ACCT350, Assignment 3b
A. Complete Exercise 3-5, Problems 3-2, and Problem 3-3 from the back of the Chapter 3.
Note: When discussing sources of government funds, it is imperative that we see the big picture. Assignments 3b
and 3c will attempt to cover the context of government funding, including the philosophical underpinning. The
sources and extent of tax revenues and the size of governments are likely the most important overarching issues in
the upcoming election.
B. Refer the Tax Foundation’s calculation of Tax Freedom Day at http://www.taxfoundation.org/taxfreedomday/
1. (A) Define tax freedom day (TFD).
(B) On what day is TFD in the U.S. in 2016 (ignoring deficits)?
2. Complete the table below for 2016.
What Taxes Do We Pay?
Individual Income Taxes
Payroll Taxes
Sales/Excise Taxes
Corporate Income Taxes
Property Taxes
Estate, Inheritance & Other Taxes
TOTAL
Total
# of Days
3. Refer to the table above. Which of each type of tax is primarily paid to federal and/or state gov’ts?
4. T or F: Americans, on average, pay more for federal, state & local taxes than for housing, food and
clothing combined.
5. On what day is TFD in the U.S. in 2016, including deficits?
6. (A) When was TFD in 1900? In 2000?
(B) In what year did TFD occur the latest?
7. (A) When is TFD for residents of Washington State?
(B) Which state has the earliest and latest TFD?
(C) Why do you think TFD differs so much from state to state?
8. Do the math to determine whether this statement is true or false: Assuming Americans work an average of
8 hours a day, in 2016 they will work (on average) for 2.5 hours each day for the gov’t (i.e. to pay taxes).
Note: some cynics wonder how many hours gov’t employees themselves work for the gov’t each day.
Although many hard working government employees exist, some skeptics view government workers in
light of this link http://www.theabsurdreport.com/2008/government-snow-plow/ “The taxpayer: Someone
who works for the federal government but doesn't have to take the civil service examination.” - Ronald
Reagan
C. Go to Wikipedia’s Tax Freedom Day page at http://en.wikipedia.org/wiki/Tax_Freedom_Day and look at the
data for different countries.
1. Of the countries listed, how does the TFD of the following countries compare to the U.S: Canada?
Germany? Norway? (Hint: you can sort by clicking on column headers).
2. Why do you think TFD in Canada/Europe is longer than in the U.S.?
3. According to many scholars (e.g. economist Samuel Gregg), President Obama has tried to make the U.S.
more like Europe/Canada. Do you believe Bernie Sanders and Hillary Clinton also want the U.S. to be
more like Europe/Canada? Why or why not?
D. Refer to the information below and your internet research to answer these questions.
1. See Table A below.
(A) Rank the following Presidential candidates in the order of their political persuasion, starting with the
most “left” to the most “right”: John Kasich, Hillary Clinton, Ted Cruz, Bernie Sanders.
(B) Summarize the difference between a collectivist and an individualist. Are you closer to a collectivist
or an individualist?
2. See Table A below (specifically the section labeled “U.S. Individual Income Tax Stats”).
(A) In general, have the Top 1% income earners been getting richer or poorer over the last three decades?
What do you think has caused this?
(B) In 2013, what percent of the group’s share of income taxes was paid by the top 1% of income earners?
The top 10%? The top 25%? The bottom 50%?
(C) What trends exist over the years in the share of tax paid by the richest 1% and bottom 50%? Why do
you think these trends have occurred?
(D) (1) According the graph below, what percent of American tax filers pay no federal income tax? (2)
What percent of filers pay zero tax but get a refund (negative tax)? How can this occur?
http://dailysignal.com/2016/02/17/still-almost-half-of-us-residents-pay-no-federal-income-tax/
E. Refer to Table B below entitled “Summary of Federal Individual Income Tax Data, 2012”, which is derived
from the latest data published by the IRS
1. In 2012, what was the income level that split the top and bottom 50%?
2. What is the average tax rate for all taxpayers? (Hint: divide total taxes paid by total AGI).
3. Both Donald Trump and Hilary Clinton are likely in the top 1% of taxpayers according to income.
(a) What is the average tax rate for income earners in the top 1% and 5% categories?
