gov/briefing-room/statements-releases/2023/03/07/fact-sheet-the-presidents-budget-extending-medicare-solvency-by-25-years-or-more-strengthening-medicare-and-lowering-health-care-costs/">shore up the finances of Medicare</a>, the <a href="https://www.cms.gov/Medicare/Medicare-General-Information/MedicareGenInfo">federal health insurance program</a> that covers Americans who are 65 and up and some younger people with disabilities.</p>
<p>His administration aims to increase <a href="https://crsreports.congress.gov/product/pdf/IF/IF11820">from 3.8% to 5%</a> an existing Medicare tax that’s collected on the labor and investment earnings of <a href="https://www.cnbc.com/2023/03/08/what-to-know-about-proposed-biden-tax-on-the-wealthy-to-fund-medicare.html">Americans who make more than US$400,000 annually</a>. It also aims to reap some savings from having the government <a href="https://www.politico.com/newsletters/politico-pulse/2023/03/10/the-white-houses-health-care-wish-list-00086344">negotiate prices on more prescription drugs</a>.</p>
<p>The White House projects that these changes would generate an additional <a href="https://www.whitehouse.gov/wp-content/uploads/2023/03/budget_fy2024.pdf">$650 billion</a> in revenue over a decade. <a href="https://budgetmodel.wharton.upenn.edu/issues/2023/3/10/president-bidens-proposal-to-extend-medicare-trust-fund">Some independent experts</a> concur.</p>
<p><a href="https://scholar.google.com/citations?hl=en&user=CwMgD5QAAAAJ">As economists</a> who have long <a href="https://scholar.google.com/citations?user=y0lrTOoAAAAJ&hl=en&oi=ao">researched</a> the <a href="https://scholar.google.com/citations?user=y0lrTOoAAAAJ&hl=en">Medicare and Social Security programs</a>, we believe the president’s proposal is an important first step in opening the necessary debate on strengthening Medicare’s finances.</p>
<h2>Part A’s precarious funding</h2>
<p>Medicare consumes more than <a href="https://www.cbo.gov/publication/58848">15% of the federal budget</a>. The program cost $975 billion in 2022, out of the government’s <a href="https://usafacts.org/state-of-the-union/budget/">$6.5 trillion in total federal spending</a>.</p>
<p>As anyone who has enrolled in it can tell you, the program itself is rather complicated. It’s divided into three parts, known as A, B and D, each of which relies on revenue from a different mix of sources.</p>
<p>Medicare Part A covers care delivered at hospitals and nursing homes, as well as home health care. Part B pays for doctor’s visits and outpatient procedures, and Part D pays for prescription drugs. There’s also Part C, a private insurance option, known as Medicare Advantage. However, its costs are included in the accounting for Parts A and B. </p>
<p>Part A is primarily funded by a <a href="https://www.irs.gov/publications/p80">1.45% Medicare payroll tax</a> on both employees and employers. When that tax and the program’s other tax revenues don’t raise enough money to cover Part A’s costs, the program dips into the <a href="https://www.crfb.org/our-work/projects/medicare-hospital-insurance-trust-fund">Medicare Hospital Insurance trust fund</a> to make up the difference. The trust fund, amassed from past surplus payroll taxes, currently stands at around <a href="https://www.ssa.gov/oact/TRSUM/tr22summary.pdf">$143 billion</a>.</p>
<p>Without spending cuts, funding increases or a combination of the two, the Medicare program’s trustees have predicted in their annual report that the <a href="https://www.cms.gov/files/document/2022-medicare-trustees-report.pdf">Medicare trust fund</a> will be exhausted by 2028. The <a href="https://home.treasury.gov/system/files/136/TR-2022-Fact-Sheet.pdf">trustees are the secretaries</a> of the Treasury, Labor and Health and Human Services departments, plus the Social Security commissioner. There can be up to two additional trustees, but those seats are vacant.</p>
<p>Medicare’s expenses are rising rapidly with the <a href="https://www.investopedia.com/articles/personal-finance/032216/are-we-baby-boomer-retirement-crisis.asp">retirement of baby boomers</a>, the large generation of Americans born between 1946 and 1964, and <a href="https://www.cms.gov/research-statistics-data-and-systems/statistics-trends-and-reports/nationalhealthexpenddata/nationalhealthaccountshistorical">rising health care costs</a>. </p>
<p>Should the trust fund be emptied out, the trustees predict that hospital benefits would have to be cut by 10%. But those cuts are widely considered to be politically unacceptable, as illustrated by <a href="https://www.whitehouse.gov/state-of-the-union-2023/">statements from Biden</a> and his predecessor, former President <a href="https://www.pbs.org/newshour/politics/read-the-full-text-of-trumps-2020-state-of-the-union">Donald Trump</a>.</p>
<p>In addition to proposing an increase in the tax levied on the <a href="https://www.irs.gov/newsroom/questions-and-answers-on-the-net-investment-income-tax">investment earnings of high-income Americans</a>, Biden also proposes that these revenues be fully dedicated to the trust fund. Currently the <a href="https://www.cms.gov/files/document/2022-medicare-trustees-report.pdf">government treats that money as general revenue</a> that can be used for <a href="https://www.thebalancemoney.com/net-investment-income-tax-3192936">any government program</a>.</p>
<h2>2 very different scenarios</h2>
<p>Unlike Medicare Part A, Parts B and D are funded largely by general federal revenue and by premiums paid by retirees.</p>
<p>Because the government is allowed to use general revenue to pay for them, the funding of Parts B and D isn’t jeopardized by the depletion of their trust fund – no matter how fast those costs rise.</p>
<p>Even without Biden’s proposed changes, official Medicare spending projections rise rapidly through the mid-2030s and then plateau as a percentage of gross domestic product.</p>
<p>However, those projections are based on a presumption that payments to <a href="https://www.cms.gov/files/document/2022-medicare-trustees-report.pdf">hospitals are constrained as specified in the Affordable Care Act</a> and that other spending constraints on <a href="https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/Value-Based-Programs/MACRA-MIPS-and-APMs/MACRA-MIPS-and-APMs">physician payments</a> are realized.</p>
<p>Unfortunately, <a href="https://www.brookings.edu/blog/usc-brookings-schaeffer-on-health-policy/2015/02/02/a-primer-on-medicare-physician-payment-reform-and-the-sgr/">history provides little assurance</a> that lawmakers will maintain all of these requirements to restrain future payments to health care providers. </p>
<p>We say this because of what happened after 1997, when Congress approved the sustainable growth rate system, which was intended to limit the annual increase in cost per Medicare beneficiary to the rate of economic growth. Starting in 2002, Congress passed legislation year after year to override it – and only stopped doing that once it <a href="http://doi.org/10.1001/journalofethics.2015.17.11.pfor1-1511">did away with the system altogether in 2015</a>.</p>
<p>Reflecting this uncertainty, the annual <a href="https://www.cms.gov/files/document/2022-medicare-trustees-report.pdf">trustees report</a> features an alternative projection that is arguably more credible and more scary. It indicates that Medicare costs will grow much faster than the economy starting in 2036.</p>
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<h2>Competing demands</h2>
