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The 10% Flat Tax: Tithing and the Definition of Income

The 10% Flat Tax: Tithing and the Definition of Income

THE 10% FLAT : TITHING AND THE DEFINITION OF INCOME

GORDON B. DAHL and MICHAEL R RANSOM∗

Developing a fair and widely accepted income definition presents one of the great- est challenges to . To arrive at a definition separate from the federal tax code, we surveyed 1200 Latter-day Saints about their practice of tithing. Tithing is similar to a flat tax with no deductions, where voluntarily contribute 10% of self-defined income to the . The results of our survey indicate that most respondents operate on a realization basis, which excludes savings and does not allow any deductions. Respondents’ income concepts generally do not coincide with current tax or economists’ views of comprehensive income. (JEL H24, Z12)

We recommend the passage of [the ] that an income concept exists that is gener- in the confident belief that . . . [it] will meet with ally agreed on as fair and that can meaning- as much general satisfaction as any tax . ...All good citizens, it is therefore believed, will willingly fully be applied to taxation. But do and cheerfully support and sustain this, the fairest ordinary people agree on what constitutes a and cheapest of all . fair definition of income? And, if so, does the —Committee Report on the Act Authorizing income concept match up with either the cur- the Income Tax, U.S. House of Representatives, October 3, 1913 rent tax code or economists’ views of com- prehensive income? How individuals believe income should be I. INTRODUCTION defined matters for any major reform of the Much of the discussion on individual U.S. tax code. First, the electorate’s percep- income taxation in the attacks tions of what items belong in the income the exceptions, preferences, loopholes, and base may well determine what changes are complexity of the . politically feasible. Second, in interpreting Would-be reformers stress the inequities and the Sixteenth Amendment, the have economic defects that arise due to the current historically relied on an income definition fragmented tax base and argue for a compre- imputed to ordinary citizens. In the - hensive tax on income. This approach implies mark case of Eisner v Macomber (1920), the Supreme effectively ratified the com- ∗We are grateful to David Card, Cecilia Rouse, mon man’s notion of income for tax pur- Orley Ashenfelter, Harvey Rosen, and David Bradford for their support and valuable suggestions. We also poses. On the theory that the people wrote thank an anonymous referee and seminar participants at and adopted the , Pitney Princeton University, the School of Industrial and Labor reasoned that “we require only a clear defini- Relations at Cornell University, and the University of tion of the term ‘income,’ as used in common Rochester for helpful comments. Herb Abelson of the Princeton University Survey Research Center shared his speech, in order to determine its meaning in considerable expertise about designing and implement- the Amendment.” Finally, the importance of ing surveys. Grants from the Center for the income definition extends beyond polit- Studies at Princeton University and the Princeton Uni- versity Industrial Relations Section financed the survey. ical and statutory considerations, because Gordon Dahl also gratefully acknowledges additional research suggests that the perceived fairness support from the National Science and the Sloan Foundation. Dahl: Assistant Professor, Department of , University of Rochester, Rochester, NY 14627. Phone 1-716-275-6279, Fax 1-716-256-2309, E-mail ABBREVIATIONS [email protected] HS: Haig-Simons Ransom: Professor, Department of Economics, Brigham IRA: Individual Account Young University, Provo, UT 84602. Phone 1- LDS: Latter-day Saints 801-378-4736, Fax 1-801-378-2844, E-mail ransom@ byu.edu

