Category Archives: taxes

The Health Benefits of COVID Lockdowns and Soda Taxes?

How has the coronavirus lockdowns affected soda consumption?

With the onset of the coronavirus pandemic in March 2020, we set aside our project evaluating the ongoing impact of Philadelphia's controversial soda tax. But now, we can tap our established data sources and use the city's beverage tax collection data to see how the consumption of taxed beverages changed in Philadelphia in response to the lockdown measures state and local politicians imposed on its residents and businesses.

The following chart illustrates Philadelphia's monthly tax revenues from its soda tax and reveals what we found in comparing the period from January 2017 through February 2020 with the coronavirus lockdown recession period of March 2020 through December 2020.

Pennsylvania imposed its first statewide coronavirus lockdown on 17 March 2020. In the "before" period, the city of Philadelphia collected an average of $6,424,887 per month from its controversial soda tax.

But from March 2020 through December 2020, the city's monthly tax revenue from the Philadelphia Beverage tax dropped by 13.3% to an average of $5,570,658 per month.

This is where we decided to have some fun with a "what if" analysis. According to Harvard's soda tax advocates, a $0.01 per ounce tax increase on beverages would increase prices of taxed beverages by 16.3%, causing soda consumption to fall by 20%. The advocates believe the resulting reduction in soda consumption provides health benefits in the form of the reduced incidence of obesity and diabetes.

The 13.3% reduction in Philadelphia's soda tax collections represents the amount by which Pennsylvania's coronavirus lockdown restrictions have reduced soda consumption in the city. Going by the Harvard researchers' study, the coronavirus lockdown recession has provided the health benefits of the equivalent of an additional $0.00665 per ounce increase in the Philadelphia Beverage Tax, reducing the incidence of both obesity and diabetes in Philadelphia.

Does anyone really believe that happened in Philadelphia during the coronavirus pandemic?

References

City of Philadelphia. Department of Revenue. City Monthly Revenue Collections. [Online Database]. Accessed 19 March 2021.

Harvard T.H. Chan School of Public Health CHOICES (CHildhood Obesity Intervention Cost-Effectiveness Study) Project. Brief: Cost-Effectiveness of a Sugar-Sweetened Beverage Excise Tax in 15 U.S. Cities [PDF Document]. 12 December 2016.

Your Paycheck in 2021

Magnus Kettner: Puzzled - Winslow Mail, 6 March 2020, via Library of Congress

Happy 2021! As we officially put 2020 behind us, it's time to look forward to puzzle out what your paycheck will look like this year after the U.S. government has bitten off a chunk from it.

We're starting with the assumption that a significant number of Americans haven't filed new W-4 tax witholding forms to take advantage of the simpler withholding rules that took effect in 2020. If that situation applies for you, our 2021 tool can accommodate your situation, but you will likely find the newer rules let you keep more of the money you earned from working. Better still, you can use our tool to test drive how your paycheck would change if you did file a new W-4 with your employer.

This year's tool is also set up to capture any big changes you may have made in your job. Is this the year that you'll crank up how much money you might invest in a pre-tax 401(k) retirement account at work? Does your employer offer health or dependent care pre-tax flexible spending accounts that you might use this year? What if you get a raise sometime during the year?

Our 2021 paycheck tool can help you find out how the answers to these questions can affect your paycheck and more! If you're reading this article on a site that republishes our RSS news feed, please click through to our site to access a working version of the tool. Otherwise, just start entering whatever numbers you want to consider for what your paychecks might look like in 2021.