<p>The Social Security program, a national pension program that primarily supports older Americans, faces similar funding shortfalls.</p>
<p>Its trustees anticipate that the <a href="https://www.ssa.gov/OACT/tr/2022/tr2022.pdf">Social Security trust fund will be depleted</a> by 2035 without changes in funding, promised benefits – or both. In that event, Social Security benefits <a href="https://www.cnn.com/2023/03/08/politics/social-security-benefit-cut/index.html">may have to fall by about 20%</a> from anticipated levels. </p>
<p>Medicare and Social Security are the nation’s largest <a href="https://www.aarp.org/politics-society/government-elections/national-debt-guide/glossary/entitlements-definition.html">entitlement programs</a>. Almost all Americans, if they live long enough, will eventually be eligible to obtain these benefits – regardless of their income or wealth. </p>
<p>While Americans do not yet agree on how to put these programs on a steadier fiscal footing, the math is clear.</p>
<p>Our elected representatives cannot avoid making hard decisions that involve increasing taxes, reducing benefits or both.</p><img src="https://counter.theconversation.com/content/201360/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Dennis W. Jansen does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p><p class="fine-print"><em><span>Andrew Rettenmaier does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond his academic appointment.</span></em></p>The program’s expenses are rising rapidly as baby boomers retire and health care costs grow.Dennis W. Jansen, Professor of Economics and Director of the Private Enterprise Research Center, Texas A&M UniversityAndrew Rettenmaier, Executive Associate Director of the Private Enterprise Research Center, Texas A&M UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2000342023-02-23T19:57:31Z2023-02-23T19:57:31Z$1 trillion in the shade – the annual profits multinational corporations shift to tax havens continues to climb and climb<figure><img src="https://images.theconversation.com/files/512027/original/file-20230223-2492-ja174s.jpg?ixlib=rb-1.1.0&rect=45%2C32%2C1033%2C685&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Looks like paradise – especially if you're a multinational corporation in need of a tax haven.
</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/photo/relaxing-on-hammock-after-a-beach-day-in-the-royalty-free-image/897476216?phrase=cayman%20islands">LeoPatrizi/E+ via Getty Images</a></span></figcaption></figure><figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/512024/original/file-20230223-18-7m6a9x.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/512024/original/file-20230223-18-7m6a9x.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=255&fit=crop&dpr=1 600w, https://images.theconversation.com/files/512024/original/file-20230223-18-7m6a9x.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=255&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/512024/original/file-20230223-18-7m6a9x.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=255&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/512024/original/file-20230223-18-7m6a9x.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=321&fit=crop&dpr=1 754w, https://images.theconversation.com/files/512024/original/file-20230223-18-7m6a9x.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=321&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/512024/original/file-20230223-18-7m6a9x.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=321&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<p>About a decade ago, the world’s biggest economies <a href="https://www.oecd.org/g20/summits/los-cabos/">agreed to crack down</a> on multinational corporations’ abusive use of tax havens. This <a href="https://doi.org/10.1787/23132612">resulted in a 15-point action plan</a> that aimed to curb practices that shielded a large chunk of corporate profits from tax authorities.</p>
<p>But, according to our estimates, it hasn’t worked. Instead of reining in the use of tax havens – countries such as the Bahamas and Cayman Islands with very low or no effective tax rates – the problem has only gotten worse. </p>
<p><a href="https://doi.org/10.35188/UNU-WIDER/2022/254-6">By our reckoning</a>, corporations shifted nearly US$1 trillion in profits earned outside of their home countries to tax havens in 2019, up from $616 billion in 2015, the year before the <a href="https://doi.org/10.1787/23132612">global tax haven plan was implemented</a> by the group of 20 leading economies, also known as the G-20. </p>
<p><a href="https://doi.org/10.35188/UNU-WIDER/2022/254-6">In a new study</a>, we measured the excessive profits reported in tax havens that cannot be explained by ordinary economic activity such as employees, factories and research in that country. Our findings – which you can explore in more detail along with the data and an interactive map in <a href="https://missingprofits.world">our public database</a> – show a striking pattern of artificial shifting of paper profits to tax havens by corporations, which has been relentless since the 1980s. </p>
<h2>Global crackdown</h2>
<p>The current effort to curb the legal corporate practice of using tax havens to avoid paying taxes began in June 2012, when world leaders at the <a href="https://www.oecd.org/g20/summits/los-cabos/">G-20 meeting in Los Cabos, Mexico</a>, agreed on the need to do something.</p>
<p>The Organization for Economic Cooperation and Development, a group of 37 democracies with market-based economies, <a href="https://doi.org/10.1787/23132612">developed a plan that consisted</a> of 15 tangible actions it believed would significantly limit abusive corporate tax practices. These included creating a single set of international tax rules and cracking down on harmful tax practices.</p>
<p>In 2015, the G-20 adopted the plan officially, and implementation began across the world the following year.</p>
<p>In addition, following leaks like the <a href="https://www.icij.org/investigations/panama-papers/">Panama Papers</a> and <a href="https://www.icij.org/investigations/paradise-papers/">Paradise Papers</a> – which shed light on dodgy corporate tax practices – public outrage led <a href="https://www.irs.gov/newsroom/tax-cuts-and-jobs-act-a-comparison-for-businesses">governments in the U.S.</a> and Europe to initiate their own efforts to lower the incentive to shift profits to tax havens. </p>
<h2>Profit-shifting soars</h2>
<p><a href="https://doi.org/10.35188/UNU-WIDER/2022/254-6">Our research shows</a> all these efforts appear to have had little impact. </p>
<p>We found that the world’s biggest multinational businesses shifted 37% of the profits – or $969 billion – they earned in other countries (outside the headquarter country) to tax havens in 2019, up from about 20% in 2012 when G-20 leaders met in Los Cabos and agreed to crack down. The figure was less than 2% back in the 1970s. The main reasons for the large increase were the growth of the tax avoidance industry in the 1980s and U.S. policies that made it easier to shift profits from high-tax countries to tax havens.</p>
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<p>We also estimate that the amount of corporate taxes lost as a result reached 10% of total corporate revenue in 2019, up from less than 0.1% in the 1970s. </p>