120 Economic Inquiry (ISSN 0095-2583) Vol. 40, No. 1, January 2002, 120–137 © Western Economic Association International DAHL & RANSOM: TITHING AND THE DEFINITION OF INCOME 121 of the tax code also affects the degree of vol- II. ECONOMISTS’ VIEWS OF untary compliance (e.g., Roth et al. [1989]; Slemrod [1992]; and Tyler [1990]). Passage of the Sixteenth Amendment to Eliciting individuals’ beliefs about what the U.S. Constitution in 1913 laid the foun- belongs in an income base presents many dation for the current personal income tax challenges. For example, if directly asked in the United States. The amendment reads: about what is fair for tax purposes, peo- “The Congress shall have power to lay and ple may respond that no form of income collect taxes on incomes, from whatever should be taxed or may simply repeat the source derived.” The language of the amend- Internal Revenue Code as they understand ment does not define income, and subsequent it. To arrive at a self-determined income def- tax laws have never adhered to a consis- inition free of such biases, we administered tent income definition. Instead the tax code a survey to 1200 members of the Church enumerates which items should be included, of Christ of Latter-day Saints (LDS). excluded, or deducted from the income base. Church members provide unique insights into Referring to the amendment, the Internal income definitions because of their prac- Revenue Code states that income means tice of tithing, where individuals voluntar- “all income from whatever source derived” ily contribute one-tenth of their income to including “but not limited to” the enumer- the church. Because the LDS Church collects ated items (United States Internal Revenue centrally and disperses funds locally Code [1997], 26, Subtitle A, Chapter 1, based only on average attendance at Sunday Subchapter B, Part I, Sec. 61). When ques- services, tithes do not represent entrance fees tions arise, administrators and the courts or payment for local public . Though determine the limits of the income concept. the rate of 10% is fixed and not subject The numerous additions and changes to the to personal interpretation, the definition of U.S. federal income tax code point to the which potential income sources to is eclectic notion of taxable income used in left to individual conscience. Hence, asking practice throughout the last century. questions about what items respondents think Although the definition of income is not should and should not be included in “tith- a new topic in economic theory, the con- able income” provides an interesting measure cepts of personal income to which most of what people regard as income. public finance economists now subscribe The survey results indicate a fair amount evolved only in the last 100 years.1 The now- of consensus on what items belong in the popular accretion-based concept of income tithable income base. Respondents tend to was first envisioned by German thinkers such equate income with increases in cash and as Georg Shanz in 1896, and subsequently to underrate in-kind accruals and transfers. developed by Robert Haig and Henry Simons Savings are included in the income defini- in America. Haig (1921, 59) defines income tion and deductions are not allowed. This as “the increase or accretion in one’s power definition stands in contrast to economists’ to satisfy his wants in a given period in views of comprehensive income and current tax laws. Interestingly, the sources and uses 1. Using a personal income concept as a means of of a gain seem to matter, many individu- assessing tax burdens was first coherently developed in als treat gains and losses asymmetrically, and the 1700s (see Musgrave [1985]). Previously, taxation had been a loose conglomeration of direct and indirect a nontrivial fraction of respondents double- taxes with no unifying reference to income. Motivated tithe intertemporal transactions. Through- by a desire for greater simplicity and less arbitrariness out our discussion of the survey results, we in the assessment of taxes, in 1743 Carlo Antonio Brog- gia argued for proportional taxes on income that is “cer- explore several explanations for why individ- tain,” such as land rent, but wanted to leave free all uals define income as they do. We find differ- “uncertain” monies, including profits and the bulk of ing degrees of for such factors as the . Quesnay, and the physiocratic school he founded, called for a on land to replace all existing direct federal tax code, framing effects and men- taxes in 1760, because he believed land was the only real tal , and financial motivations. As source of income. Smith (in 1776), and later Ricardo might be expected, we also find that personal (1911, originally published in 1817), took slightly more characteristics, such as church activity, family encompassing views of income for tax purposes, but both still thought that taxing subsistence wages was impracti- income, and other demographic characteris- cal, because these taxes would merely be passed on to tics, significantly influence tithing beliefs. profits or rents anyway. 122 ECONOMIC INQUIRY so far as that power consists of (a) Tithing was also a part of the itself, or, (b) anything susceptible of valu- (see Lev 27:30). Today, tithing is an inte- ation in terms of money.” Simons (1938) gral element of the religious practice of the later offered a simple algebraic definition, LDS Church, commonly called the Mormon equating personal income with consumption Church (see 119:4). plus change in net worth. Both Haig and In the LDS Church, ecclesiastical leaders Simons emphasize that income involves the teach that payment of an honest tenth is economic power to acquire goods and ser- necessary to be right with God. Though the vices, regardless of whether an individual rate of 10% is immutable,2 there are no spe- actually exercises that power. The other main cific guidelines or rules on what should count income concept favored by many contem- as income (see Swainston [1992]). Congrega- porary economists is Irving Fisher’s (1937) tions receive a budget for the operation of -based approach. He saw income as the local church programs based on the size of value of consumption services or expendi- the congregation, not on the amount of tithes tures for present enjoyment. Hence, although collected. Hence, tithes do not represent an Fisher includes imputed income, he departs entrance fee to a local club, nor does the from Haig and Simons by excluding from amount of an individual’s directly income savings, unspent gains, and any other benefit his or her local congregation finan- form of “.” cially. By its nature, tithing represents a vol- Other theoretical definitions of taxable untary, centralized flat tax, where members income have been proposed, but the Haig- decide for themselves what income base def- Simons (HS) and Fisher criteria have become inition to use. Thus its practice may offer the starting point for academic discussions some clues about what items people think of the U.S. tax system (e.g., [1969]; should and should not be regarded as income. Bradford [1986]; Goode [1977]; and Hall and Data from the General Social Survey sug- Rabushka [1995]). According to these def- gest that LDS members donate generously initions, some of the important traits of a and view the tithe to be 10% of income. comprehensive income base are: (1) inclu- In 1987, 1988, and 1989, the General Social sion of all income, regardless of the source; Survey asked individuals about religious con- (2) inclusion of all income, regardless of how tributions, family income, religious prefer- it is used; (3) identical treatment of cash ence, and church attendance. Table 1 reports and in-kind transfers; (4) identical treatment church as a percentage of fam- of realized and unrealized gains and losses; ily income, tabulated by church affiliation and (5) symmetric treatment of gains and and how many times a respondent attends losses. We designed our tithing survey ques- church services each month. For all , tions to explore whether or not these ele- donations correlate positively and strongly ments are consistent with individuals’ percep- with church attendance. LDS members who attend church every week seem to under- tions of income. Throughout the paper, we stand that tithing in the LDS Church has use the Haig-Simons and Fisher benchmarks been defined as 10% of income; the average and the Internal tax code amount donated by this group is 9.8% of self- as comparison tools to examine how ordinary defined family income. Compared to individ- people’s perceptions of income differ from uals with other religious preferences, LDS those of many tax economists and tax . members on average attend church more fre- Because the HS and Fisher definitions mainly quently and contribute a significantly larger differ in the treatment of savings, we focus on fraction of income to their church. the HS definition except for those questions dealing with savings. IV. SURVEY DESCRIPTION

III. TITHING To gain insights into income definitions, we conducted a survey which asked members Tithing is the practice of paying a tenth of one’s income, or a tithe, as an offer- 2. Bruce McConkie, a high-ranking church leader, ing to God. It originated anciently, as the explains: “Strictly speaking there is no such as a part tithing. Tithing is a tenth, and unless a person con- reports that (Gen 14:18–20) the tenth, he has only made a contribution to the and (Gen 28:20–22) both paid tithes. tithing funds of the Church” (McConkie, 1966, 798–99). DAHL & RANSOM: TITHING AND THE DEFINITION OF INCOME 123

TABLE 1 Data from the General Social Survey on the Relationship between Church Donations, Religious Preference, and Church Attendance

Religious Preference

LDS Protestanta Catholic Other None

Number of times respondent attends church each month (%) Less than one 253458406611964 4910174011 One, two, three 19027424720129 4409153310 Four or more 55726834718807 5609163205 Percent of total family income the respondent donates to his or her church, by monthly church attendenceb Less than one 0906030401 0701000100 One, two, or three 2822111405 0801010301 Four or more 9854245631 1103032303 Observations 79 2274 878 149 276

