August 12, 2014

Fraser Games – 1: Choosing your Stats

A good illustration of power of selective measurement:

The headline (from Business in Vancouver):

Canadians spend more on taxes than they do on food, clothing and shelter combined, says Fraser Institute.

The argument:

The report compares the total amount spent by the average family on taxes and other expenses from 1961 until 2013.

In 1961, the average Canadian family’s total tax bill was about 34% of net income, while necessities represented about 57%.

“Over the past five decades, the total tax bill grew much faster than the cost of basic necessities, so now taxes eat up more income than any other single family expense,” Lammam said.

The qualifier:

It is worth noting, however, that the makeup of taxes paid by Canadians has likely changed considerably over the past five decades due to the introduction of a national health plan since 1961, the base year of the study.

[Thumbs up to Emma Crawford Hampel for adding that at the end.]

The statistical equivalent of this:

.CC SkepticsvRealists_500.gif


How to choose the beginning and end of what you measure to get the conclusion you want.

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  1. One reason is the increase of civil servants AND the increase of salaries and associated benefits of them, above private sector employees of similar education and/or qualification. It used to be that in exchange for job security and a decent pension civil servants got below average salaries. Today they often get above average salaries AND high job security AND above average benefits AND generous pensions , some even indexed and/or guaranteed ( ie defined benefits ).

    Public sector unions have also been able to exploit the monopoly situation of their employers.

    Time to stop this dangerous trend !

  2. I know that there is something funny with the Fraser Institute stats because I only employ one tax saving measure, rrsp contributions, yet there is no way that I pay 42% of my income in tax, including hidden taxes. When I look at the report, I see what fiddle has taken place. Using 13.3 million as the number of households in Canada, the tax rates shown in the report imply a total tax bill of $430b and the income totals imply a total income of $1,024b. When I do a rough calculation of total government revenue, I come up with $245b federal, $270b provincial, $55b municipal for a total of $570b. So the Fraser Institute has undercounted. But total GDP is $1,700b so the Fraser Institute has undercounted this even more. The ratio of total tax to total income is 33% which accords with oecd statistics (best as I can remember). (FI’s possible cover for this is that they used “cash” income, not national income, but they do not seem to have confined themselves to “cash” taxes.) (My stats are a few years old to match my household number stat which is also a few years old. Really should use GNP/GNI instead of GDP, but not much difference now.)

    Another statistical problem is the use of averages. Income taxes are steeply progressive, so what the average family pays is not what the median family pays. High income families will pay a higher proportion of their incomes as income taxes than the median family. Sales taxes are complicated, excluding food and rent, which are a higher proportion of low income family expenditure, but also excluding savings which is a higher proportion of high income family expenditure. Other taxes are not progressive at all, so the total picture will be mixed, but nevertheless, the use of averages hides what is going on.

    And the calculation of tax increases using nominal dollars is laughable: “The total tax bill, which includes all types of taxes, has increased by 1,832 percent since 1961”. The real number, which the FI does include in the report, is 147%.

    Not to say that I necessarily agree with our tax policies, but in order to talk about them, you have to use honest numbers.

    Like the tomtom congestion reports, what seems to be going on is the creation of infotainment clickbait. The key to this is to create something that will attract media types who will give it wider press. Those media types certainly aren’t numbers people, but why they don’t just ask themselves whether the congestion in Vancouver is the worst they have seen or whether they themselves pay 42% of their income in tax, I don’t know.

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