Your Paycheck and Tax Withholding Data
CategoryInput DataValues
Basic Pay DataCurrent Annual Pay
Pay Period
Federal Withholding DataFiling Status
Have you filed a new IRS Form W-4 with your employer since 2019?
Number of Withholding Allowances (from your pre-2020 IRS Form W-4 if you haven't)
Extra Tax to Withhold per Paycheck (as requested on your IRS Form W-4)
401(k) or 403(b) ContributionsPre-Tax Contributions (%)
After Tax Contributions (%)
Flexible Spending Account Annual Contribution DataHealth Care Spending Account
Dependent Care Spending Account
What if You Had a Raise?Desired Raise (%)

Your "Typical" Paycheck Data
CategoryCalculated ResultsValues
Basic Income DataProposed Annual Salary (Including Raise!)
Typical Paycheck Amount
Federal Tax Withholding AmountsU.S. Federal Income Taxes
U.S. Social Security Taxes
U.S. Medicare Taxes
U.S. Additional "Medicare" Taxes (If Applicable)
401(k) or 403(b) ContributionsPre-Tax Contributions
After-Tax Contributions
Total Contributions
Flexible Spending Account ContributionsHealth Care Spending Account
Dependent Care Spending Account
Your Paycheck's Bottom Line
Take Home Pay EstimateBasic Net Paycheck Amount
... But, After Social Security's Taxable Income Cap Is Reached, It Becomes (If Applicable, for a Full Paycheck)
... And Then, After Additional Medicare Tax Income Threshold Is Reached, It Becomes (If Applicable, for a Full Paycheck)

Now that we've given you a sense of how much money you'll have withheld by the IRS in 2020 from each of your paychecks, we should note that there are some factors that can really complicate your withholding tax results depending upon how much you cumulatively earn during the year.

For example, in 2021, once you have earned over $142,800, you will no longer have the Social Security payroll tax of 6.2% of your income deducted from your paycheck (or 12.4% if you are self-employed, where our tool above is designed for those employed by others). But then, by the time that happens, you'll have long been paying taxes on your income that are taxed at rates that are at least 10% higher than those paid by over half of all Americans.

There's also the complication provided by the so-called "Additional Medicare Tax" that your employer is required to begin withholding from your paycheck if, and as soon as, your year-to-date income rises above the $200,000 mark, which is one of the new income taxes imposed by the "Affordable Care Act" (a.k.a. "Obamacare") that are still in effect. Since the money collected through this 0.9% surtax on your income does not go to directly support the Medicare program, unlike the real Medicare payroll taxes paid by you and your employer, it is really best thought of as an additional income tax. Since it has not ever been adjusted for inflation, that means that you could someday be subject to it through 1970s-style bracket creep, even though the tax was sold on the claim that it would be limited to very high income earners.

In the tool above, in case the amount of your annual 401(k) or 403(b) retirement savings contributions exceed the annual limits set by law, we've limited the results our tool provides to be those consistent with their statutory limits, and will do so as if you specifically set the percentage contributions for these contributions with that in mind. Our tool does not consider whether you might take advantage of the "catch-up" provisions in the law that are available to individuals Age 50 or older, which increase those annual contribution limits.

Elsewhere on the Web

There are other salary and hourly paycheck calculators like this on the Internet, including the very well done tools available at PaycheckCity.com. We really like PaycheckCity's Salary Paycheck Calculator because it allows you to determine the amount of state income tax withholding that will be taken out of your paycheck in addition to what the federal government takes out. Payroll processing giant ADP also has a salary paycheck calculator that will give you good results, but we still find the format of PaycheckCity's version to be more user friendly.

Then again, if you live in one of the seven states that have no personal income tax for wage and salary income (Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, or Wyoming), our tool above will provide you with a very good estimate of your actual take-home pay.

Previously on Political Calculations

We've been in the business of calculating people's paychecks (not including state income tax withholding) since 2005!

Image Credit: Kettner, Magnus. "Puzzled". The Winslow Mail. (Winslow, AZ), 06 March 1925. Chronicling America: Historic American Newspapers. Lib. of Congress.

Seattle’s Soda "Sin" Tax Has Little To No Effect On Consumers

QFC receipt from Seattle showing beverage tax applied to soda sale.