<p>In 2019, the total government tax loss globally was $250 billion. U.S. multinational corporations alone accounted for about half of that, followed by the U.K. and Germany.</p>
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<h2>Global minimum tax</h2>
<p>How do policymakers fix this?</p>
<p>So far, the world as a whole has been trying to solve this problem by cutting or scrapping corporate taxes, albeit in a very gradual way. In the past 40 years, the global effective corporate tax rate <a href="http://globaltaxation.world/">has fallen from 23% to 17%</a>. At the same time, governments have relied more heavily on <a href="https://gabriel-zucman.eu/files/PikettySaezZucman2022RKT.pdf">consumption taxes</a>, which are regressive and tend to increase income inequality.</p>
<p>But the root cause of profit-shifting is the incentives involved, such as generous or lenient corporate tax rates in other countries. If countries could agree on a <a href="https://www.jstor.org/stable/24437292">global minimum corporate tax rate</a> of, say, 20%, the problem of profit-shifting would, in our estimation, largely disappear, as tax havens would simply cease to exist. </p>
<p>This type of mechanism is exactly what more than <a href="https://www.oecd.org/newsroom/130-countries-and-jurisdictions-join-bold-new-framework-for-international-tax-reform.htm">130 countries signed onto in 2021</a>, with implementation of a 15% minimum tax set to begin in 2024 in the EU, U.K., Japan, Indonesia and many other countries. While the <a href="https://apnews.com/article/russia-ukraine-biden-poland-2577a450b3cb18f325d61e9920e2593d">Biden administration has helped spearhead</a> the global effort to implement the tax, the U.S. <a href="https://www.politico.com/news/2022/07/15/manchin-rejects-global-tax-plan-00046103">has notably not been able</a> to get legislation through Congress. </p>
<p>Our research suggests implementing this type of tax reform is necessary to reverse the shift of ever-greater amounts of corporate profits going to tax havens – instead of being taxed by the governments where they operate and create value.</p><img src="https://counter.theconversation.com/content/200034/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Ludvig Wier is also Head of Secretariat at the Danish Ministry of Finance, holds a PhD from the University of Copenhagen and does research for UNU-WIDER, which provided funding for the underlying research in this story. The views expressed in this paper are those of the authors, and do not necessarily reflect the views of the Ministry of Finance of Denmark, UNU-WIDER, the United Nations University, nor its program/project donors. All data are available online at <a href="https://missingprofits.world">https://missingprofits.world</a>.</span></em></p><p class="fine-print"><em><span>Gabriel Zucman receives funding from the Stone Foundation, the Carnegie Foundation, the European Research Council, and the European Commission grant TAXUD/2020/DE/326.</span></em></p>New research shows that companies are shifting record amounts of their profits to tax havens, despite a global effort to crack down on the practice.Ludvig Wier, External Lecturer of Economics, University of CopenhagenGabriel Zucman, Associate Professor of Economics, University of California, BerkeleyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1972722023-01-10T17:42:41Z2023-01-10T17:42:41ZHow a proposed app called TaxTrack could make taxes more democratic<figure><img src="https://images.theconversation.com/files/503333/original/file-20230105-16-8fvszk.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C6723%2C3331&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Tax season is soon upon us, making it an opportune time to make Canada's taxation system more democratic.</span> <span class="attribution"><span class="source">THE CANADIAN PRESS/Graeme Roy</span></span></figcaption></figure><iframe style="width: 100%; height: 100px; border: none; position: relative; z-index: 1;" allowtransparency="" allow="clipboard-read; clipboard-write" src="https://narrations.ad-auris.com/widget/the-conversation-canada/how-a-proposed-app-called-taxtrack-could-make-taxes-more-democratic" width="100%" height="400"></iframe>
<p>As tax season approaches in Canada, it’s worth asking: How can we democratize how taxes are spent?</p>
<p>In 2021, the Canadian government collected <a href="https://www.canada.ca/en/department-finance/services/publications/annual-financial-report/2021/report.html#_Toc55397354">$316.4 billion</a> in tax revenue while the United States brought in <a href="https://www.fiscal.treasury.gov/reports-statements/financial-report/where-we-are-now.html">$4.3 trillion</a>. </p>
<p>If we break this down, <a href="https://hillnotes.ca/2021/10/18/personal-income-taxes-in-canada-revenue-rates-and-rationale-2/">70 per cent of total income tax revenues</a> in Canada are generated from personal income, and they make up 48 per cent of total budgetary revenues. </p>
<p>How taxes should or could be spent is hotly contested both in political spheres and in people’s households. Everything from investment in public infrastructure to health care and other social services like policing — areas that people rely on — depends on the allocation of taxes. </p>
<p>Despite this importance, there are limited opportunities for Canadians to influence how their taxes are spent.</p>
<p>Participatory budgeting, which is one of the most direct opportunities for public involvement in how taxpayer dollars are spent, is also not being <a href="https://www.victoria.ca/EN/main/residents/city-grants/participatory-budgeting.html">broadly used in Canada</a>. </p>
<p>There are, therefore, few if any tools available that enable individual control over how taxes are spent beyond elections. How else might taxpayer decision-making be included in the use of taxes?</p>
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Read more:
<a href="https://theconversation.com/imagine-if-each-of-us-could-direct-where-our-taxes-were-spent-meet-taxtrack-192576">Imagine if each of us could direct where our taxes were spent. Meet TaxTrack</a>
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<h2>How TaxTrack works</h2>
<p>In a recent article, <a href="https://www.aspg.org.au/a-p-r-journals-2/spring-summer-2022-vol-37-no-2/">we introduced TaxTrack</a>, a <a href="https://www.aspg.org.au/wp-content/uploads/2022/11/TaxTrack.pdf">proposal for democratizing taxes</a> by giving people more decision-making control over how taxes are spent. </p>
<p>We are currently conducting research on how best to design the not-for-profit app. There is great interest among funding agencies in Canada and Australia as we collect more qualitative data and identify strategic partnerships for a pilot project.</p>
<p>By registering for what we propose as a government program and installing a government-approved app, users would be able to see how much tax they contribute and importantly, provide direct input on what government services they want their taxes to be diverted to. </p>
<p>TaxTrack would therefore act as a program for tax-paying individuals to inform how government expenditures are spent. As a digital tool, it also has the ability to work with existing methods like <a href="https://participedia.net/method/146">participatory budgeting</a> and <a href="https://theconversation.com/citizens-assemblies-how-to-bring-the-wisdom-of-the-public-to-bear-on-the-climate-emergency-119117">citizens’ assemblies</a>.</p>