(b) During the last Presidential election, it was revealed that Mitt Romney’s average tax rate was
approximately 16%? Why do you think his rate was so low?
F. The following questions explore the question of redistribution of wealth (non-exchange transaction.) Some of
the questions may require a little internet research to understand terms and concepts. Note that many students will
disagree about these issues, which is fine . . . but please disagree in an agreeable fashion.
1. How does a progressive tax differ from a regressive tax and flat tax?
2. Determine whether the following are generally progressive, regressive or flat: income tax, property tax,
sales tax, social security tax.
3. In your mind, what are the main arguments for and against a progressive tax structure? Recognize that at
one extreme is communism, where the redistribution of wealth is so complete that all comrades end up
with the same income (in theory). At the other extreme is pure capitalism in which individuals keep all that
they make.
4. How does the U.S. rank among major countries in the progressivity of the income tax structure? See
Graph C below.
5. See Illustration D below, which is a copy of the first U.S. income tax return. What was the top marginal
rate in 1913? (Hint: tax rates are at the bottom right).
6. See Graph E below. Has the progressivity of taxes generally increased or decreased over the last few
decades? What do you think as caused this?
7. Do you think the income tax structure is too progressive, just right, or not progressive enough? Why?
8. Are you generally in favor of consumption/user-fee based taxes (sales tax, fuel tax, etc.) or taxes that are
based on wealth (income or property taxes)? Why?
9. Do you agree or disagree with the quote below? Why? (Note: the quote is often attributed to Abraham
Lincoln, although he didn’t write it.)
“You cannot bring about prosperity by discouraging thrift. You cannot strengthen the weak by weakening
the strong. You cannot help the wage earner by pulling down the wage payer. You cannot further the
brotherhood of man by encouraging class hatred. You cannot help the poor by destroying the rich. You
cannot build character and courage by taking away a man’s initiative and independence. You cannot help
men permanently by doing for them what they could and should do for themselves.”
10. Read the parable at the end of this document (below) and write a personal opinion statement supporting or
refuting the redistribution of wealth. Include your thoughts on whether a Christian should view
redistribution of wealth any differently than a non-Christian.
NOTE: Be prepared for a short debate in class on Thursday regarding the redistribution of wealth.
Participation will be worth 10 points. Teams #1-6 will support the view that more redistribution of wealth
will create a better and more sustainable society (e.g. Bernie Sanders view). Teams #7-12 will support the
view that too much redistribution of wealth creates incentives/disincentives that harm society (e.g. Ted
Cruz’s view). You do not have to personally believe in the value of the side you argue but need to
advocate for it in the debate.
TABLE A
REDISTRIBUTION OF WEALTH
POLITICAL/ECONOMIC STRUCTURE
Communism
Socialism
Capitalism
Left
Right
Liberal/Progressive
Conservative
Equal outcome
Equal Opportunity
Solve problems together
Solve my own problems
(collectivism)
(individualism)
-- It takes a community to have a barn raising
-- “It takes a village to raise a child” – Hillary Clinton
-- “If you were successful, somebody along the line gave you some help
. . . if you've got a business, you didn't build that; somebody else made
that happen” --Barak Obama
-- “. . . individual actions, individual dreams, are not sufficient. We must
unite in collective action, build collective institutions and organizations”
– Barak Obama
-- Fundamental concepts of collectivism: social justice, the brotherhood
of man, public services, and collective rights (e.g. pro-unions, public
schools, public transportation, public services/benefits, public
healthcare, centralized power, United Nations, pro-redistribution of
wealth, etc.)
-- Collectivists are heavily found in urban areas
Buzz words: Social justice, economic equality, universal right to
housing/healthcare/education, tolerance/unity, love for everyone,
central control
-- A committee never invented anything and a group never painted a
Rembrandt. It was individualism, self-interest, personal responsibility,
and enterprise that settled new territories, built communities, established
industry, and fostered prosperity.
