This is In Real Terms, a column analyzing the week in economic news. Comments? Criticisms? Ideas for future columns? Email me or drop a note in the comments.
Ted Cruz and Elizabeth Warren don’t agree on much. The Texas senator is trying to become the most conservative Republican presidential nominee since Barry Goldwater, or maybe ever. Warren, a senator from Massachusetts, is a darling of the left. But the two senators agree on this much: They both want to make Tax Day, at least as we know it now, a thing of the past.
Cruz and Warren are onto something. According to the IRS, the average taxpayer spends 13 hours and $200 on tax preparation each year. Nearly two out of three Americans paid someone else to prepare their taxes last year1 — all to tell the government information that it already knew. In other words, the U.S.’s current system for filing taxes is expensive, time consuming and totally unnecessary. But chances are it isn’t going away anytime soon.
Cruz’s solution is to rip up the entire tax code and replace it with one simple enough that Americans will be able to file their taxes on a postcard. He wants to eliminate the payroll tax, implement a new tax on spending and replace the existing system of tax brackets with a 10 percent flat tax.
But those kinds of radical changes aren’t necessary to make Tax Day easier. The existing progressive income tax certainly isn’t a barrier to simpler filing. For most taxpayers, particularly the more than two-thirds of filers who take the standard deduction, the government already has pretty much all the information it needs to calculate their tax obligations from the W-2 forms that employers file with the IRS.2 In several European countries, the government sends tax forms that are already filled out; taxpayers just need to review and sign them (or send a confirmation text message).
That’s pretty much the model Warren wants to adopt. On Wednesday, she introduced a bill that would let people with simple taxes file for free without filling out a return — essentially, the IRS would do people’s taxes for them. Bernie Sanders is a co-sponsor; his rival for the Democratic presidential nomination, Hillary Clinton, said she supports the bill, too.
In a report accompanying her proposal, Warren blamed the existing system on companies such as Intuit, publisher of TurboTax, and H&R Block, which have spent millions lobbying against efforts to simplify tax filing. They certainly have a strong incentive to keep the system complicated: Intuit’s consumer tax business generated $1.8 billion in revenue in 2015, 43 percent of the company’s total.
But the tax-preparation industry deserves only some of the blame for our annual tax season headaches. The whole U.S. tax system is needlessly complex, full of deductions and credits benefiting special interests large (homeowners) and small (performing artists). Most economists would like to get rid of most if not all of those loopholes, which are inefficient and can lead to skewed incentives. (Letting people deduct state and local taxes on their federal returns, for example, means that residents of low-tax states are effectively subsidizing residents of high-tax areas.) The problem is, all of those deductions and credits have built-in constituencies with a strong interest in defending them; there is no similar constituency trying to get rid of them.
For people with straightforward tax returns, it should be possible to simplify tax filing without simplifying the underlying tax code. But that won’t help many low-income families, who often have complex returns involving multiple jobs, government benefits and changing addresses or living arrangements. Most significantly, the Earned Income Tax Credit, which provides cash to millions of low-income families, is notoriously complex. As a result, more than half of low-income households use a paid tax preparer.
Tweaks to the tax-filing system could help lower the burden on taxpayers, including the low-income households who are most hurt by the current system. But in the long run, the only solution to the misery of Tax Day is a simpler tax code.
The gender gap
Tuesday was Equal Pay Day, which is meant to symbolize “how far into the year women must work to earn what men earned in the previous year.” (Women, at least by one measure, earn 79 cents for every dollar earned by men.) As usual, the holiday was met with jeers from predominantly conservative outlets, which argued the 79-cent figure is misleading.
The debate over the gender-wage gap is complex, but at its core, the question boils down to this: Does gender equity demand only “equal pay for equal work”? Or does it require addressing the much broader array of economic and cultural forces that lead to men earning more on average?
A perfect illustration of this question came from the tech industry this week, when Microsoft published a blog post claiming that it pays its male and female employees equally. The company said its female employees make 99.8 cents for every dollar earned by “men with the same job title and level in the U.S.” (Facebook made a similar claim but provided less detail. Several other tech companies have also released reports on their pay practices in response to pressure from an investor.)