Source: Authors’ tabulations from the 1987, 1988, and 1989 General Social Surveys. Individuals who do not report their total family income, church attendance, or religious preference are excluded from the table. Four observations for which church donations exceed total family income are also excluded (three “Protestant” observations, one “None” observation). Note: Standard errors in parentheses. aExcluding LDS. bTotal family income is constructed by taking the midpoint of the income interval reported by the individual (20 possible categories). Church donations are recorded to the nearest dollar. The donation question asked of respon- dents is “About how much do you contribute to your every year (not including school tuition)?” of the LDS Church about their tithing the response rate is defined as the number practices. Using computer-assisted telephone of completed interviews divided by the num- interviewing, a professional survey company ber of eligible potential respondents.4 Dahl interviewed 1200 LDS members living in and Ransom (1999) contains details on sur- the state of between 7 May and 20 May vey administration and the final sample dis- 1996.3 While the LDS Church has a world- . wide membership totaling over 10 million, Survey participants were presented with we chose this sample because of Utah’s hypothetical situations involving potential high concentration of LDS Church members. income sources and asked how they would Bradley et al. (1992) estimate that approxi- treat the items for tithing purposes. To exam- mately 72% of the state population is LDS, ine how variations in the hypothetical situa- while 73% of those randomly telephoned in tions affect responses, we administered one our survey indicated that they were mem- version of the tithing questions to half the bers of the LDS Church. Individuals were respondents (ballot A) and a second version eligible to complete the survey if they indi- to the other half (ballot B). Respondents cated that they were members of the LDS were also asked demographic, labor mar- Church, the male or female household head, ket, and church activity questions. Dahl and and 18 years of age or older. The response Ransom (1999) lists some of the demographic rate to the ten-minute survey was 43% where and labor characteristics of the sur- 4. This response rate is consistent with other tele- 3. A copy of the survey instrument is available from phone interviews on sensitive subjects as discussed in the authors on request. Groves (1989). 124 ECONOMIC INQUIRY vey sample and provides a comparison to TABLE 2 data for the entire state of Utah from the Church Activity and Tithing Advice 1990 U.S. Census. The characteristics of Characteristics of Survey Participants individuals in our sample are very similar to the census sample, with a few excep- Percent tions. The sample for our phone interview Number of times respondent attends is more female and better educated, a pat- Sacrament Meeting each month tern sometimes observed in telephone inter- Less than one 108 09 views according to Groves (1989). In addi- One 38 tion, our sample had a higher marriage rate 05 and larger family sizes relative to the Utah Two 49 census, a finding that accords with the LDS 06 Three 120 Church’s encouragement of and support for 09 families. Four or more 660 Because of the personal nature of tithing, 14 we determined that if we asked individu- Attends church social activities, not 871 als whether they actually contributed tithes including Sunday meetings 10 to the church and what items they actually Served full-time mission for the church Males (respondent or spouse) 506 tithed, we would have had an unacceptably 14 high refusal rate. Instead, we ask tithing ques- Females (respondent or spouse) 134 tions about hypothetical scenarios, which has 10 the benefit that we can examine the beliefs Currently holds volunteer calling of all respondents. For example, the beliefs in the church Males (respondent or spouse) 697 about the tithing (or tax) treatment of capital 13 gains of individuals who have never invested Females (respondent or spouse) 727 in the stock market are arguably as impor- 13 tant as the beliefs of those who have invested. Discusses what items to pay 518 Due to the confidential nature of tithing, no tithing on with spouse 14 official estimate of the number of tithe pay- Sought advice about what items to pay tithing on from ers is released. Our best estimate of the per- Church leader 229 centage of tithe payers for members who are 12 actively involved in the church is around two- Friend 57 thirds.5 Although we cannot identify those 07 Family member (other than spouse) 161 respondents in our sample who do not tithe, 11 their answers probably reflect less about their Someone else 25 personal beliefs and more about their percep- 05 tions of how an active church member should Did not seek advice 623 tithe. 14 Table 2 reports summary statistics on the Note: Standard errors in parentheses. church activity and tithing advice variables we collected. Almost 80% of respondents attend church services three or more times a month. In addition, 87% of the sample have in the church.7 As will be seen later, these attended church social activities, half of all church activity measures are associated with males and 13% of females have served full- individuals’ answers to the tithing questions. time missions,6 and around 70% of males Slightly over half of the respondents dis- and females currently hold a volunteer calling cuss what items to tithe with their spouse, and around 40% have sought outside advice 5. We arrived at this estimate after discussions with about tithing. several . 6. All male LDS Church members are encouraged to serve full-time, unpaid, two-year proselytizing mis- 7. The LDS Church operates without a paid clergy sions for the church when they reach 19 years of age. or staff; instead, members are “called” to serve in volun- Female members may serve 18-month missions when teer positions, such as organist, Sunday School teacher, they turn 21. or even . DAHL & RANSOM: TITHING AND THE DEFINITION OF INCOME 125

V. SURVEY RESULTS presentation of the results, we discuss several possible explanations for why individuals hold Using our survey on LDS tithing practices, the income beliefs they do. this section explores individuals’ perceptions of what items should enter into an income base. The results provide insight not only and into the rules and standards ordinary peo- ple use when figuring out income but also For gifts and inheritances, the HS income how the popular definition of income com- constituents of consumption and change in pares to economists’ views of comprehensive are not self-defining. The giver of a income. Although it may not be desirable might be regarded as enjoying consump- to pattern the federal tax code after the tion or as transferring consumption to the definition of income for tithing purposes, beneficiary. Regardless of the accounting def- the results are indicative of whether agree- inition, however, the HS criterion deals with ment on an income concept is possible and in-kind and cash transfers identically. There which items might lack consensus. The sur- seems to be strong resistance to including vey questions have been split into five broad gifts and inheritances in the federal income categories, each of which have received a tax base, and hence such transfers have great deal of attention in tax reform debates: always been covered by a separate tax system gifts and inheritances, housing capital gains, in the United States. Liberal exclusions have stock investments, miscellaneous deductions, resulted in and gift taxes playing and retirement savings. The survey questions only a minor role in tax collections, amount- as read to participants appear in Tables 3 ing to less than 1% of tax revenues raised by through 7, along with the fraction answer- the federal . ing “yes,” “no,” and “not sure.” To put the Table 3 reveals that LDS members gener- degree of consensus in our survey in perspec- ally agree that gifts and inheritances count as tive, the Gallup Poll defines supermajority income to the recipient for tithing purposes. consensus as 80% agreement, consensus as Question 1A asks if a cash gift from a fam- two-thirds agreement, and support as a sim- ily member should be tithed, with 62% of ple majority, for a public opinion referendum LDS Church members answering “yes.” How- on 27 issues by Saad (1996). Throughout the ever, when a comparably valued in-kind gift is

TABLE 3 Questions and Responses about Gifts and Inheritances

Percent Answering Question Yes No Not Sure Obs

1A Imagine that your parents give you $500 for Christmas. 61932753 599 Would you pay tithing on this gift? 1B Imagine that your parents give you a sofa worth $500 for 33260860 600 Christmas. Would you pay tithing on the value of this gift? 2A Your uncle, who was not a member of the church and has 81112564 598 therefore never paid tithing, passes away and leaves you $10,000 cash in his will. Would you pay tithing on this inheritance? 2B Your uncle, a member of the church who paid tithing all his 77514580 599 life, passes away and leaves you $10,000 cash in his will. Would you pay tithing on this inheritance? 3A Suppose you inherit the land your family has farmed for 410402188 597 generations. You continue farming the land, which has an assessed value of $700,000. Would you pay tithing on the value of the land you inherited? 3B Suppose you inherit the land your family has farmed for 80312275 600 generations. You sell the land, for which you receive $700,000. Would you pay tithing on this money? 126 ECONOMIC INQUIRY

TABLE 4 Questions and Responses about Housing Capital Gains

Percent Answering Question Yes No Not Sure Obs

4A, 4B Now I want you to imagine that you own a home and are ready 430410160 1198 to retire. You sell the home and receive $50,000 more for the home than you originally paid for it. Suppose that you use all of the money from the sale of your home to buy a new home. Would you pay tithing on the $50,000 gain you received when you sold your home? 5A Now consider another alternative. Suppose that you put all of 666217117 599 the money from the sale of your home in the bank and rent a condominium. Under these circumstances, would you pay tithing on the $50,000 gain you received when you sold your home? 5B Suppose that you are looking for an investment, so you buy a 78512392 600 second house for $75,000 to rent out. Later you sell this house for $100,000. So you sell the house for $25,000 more than you paid. Would you pay tithing on this gain?

