Taxes and Purchasing Power

Most of the surveys of family incomes and expenditures take account of personal taxes. Those taxes are deducted because they reduce the amount of income the recipient, as an individual, is free to use as he sees fit. The Federal income tax and State and local income or payroll taxes, are, of course, direct personal taxes reflected in the "income after taxes" concept but only partially in "net spendable earnings."

Much more significant is a recognition of "value received" for tax dollars. To the extent that governments provide services of value to citizens, taxes may be viewed as measures of improved welfare. Public education, clinics and other public health facilities, water systems, parks and playgrounds, libraries, sanitation, maintenance of minimum standards of safety and other standards, the administration of social security programs, the expanding complex of endowments and nongovernmental agencies for social betterment exempted from taxes -- these are some of the facilities and services (aside from national defense) that have come into being or have been vastly expanded on a tax-supported or tax-free basis during the present century. By and large, they are services which private industry has not historically provided or could furnish much less economically.

There are additional payments to government in many localities, representing direct charges for goods and services furnished to individual consumers, such as water, garbage disposal, electric power, gas, local transportation, and postal facilities. These items should be considered in the same light as payments for any other goods and services, rather than as a cost of government.

Indirect taxes, those not levied directly on persons, account for much of the tax burden. At the Federal level, they are represented by tariffs, manufacturers' and processors' taxes, and corporation income taxes. State and local governments rely primarily on property taxes and sales and use taxes.

The impact of indirect taxes on consumers generally, and especially on a particular group such as city workers, is beyond precise analysis; a major difficulty is the highly variable extent of passing the taxes on to consumers.