<p>Imagine you’re out shopping for groceries and at the point of sale a message on your phone pops up saying, “please provide your TaxTrack number prior to payment,” thus registering every provincial and federal sales tax collected from your purchases. Your pay stubs also register your taxable income. </p>
<figure class="align-center ">
<img alt="A woman in a parka, jeans and boots walks down a grocery store aisle." src="https://images.theconversation.com/files/503330/original/file-20230105-16-knvjn1.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/503330/original/file-20230105-16-knvjn1.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=422&fit=crop&dpr=1 600w, https://images.theconversation.com/files/503330/original/file-20230105-16-knvjn1.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=422&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/503330/original/file-20230105-16-knvjn1.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=422&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/503330/original/file-20230105-16-knvjn1.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=530&fit=crop&dpr=1 754w, https://images.theconversation.com/files/503330/original/file-20230105-16-knvjn1.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=530&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/503330/original/file-20230105-16-knvjn1.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=530&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">The TaxTrack app could allow even people at the grocery store to have a say in how their taxes are spent.</span>
<span class="attribution"><span class="source">THE CANADIAN PRESS/Graham Hughes</span></span>
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<p>Through the app, you’d be able to see how the many thousands of dollars in taxes that you’ve provided to the government are being spent. You might have strong disagreements with what has been funded, so you open the “spending controls” tab in the app and stipulate that your tax contributions are no longer to be spent on specific items. They should instead be used elsewhere.</p>
<p>There are potentially net positive public goods that could come from TaxTrack. Because public finance is often seen as the exclusive realm of trained economists, it tends to leave out any meaningful role for citizens to effectively participate. </p>
<p>Through TaxTrack, all taxpayers regardless of their income or education — and potentially even citizenship status — would have a way to become active participants. It could mean increased awareness, accountability and a greater interest in the activities of government.</p>
<h2>Reviving trust in governments</h2>
<p>Despite these potential benefits, governments may choose to restrict user controls or assign specific permissions to specific income brackets. Indeed, tax systems do not exist in a political vacuum. Users may even decide to pool their controls in bids to restrict or otherwise outmanoeuvre one or more spending authorities or other user groups. </p>
<p>This means that conversations need to take place concerning non-manipulative uses of the app, openly and transparently. One approach to this is a recurring citizens’ assembly on TaxTrack. Also, the collection of personal data needs to be protected.</p>
<p>But as people continue <a href="https://www.policymagazine.ca/canadas-growing-problem-with-trust-in-government/">to lose trust</a> in Canadian governments, we have an opportunity to broaden and deepen the practice of democracy through the TaxTrack model. </p>
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Read more:
<a href="https://theconversation.com/canadas-trust-divide-is-growing-and-that-could-spell-bad-news-for-the-future-185196">Canada's trust divide is growing, and that could spell bad news for the future</a>
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<p>Tax systems can transform political, social, environmental and economic relations within a country, and they can alter what a democratic future might look like and how we can get there together. What people want to spend their taxes on, or not, should directly reflect individual and collective choices, sets of values and hopes.</p><img src="https://counter.theconversation.com/content/197272/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Tax season is fast approaching, but there are limited opportunities for Canadians to influence how their taxes are spent. Here’s how a new innovation could lead to a more democratic tax system.Paul Emiljanowicz, Lecturer and Project Manager, McMaster UniversityJean-Paul Gagnon, Senior lecturer in democracy studies, University of CanberraNick Vlahos, Postdoctoral Fellow, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1969792022-12-21T18:42:24Z2022-12-21T18:42:24ZIs Donald Trump’s tax avoidance ethical or honorable? 4 essential reads<figure><img src="https://images.theconversation.com/files/502426/original/file-20221221-21-hy5n39.jpg?ixlib=rb-1.1.0&rect=535%2C329%2C5453%2C4239&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Is trying to pay zero taxes ok?</span> <span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/TrumpLegalTroubles/fffd6b35020448f0b19210b32b7a961f/photo?Query=trump%20tax&mediaType=photo&sortBy=arrivaldatetime:desc&dateRange=Anytime&totalCount=2949&currentItemNo=84">AP Photo/José Luis Villegas, Pool</a></span></figcaption></figure><p><em>The tax records of Donald Trump, <a href="https://www.reuters.com/world/us/trump-paid-no-income-tax-2020-reported-losses-office-records-show-2022-12-21/">details of which were released on Dec. 21, 2022</a>, show the former president <a href="https://www.bloomberg.com/news/articles/2022-12-21/jet-costs-sketchy-deductions-among-red-flags-in-trump-taxes?srnd=premium&sref=Hjm5biAW">used the same aggressive measures</a> to avoid paying high taxes while in office as he did during his business career. Indeed, he paid zero tax in 2020 – the last full year of his presidency – according to figures released by the House Ways and Means Committee in one of its last moves under Democratic control. The panel plans to release redacted versions of six years’ worth of tax returns soon.</em></p>
<p><em>The Conversation <a href="https://theconversation.com/us/search?q=trump+taxes&sort=relevancy&language=en&date=all&date_from=&date_to=">has been covering Trump’s taxes</a> since he <a href="https://www.politico.com/magazine/story/2019/06/14/donald-trump-campaign-announcement-tower-escalator-oral-history-227148/">began his run for the presidency in 2015</a>. These articles from our archive, all published in the run-up to the 2020 election, explore tax-paying ethics, problems with the U.S. tax code and why the working poor are audited almost as much as the rich.</em></p>
<h2>1. The honor of paying taxes</h2>
<p>Many wealthy Americans, including Trump, take great pains and spend a lot of money on accountants to minimize their tax bill, often by mining the tax code for loopholes or even filing fake tax returns. For some, <a href="https://www.ipi.org/ipi_issues/detail/tax-avoidance-is-patriotic">tax avoidance – which is different from illegal tax evasion – is even considered patriotic</a>, and rich people often boast paying little to no taxes. In contrast, ancient Athenians <a href="https://theconversation.com/only-the-richest-ancient-athenians-paid-taxes-and-they-bragged-about-it-147249">bragged about paying their taxes</a>, <a href="https://www.holycross.edu/academics/programs/classics/thomas-r-martin">Thomas Martin</a>, a professor of the classics at College of the Holy Cross, wrote in 2020. </p>