TABLE 5 Questions and Responses about Stock Investments

Percent Answering Question Yes No Not Sure Obs

6A Imagine that to save for your child’s college , you buy 75018467 599 shares of a stock for $1000, and later sell them for $1500. So you sell the stock for $500 more than you paid. Would you pay tithing on this gain? 7A Imagine again that you are investing to save for your child’s 229656115 599 college education. You buy shares of a stock for $1000, and later sell them for $800. So you sell the stock for $200 less than you paid. Would you subtract this loss from your income before paying tithing? Percent Answering

AB C D

6B Imagine that to save for your child’s college education, you 23850881173 596 buy shares of two different stocks, for $1000 each. Later you sell one stock for $1500 and the other for $800. So you gain $500 on one stock and lose $200 on the other. Which of the following amounts would you pay tithing on? A—The $500 gain B—The $500 gain minus the $200 loss, or in other words, the $300 combined gain C—None of the gain D—Not sure Combined responses from 6A and 7A 476185172166a 599

aIncludes individuals who responded “not sure” to either question 6A or 7A. DAHL & RANSOM: TITHING AND THE DEFINITION OF INCOME 127

TABLE 6 Questions and Responses about Miscellaneous Deductions

Percent Answering

Question Yes No Not Sure Obs

8A, 8B Imagine that you receive a paycheck totaling $1000 before any 26568748 1199 deductions. If $150 is deducted for federal and state taxes, would you subtract this amount before paying tithing on the paycheck? 9A Imagine that you are injured at your job and are unable to work 78813577 599 ever again. You receive a monthly disability check. Would you pay tithing on these benefits? 9B Now imagine that you lose your job, and in the six months it 718160122 599 takes you to find a new job, you receive benefits. Would you pay tithing on these benefits? 10A Suppose you own your own and have to pay for health 301550149 598 for you and your family. Would you deduct the cost of this policy from the income of your business before paying tithing? 10B Suppose you are paying $375 a month to support a missionary 15076288 600 from your ward who could not afford to pay for his own mission. Would you deduct this contribution from your income before paying tithing?

received, only 33% feel it should be included tances indicate that LDS members apparently in the tithing base. This differential treatment think about income as the amount of cash of cash versus in-kind gifts does not accord available for immediate consumption. Con- either with current or the HS view, trary to an HS approach, individuals do not both of which would treat the gifts identically. seem to impute potential income when figur- The responses to questions 2A and 2B ing their tithable income base.9 indicate strong agreement that cash inheri- tances belong in the tithable income base. It is interesting to note that the fraction 9. The following excerpt by David Brinkley of ABC News illustrates that the imputed income concept may who would tithe an inheritance from an not have widespread support (or even be understood) uncle only decreases slightly if the benefac- for federal tax purposes either: tor has already tithed the money (81.1% ver- sus 77.5%).8 Questions 3A and 3B, which Finally, a few words about federal taxes and what deal with the inheritance of a family , some of the great minds in the U.S. are thinking about. The Treasury likes to calcu- make clear that cash realization affects peo- late the American people’s ability to pay taxes ple’s perception of whether or not they have based not on how much money we have, but on experienced an income gain. When the farm how much we might have or could have had. For example, a family that owns a house and is immediately sold for cash, eight out of lives in it, the Treasury figures that if the family ten respondents agree that this inheritance didn’t own the house and rented it from some- should be tithed, but consensus falls apart body else, the rent would be $500 a month. So it when the land continues to be farmed and would add that amount, $6,000 a year, to the fam- ily’s so-called imputed income. Imputed income not sold. These questions on gifts and inheri- is income you might have had, but don’t. If that were the system, consider the possibilities. 8. Any percentage difference between ballot A and How about being taxed on Ed McMahon’s ten ballot B over 5.7% is statistically significant at the 5% million dollar magazine ? You didn’t win level. Because the fractions for each question have a it, you say? But you could have. The Treasury trinomial , the further the percentages are must have something better to do. If not, there from 50%, the smaller the required percentage differ- is a good place for Clinton to cut some spending ence becomes, so that if both percentages are close to (This Week with David Brinkley, Washington, DC: 80% (or 20%), any percentage difference over 4.5% is ABC News, February 28, 1993; cited in Graetz statistically significant at the 5% level. [1995, 42–43]). 128 ECONOMIC INQUIRY

TABLE 7 Questions and Responses about Retirement Savings

Percent Answering Question Yes No Not Sure Obs

11A, 11B Now imagine that to save for your retirement, you set 64828567 1200 up an IRA. Each month while you are working, $100 is automatically deducted from your paycheck and placed into the account. When you retire, you will receive a monthly retirement check from the account. While you are working, would you pay tithing on the money put into the account each month? Percent Answering

Asked if question 11 = “yes” ABC D

12.1A, 12.1B Now imagine that you are retired and receiving a 29351364130 778 monthly retirement check from your account. Remember that, while you were working, you paid tithing on the money you put into the account. Which of the following would you now pay tithing on? A—The full amount of your monthly retirement check B—The amount of your monthly retirement check that represents the interest earning on the account C—No part of the monthly retirement check D—Not sure Asked if question 11 = “no” 12.2A, 12.2B Now imagine that you are retired and receiving a 638115112135 340 monthly retirement check from your account. Remember that, while you were working, you did not pay tithing on the money you put into the account. Which of the following would you now pay tithing on? (A, B, C, and D defined as in question 12.1)