The idea behind sin taxes is pretty simple. By imposing a tax on a product or activity that is perceived to be undesirable, it becomes less affordable than it was before, with its higher cost reducing the quantity demanded. The government benefits from having higher tax collections and society benefits from having less of the undesirable thing being taxed.

But what if a government carefully crafted a sin tax to achieve perceived benefits that could have been easily achieved without the tax?

That describes the results of the city of Seattle's soda tax. Here, Seattle's city government set up its soda tax with the intent to reduce the consumption of calorie-laden sugary beverages, which they anticipated would produce health benefits by reducing rates of obesity among the city's residents. When they passed the tax in December 2017, they also funded a study by the University of Washington to measure its impact on the city's lower-income residents, expecting the tax would reduce their consumption of the taxed beverages as it went into effect in January 2018.

That study would seek to answer two main questions:

  1. How much of the tax, which was set up as a tax on the distribution of sweetened beverages distributed for retail sale, was passed through to consumers?
  2. Did the tax affect the amount of taxed beverages consumed by lower-income children and their parents who reside in Seattle compared to similar families living outside of the city?

The results of that study through the first year of Seattle's soda tax were published in April 2020. Here's an excerpt describing the answer it found for the first question (boldface emphasis ours):

Our findings suggest that the tax resulted in an increase in the average price of all measured taxed beverage types in Seattle, above and beyond price changes in the comparison area, except for sweetened syrups added to coffee drinks. After accounting for changes in the comparison area (the difference-in-differences) and controlling for price variations by store characteristics (store "fixed effects"), beverage type, and/or beverage size, the overall average price increase was 1.55 per ounce, which presents 89% of the tax....

The tax may be affecting beverage prices in stores near the Seattle border differently than in other stores. Some other cities with beverage taxes (Berkeley and Philadelphia) report that pass-through tends to be lower in stores closer to the city border, presumably due to nearby competition. To explore whether this was the case in Seattle, we examined prices of beverages in 35 stores that were within 1 mile of the southern and northern border of the city, and compared the price changes in these stores to the price changes in the comparison area stores. We found that, indeed, on average, pass-through was lower in the stores close to the border (64% tax price pass-through) than the citywide average.

The following chart illustrates the amount and share of Seattle's soda tax that was passed through to Seattle's consumers:

Pass-Through of Seattle Sweetened Beverage Tax, 2018

These results confirm Seattle's soda tax was large enough to have a significant effect on consumer behavior. Assuming a basic price of 2.94 cents per ounce, Seattle's soda tax of 1.75 cents per ounce would add nearly 60% more to the cost of a sugary beverage distributed for sale in the city.

At this point, if you believe the logic of sin taxes, you might reasonably think that sales of sugary soft drinks within Seattle's city limits would plunge, while sales of identical but untaxed drinks in stores outside of Seattle would not be negatively affected.

But that's not what the University of Washington's researchers found when they compared the relative consumption of lower-income Seattle residents with the residents of a comparison area in adjacent communities sharing similar demographics (boldface emphasis ours):

We observed decreases in the consumption of beverages subject to Seattle's Sweetened Beverage Tax among lower-income children and parents living in Seattle from before the tax went into effect to 12 months later. These reductions among Seattle families were similar, however, to reductions seen among lower-income comparison area families over this one-year period. The percentage of children and parents who consume large amounts of sweetened beverages decreased in both Seattle and the comparison area, and in similar amounts. Lower-income children and parents also decreased non-taxed beverage consumption whether residing in Seattle or the comparison area. Thus, the observed reductions in this sample of lower income Seattle resident's reported sugary beverage consumption from the pre-tax period to 12 months post-tax may not be attributable to Seattle's sugary beverage tax.