<p>“In ancient Athens, only the very wealthiest people paid direct taxes, and these went to fund the city-state’s most important national expenses – the navy and honors for the gods,” he explained. “While today it might sound astonishing, most of these top taxpayers not only paid happily, but also boasted about how much they paid.”</p>
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Read more:
<a href="https://theconversation.com/only-the-richest-ancient-athenians-paid-taxes-and-they-bragged-about-it-147249">Only the richest ancient Athenians paid taxes – and they bragged about it</a>
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<h2>2. The ethics of paying taxes</h2>
<p>Perhaps the well-to-do of Athens relished the prospect of paying their dues, but is it unethical to go out of your way to avoid them? </p>
<p><a href="https://scholar.google.com/citations?user=9wyT114AAAAJ&hl=en&oi=ao">Erin Bass</a>, who studies business ethics at the University of Nebraska, Omaha, <a href="https://theconversation.com/is-tax-avoidance-ethical-asking-for-a-friend-147967">addressed this question</a> from a philosophical perspective, exploring how different ethical thinkers would approach the topic. Deontologists like Immanuel Kant, utilitarians like John Stuart Mill and virtue ethicists like Aristotle all reach different conclusions about whether tax avoidance is ethical, Bass explained. </p>
<p>But she added: </p>
<blockquote>
<p>“When it comes to Trump and other public figures, there is an additional ethical concern at play here. Public leaders are evaluated not just on their own personal morality, but also by what influence their behaviors could have on others,” she wrote. “If a public leader avoids taxes, it might signal to the public to do the same, which could have greater consequences.”</p>
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Read more:
<a href="https://theconversation.com/is-tax-avoidance-ethical-asking-for-a-friend-147967">Is tax avoidance ethical? Asking for a friend</a>
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<h2>3. What’s wrong with the US tax code?</h2>
<p>While some say that Trump and others are smart for minimizing their taxes, critics say they’re amoral tax cheats.</p>
<p>To <a href="https://scholar.google.com/citations?hl=en&user=rmtYVssAAAAJ">Gary Winslett</a>, an assistant professor of political science at Middlebury, “it reveals just how much is wrong with the U.S. tax code, which Congress treats as a sort of policy Swiss Army knife to deal with innumerable desired social and economic policy goals, from homeownership to protecting the Maine blueberry industry.”</p>
<p>This has <a href="https://theconversation.com/trumps-ultra-low-tax-bills-are-what-happens-when-government-tries-to-make-policy-through-the-tax-code-147342">made the U.S. income tax system very complicated</a> for regular taxpayers. It led to the many loopholes and other means by which the wealthy can reduce their tax payments to levels others find unfair.</p>
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Read more:
<a href="https://theconversation.com/trumps-ultra-low-tax-bills-are-what-happens-when-government-tries-to-make-policy-through-the-tax-code-147342">Trump's ultra-low tax bills are what happens when government tries to make policy through the tax code</a>
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<h2>4. Auditing the working poor</h2>
<p>Another finding of the House panel is that the IRS didn’t audit Trump’s tax returns during the first two years of his presidency, even though it was required to do so. </p>
<p>This raises an important point: Although audits are often seen as mainly targeting the rich, the reality is the <a href="https://theconversation.com/trumps-decade-old-audit-illustrates-why-the-irs-targets-the-working-poor-as-much-as-the-rich-147313">working poor are audited at rates almost as high</a>, explained <a href="https://law.richmond.edu/faculty/hholdern/">Hayes Holderness</a>, an assistant professor of law at the University of Richmond. </p>
<p>“The IRS’s limited resources mean that auditors end up focusing their attention on cases with more straightforward issues and more accessible information,” he wrote. “That’s why lower-income individuals receiving the earned income tax credit were audited at a 1.2% rate in 2016, the most current year of mostly complete data, comparable to the audit rate of roughly 1.5% for individuals earning over $500,000.”</p>
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Read more:
<a href="https://theconversation.com/trumps-decade-old-audit-illustrates-why-the-irs-targets-the-working-poor-as-much-as-the-rich-147313">Trump's decade-old audit illustrates why the IRS targets the working poor as much as the rich</a>
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<img src="https://counter.theconversation.com/content/196979/count.gif" alt="The Conversation" width="1" height="1" />
A House committee released details of Trump’s tax returns from his time in office – and they show he paid zilch in 2020.Bryan Keogh, Managing EditorLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1911472022-10-04T17:41:18Z2022-10-04T17:41:18ZA provincial sales tax is the solution to Alberta’s fiscal roller-coaster<figure><img src="https://images.theconversation.com/files/486893/original/file-20220927-18-aal63q.jpg?ixlib=rb-1.1.0&rect=29%2C0%2C6580%2C4469&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Alberta Premier Jason Kenney and Minister of Finance Jason Nixon, then Minister of Environment and Parks, chat before the throne speech is delivered in Edmonton in May 2019.</span> <span class="attribution"><span class="source">THE CANADIAN PRESS/Jason Franson</span></span></figcaption></figure><iframe style="width: 100%; height: 100px; border: none; position: relative; z-index: 1;" allowtransparency="" allow="clipboard-read; clipboard-write" src="https://narrations.ad-auris.com/widget/the-conversation-canada/a-provincial-sales-tax-is-the-solution-to-alberta-s-fiscal-roller-coaster" width="100%" height="400"></iframe>
<p>With <a href="https://www.thestar.com/news/canada/2022/06/14/to-be-held-oct-6-alberta-ucp-announces-rules-for-contest-to-replace-leader-premier.html">a new Alberta premier taking office in October</a> and <a href="https://www.elections.ab.ca/elections/albertas-next-election/">a general election required by the end of May 2023</a>, fiscal policy may become a wedge issue between Alberta’s United Conservative Party and the NDP.</p>
<p>A key issue for analysts who study Alberta’s finances is the erratic behaviour of the province’s revenue stream, which is heavily tied to the price of oil. In the past year, Alberta’s finances have gone from a projected <a href="https://open.alberta.ca/dataset/6f47f49d-d79e-4298-9450-08a61a6c57b2/resource/ec1d42ee-ecca-48a9-b450-6b18352b58d3/download/budget-2021-fiscal-plan-2021-24.pdf">$18.2 billion deficit</a> to a <a href="https://www.alberta.ca/government-and-ministry-annual-reports.aspx#21-22">$3.9 billion</a> surplus. This happy result is almost entirely due to <a href="https://www.reuters.com/business/energy/alberta-ends-2021-22-with-surprise-c39-bln-surplus-higher-oil-prices-2022-06-28/">surging bitumen royalties as oil prices have risen dramatically</a>. </p>