Ability to pay stands out as a possible Housing Capital Gains reason for respondents’ focus on cash. Peo- The Internal Revenue Code has many spe- ple may feel that they do not have the cial provisions to deal with home , resources to pay tithes out of noncash accre- and these rules have changed over time. At tions in their wealth, which may account the time the survey was administered, the for why uses and sources seem to matter code taxed capital gains on a house upon in personal income definitions. For exam- realization and allowed a one-time deduc- ple, this could explain why respondents agree tion under certain conditions. In addition, the that the inheritance of a farm sold for cash capital gains from the sale of a primary res- counts as income, whereas no such consen- idence were deferred if the individual subse- sus exists if the land continues to be farmed quently purchased a home of equal or greater 10 (question 3). While the $700,000 farm could value. In contrast, an HS approach would presumably be mortgaged to come up with 10. The new tax law passed in 1997 allows a home- $70,000 for tithing donations, individuals may owner to avoid paying any taxes on capital gains on a somehow think it unfair to have to sell an house in which he or she has lived for two of the last five years. The limit is doubled to $250,000 in gains ($500,000 asset or incur a large transaction cost to for joint filers), and the exemption can be taken advan- tithe. tage of every two years. DAHL & RANSOM: TITHING AND THE DEFINITION OF INCOME 129 allow no such deduction and would tax any be similarly affected by the federal tax code. real increase in the value of a home each For example, respondents treat cash and in- year, independent of when the house was kind transfers differently, whereas the tax sold. That is, an HS approach would treat code does not (question 1). Though it is hard the capital gains on a home in the same way to disentangle the effect the tax code has on it would treat any other asset. Fisher would income beliefs, the survey results make clear treat housing capital gains the same as any that respondent’s views differ from the tax other investment, not taxing the gains until code in many respects. used for present consumption.11 LDS perceptions on how to treat hous- ing capital gains indicate that the source and Stock Investments subsequent use of the gain strongly impact Over the years, one of the most debated tithing beliefs (see Table 4). Sharp division and ever-changing aspects of U.S. tax law exists on whether a on a home has been the treatment of capital gains. At that is reinvested into a new home should the time of the survey, realized gains on be tithed (question 4). In contrast, when the stock investments were taxed as ordinary hypothetical gain in question 5A is put in the income for most citizens, with losses offset- bank with the individual choosing to rent a ting gains.12 The HS approach provides no condominium, two-thirds of the respondents justification for preferential treatment, and feel the gain should be tithed. When a hous- would tax net gains from stock investments ing gain results from a secondary house pur- the same way it would any other invest- chased as an investment, strong consensus is ment. Special treatment for investment gains reached, with four out of five respondents might be justifiable if gains have already been indicating that they would tithe the gain. taxed at the corporate level; however because These beliefs do not agree with a strict HS no “corporate tithing” exists, the HS defi- view of income, where uses and sources are nition would require investment gains to be irrelevant. In contrast to Fisher’s view, a large tithed. In contrast, Fisher would fully exclude number of individuals view at least some any investment gains until used for current form of housing capital gains as income. consumption. Clearly, how the gain is spent influences Table 5 shows that LDS members are in beliefs, with money reinvested into a new agreement that investments from the stock home not being viewed as income as strongly market should be tithed, with around three- as money put in the bank. The source of quarters of respondents answering that such a gain also impacts respondents’ views with gains belong in the income base (question 6). more individuals counting gains from an This finding lines up with the HS view of investment as income compared to income, but stands in contrast to the posi- gains from a primary residence, even though tion held by many economists and politi- each gain is received in cash. One possi- cians that such gains should be excluded ble explanation is that respondents’ income from the income base. Table 5 also points views for the tithe mirror the federal tax toward some incongruities about how individ- code, which relies on market transactions uals think about losses. Individuals generally and distinguishes between different uses and do not treat gains and losses symmetrically, sources. Consistent with the tax laws of the with many respondents choosing to tithe a time, LDS Church members are more likely gain, but not to deduct a loss from income to perceive an increase in income if the house before calculating the tithe.13 Interestingly, was an investment property versus a pri- mary residence and less likely to perceive an 12. Prior to the , only 40% increase in income if the gain was rolled over of capital gains were taxable. Between 1986 and 1997, into the purchase of another home. However, capital gains were taxed as , with the top rate capped at 28%. Beginning in 1997, capital gains answers to other questions do not appear to were taxed at a lower rate than ordinary income, with the maximum rate set at 20%. 11. Although not dealt with in our survey, a strict HS 13. This asymmetric treatment of gains and losses approach would also tax the imputed rental value of the shows up regardless of whether the respondent has home. The Fisher criterion, though it would not tax the ever made investments in the stock market, suggest- capital gain on housing, would also tax the imputed con- ing the answers reflect more than a lack of thought or sumption benefit derived from the house. understanding. 130 ECONOMIC INQUIRY the framing of the question makes a sub- linked to a mental account in which the bal- stantial difference to the joint treatment of ance is negative (see Thaler [1985]; Shefrin investment gains and losses (compare ques- and Thaler [1992]). One explanation for our tions 6A/7A to 6B). Other phone surveys and results is that when individuals are presented public opinion polls have also found that the with a combined gain and loss, they mentally wording and sequence of questions can make bundle the two events into a single trans- a difference (e.g., Groves [1989]; Newport action, in this case a gain of $300. Here et al. [1997]). the neutral reference outcome is breaking Research in behavioral economics pro- even, so individuals perceive a gain of $300. vides some alternative explanations for However, when the gain and loss questions why respondents might perceive income as are asked separately, the $200 loss is viewed reported in our survey. Kahneman and as a distinct event, and individuals do not Tversky (1979) and Tversky and Kahneman feel comfortable taking a separate deduction (1981) demonstrate that choices can depend from their total income. This type of mental significantly on the way a problem or ques- accounting, which depends on the grouping tion is framed. They find that people exhibit of gains and losses and the reference income risk aversion when choices are presented as a loss would be deducted from, could also gains, but are risk taking when the same explain why individuals do not agree on the choices are presented as losses. Although the tithing treatment of a capital gain on a house stock market questions in Table 5 do not when a new house is purchased with the involve uncertainty, the framing of the ques- proceeds (question 4). Perhaps some respon- tions reveals a similar reversal in the treat- dents view the selling of an old home and ment of losses. One-half of the sample was the buying of a new home as a single transac- presented with a concurrent gain on one tion, with no net increase resulting from the stock and a loss on a second stock and then exchange. In contrast, fewer individuals seem asked whether they would tithe the gain, the to view the proceeds from the sale of a home net gain (subtracting out the loss), or none of and the subsequent rent payments for a con- the gain. Half of that sample responded that dominium as belonging to the same mental they would pay on the net gain, with a quar- account (question 5A). ter of the sample paying only on the gain and not subtracting the loss. In contrast, when Miscellaneous Deductions the same scenario was split into two separate questions for the other half of the sample, A variety of deductions for specific expen- far fewer respondents chose to deduct the ditures appear in current federal tax law. For loss from their tithable income base. That is, example, ever since the implementation of when combining the responses to questions the tax code in 1913, state and local taxes 6A and 7A, only 19% would tithe the net have been deductible before figuring out the gain, with 48% of the sample paying on the income base for federal taxes. Special rules gain but not subtracting out the loss. Tversky govern many transfer and insurance pay- and Kahneman (1991) present similar evi- ments; for example, certain types of disabil- dence from surveys and experiments that ref- ity benefits receive preferential tax treatment. erence points matter even in riskless choice. Moreover, employer-paid benefits, such as Related anchoring and reference dependence company health plans, are not taxed, and effects are discussed in Kahneman (1992). individuals can deduct contributions made to The frame-dependent treatment of losses charitable . In addition to the we observe in our study fits in well with many current deductions in the tax code, the type of mental arithmetic developed by a few