-- Out here a man settles his own problems – J. Wayne
-- Fundamental concepts of individualism: individual rights, personal
responsibility, and independence (e.g. anti-unions, procharter/private/home schools, pro private transportation, care for
yourself/family, private healthcare, distributed power, anti-United
Nations, anti-redistribution of wealth)
-- Individualism is particularly strong in rural areas
-- Interesting tidbit: pickup trucks rule the road in conservative states,
where people rely on themselves to get around and to move things.
Pick-trucks/capita is highest in conservative areas.
Buzz words: individual rights, individual responsibility, individual
freedom, self-discipline and self-interest, law of natural consequences,
decentralized (local) control
Progressive
Rich pay at a greater rate
TAX STRUCTURE – What is “fair”?
Flat
Same rate for everyone
U.S. Individual Income Tax Stats
Per the Internal Revenue Service
Percentage of Adjusted Gross Income Share (by income percentile):
Year
Total
Top 1%
Top 5%
Top 10%
1986
100.00
11.30
24.11
35.12
1990
100.00
14.00
27.62
38.77
1995
100.00
14.60
28.81
40.16
2000
100.00
20.81
35.30
46.01
2005
100.00
21.19
35.61
46.17
2010
100.00
18.87
33.78
45.17
2011
100.00
18.70
33.89
45.39
2012
100.00
21.86
36.84
47.87
2013
100.00
19.04
34.42
45.87
Conclusion: Rich are getting richer over the last few decades
Regressive
Poor pay at a greater rate
Top 25%
59.04
62.13
63.37
67.15
67.07
67.55
67.82
69.25
68.10
Top 50%
83.34
84.97
85.46
87.01
87.07
88.26
88.45
88.90
88.51
Total Income Tax Share (by income percentile):
Year
Total
Top 1%
Top 5%
Top 10%
Top 25%
Top 50%
1986
100.00
25.75
42.57
54.69
76.02
93.54
1990
100.00
25.13
43.64
55.36
77.02
94.19
1995
100.00
30.26
48.91
60.75
80.36
95.39
2000
100.00
37.42
56.47
67.33
84.01
96.09
2005
100.00
39.78
58.93
69.46
85.07
96.41
2010
100.00
37.38
59.07
70.62
87.11
97.64
2013
100.00
37.80
58.55
69.80
86.27
97.22
Conclusion: U.S. individual tax rates are very progressive. Almost half of U.S. taxfilers pay no income tax.
Two relevant studies to the debate over taxes. A 2008 report by the OECD found that the highest-earning 10% of the U.S.
taxpayers paid the largest share of taxes out of 24 countries. Another Congressional study showed that about half of U.S.
households paid no federal income taxes in 2009.
https://www.irs.gov/uac/SOI-Tax-Stats-Individual-Income-Tax-Rates-and-Tax-Shares
TABLE B
Summary of Federal Individual Income Tax Data, 2012
According to latest year of IRS data published at https://www.irs.gov/uac/Tax-Stats-2
http://taxfoundation.org/article/summary-latest-federal-income-tax-data-0
GRAPH C
ILLUSTRATION D
GRAPH E
QUOTES ON REDISTRIBUTION OF WEALTH
Supporting Redistribution:
The rich should contribute to the public expense, not only in proportion to their revenue, but something more than
in that proportion – Adam Smith (However, Smith also said: “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner,
but from their regard to their own interest. We address ourselves, not to their humanity, but to their self-love, and never talk to them of our own necessities, but of their
advantages.”)
Competition has been shown to be useful up to a certain point and no further, but cooperation, which is the thing
we must strive for today, begins where competition leaves off – Franklin D. Roosevelt
My attitude is that if the economy’s good for folks from the bottom up, it’s gonna be good for everybody ... I think
when you spread the wealth around, it’s good for everybody – Barak Obama
Jesus answered, “If you want to be perfect, go, sell your possessions and give to the poor, and you will have
treasure in heaven. Then come, follow me.” – Matthew 19:21 NIV (However, note that this type of redistribution is on a voluntary
individual level, not necessary at an involuntary, government level.)
