Why I Pay Too Much in Taxes

[Duncan Frissell]

Better late than never:

At 08:43 AM 5/7/96 -0400, Clay Olbon II wrote:
>There are a couple of main reasons that the poor spend more than their
>reported income.  First, many of the elderly are included in the "poorest
>20%", since this is based on income alone and not net worth.  Many of the
>elderly are spending down their retirement savings.

Also students living on loans, grants, and gifts.  Also members of the
retail pharmaceutical trade living on their markup.

>Another factor, of
>course, is that welfare, food stamps, free/subsidized housing and other
>transfer payments are not included in income calculations.  I have seen
>reports that show that in many states, this is equivalent to a full-time
>job paying ~$9/hr.

The Cato Institute Study.  AFDC+Food Stamps+Housing Assistance+Medicaid+WIC
= a fair chunk of change when compared to the taxed earnings from work.
Equivalent to the take-home pay from a $16/hour job in NYC (mostly because
of health insurance).  The commies complained that the study didn't account
for the fact that the working poor can also get food stamps and Earned
Income Tax Credit.  Of course, if you just establish the value of welfare
benefits, you are doing a lot.  

>Not showing these as income helps keep the "official"
>poverty rate high.  I'm not sure if social security is included in income
>calculations for "poverty rate" purposes, anyone know?

The poverty rate calculations (how many people below the poverty level?) do
not include SS or welfare cash or non-cash benefits.  Thus people are not as
poor as claimed even ignoring unreported income from legal and illegal
employment.

Adding everything up, we find that poor households spend twice what they
officially report taking in.  Hardly surprising since if one has a low
income, one unreported job in the household can double that income.  It is
also likely that a higher proportion of the income and assets of the poor
are not recorded (as against the rich) because most of the assets are
personalty rather than realty and they are less likely to be audited, etc.

So the level of income and asset inequality in America is less than you will
have heard.

DCF