The following chart summarizes the change in sugary drink consumption observed by lower-income children and their parents in both Seattle, where the soda tax was implemented, and similar residents in the communities that made up the University of Washington researcher's comparison area:

Relative Change in Consumption of Taxed Beverages, 2018

This latter finding wrecks the hypothesis that the decline in consumption of sugary soft drinks in Seattle was due to the imposition of its sweetened beverage tax, a finding with which other analysts who have reviewed the UW study concur:

The inescapable conclusion from the data is that while there was a decrease in consumption of sugared beverages by the low-income Seattle children and parents in the study, none of it can be attributed to the sweetened beverage tax. In almost every single measurement, the comparison group not subject to the SBT saw bigger decreases in consumption.

This outcome means other factors play a more important role in affecting consumer choices where beverage consumption is concerned. As a sin tax meant to influence consumer behavior, Seattle's sweetened beverage tax has clearly failed. In practice, it is just another excise tax that the city's government has imposed to raise revenue to fund the political priorities of elected officials.

We had higher hopes for Seattle's soda tax. Unlike the city of Philadelphia, which imposed its soda tax to fund its mayor's political priorities in a money grab aimed at lower-income residents without any pretense of realizing any health benefits, Seattle's soda tax was intended to influence consumer behavior in a way that proponents could realistically expect to achieve a desirable outcome in the health of Seattle residents, making it an ideal example of what a sin tax might achieve.

Instead, Seattle's soda tax has fallen flat. Based on these findings, like Philadelphia's soda tax, it is simply a regressive tax that does little other than extract revenue from primarily lower-income residents with little-to-no offsetting positive health benefits.

References

Saelens, BE; Rowland, M; Qu, P; Walkinshaw, L; Oddo V; Chan NL; Jones-Smith, JC. 12 Month Report: Store Audits & Child Cohort: The Evaluation of Seattle's Sweetened Beverage Tax. [PDF Document]. March 2020.

Schofield, Kevin. City-commissioned UW research report finds that the soda tax isn’t working. Seattle City Council Insight. [Online Article]. 15 April 2020.

Previously on Political Calculations

While we haven't previously covered Seattle's experience with its soda tax, we have covered Philadelphia's controversial tax in depth. The following posts will take you through much of our analysis of that city's experience.

Will You Get a Tax Credit Rebate Under the CARES Act?

Person holding fan of U.S. dollars banknotes - Source: Unsplash, Sharon McCutcheon - https://unsplash.com/photos/rItGZ4vquWk

On Friday, 27 March 2020, following a week of mindlessly partisan political shenanigans and multiple needless delays in the U.S. Congress as Americans lost incomes because of government-mandated businesses closures and stay-at-home orders meant to slow the spread of the coronavirus epidemic, President Trump signed the CARES Act of 2020 into law, which may provide a tax credit/rebate to American households that qualify for it.

Will your household qualify to get a tax credit rebate check from the U.S. government? And if you do, how much money will you get?

Our latest tool can help you answer these two questions! Enter your information, or a hypothetical scenario, in the tool below, and we'll do the math! If you're accessing this article on a site that republishes our RSS news feed, please click through to our site to access a working version of the tool.

Will You Get A Tax Credit Rebate Check Under The CARES Act?
Input DataValues
Have you filed an income tax return for either 2018 or 2019?
What is the adjusted gross income from your most recently filed income tax return?
What was your tax filing status on your most recently filed tax return?
How many child dependents did you claim who were under Age 17 on 31 December 2019?

Your CARES Act Tax Credit Rebate
Calculated ResultsValues
Does your household qualify to receive a tax credit rebate?
How much money will you receive?

Under the CARES Act, the IRS will automatically provide what it is calling a stimulus payment check to eligible households that have filed their Form 1040 income tax returns for either the 2018 or 2019 tax years. If you didn't file an income tax return for 2018 and if you haven't yet filed a return for the 2019 tax year, you will not be eligible to receive a tax rebate check until you do. At this writing, the IRS has extended the deadline to file your 2019 income tax return from 15 April 2020 to 15 July 2020.

Even though the IRS will automatically send out tax credit rebate checks to eligible tax-filing households, it may take until 31 December 2020 to do so.