<p>This is not an anomaly. Since 1965, <a href="https://www.policyschool.ca/wp-content/uploads/2022/01/Provincial-Government-Budget-Data-January-2022.xlsx">all of Alberta’s surpluses have been attributed to resource royalties</a>. This effectively means that, since oil royalties make up a significant amount of government revenues, Albertans have only been paying 50 to 95 per cent of the full cost of public services. Albertans have become so used to these royalties keeping taxes down that they oppose any and all mentions of a provincial sales tax.</p>
<h2>The ‘Alberta tax advantage’</h2>
<p>Alberta prides itself on being the only Canadian province without a provincial sales tax, relying instead on its bitumen revenues. Known as the “<a href="https://www.alberta.ca/alberta-tax-advantage.aspx">Alberta tax advantage</a>,” this attitude can be traced back to 1936 when a new Social Credit government <a href="https://docs.assembly.ab.ca/LADDAR_files/docs/bills/bill/legislature_8/session_1/19360206_bill-107.pdf">introduced a two per cent sales tax</a> recommended by a taxation commission. </p>
<p>Albertans were not happy with the new tax, and the government backed off collecting the tax after a year and a half. Shortly after the tax was introduced, Alberta <a href="https://www.uap.ualberta.ca/titles/208-9780888643063-politics-and-public-debt">defaulted on its debt</a> — a default that lasted nearly a decade. The default exposed huge fissures in the structure of provincial finances. </p>
<p>Albertans, overly dependent on the fortunes of wheat prices in the 1920s and 1930s, wanted all types of public infrastructure — roads, telephone systems, irrigation channels — but even in financially good times, would resist any efforts to raise taxes to pay for public works.</p>
<figure class="align-center ">
<img alt="An oil pumpjack sits in the foreground of a large hay field" src="https://images.theconversation.com/files/486628/original/file-20220926-17-ikb2mz.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/486628/original/file-20220926-17-ikb2mz.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=370&fit=crop&dpr=1 600w, https://images.theconversation.com/files/486628/original/file-20220926-17-ikb2mz.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=370&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/486628/original/file-20220926-17-ikb2mz.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=370&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/486628/original/file-20220926-17-ikb2mz.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=465&fit=crop&dpr=1 754w, https://images.theconversation.com/files/486628/original/file-20220926-17-ikb2mz.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=465&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/486628/original/file-20220926-17-ikb2mz.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=465&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">The Alberta government relies heavily on fiscally volatile energy prices for most of its revenue.</span>
<span class="attribution"><span class="source">THE CANADIAN PRESS/Jeff McIntosh</span></span>
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<p>A book I recently edited <a href="https://doi.org/10.15215/aupress/9781771992978.01">about the possibility of a provincial sales tax in Alberta</a> illustrates how pervasive this attitude still is. Many Alberta politicians are hesitant to even utter the words “provincial sales tax” for fear of backlash from citizens and politicians alike. </p>
<h2>Political suicide tax</h2>
<p>As political journalist Graham Thomson documents in the book, numerous provincial finance ministers have mused about considering a provincial sales tax. Each time, the minister was directed by their premier to repudiate these musings and confirm that Alberta would not impose a provincial sales tax. </p>
<p>The fear around a sales tax is so great that PST is known by another term in Alberta — <a href="https://www.reddeeradvocate.com/news/pst-stands-for-political-suicide-tax/">political suicide tax</a>. Alberta politicians fear that advocacy, or even consideration, of a sales tax as part of their electoral platforms would result in defeat.</p>
<p>A recent Twitter argument between UCP competitors exemplifies how true this still is. </p>
<p>In July, some UCP leaders campaign researchers uncovered a <a href="https://edmontonjournal.com/opinion/columnists/smith-alberta-is-a-financial-disgrace-we-need-to-hit-the-reset-button">controversial column</a> written by UCP front-runner Danielle Smith in September 2020 that advocated a five per cent sales tax. This column, which emerged only mid-way in the UCP leadership campaign, resulted in Smith’s close competitors <a href="https://twitter.com/ToewsforAlberta/status/1548669019183616002?ref_src=twsrc%5Etfw%7Ctwcamp%5Etweetembed%7Ctwterm%5E1548669019183616002%7Ctwgr%5E59c2378878a6057129b96eb26496a261b0f7c18d%7Ctwcon%5Es1_&ref_url=http%3A%2F%2Fabpolecon.ca%2F2022%2F07%2F30%2Fa-sales-tax-for-alberta-and-the-ucp-leadership-race%2F">Travis Toews</a> and <a href="https://twitter.com/BrianJeanAB/status/1549768108495327232?ref_src=twsrc%5Etfw%7Ctwcamp%5Etweetembed%7Ctwterm%5E1549768108495327232%7Ctwgr%5E59c2378878a6057129b96eb26496a261b0f7c18d%7Ctwcon%5Es1_&ref_url=http%3A%2F%2Fabpolecon.ca%2F2022%2F07%2F30%2Fa-sales-tax-for-alberta-and-the-ucp-leadership-race%2F">Brian Jean</a> attacking her on Twitter.</p>
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<p>Toews, a former minister of finance, claimed Albertans cannot afford a provincial sales tax. Alberta’s 2022 budget, which he had a hand in creating as a minister, shows that <a href="https://open.alberta.ca/publications/budget-2022">if Albertans paid taxes at Ontario rates, Alberta’s tax revenues would be $14.9 billion higher</a>.</p>
<p>Jean, who is the <a href="https://unitedconservativecaucus.ca/brian-jean/">MLA for the Fort McMurray-Lac La Biche electoral district</a>, took the opportunity to condemn Toews for supporting a sales tax. While Toews has not advocated for one, he said in 2020 <a href="https://edmontonjournal.com/news/politics/the-timing-is-the-question-here-alberta-finance-minister-says-he-would-consider-looking-at-a-pst-after-the-pandemic-further-spending-cuts">he would consider looking at a provincial sales tax after the pandemic</a>. This comment was enough for Jean to latch onto.</p>
<p>On the other side of the political divide, former NDP premier <a href="https://www.cbc.ca/news/canada/calgary/joe-ceci-budget-business-audience-commerce-chamber-calgary-1.3540524%20https://calgary.citynews.ca/video/2022/07/27/punches-thrown-in-first-ucp-leadership-debate/">Rachel Notley and her finance minister</a> also avoided discussion of a PST during their time in office. This tells us that Alberta politicians’ aversion to taxes is not a partisan issue, but a cultural one that is deeply ingrained in Albertan identity.</p>
<p>In light of this Twitter exchange, numerous tweets, many in favour of a sales tax, followed <a href="https://twitter.com/search?q=%23yestopst&src=typeahead_click">and a #yestopst</a> emerged. Despite this, <a href="https://calgaryherald.com/news/politics/younger-albertans-more-open-to-a-provincial-sales-tax-poll">opinion polling</a> shows only a minority of Albertans support such a tax.</p>
<h2>A more stable future</h2>
<p>As it stands, it’s highly doubtful that any of Alberta’s party platforms for next year’s general election will feature a provincial sales tax. Party unity has since been restored with denials and pledges to eschew a sales tax in the midst of more pressing issues, like <a href="https://edmontonjournal.com/news/politics/danielle-smith-releases-overview-of-proposed-alberta-sovereignty-act">Smith’s controversial Alberta Sovereignty Act</a>.</p>