items have changed or disappeared Thaler. He proposes that individuals set up over time. For example, while unemployment mental accounts for related decisions and compensation was initially fully excludable, in then make judgements in relation to the bal- 1979 certain limitations were imposed, and ances in these accounts. This type of think- since 1987 these benefits have been fully ing can explain, for example, why individuals includable. Adherence to an HS standard often violate the principle of fungibility in for these items would require a definition of their personal finances or why individuals do potential consumption. For example, if taxes not ignore sunk costs when a decision is represent consumption fees and charitable DAHL & RANSOM: TITHING AND THE DEFINITION OF INCOME 131 contributions represent consumption choices be deducted from their tithing base. The most (not transfers of the ability to consume), then plausible interpretation is that supporting a neither should be excluded from the tax base. missionary is a consumption choice which Similarly, for programs and does not decrease an individual’s tithable health plans, the HS criterion does not dic- income. If the consumption interpretation tate how to tax benefits except in connection can be applied to charitable contributions in with the tax treatment of premiums. general, then arguments that do not rely on The results of the survey indicate that an individual’s ability to pay are needed to LDS members consider most of the deduc- support the deductibility of charitable dona- tions just mentioned to be tithable income tions from the federal tax base. (see Table 6). The majority of respondents would not deduct federal and state taxes before tithing their paychecks, and there is Retirement Savings solid consensus that disability and unemploy- Under current federal tax law, workers ment benefits should be tithed. Though a can save for their retirement through tax- majority of respondents do not feel health favored plans such as individual retirement insurance costs for the self-employed should accounts (IRAs) and 401(k)s. Under certain be excludable from income, almost one-third conditions, the law allows taxation on the believe they should. Because few LDS mem- amounts deposited into qualified accounts, as bers probably calculate the value of their well as the interest earnings of the accounts, employer’s health insurance plan and tithe to be postponed until retirement. In 1997 the amount, perhaps some of the respondents Roth IRAs were added to the mix of invest- answering “no” felt that the self-employed ment options, with deposits being taxable should not have to tithe this item either. A and interest earnings being tax-free if certain possible interpretation of the various results requirements are met. These plans depart in Table 6 is that deductions and exclusions from the HS criterion of taxing all savings in the U.S. tax code are viewed by many as regardless of the purpose of the investment, loopholes rather than adjustments reflecting but coincide in spirit with Fisher’s notion an individual’s ability to pay. that investment income should only be taxed The final question on deductions deals once. with the treatment of a charitable contri- The questions in Table 7 ask respondents bution in the form of directly supporting a how they would tithe retirement savings by church missionary.14 We chose this church- asking two questions, with the second ques- related donation rather than a donation to tion being contingent on the answer to the another charitable , such as the first. Though LDS members do not agree on United Way, for two reasons. First, LDS a single unified treatment of retirement sav- members are familiar with the missionary ings, combining the answers to questions 11, program of the LDS Church. In addition, a 12.1, and 12.2 does provide some insights. donation to support a missionary clearly aids Almost one-fifth of the sample would tithe a specific church endeavor, so we felt this both the contributions as well as the full question would provide the strongest test for amount of the monthly retirement check. whether individuals view voluntary contribu- One-third of respondents would follow some- tions as reductions in tithable income.15 The thing closer to an HS approach, choosing to survey results indicate that most respondents pay on contributions and later on the interest do not feel this charitable contribution should earnings of the account.16 Respondents could choose to tithe contributions and then not the 14. The cost of a mission was $375 per month at the monthly retirement check or not to tithe con- time of the survey, regardless of the geographical loca- tion where the individual was asked to serve. Usually, tributions and then tithe the entire amount of missionaries and their families provide their own fund- the monthly retirement check; however, far ing; however, when this is not possible, individuals or fewer respondents chose the first option (4% local congregations provide financial support. 15. Note that although the church has made clear versus 18%). These two approaches closely that missionary contributions are separate from any tithing payment, whether to deduct the contribution 16. Of course, a strict HS approach would require from income before figuring out the tithing base is a dif- interest earnings to be taxed yearly as they accrue, an ferent issue. option not presented to respondents. 132 ECONOMIC INQUIRY mirror the options available to with belong in the tithing base. As already men- the Roth IRA and the traditional IRA. More tioned, the tithing treatment of retirement individuals seem to favor a tithing approach accounts does not depend on whether an that parallels the traditional IRA versus the individual has ever made contributions to an Roth IRA; however, it should be remem- IRA or 401(k) plan. However, our results bered that the Roth IRA was not yet law at do reveal strong evidence of self-interested the time the survey was administered. Alto- tithing behavior in the treatment of capital gether, about a quarter of the sample indi- gains from a home, with homeowners being cated that they were not sure how to deal less likely to say they would tithe a housing comprehensively with retirement savings. capital gain compared to renters. One possible explanation for the wide vari- ation in responses is that individuals have differing amounts of experience with retire- VI. DETERMINANTS OF TITHING BELIEFS ment savings, and their answers are influ- The previous section examined the def- enced by their personal circumstances. For inition of income for the entire sample of example, the fact that so many respondents LDS members who completed our survey. would double tithe the principal may appear Further examination reveals that the degree to indicate lack of serious thought about the and sometimes even the direction of consen- issue. However, further analysis reveals that respondents who have an IRA or 401(k) plan sus differs by respondent characteristics. For are just as likely to say they would dou- example, consider question 2A, which asks if ble pay compared to the rest of the sample respondents would tithe a $10,000 cash inher- (18% versus 20%). The most likely explana- itance. Those who attend church services less tion is that some individuals have a cautious than once a month on average answered desire to be extremely generous in tithing in “yes” 41% of the time (“no” = 49%, “not an effort to obey God’s will. This reasoning sure” = 10%), revealing a sharp division in could also explain why many respondents are opinions. However, the group of respondents reluctant to deduct investment losses from who attend church every week exhibited income even though they include gains (ques- strong internal consensus, with 90% answer- tions 6A, 6B, and 7A). The other possible ing “yes” (“no” = 5%, “not sure” = 5%). choices for how to tithe retirement savings The effect of church attendance for other sur- are likewise not significantly influenced by vey questions is depicted in Figures 1 and 2, whether an individual has ever made contri- revealing substantial differences in tithing butions to a retirement account. One inter- beliefs. pretation of this result is that respondents are Such variation across groups of individ- not financially motivated to skew their defini- uals illustrates the fundamental role of the tion of income to benefit themselves. income definition in equitable assessments of Does financial self-interest explain respon- tax burdens. Two types of individuals may dents’ views about the appropriate income each donate 10% of what they consider to base in general? In Dahl and Ransom (1999), be income, but if one type excludes more we explore whether or not self-serving biases items from the income base, those individuals affect tithable income definitions. A more might be paying much less than 10% given an detailed analysis can be found there; in sum- expanded income definition. How the effec- mary, we find little evidence that income tive rate (the percentage of “true” or com- definitions are affected by the potential for prehensive income paid in tithing or taxes) pecuniary gain. Having received a sizable gift varies according to alternative income base or inheritance does not seem to affect indi- definitions is particularly germane to the flat viduals’ views of whether gifts and inheri- tax literature, because a flat tax does not tances should be tithed. Likewise, whether necessarily tax all individuals at the same an individual has invested in the stock mar- effective rate. For example, wealthier peo- ket, been unemployed, or owned his or ple will on average be taxed at a lower her own business does little to change the effective rate if capital gains are excludable perception that stock market gains, unem- but actually belong in comprehensive income. ployment benefits, and monies used by the The Congressional Budget Office, the Joint self-employed to purchase health insurance Committee on Taxation, and the Treasury DAHL & RANSOM: TITHING AND THE DEFINITION OF INCOME 133

