Do you remember the first time you rode a bike? Your first day of school? When your younger sibling was born? How about your first experience with tax?
I have two early memories of tax, neither pleasant.
In the first, I was about six years old and went to the store near my grandmother’s apartment to buy a pretzel stick, which cost ten cents. It said so right on the plastic container. But when I gave the mean proprietor a quarter, he gave me back 14 cents. After standing outside crying for a while, I finally got up the courage to go back in and confront him: “I think you gave me the wrong change.” “Haven’t you ever heard of sales tax, kid?” he yelled. No, actually, I hadn’t.
My second tax memory, from around the same time: The fourth square of the Monopoly board is labeled “Income Tax,” and, until last year, if you landed on it you had to pay $200 or, if you preferred, 10% of your total worth. The practice in my family was always to pay the $200. But one day my father landed on this square and for some reason (probably, in retrospect, because the game had just started) decided he would pay the 10%. I protested. There are, as I discuss below the jump, a lot of things wrong with this rule, but when I was six, the biggest thing wrong with the rule is that it took a really long time to calculate your total worth. “You’ll never finish!” I yelled. “This is boring!” Infuriated by the heavy compliance burden, I quit.
What are your early tax memories?
(Below the jump, I discuss three additional serious problems with the 10% rule, one definitional, one substantive, and one related to the fact that it’s really hard to be six years old.)
More on the 10% rule. From the pre-September-2008 official Monopoly rules:
“If you land here you have two options: You may estimate your tax at $200 and pay the Bank, or you may pay 10% of your total worth to the Bank. Your total worth is all your cash on hand, printed prices of mortgaged and unmortgaged properties and cost price of all buildings you own. You must decide which option you will take before you add up your total worth.”
So, what are the problems?
First, this isn’t an income tax, because it doesn’t measure the increase in your wealth–it measures your total wealth. So this is better termed a wealth tax, or perhaps a property tax. (You could play Monopoly with an income tax–in fact, someone has put together rules for such a game, including a Monopoly version of a Form 1040. If my son ever does something really, really bad, I am going to make him play this version of Monopoly with me.)
Second, it appears to me that you’re not actually paying 10% of your total worth–if you have any mortgaged properties, you might well be paying more than that. Why? Because you have to add in the printed prices of mortgaged properties. So imagine you start the game with $100 cash. Your total worth is $100. Then you exchange that $100 cash for one property, Vermont Avenue. Your total worth is still $100. Now you mortgage that property and get $50. You have Vermont Avenue, flipped over, and you have $50 cash. You haven’t increased your net worth to $150; rather, you’ve simply borrowed money from the bank secured by Vermont Avenue. If someone buys the mortgaged Vermont Avenue from you, they probably won’t pay you $100. (That’s because when they get the property they will have to pay off the mortgage, plus a 10% interest charge. Of course, the market value for them might be very high, if Vermont Avenue will cause them to have a monopoly, but that is a topic for another day.) But if you pay the 10% income tax, you have to pay $15, because you have to pay 10% of $150–the sum of your cash on hand ($50) and the printed price of Vermont Avenue ($100). (If I am misunderstanding the rule, and what I have written here is incorrect, please let me know in the comments–it seems completely wrong to me, but I am having a hard time getting any other meaning from the rule as written.)
Third, it’s messed up that you’re not allowed to calculate your “total worth” before deciding whether to pay the $200 or the 10%–this punishes people who aren’t as good at retaining numbers or summing at a glance (like six-year-olds), and they’re probably having enough trouble at the game as it is. Dad. Ahem.
Image: sklar, Monopoly! (Flickr.com); used under a Creative Commons Attribution-Noncommercial-No Derivative Works 2.0 Generic license