You Can Pay Me Now, Or Pay Me Later

by Bill Bergman: You can pay me now, or pay me later."

That was the closing line in a classic TV ad for Fram Oil Filters back in the 1970s. So it goes with taxes and governments (like the State of Illinois) that choose to "balance their budgets" with borrowing proceeds.

Today is Tax Day! To celebrate, consider the relationship between the "tax burden" calculated by WalletHub, and the "Taxpayer Burden" calculated by Truth in Accounting (TIA).

WalletHub does a lot of digging to find property taxes, individual income taxes, and sales and excise taxes for all 50 states, and expresses them as a share of total personal income in the state. This is a flow measure of tax burden, which is based on current tax payments.

Truth in Accounting also does a lot of digging, but into balance sheets and related statements relating to current financial position. TIA's "Taxpayer Burden" starts with liquid assets, subtracting all debts (including government employee retirement benefits), and expresses the remainder on a per-taxpayer basis.

Both measures are valuable, but for different and related reasons.

In WalletHub's latest ranking, for example, Illinois had the 9th highest taxburden among the 50 states. In Truth in Accounting's latest ranking, on the other hand, Illinois had the 2nd highest Taxpayer Burden.

Who's right? Both of them as they are measuring similar but different things. But consider the forward-looking implications of TIA's measure. A given state (like Illinois) may rank high on WalletHub's tax burden measure, but not high enough if that state (like Illinois) still chooses to under-tax its population compared to expenses, funding the difference with borrowing proceeds that have to be repaid later.

You can pay me now or you can pay me later! "I don't cost that much," the first guy selling the Fram Oil Filter says. Followed by "But I do!" the second guy fixing an engine says.
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Bill Bergman is Director of Research at Truth in Accounting.

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