The amount of your coronavirus tax rebate check depends upon whether you have qualifying dependent children in your household and the amount of your household's adjusted gross income, where if that income exceeds $75,000 if your tax filing status is single, $112,500 if you file as head of household, or $150,000 if you file as married, the amount of your stimulus payment check will be reduced by 5% for every dollar your income exceeds those qualifying thresholds.

If you would like to find out more about the CARES Act of 2020, both the nonpartisan Tax Foundation and tax expert Tony Nitti have excellent articles describing how it may impact your personal income taxes.

Image Credit: unsplash-logoSharon McCutcheon


Choosing Between Wages and Benefits in Employee Compensation

We had been planning on updating our series on the trends in median household income today, but since the data for December 2019 won't be available until Thursday, we've put that on hold until Friday. In the meantime, we'll take a question from one of our readers, who recently asked:

What we should all be asking is why real wages, adjusted for inflation, have been flat for so long. Who cares if unemployment is low and the stock market keeps reaching new highs if you look around and your friends and neighbors have the same standard of living for 40 years? Why can't we share in the prosperity?

Why indeed?! To answer the question, we've tapped the Bureau of Labor Statistics' database that captures the costs that U.S. employers have in compensating their employees, where we've extracted the average dollar amounts they've paid in wages and salaries and fringe benefits to all civilian workers in each quarter from 2004-Q1 through 2019-Q2. We've also adjusted that data for inflation, where the following animated chart cycles between the nominal and inflation-adjusted results over these 15+ years worth of total employee compensation data.

Animation: Average and Inflation-Adjusted Compensation per Hour for All Civilian Workers, All Occupations in All Industries, 2004-Q1 through 2019-Q2

We're only covering these 15+ years because the detailed data for benefits isn't available before 2004-Q1. It is however enough data to answer the question, because it confirms is that inflation-adjusted wages and salaries have been mostly flat during this time, rising just 4%.

It also confirms that the portion of compensation that employers pay to their workers in the form of benefits has risen by 16% after accounting for inflation over the same period of time. Together, the combined total of wages and salaries with benefits has risen in inflation-adjusted terms by 7% from 2004-Q1 through 2019-Q2.

What that tells us is that if you are only looking at the portion of your compensation that you receive in the form of wages or salaries, you're choosing to ignore the bigger picture where your standard of living is involved, because that is determined by your total compensation which consists of both paychecks and benefits from your employer.

The real question is why is employee compensation in the form of benefits rising so much faster on average than wages and salaries?

The answer to that question is because you, as an employee, have wanted it to. That's because the benefits your employer provides you as part of your total compensation, such as for health insurance, are not subject to income taxes. If you zeroed out those benefits and converted all your compensation to be in the form of wages, which would be fully subject to income taxes, your after-tax total compensation would be reduced below the equivalent amount you are effectively taking home today and you would be worse off in your standard of living.

The question for you would then shift to be one of how much you value the benefits your employer provides. Would you be willing to pay what your employer must to provide them to you at the level to which you've become accustomed? Or would you skimp on them so you can have more cash to spend on other things you value more to "share in the prosperity"?

The choice for employees to take more of their compensation in the form of untaxed benefits instead of wages and salaries has been being made for much longer than 15 years. Or 40 years. In the U.S., we would have to go back more than 75 years to World War 2, which is when income tax-free health insurance benefits became widely adopted as a way to allow employers to attract and retain highly-skilled employees when wartime wage controls prevented them from paying their employees higher wages for their talents.

If that arrangement wasn't beneficial for employees, it wouldn't have continued for so long after the war ended.

References

U.S. Bureau of Labor Statistics. Employment Cost Trends: Employer Cost for Employee Compensation. [Online Database]. Accessed 4 February 2019.

Organization for Economic Co-operation and Development. Main Economic Indicators: Consumer Price Index: Total All Items for the United States (Quarterly, Seasonally Adjusted). [Online Database]. Accessed 4 February 2019.