FIGURE 1 Responses to Survey Questions by Average Monthly Church Attendence, Ballot A

100 Number of times respondent attends Sacrament Meeting each month: < one one or two three four + 90

80

70

60

50 Percent 40

30

20

10

0 (Q6A=yes) (Q8A=no) (Q7A=no) (Q1A=yes) (Q2A=yes) (Q3A=yes) (Q4A=yes) (Q5A=yes) Stock Gain (Q9A=yes) Payroll Taxes Gift Stock Loss (Q10A=no) Cash Inheritance Land Inheritance Housing Gain #1 Housing Gain #2 Disability Benefits Self-Emp Health Ins Survey Question

FIGURE 2 Responses to Survey Questions by Average Monthly Church Attendence, Ballot B

100 Number of times respondent attends Sacrament Meeting each month: < one one or two three four + 90

80

70

60

50 Percent 40

30

20

10

0 (Q1B=yes) Gift (Q8B=no) (Q9A=yes) Payroll Taxes (Q2B=yes) (Q6B=a or b) (Q3B=yes) (Q4B=yes) (Q5B=yes) Stock Gain (Q10B=no) Unemp Benefits Cash Inheritance Land Inheritance Housing Gain #1 Housing Gain #2 Missionary Support Survey Question 134 ECONOMIC INQUIRY each have their own definition of comprehen- no such church involvement. Women, LDS sive income. Consequently, as Graetz (1995) members with more children, and respon- points out, these three organizations differ in dents in the lowest family income group also their estimate of effective federal tax rates have significantly higher generosity indices for the various tax brackets by anywhere from on average compared to men, respondents two to ten percentage points. without children, and higher family income Other characteristics besides church atten- groups. In the uncertainty regression, far dance also affect individuals’ definitions of less of the variation in responses can be income. To analyze the joint influence of explained by the regression variables. Once church activity, demographic, and income again, church activity, gender, and the num- variables in determining beliefs about tith- ber of children significantly affect the index. able income, we created an overall index of As might be predicted, those who refused “generosity.” This index was formed by sum- or answered “not sure” to the income ques- ming the number of questions an individual tion also answered “not sure” to the tithing answered in such a way as to increase tithable questions more often. Rather than reduc- income. For example, the index increased ing uncertainty, outside advice about tithing by one if the individual responded that they seems to increase the number of “not sure” would tithe a cash gift (question 1A) or if responses; perhaps those who seek advice they answered that they would not deduct tend to be more uncertain to begin with. taxes before tithing a paycheck (questions As underscored by Table 8, measures of 8A and 8B). A similar index to measure church activity emerge as the most important “uncertainty” was created by totaling the determinants of tithing beliefs. How should number of times a respondent chose “not one interpret the strong positive correlation sure.” For simplicity, we excluded the ques- between church activity and the willingness tions dealing with retirement savings, because of an individual to include an item in tith- it is unclear how the combined answers to able income?18 As explained in section III, questions 11 and 12.1/12.2 should enter the committed LDS Church members likely feel indices. Hence, the generosity and uncer- a stronger moral obligation to think seriously tainty indices range from zero to ten for about the tithe and donate generously. Pre- ballot A and zero to nine for ballot B.17 sumably those more involved with the church Throughout the analysis, we do not mean to maximize utility by thinking about the income imply that individuals who have a broader base more broadly, as they place more weight definition of income necessarily have the on the financial well-being of the church “right” measure of income; rather, in this and their relationship with God. In addi- section we describe how the income defini- tion, active church members may be more tion varies among survey respondents. willing to contribute generously because they In Table 8 we present the results of approve of church expenditures, even though regressing each of these indices on church the expenditures do not benefit them directly. activity, demographic, and income variables Experimental evidence dealing with federal using ordinary least squares. Looking first taxation by Alm et al. (1992) supports this at the generosity regression, these variables view. They find that voluntary tax compliance explain almost a quarter of the variation in depends on the degree of satisfaction individ- the index. The church activity questions have uals have with the government and tax expen- the greatest impact on tithing generosity, so ditures on public goods. that a respondent who attends church every If active members are more likely to actu- week, participates in church social activities, ally tithe their income, then their beliefs are has served a mission, and holds a calling arguably of more interest in understanding has an index that is over three points higher on average compared to respondents with 18. At first glance, the reader might suspect that devoted church members feel a stronger desire to “share 17. When we assigned fractional points based on a their worldly goods” and hence inflate their tithing base. ranking of the different options for questions 11 and However, more direct avenues exist for increasing con- 12.1/12.2, the regression results were almost identical. tributions, including the categories on donation slips Assigning different weights on the responses for the var- labeled “fast offerings,” “missionary work,” “humanitar- ious questions making up the index did not alter the gen- ian aid,” and “other.” As noted earlier, these donations eral results either. are separate from the tithe. DAHL & RANSOM: TITHING AND THE DEFINITION OF INCOME 135

TABLE 8 Determinants of Tithing Generosity and Uncertainty

Dependent Variable

Generosity Indexa Uncertainty Indexb Coefficient SE Coefficient SE

Intercept 34103∗∗ 07068 1224∗∗ 04340 Version B dummy 03279∗∗ 01136 −02327∗∗ 00698 No. times attend church each month 02981∗∗ 00465 −00580∗∗ 00286 Attend church social activities 08989∗∗ 02004 00922 01230 Respondent or spouse served mission 04870∗∗ 01315 −00566 00807 Respondent or spouse holds calling 08485∗∗ 01651 −00382 01014 Asked advice about tithing −00190 01223 02074∗∗ 00751 Discuss items to tithe with spouse 01491 01301 −00338 00799 Age 00171 00205 −00172 00126 Age squared × 100 −00136 00184 00189∗∗ 00113 Female 02020∗ 01198 02795∗∗ 00735 Number of children 00612∗∗ 00295 00045 00181 Any children living at home 02076 01849 −02033∗ 01135 Married −04337∗∗ 01728 01094 01061 Years of education −00138 00320 −00163 00197 income<30K — — — — 30K ≤ income < 60K −05688∗∗ 01504 01199 00923 60K ≤ income −04277∗∗ 01894 −01787 01163 Refused income question −05967∗∗ 01925 03107∗∗ 01182 Urbanc 00758 01387 00260 00851 F-statistic 1745 493 R2 0213 0071 Observations 1182 1182