Opposed to Redistribution:
You cannot bring about prosperity by discouraging thrift. You cannot strengthen the weak by weakening the
strong. You cannot help the wage earner by pulling down the wage payer. You cannot further the brotherhood of
man by encouraging class hatred. You cannot help the poor by destroying the rich. You cannot build character
and courage by taking away man's initiative and independence. You cannot help men permanently by doing for
them what they could and should do for themselves.-- these 7 “cannots” are attributed to Abraham Lincoln (but
some say this was actually written by William Boetcker who was a pamphlet writer around the time of Lincoln). In
any case, it does sound very “Lincolness.”
To take from one, because it is thought his own industry and that of his fathers has acquired too much, in order to
spare to others, who, or whose fathers, have not exercised equal industry and skill, is to violate arbitrarily the first
principle of association, the guarantee to everyone the free exercise of his industry and the fruits acquired by it. —
Thomas Jefferson
I predict future happiness for Americans if they can prevent the government from wasting the labors of the people
under the pretense of taking care of them — Thomas Jefferson
The republic will cease to exist when government takes from those who are industrious and gives to those who
refuse to work. – Thomas Jefferson
The moment the idea is admitted into society that property is not as sacred as the laws of God, and that there is not
a force of law and public justice to protect it, anarchy and tyranny commence. If ‘Thou shalt not covet’ and ‘Thou
shalt not steal’ were not commandments of Heaven, they must be made inviolable precepts in every society before
it can be civilized or made free — John Adams
I cannot undertake to lay my finger on that article of the Constitution which granted a right to Congress of
expending, on objects of benevolence, the money of their constituents — James Madison
When the people find that they can vote themselves money, that will herald the end of the republic — Benjamin
Franklin
I am for doing good to the poor, but I differ in opinion of the means. I think the best way of doing good to the poor,
is not making them easy in poverty, but leading or driving them out of it — Benjamin Franklin
The Constitution only gives people the right to pursue happiness. You have to catch it yourself — Benjamin
Franklin
Property is the fruit of labor. Property is desirable, is a positive good in the world. That some should be rich shows
that others may become rich, and hence is just encouragement to industry and enterprise -- Abraham Lincoln
Though the people support the government; the government should not support the people – Grover Cleveland
Attempts to redistribute wealth repeatedly leads to the redistribution of poverty. -- Thomas Sowell
If a man proposes to redistribute wealth, he means explicitly and necessarily that the wealth is his to distribute. If
he proposes it in the name of the government, then the wealth belongs to the government; if in the name of society,
then it belongs to society. No one, to my knowledge, did or could define a difference between that proposal and the
basic principle of communism. – Ayn Rand
When the war closed we were challenged with a peace-time choice between the American system of rugged
individualism and a European philosophy of diametrically opposed doctrines - doctrines of paternalism and state
socialism - Herbert Hoover
Thou shalt not covet thy neighbor’s house, thou shalt not covet thy neighbor’s wife, nor his manservant, nor his
maidservant, nor his ox, nor his ass, nor any thing that is thy neighbor’s. -- Exodus 20:17
That is not a just government … where the property which a man has in his personal safety and personal liberty, is
violated by arbitrary seizures of one class of citizens for the service of the rest. – James Madison
Let not him who is houseless pull down the house of another; but let him labor diligently and build one for himself,
thus by example assuring that his own shall be safe from violence when built. – Abraham Lincoln
A rising tide lifts all boats. – John F. Kenney
The problem with socialism is that you eventually run out of other people's money. – Margaret Thatcher
There's no such thing as a free lunch. – Milton Freidman
Socialism only works in two places: Heaven where they don't need it and hell where they already have it. -Ronald
Reagan
The most terrifying words in the English language are: I'm from the government and I'm here to help. -Ronald
Reagan
I have wondered at times about what the Ten Commandments would have looked like if Moses had run them
through the U.S. Congress. -Ronald Reagan
The taxpayer: Someone who works for the federal government but doesn't have to take the civil service
examination. - Ronald Reagan
Government is like a baby: An alimentary canal with a big appetite at one end and no sense of responsibility at the
other. - Ronald Reagan
The nearest thing to eternal life we will ever see on this earth is a government program. - Ronald Reagan
