What Economists Do

I found this on Greg Mankiw's blog and thought it was funny.

Adventures in Tax Land II

Actual conversation from the tax desk:
“I need a big refund this year. I really need money. What can you do?”

“Well, I see you only have a little bit of income on your W-2, and you didn’t have them take any withholding out of your check. Your income is actually below the Federal filing limit, so the good news is that you don’t owe any taxes. But since you didn’t pay anything in, you aren’t going to get a refund.”

“I got almost $1000 last year, and I need money even more now. That’s why I came to you. Why can’t you get me a refund?”

“Looking at last year’s return, I see you had unemployment compensation all the previous year, and the state withheld taxes. That’s what you got back. Did the unemployment run out last year?”

“Yeah. That’s why I need a refund. I have a friend who came here, and she got a big refund. Why can’t you do that for me?”

“Since you don’t have children, you have to pay more in withholding than you owe in taxes to get a refund.”

“So you’re saying I’m not going to get a check?”

The sense of entitlement is astonishing.

Making Ends Meet Via the IRS

People are always getting confused when I tell them that a lot of my tax preparation clients aren’t taxpayers. Instead, I classify them as taxfilers. The distinction comes from the reality that about 47% of American households do not pay income tax. Not only do they not pay into the Federal government, but they actually draw money out of the IRS. These are households that don’t pay taxes, but they sure do file, because otherwise you miss out on all that free government money.

The amount of money is significant, particularly when considered as a percentage of annual income. If you have two children, and earn $12,000 in wage income (pretty close to a full time job at minimum wage), the Federal government will give you $7000, or just over a third of your annual income.

Then you plug in the value of food stamps. The formulas are a little complicated, but in our example the annual benefit is around $5500 for a three person family, and $7000 for a family of four.

Using the family of four gives us earned income of $12,000, and total income of $26,000. So if you ever wonder how people make ends meet on a minimum wage job, the answer is that the 53% of us who pay taxes are picking up the slack.

GE's Superbowl Ads

Like a lot of other Americans, I watched the Superbowl last night. And like a lot of other Americans, I paid as much attention to the advertising as to the game.

Some of the ads were terrific, like the Doritos ads. I would rate some as a swing and a miss, like the Audi commercial featuring the vampires. Sure it was a cute concept, but if I'm going to spend over $35,000 buying an expensive imported sedan, I sure want more features than LED headlights. Sadly, no other selling point of the car was mentioned.

But the ads that had me scratching my head were the spots from General Electric. One was an ad featuring employees at a Schnectedy turbine factory talking about how they love their jobs. What was really weird about this ad is that 2/3's of the way through it morphs into a Budweiser ad.

The other GE ad was similar, featuring interior shots and voiceovers from employees of Appliance Park, where they build appliances. Mind you, this ad wasn't pushing GE appliances, it was pushing GE factories.

The two commercials totaled a minute and a half of running time, which means somebody at GE headquarters greenlighted spending $10.5 million of the shareholder's money on this boondoggle. I find this decision absolutely inexplicable. If you're selling beer, it makes a lot of sense to try and reach 100,000 million Americans at the same time. If you're selling power generation turbines, there has got to be a more cost efffective way to reach the 50 or 60 people who will be making that purchase this year than advertising on the Superbowl.

But really, these ads weren't even selling GE's products. They were selling the concept of General Electric itself. This kind of corporate image advertising belongs on the Sunday morning news shows, or maybe CNBC. But the Superbowl? I just don't get it.

For God's sake, next time but a dog into the commercial, okay.

What % Are You?

Here is a wonderful toy from the New York Times website. It is an interactive tool that tells you how high (or low) on the income distribution your household income places you. What I particularly like is that you can drill down geographically. So first, you get national ratings. Then you can go down to the state level, and even into local income distribution.

I'm doing better than I would have thought from the state of my bank account.