aNumber of questions answered in such a way as to increase tithable income (excluding questions 11 and 12.1/12.2). bNumber of questions respondent answered “not sure” (excluding questions 11 and 12.1/12.2). cSalt Lake, Utah, Weber, or Davis . ∗Significant at the 10% level; ∗∗significant at the 5% level. the popular definition of income.19 However, cation for tax reform is that citizens’ atti- just as one would want to consider the atti- tudes about government and tax expenditures tudes of people who do not feel particularly likely impact their willingness to adopt and connected to the federal government when comply with a more comprehensive income examining the federal tax base, including base, especially for the nonvoluntary federal members who are only marginally attached to tax system. the church reveals if there is an income def- inition everyone can agree on. It is interest- VII. CONCLUSION ing to note that respondents who do not tithe Attempts to reform the U.S. income tax incur no monetary cost by defining income code must thoughtfully consider how to broadly, yet the individuals we would expect fairly define the income tax base. Indeed, are less likely to tithe (members marginally the main substantive difference between the involved with the LDS Church) seem to hold many alternative tax reform proposals is the to a narrower income definition. The impli- appropriate definition of the income base. Citizens’ views about what should count as 19. The degree of consensus increases when exam- income for tax purposes likely affect the fea- ining active LDS Church members separately, but the general conclusions about which types of items people sibility of such changes and the degree of vol- regard as income do not change. untary compliance with tax law. Our survey 136 ECONOMIC INQUIRY on tithing practices provides an independent Bradley, Martin B., Norman M. Green Jr., Dale E. body of thinking on how ordinary people Jones, Mac Lynn, and Lou McNeil. Churches and Church Membership in the United States, 1990: An define income. We find that LDS Church Enumeration by , State, and County Based on members generally agree on which items dis- Data Reported for 133 Church Groupings. Atlanta, cussed in our survey should count as income. GA: Glenmary Research Center, 1992. For the few items where consensus cannot be Dahl, Gordon B., and Michael R Ransom. “Does Where You Stand Depend on Where You Sit?: reached by the relatively homogeneous group Tithing Donations and Self-Serving Beliefs.” Amer- of LDS members who share common reli- ican Economic Review, 89(4), 1999, 703–27. gious beliefs, it may be too much to hope Doctrine and Covenants of the Church of Jesus Christ of for broad consensus from the much more Latter-day Saints. Salt Lake , UT: Church of diverse U.S. population. However, the results Jesus Christ of Latter-day Saints, 1981. of our tithing survey can help tax reformers Eisner v Macomber, 252 U.S. 189, 8, 1920. Fisher, Irving. “Income in Theory and Income Taxation identify where people most likely agree and in Practice.” Econometrica, 5(1), 1937, 1–55. the accounting rules individuals use to define Goode, Richard. “The Economic Definition of Income.” income. In Comprehensive Income Taxation, edited by Our survey indicates that respondents use Joseph A. Pechman. Washington, DC: Brookings Institution, 1977. a very simple accounting system to determine Graetz, Michael J. “Distributional Tables, Tax Legisla- tithable income, focusing on cash inflows tion, and the Illusion of Precision.” In Distributional not earmarked for specific consumption pur- Analysis of , edited by David F. Bradford. poses. This simple definition includes savings Washington, DC: AEI Press, 1995. and does not allow deductions. The income Groves, Robert M. Survey Errors and Survey Costs. New York: John Wiley and Sons, 1989. concept that emerges from our survey stands Haig, Robert M. “The Concept of Income—Economic in stark contrast to the characteristics of and Legal Aspects.” In The Federal Income comprehensive income listed in section II. Tax, edited by Robert M. Haig. Columbia, The main deviation is in respondents’ focus NY: Columbia University Press, 1921. Hall, Robert E., and Alvin Rabushka. The . Stan- on cash income, an approach the U.S. gov- ford, CA: Press, 1995. ernment uses in other contexts, such as Kahneman, Daniel. “Reference Points, Anchors, Norms, measuring poverty. In respondents’ simple and Mixed Feelings.” and cash inflow system, the source and use of Human Decision Processes, 5(2), 1992, 296–312. potential income items matters, cash receipts Kahneman, Daniel, and Amos Tversky. “Prospect The- ory:” An Analysis of Decision under Risk.” Econo- and realized gains are generally regarded as metrica, 47(2), 1979, 263–91. income, whereas in-kind transfers and unre- McConkie, Bruce R. Mormon Doctrine, 2nd ed. Salt alized gains are not and losses are not always Lake City, UT: Bookcraft, 1966. deducted from the income base. Although it Musgrave, R. A. “A Brief History of Fiscal Doctrine.” is difficult to provide a single explanation for In Handbook of , Vol. 1, edited by Alan J. Auerbach and Martin Feldstein. New York: why respondents define income as they do, North-Holland, 1985. we find varying degrees of evidence for the Newport, Frank, Lydia Saad, and David Moore. “How influence of the current tax code, framing Polls Are Conducted.” In Where America Stands, effects and mental accounting, and financial edited by Michael Golay. New York: John Wiley motivations. As expected, we also find that and Sons, 1997. Ricardo, David, The Principles of Political Economy and respondents who are actively involved in the Taxation. London: J. M. Dent and Sons, 1911 LDS Church generally subscribe to a much [1817]. broader definition of income for tithing pur- Roth, Jeffrey A., John T. Scholz, and Ann Dryden Witte, poses. eds. Compliance, Vols. 1 and 2. Philadel- phia: University of Press, 1989. Saad, Lydia. “Issues Referendum Reveals Populist Lean- ings.” Gallup Poll Monthly, May 1996, 2–6. REFERENCES Shefrin, Hersh M., and Richard H. 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Swainston, Howard D. “Tithing.” In Encyclopedia of Model.” Quarterly Journal of Economics, 6(4), 1991, Mormonism, Vol. 4, edited by Daniel H. Ludlow. 1039–61. New York: Macmillan, 1992. Tyler, Tom R. Why People Obey the Law. New Haven, Thaler, Richard H. “Mental Accounting and Consumer CT: Yale University Press, 1990. Choice.” Marketing Science, 4(3), 1985, 199–214. United States Internal Revenue Code. U.S. Department of Tversky, Amos, and Daniel Kahneman. “The Framing of the Treasury, 1997. Decisions and the Rationality of Choice.” Science, U.S. Congress, House of Representatives. “Committee 211, 1981, 453–58. Report of the Act of October 3, 1913,” reprinted Tversky, Amos, and Daniel Kahneman. “Loss Aver- in IRS 1939-1 (Part 2) C.B.3, 1913. sion in Riskless Choice: A Reference Dependent

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