Monday, June 16, 2014

Monday Morning Links

Miscellaneous material to start your week.

- Katie Allen discusses the Equality Trust's research into tax rates in the UK - which shows that the poor actually pay the highest share of their income in taxes, even as the public has been led to believe the opposite:
The poorest 10% of households pay eight percentage points more of their income in all taxes than the richest – 43% compared to 35%, according to a report from the Equality Trust.

The thinktank highlights what it sees as a gulf between perceptions of the tax system and reality. Its poll, conducted with Ipsos Mori found that nearly seven in ten people believe that households in the highest 10% income group pay more of their income in tax than those in the lowest 10%.

The survey of more than 1,000 people also found a strong majority – 96% – believe that the tax system should be more progressive than is currently the case.
- But then, the poor can hardly afford to match the constant PR offensive put on by the corporate elite to demand preferential treatment. Which leads to Maria Konnikova's observation that poverty presents far more obstacles that a lack of money alone:
When we think of poverty, we tend to think about money in isolation: How much does she earn? Is that above or below the poverty line? But the financial part of the equation may not be the single most important factor. “The biggest mistake we make about scarcity,” Sendhil Mullainathan, an economist at Harvard who is a co-author of the book “Scarcity: Why Having Too Little Means So Much,” tells me, “is we view it as a physical phenomenon. It’s not.”

“There are three types of poverty,” he says. “There’s money poverty, there’s time poverty, and there’s bandwidth poverty.” The first is the type we typically associate with the word. The second occurs when the time debt of the sort I incurred starts to pile up.

And the third is the type of attention shortage that is fed by the other two: If I’m focused on the immediate deadline, I don’t have the cognitive resources to spend on mundane tasks or later deadlines. If I’m short on money, I can’t stop thinking about today’s expenses — never mind those in the future. In both cases, I end up making decisions that leave me worse off because I lack the ability to focus properly on anything other than what’s staring me in the face right now, at this exact moment.
(T)he most unfair aspect of the whole thing is that the bandwidth tax doesn’t affect everyone equally. If you aren’t your fully strategic self all the time, so be it. If I miss one deadline — or even two — it’s far from the end of the world. But if I’m also poor in the traditional sense? Suddenly, the lack of time has a nonlinear, compounding effect: My bandwidth isn’t just a bit more taxed. The tax is completely off the charts, and I have little recourse to repair the damage.
The poor are under a deadline that never lifts, pressure that can’t be relieved. If I am poor, I work or I churn until decisions like buying lottery tickets begin to seem like attractive alternatives. I lack the time to calculate the odds and think of alternative uses for my money.
If poverty is about time and mental bandwidth as well as money, how does this change how we combat its effects? “When we think about programs for the poor, we don’t ever think, hey, let’s give them programs that don’t use a lot of bandwidth,” says Mr. Mullainathan. Instead, we fault people for failing to sign up for programs that are ostensibly available, even though we don’t factor in the time and cognitive capacity they need to get past even the first step.
- Conversely, an excess of concentrated money tends to beget brand-new ways of distorting the economy. And Janet McFarland reports on a study by Michael Wolfson, Mike Veall and Neil Brooks which finds that past measures likely underestimate inequality in Canada by failing to take into account money funneled through privately-held corporations:
Using data that includes CCPCs changes the picture of Canada’s top income earners because these are the people most likely to set them up. Only 5 per cent of people in the bottom half of income earners own a stake in a CCPC, and the study shows that, over the past decade, up to 80 per cent of those in the top 0.01 per cent of income earners owned a stake in a CCPC. Some people own stakes in four or more CCPCs, the report shows.

CCPCs are typically used to hold a private business, so they could be created by the owner of a store or restaurant to incorporate the business. Dr. Wolfson said they are also legally used by doctors, lawyers, accountants and other professionals as a way to incorporate their business activities, allowing the corporation to be paid income rather than having the individuals paid in the form of salaries.

There can be many advantages to having income go into a corporation rather than receiving it as a salary, including the ability to defer income, split income with a spouse, and reduce capital gains tax.
Researchers have long found it difficult to measure income for top earners and that has led to an inaccurate picture of the degree of income inequality between the rich and the poor. Including CCPCs has given a better portrait of high income earners and revealed the sizeable impact of these private holdings.

The report shows that income for the top 10 per cent of earners increased an average of 16 per cent when CCPCs were included in the income data. The increase was even more dramatic for those in the top 0.1 per cent. Their average income rose to $2.1-million when CCPCs were taken into account, compared with $1.3-million if CCPCs were excluded. That’s a difference of 55 per cent.
- Shannon Gormley comments on how the Harper Cons' paranoia is leading Canada toward a policy of citizenship-stripping normally applied by only the world's worst human-rights abusers.

- Finally, Alice Funke provides a thorough review of what actually happened in Ontario's provincial election.

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