Ensuring that men and women in the same roles earn the same amount is important, and something many companies still fail to do. But just as important is making sure that women get the same opportunities as men in both hiring and promotion. Separate data released by Microsoft suggests the company has further to go in those areas. Women make up 26.8 percent of Microsoft’s workforce but just 16.9 of programmers and other tech employees and 17.3 percent of the company’s leadership team. Three people on its 11-member board of directors are women. Microsoft is hardly alone. At Google, women make up 18 percent of tech employees and 22 percent of the company’s leadership; at Facebook, those numbers are 15 percent and 23 percent, respectively. (Apple does slightly better.) And it isn’t just big companies: The tech-focused journalism site The Information last year found that more than 60 percent of Silicon Valley venture capital firms have senior investment teams that are entirely male.
Last spring, I wrote an article arguing that, contrary to their job-hopping reputation, millennials don’t change jobs any more often than people in previous generations did when they were the same age. If anything, there has been a worrying decline in job transitions, which are an important way for young people to win raises and find their way into the right career.
Guy Berger, an economist at LinkedIn, isn’t buying it. In an article on the career-focused social network this week, he and colleague Gloria Yang dug into LinkedIn’s own data and found that today’s young people are changing jobs more often than in the past. LinkedIn users who graduated from college between 1986 and 1990 — older members of generation X — held 1.6 jobs on average in their first five years after graduation. Those who graduated between 2006 and 2010 — young millennials — averaged 2.85 jobs. “So there you have it,” Berger and Yang wrote. “Millennials are job-hopping more than previous generations. Case closed!”
Objection, your honor. LinkedIn users are not a random sample of the population, as the authors acknowledge in a note on their methodology. According to a report from the Pew Research Center last year, LinkedIn users tend to be older, richer and more educated than internet users in general. And beyond demographics, LinkedIn users may have reasons not to include their full work history in their site profiles, potentially skewing the analysis.
Sometimes, flawed data is all we have to work with. But in this case, there is much better data available. Last Friday, the Bureau of Labor Statistics released the latest round of data from the National Longitudinal Survey of Youth, a long-running survey that has tracked the same group of people since 1997. The report found that, on average, Americans held 2.5 jobs between the ages of 25 and 28. A previous version of the survey found that when they were the same age, younger baby boomers — roughly speaking, the parents of the people in the new survey — held three jobs on average.3 College graduates have seen a somewhat smaller decline but show the same basic trend.
Berger and Yang saw a particularly big increase in job-hopping among people who graduated between 2006 and 2010, who are too young to show up in the BLS survey. But these younger millennials do show up in the Current Population Survey, which every year asks people how many employers they had the previous year. (The question only asks about someone’s primary employer, so holding multiple jobs at once doesn’t count.) As the chart below shows, there has been a long-term decline in the share of recent graduates switching jobs.4
Number of the week
Speaking of millennials, the student-loan servicing company Navient recently surveyed young Americans about how student debt is affecting their lives. According to The Wall Street Journal, their findings push back against some of the doomsaying about how debt is forcing young people to delay major life decisions. Among people age 25 to 30 who borrowed to go to college and received a bachelor’s degree, 38 percent have a mortgage. That’s a higher rate of homeownership — or at least home borrowing — than among people who got a degree without taking on debt. Borrowing doesn’t seem to be holding people back from getting married or having children, either. But there is one group that is being held back by debt: those who borrow but don’t graduate. Just 14 percent of them have a mortgage, compared with 22 percent of all people in the age group.
Neil Irwin and Quoctrung Bui look at new research from economist Raj Chetty and others that shows that life expectancy among the poor varies widely by where they live. Meanwhile, Dan Keating and Kennedy Elliott dig into why white women in rural America are dying younger.
Kashmir Hill tells the fascinating story of an internet mapping glitch that led everyone from the FBI to Reddit commenters to descend on a random farm in Kansas.
Justin Fox explains why non-compete clauses are bad for workers and for the economy as a whole.
Greg Ip summarizes recent research that calls into question the benefits of free trade.
Robert Frank says successful people are reluctant to acknowledge the role luck played in their accomplishments.