Further Adventures in Dorkery: State Income Tax Edition
For many New Yorkers, as well as Americans who live in one of 40 other states with a personal income tax, the payment they make to their state government constitutes one of the largest purchases made during the year. For many wage earners, only the federal income tax, property taxes, and mortgage payments have an equally significant impact on their household budget.
But unlike a trip to the grocery store where every purchase is itemized and consumers know exactly what has been bought, “tax purchased” government services are often opaque. What exactly are we buying?
New York State’s 2011-2012 Executive Budget “Briefing Book” is 98 pages long, Agency Presentations total 471 pages, and the “Five Year Financial Plan” is a 385 page thicket of charts and acronyms. What does it mean for the average New Yorker that $78 million is spent on OPWDD Local Programs? Or that total spending on Medicaid - including federal matching funds - is proposed to be approximately $53 billion? At some point, budget figures climb beyond the range of normal comprehension. Relatively inexpensive programs weighing in at “tens of millions of dollars” begin to sound as ominous as the multi-billion dollar commitments. Making sense of government spending on such an out-sized scale is increasingly difficult.
Ignorance of programmatic spending has consequences. At the federal level, we know Americans vastly overestimate the amount of money spent on foreign aid and many believe that a quarter of the federal budget is dedicated to space exploration (the actual figure is less than 1%). Similar misconceptions exist on the state level. In response to Governor Cuomo’s budget proposal, one Newsday reader offered the new Governor a bit of advice: “How about end welfare and free handouts. It is time those that pay nothing, get nothing.” But direct cash benefits for the neediest - Family Assistance, Safety Net Assistance and SSI - make up only 1.8% of the state operating budget.
In response to this dilemma at the federal level, the Third Way followed the advice of fellow New York College Democrats alum Ethan Porter and popularized his proposal for a federal income tax receipt. “We suggest providing each taxpayer with a receipt that shows them exactly how their money is spent to the penny, ” they wrote. “Taxpayers could either receive a receipt online (if they file electronically) or through the mail that breaks down their tax bill and provides them the exact contribution they made towards twenty to thirty budget items of interest.”
I propose an analogous receipt for state income taxes. To my knowledge, California is the only state to offer a basic tax usage breakdown online, though the level of detail leaves something to be desired.
In hopes of further popularizing the concept - and perhaps goading someone with better programming skills into creating an interactive applet - I’ve created a draft receipt for NYS taxpayers. The numbers are derived from Gov. Andrew Cuomo’s 2011-2012 Proposed Budget. The methodology is simple:
- The average tax liability per taxable full-year NYS resident return is about $5,300, but the median is lower. I chose $3000 as a typical liability for a middle-income New Yorker.
- The $3000 liability is multiplied by the proportion of the state operating spending allocated to each major program area. Though the total proposed budget is roughly $133 billion, I excluded the portion funded by federal dollars from this analysis.
A limitation of this method is its equal application of the personal income tax to all areas of the operating budget. In reality, the proceeds of the sales tax ($11.5 billion), cigarette taxes ($1.7 billion), and other user fees (auto-rental fee, taxicab surcharge, gas tax) are often earmarked toward a particular spending area. (On the other hand, money is fungible, so perhaps its not a terrible method.)
I hope this work generates debate, both about the spending choices made by state governments and the ways in which those choices can be made more transparent to taxpayers.