<p>While Alberta’s politicians have seemingly abandoned hope of ever trying to raise taxes, the province’s unstable finances will eventually force them to contemplate a provincial sales tax. Oil prices are volatile, and Alberta relies heavily on them.</p>
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<em>
<strong>
Read more:
<a href="https://theconversation.com/alberta-budget-means-albertans-are-trapped-on-a-relentless-fiscal-rollercoaster-ride-177698">Alberta budget means Albertans are trapped on a relentless fiscal rollercoaster ride</a>
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<p>Since becoming a province, Alberta has been beholden to world commodity prices — wheat, oil, natural gas and bitumen. <a href="https://www.westernstandard.news/opinion/wagner-alberta-exceptionalism-and-a-distinct-political-culture/article_3b015cff-1130-51e0-a068-7d5fcf35bcd6.html">Alberta’s exceptionalism</a> has meant an addiction to public spending and aversion to taxes.</p>
<p>This contradiction has led to wild fluctuations in its fiscal position from <a href="https://www.nytimes.com/1936/04/02/archives/alberta-defaults-3200000-in-bonds-social-credit-province-first-in.html">bankruptcy in 1936</a> to <a href="http://abpolecon.ca/2016/06/27/credit-ratings/">triple A credit status as recently as 2016</a>. </p>
<p>Alberta will remain on a fiscal rollercoaster without a sales tax and Albertans will have little choice but to ride out any future storms as a result of oil-price whiplash. A sales tax — a tax that’s stable, <a href="https://doi.org/10.15215/aupress/9781771992978.01">easy to administer and costs less to collect than income taxes</a> — would provide Albertans with a better alternative. Both public and private sector workers deserve better than accepting the status quo of boom and bust.</p><img src="https://counter.theconversation.com/content/191147/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Robert L. Ascah does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>A sales tax — a tax that’s stable, easy to administer and costs less to collect than income taxes — would stabilize Alberta’s volatile roller-coaster economy.Robert L. Ascah, Research Fellow, The Parkland Institute, University of AlbertaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1911402022-09-26T17:24:54Z2022-09-26T17:24:54ZMini budget: how will tax cuts and stamp duty affect young adults?<figure><img src="https://images.theconversation.com/files/486497/original/file-20220926-6718-3ixjga.jpg?ixlib=rb-1.1.0&rect=57%2C74%2C5445%2C3588&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/young-darkskinned-man-woman-analyzing-their-577523986">Cast Of Thousands / Shutterstock</a></span></figcaption></figure><p>UK chancellor Kwasi Kwarteng has announced a <a href="https://theconversation.com/mini-budget-2022-experts-react-to-the-new-uk-governments-spending-and-tax-cut-plans-191274">series of measures</a> aimed at boosting the economy as the UK faces a recession and continued cost of living crisis. The budget is a political and economic gamble based on the logic that boosting consumption will bring investment and longer-term growth. </p>
<p>The new measures (mainly £45 billion in tax cuts, on top of an estimated £100 billion in <a href="https://www.itv.com/news/2022-09-05/who-will-pay-for-liz-trusss-100-billion-energy-bail-out">energy subsidies</a>) mean a gargantuan increase in government expenditure, funded by extra borrowing. This will result in a great deal more government debt passed on to future generations, but some of the policies will have a more urgent impact on young adults. </p>
<p>Sadly that’s not likely to include the bringing forward of a 1p cut to income tax, and reversing a planned 1.25p increase in national insurance contributions. The combined effect of these cuts will be most felt by the wealthiest people. <a href="https://www.ft.com/content/3a0c52cd-acbb-483c-a7ac-01fe7cd4e89e">The tax savings</a> on an income of £20,000 will only be as much as £218, while someone on £200,000 will be rewarded with a whopping £4,333 in tax cuts. In this example, ten times more income brings 20 times more in savings. </p>
<p>What could have more impact is the announcement of a discount on <a href="https://www.bbc.co.uk/news/business-53319433">stamp duty</a> (the tax paid when you buy a house), which could potentially help some first time buyers with small deposits to buy a property. For most aspiring homeowners however, this is not necessarily good news. The effect of the discount will be to keep house prices high, at least at first – not what you want when you’re trying to buy.</p>
<p>Rising mortgage interest rates, combined with less disposable income due to the cost of living crisis, would normally force house prices to fall. That’s especially true after a period of <a href="https://www.theguardian.com/business/2022/mar/07/uk-house-prices-rise-at-fastest-rate-in-15-years-says-halifax">steep jumps</a> in real estate prices. But the government doesn’t want that, and hopes the stamp duty cut will make it more appealing for people to buy houses. </p>
<p>Supporting real estate may also have the knock-on effect of fuelling demand for goods and services such as solicitors, estate agents, furniture, white goods and tradespeople. There is also the “wealth effect”: economists have long associated consumers’ perceived property wealth with their <a href="https://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1283.pdf">spending behaviour</a>. If you believe your house is worth a lot, you feel financially secure, allowing yourself to save less and spend more. </p>
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<figure class="align-right ">
<img alt="Quarter life, a series by The Conversation" src="https://images.theconversation.com/files/451343/original/file-20220310-13-1bj6csd.png?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/451343/original/file-20220310-13-1bj6csd.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=600&fit=crop&dpr=1 600w, https://images.theconversation.com/files/451343/original/file-20220310-13-1bj6csd.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=600&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/451343/original/file-20220310-13-1bj6csd.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=600&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/451343/original/file-20220310-13-1bj6csd.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=754&fit=crop&dpr=1 754w, https://images.theconversation.com/files/451343/original/file-20220310-13-1bj6csd.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=754&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/451343/original/file-20220310-13-1bj6csd.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=754&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<p><em><strong><a href="https://theconversation.com/uk/topics/quarter-life-117947?utm_source=TCUK&utm_medium=linkback&utm_campaign=UK+YP2022&utm_content=InArticleTop">This article is part of Quarter Life</a></strong>, a series about issues affecting those of us in our twenties and thirties. From the challenges of beginning a career and taking care of our mental health, to the excitement of starting a family, adopting a pet or just making friends as an adult. The articles in this series explore the questions and bring answers as we navigate this turbulent period of life.</em></p>
