April reigns in taxes

Over the years, April has become synonymous with matters of taxation.

Arkansas became the 29th state (of the requisite 36) to ratify the federal income-tax amendment on April 22, 1911.

In April 1913, President Woodrow Wilson became the first president since John Adams to summon a special session of Congress to personally address tariff reform in light of the recently ratified 16th Amendment.

Since 1954, April 15 has been “Tax Day,” or the date by which federal income-tax returns are due to be filed.

Every year, the Tax Foundation calculates the total taxation burden of the average American from local, state and federal sources as a percentage of income.

It then applies that percentage to the calendar year, which determines how long the average citizen must work just to pay his taxes, and the date of economic emancipation after which his earnings are free for his own uses.

Tax Freedom Day this year fell on April 18 for the nation.

The date is also figured for each state, and this year Arkansas taxpayers enjoyed the distinction of having the 11th earliest Tax Freedom Day, which occurred on April 7.

If the federal deficit is included-$833 billion in 2013 that will have to be paid with future tax revenue-the national Tax Freedom Day is pushed back to May 9.

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Taxes are one of the two certainties in this world Benjamin Franklin mentioned in a letter in 1789, and just as certain any more are discussions of tax reform.

Taxation has taken on symbolic meaning, to the detriment of productive public discourse. Delving into tax data is a daunting task, and our system-which aggregates federal, state and local institutions and authorities-adds to the complexity of analysis and understanding.

The fine line between the simplistic and the fundamental is perhaps most easily blurred in discussions about taxes, and every April the subject is high on the minds of most Americans.

This year is no different, and with a staggering federal deficit hanging over our posterity like a spring thundercloud stretching beyond the future’s horizon, arguments over appropriate tax rates have drawn defining political lines.

Broad tax arguments are worthless without context, however. Who are “the rich?” What constitutes a “fair share?” And what “tax rates” are too high or too low?

Conservatives generally prefer lower tax rates, but unless that generality is properly qualified, it can turn conservatism on its head.

Historical perspective is often a great first foray into assessing policy options, and there is now a century’s worth of marginal-tax-rate data available for review.

A graduated rate system has been part of our tax code since the beginning, with the idea being that as incomes grow higher (and exceed thresholds for necessary expenses), the percentage of tax should increase as well.

It’s irresponsible to discuss tax rates without also discussing tax brackets, and it’s inaccurate to discuss brackets without factoring inflation in.

A common conservative claim has been that lower taxes stimulate the economy. There’s certainly evidence that the Reagan tax cuts helped produce boom times in the 1980s.

But it’s interesting to note that the national Tax Freedom Day during those years was later than it is now.

In fact, that barometer of tax burden seems to have almost no relation to marginal tax rates in the top brackets over time.

In 1950, for example, the top rate was a staggering 91 percent on incomes over $400,000, which is $3.15 million in today’s dollars. (The top-bracket “rich” as categorized in today’s brackets starts at an income of only $380,000.) But Tax Freedom Day in 1950 was March 31, three weeks earlier than now or the Reagan years.

By 1970, top rates had dropped, but so had the bracket floor, to 71.75 percent on $200,000 ($1.2 million today), and yet Tax Freedom Day was April 22, four days later than it is now.

Pro-taxers often quote Oliver Wendell Holmes about taxes being “the price we pay for civilization.”

At the time he wrote that in a 1927 Supreme Court opinion, Tax Freedom Day was in mid-February.

It’s impossible to say whether Holmes would make the same remark when the price has risen to nearly four months’ worth of labor, and civilization has eroded in certain social measures such as violent crime and illegitimacy.

Scaling back from national tax debates, a state curiosity involves Arkansas’ climb through the years in the state and local tax-burden rankings as a percentage of total income.

Thirty-five years ago, Arkansas ranked 49th in per capita income and 46th in tax burden.

In 2010, Arkansas ranked45th in per capita income, but 15th in state and local tax burden.

The broad meaning of that disparity is open to interpretation, but this much is clear: We have been willing to tax ourselves at a more sacrificial rate than many other states.

We should expect more for that sacrifice.

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Dana Kelley is a freelance writer from Jonesboro.