By Marjorie E. Kornhauser
The Washington Post 

People don't like paying taxes. That's because they don't understand them.

 


For the past few years, I’ve sat in New Orleans high school classrooms watching students debate the fairest way for government to raise revenue. They role-play - first as management consultants advising legislators; then as lawmakers, weighing what to tax: property vs. sales vs. income. Are there limits on what or who can be taxed? Is a flat tax or a progressive rate structure fairer? Sometimes their discussions are heated.

These teenagers, however, have an edge that many adults don’t: basic tax literacy. Guided by Tulane law students, the high schoolers explore different philosophies and methods of taxation through TaxJazz, a program I began in 2013. Students who take the week-long course study issues of fairness and technical matters such as bases and rate structures. They examine key concepts such as the difference between marginal rates (the percentage of tax paid on the last dollar of income) and effective rates (the average percentage of tax paid). They learn that narrower tax bases, such as sales tax, need higher rates than broader bases, such as income taxes, to raise equivalent amounts of revenue. They discover that changing the method of taxation increases how much some taxpayers owe and decreases that amount for others.


If more people knew what these students know, we’d have a far more reasonable tax debate and better tax laws.

As Tax Day approaches (April 18 this year), many of us bemoan our tax bills coming due. Why is taxation such a charged issue? Many Americans are fuzzy on who and what are taxed and the reasons we pay taxes at all. A year ago, 57 percent of Americans polled told Gallup they pay “too much” in federal income taxes; note, though, that 45 percent of Americans pay no federal income taxes at all. We fight about taxes because we disagree about what is fair and what government should do. If we knew more, we’d still have disagreements, but at least our discussions would be more rational and produce more coherent policies. Tax law can be complex, but if high school students can get a handle on the basics, so can the adults who choose the politicians who implement it.


Is a flat or a progressive tax fairer? It depends on your sense of justice -- but before you can even answer that question, you need to know how each mechanism works. So students learn that the relative tax burden on individuals depends on which tax base is used. Sales taxes place a higher burden on lower-income people because lower income taxpayers generally spend a greater percentage of their income than higher income taxpayers do. A flat income tax is easy to understand: You pay a certain percentage of your income, no matter how much you make. With a progressive income tax, escalating rates apply as income increases. For example, if a married couple had $52,000 of taxable income in 2016, the return they file this year will show a tax liability of $6,872.50 (assuming no tax credits). They will pay 10 percent on their first $18,550 and 15 percent on the rest of their taxable income. Their marginal rate is 15 percent, but their effective, or average, tax rate is 13.2 percent.


Real-world discussions often occur in a tax-ignorant universe. Many people -- including some politicians -- incorrectly say that the IRS, not Congress, writes federal tax laws. They say that some taxation is needed to pay for the government but that it should be lower and “fairer.” An astonishing number don’t realize that they already get tax breaks for many things they want, such as education, housing and child care. Often they state that we should lower the income tax rate to a number that is actually higher than the current top rate. Some have no idea what rate they pay or whether they’ve benefited from a tax cut.


Unfamiliarity with tax basics is harmful. At the individual level, people may pay more than necessary when they don’t know about deductions and credits that can reduce their burden. At the local, state and national levels, lack of tax knowledge hampers the promulgation of rational laws that could help spur the economy and lead to prudent budgets. A tax-literate electorate could demand that politicians provide coherent tax policy options.

To be tax literate, citizens should understand that taxes are not just numbers and abstract principles, and they are not arbitrary. “Taxation is an art and a technique as well as science,” said Harold M. Groves, an economics professor who was a Wisconsin state legislator in the 1930s, “and it always needs to be judged against the conditions of time and place.”

How can more Americans become tax knowledgeable? The first step, of course, is to include more discussion of taxes in schools -- not just in high school and college, but even elementary school. This is no less important than the financial-literacy programs many schools now incorporate into their curriculums.

Without tax knowledge, voters enable politicians who spout inflammatory, empty rhetoric and perpetuate counterproductive, unfair tax policies. Democracies need informed voters to function properly. The cost of tax ignorance is too high.

Marjorie E. Kornhauser is the John E. Koerner professor of law at Tulane University Law School.

 

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