<p><em>You may be interested in:</em></p>
<p><em><a href="https://theconversation.com/quiet-quitting-is-a-new-name-for-an-old-method-of-industrial-action-189752?utm_source=TCUK&utm_medium=linkback&utm_campaign=UK+YP2022&utm_content=InArticleTop">Quiet quitting is a new name for an old method of industrial action</a></em></p>
<p><em><a href="https://theconversation.com/hope-from-despair-how-young-people-are-taking-action-to-make-things-better-184859?utm_source=TCUK&utm_medium=linkback&utm_campaign=UK+YP2022&utm_content=InArticleTop">Hope from despair: how young people are taking action to make things better</a></em></p>
<p><em><a href="https://theconversation.com/how-to-spend-time-wisely-what-young-people-can-learn-from-retirees-189340?utm_source=TCUK&utm_medium=linkback&utm_campaign=UK+YP2022&utm_content=InArticleTop">How to spend time wisely – what young people can learn from retirees</a></em></p>
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<p>It’s possible that despite the stamp duty cut, house prices will <a href="https://www.telegraph.co.uk/money/consumer-affairs/why-stamp-duty-cut-wont-stop-catastrophic-house-price-crash/">ultimately fall anyway</a>. Knocking off £3,000 on the cost of buying a house will not offset the combined impact of higher energy prices, food costs and of course, interest rates. There will always be more buyers than sellers for quality UK properties, but now each buyer will be armed with smaller mortgages. This could be an opportunity for a first-time buyer. </p>
<p>But it could also hurt renters, as landlords pass on the additional costs of higher interest rates and remortgaging to their tenants. <a href="https://www.estateagenttoday.co.uk/features/2019/7/theresa-mays-legacy-how-has-housing-fared-under-her-government">Past Conservative governments</a> also increased some of the taxes that landlords pay on rental income. These factors have already contributed to steep <a href="https://www.theguardian.com/business/2022/jul/14/private-rents-in-uk-reach-record-highs-with-20-rises-in-manchester">increases in rents</a>, up to 20% in some areas. </p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/cost-of-living-crisis-what-are-your-rights-if-your-landlord-wants-to-increase-your-rent-189089">Cost of living crisis: what are your rights if your landlord wants to increase your rent?</a>
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</em>
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<h2>Preparing for recession</h2>
<p>Liz Truss’s government is following an economic doctrine which argues that richer people are more likely to invest, set up businesses, hire people and grow the economy. But when this theory has been tested in the past, it hasn’t <a href="https://www.theguardian.com/politics/2022/sep/23/kwasi-kwarteng-tax-giveaway-huge-gamble">ended well</a>. Still, tax cuts are tax cuts, and the government’s gamble may pay off. They’ve also announced a freeze in alcohol duty – cheaper drinks over which to commiserate with friends. </p>
<figure class="align-center ">
<img alt="A red Monopoly house marker sitting on top of a pile of pound coins" src="https://images.theconversation.com/files/486503/original/file-20220926-14-mro6wx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/486503/original/file-20220926-14-mro6wx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/486503/original/file-20220926-14-mro6wx.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/486503/original/file-20220926-14-mro6wx.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/486503/original/file-20220926-14-mro6wx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/486503/original/file-20220926-14-mro6wx.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/486503/original/file-20220926-14-mro6wx.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">A cut to stamp duty will keep already-high house prices up.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/housing-cost-red-house-british-currency-642056404">Ink Drop / Shutterstock</a></span>
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<p>Unemployment currently <a href="https://www.ons.gov.uk/employmentandlabourmarket/peoplenotinwork/unemployment">stands at 3.6%</a>, a nearly 50-year low. Low unemployment means that companies are likely to compete for the best staff and more likely to offer better pay packages to their employees. Indeed, this year graduate salaries rose at the <a href="https://ise.org.uk/page/graduate-salaries-rise-at-fastest-rate-in-20-years">fastest rate</a> in the last 20 years.</p>
<p>However, it is also important to <a href="https://money.com/why-teachers-are-quitting-pandemic/">improve the quality</a> of existing jobs, protect the struggling UK public sector and build skills for younger people. This includes nurses and teachers, who have quit their jobs <a href="https://www.healthcaredive.com/news/nurse-burnout-covid-quit-travel-incredible-health/620488/">in droves</a>, and the <a href="https://www.tuc.org.uk/news/gig-economy-workforce-england-and-wales-has-almost-tripled-last-five-years-new-tuc-research">4.4 million</a> gig economy workers, most of them <a href="https://www.forbes.com/sites/eriksherman/2021/12/28/getting-a-better-view-of-gig-workers-younger-poorer-mostly-doing-it-on-the-side">young</a> and easier to exploit through lack of <a href="https://www.tuc.org.uk/blogs/poverty-pay-uk-millions-self-employed-earn-less-minimum-wage">pay</a>, pensions, holiday and sick pay.</p>
<h2>What you can do to protect yourself</h2>
<p>As interest rates rise, it makes sense to pay off or at least avoid taking on extra debt. If you’re applying for a new mortgage or remortgaging, fix the interest rate for at least two years if you can – interest rates will only get higher in the next few months and possibly beyond. By all means, chase a professional opportunity and seek a promotion or a pay rise, but perhaps hold off on switching jobs. With a recession coming, many employers may follow a “last in, first out” approach with their staff – you don’t want to be the first out. </p>
<p>If you have some cash in the bank, these can be good times. Interest you can earn on savings accounts is going up and even better deals are likely on the way. It can also be a good time to invest. Markets are falling hard and will continue to fall for as long as bad news outweighs the good. Inflation, rising interest rates, recession and panic can be unlikely friends, bringing you closer to a good deal in real estate or the stock market if you take a long-term view. </p>
<p>A good investment can multiply your money, but finding deals takes time and effort. Diversify your portfolio and avoid crypto and NFTs. People are more susceptible to making risky investments when they feel under economic pressure – people on lower incomes buy more lottery tickets than the rich. As interest rates rise, these investments will fall in value.</p><img src="https://counter.theconversation.com/content/191140/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Alexander Tziamalis does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>An economist explains what young people need to know about the mini budget, and how to protect yourself financially.Alexander Tziamalis, Senior Lecturer in Economics, Sheffield Hallam UniversityLicensed as Creative Commons – attribution, no derivatives.