Government's view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps
moving, regulate it. And if it stops moving, subsidize it. - Ronald Reagan
Principles of Redistribution
1. You cannot legislate the poor into prosperity by legislating the wealthy out of prosperity.
2. What one person receives without working for, another person must work for without receiving.
3. The government cannot give to anybody anything that the government does not first take from somebody else.
4. You cannot multiply wealth by dividing it.
5. When half of the people get the idea that they do not have to work because the other half is going to take care of
them, and when the other half gets the idea that it does no good to work because somebody else is going to get
what they work for, that is the beginning of the end of any nation.
Milton Freidman’s four categories of spending money: (these explain why it is so hard for governments to rein in
spending)
1. You can spend your own money on yourself, in which case you are usually quite careful and accountable.
2. You can spend your own money on someone else (e.g. charitable donation), in which case you are usually
careful to ensure you’re not pouring money down a black hole.
3. You can spend someone else’s money on yourself (e.g. company expense report), in which case the level of
carefulness and accountability deteriorates rapidly (as evidenced by a significant padding of company expense reports).
4. You can spend someone else’s money on someone else (e.g. government redistribution of wealth). This last
category is the most insidious of all, because of the extreme lack of accountability and carefulness. It is so easy to
please your constituents by spending money on them (who doesn’t like Santa Claus?), but it is just as easy to forget
that those funds came from the hard work of someone else. Most of what politicians do today involves talking to
lobbyists and others about using other people’s money for someone else.
PARABLE ON WEALTH REDISTRIBUTION
On the first day of class, the law professor faced a sea of expectant students in the large lecture hall at American
University. He began by emphasizing the importance of the syllabus as a contract governing the course objectives
and evaluation.
“Because the syllabus is such an important contract,” he said, “at the end of class today you will all vote each of its
provisions up or down.”
The students only half-listened as the professor reviewed the course description and objectives. But their ears
perked up when he got to the part about course evaluation.
“We are going to do something different in the course this time around,” he said.
“Instead of your grades reflecting your individual efforts, at the end of the term we will give everyone the exact
same grade, a grade of ‘B.’ Each of you will get a ‘B’ regardless of your ability, how hard you work, or how well
you do in on the exams. Since some of you came into this course better prepared to succeed than others, this
creates an unfair advantage right from the starting line. Therefore, it is only right and proper that at the end of the
term, we take away points from those at the top of the class and redistribute them to those at the bottom, so that the
grade more equitably evaluates your overall performance as a group.”
“Now, are we ready to vote on this provision?” he said.
The professor was pleasantly surprised when over half the class voted “yes.” One student piped up and said he
thought it was “absolutely awesome” that he was guaranteed a “B” since that meant he could “relax, man” and not
have to “sweat it.” He indicated that taking exams “like totally” stressed him out and gave him migraines, so he
was quite relieved that he didn’t have to “take no exams.”
The professor noticed a disturbance in the back of the room as several students started to stuff their textbooks and
notebooks into their backpacks. As these students stood to go, the professor demanded to know why they were
leaving class early.
One of them responded over his shoulder: “Sorry, Professor, but we’ve decided to drop this class and take it
instead at another university, where our grade reflects our performance. We believe in equal opportunity but not
equal outcome.”
Question: Does everyone in this country have equal opportunity? Would you agree that education is the great
equalizer?
One View on How Socialism Works (or doesn’t work)
US Debt to the Penny
http://www.treasurydirect.gov/NP/BPDLogin?application=np
www.usdebtclock.org
US Debt Graph
http://research.stlouisfed.org/fred2/categories/5
US Debt Clock
http://www.usdebtclock.org/
Gov’t Snow Plow
http://www.theabsurdreport.com/2008/government-snow-plow/