Data: Taken to the Cleaners

Michael W. Lynch from the August/September 1999 issue

For the government, there's no tax like a hidden tax. That's why a considerable chunk of the total taxes we pay is hidden. In February, The Washington Post itemized the costs that go into the $1.10 a person might pay to have a shirt professionally laundered. Setting aside the sales tax, the Post estimated Uncle Sam's take at 4 cents--a whopping two-thirds of what they estimated to be the owner's 6 cents in profit. Some might conclude that this isn't so bad. After all, by this math, the government added a mere 3.6 percent to the pre-sales tax cost of the clean shirt. Not exactly, say economists Gary and Aldona Robins of the Texas-based Institute for Policy Innovation. They took the Post's analysis one step further, estimating the proportion of each cost factor that can be pegged to federal taxes. The Post's calculations, say the Robinses, underestimates the total tax bite--37 cents--by close to a factor of 10. Since even a third of the profit is really tax, Uncle Sam is the one cleaning up, with a take nine times greater than the owner's.