Ethan Miller: The Millennials' financial-literacy crisis

Summer is a time of endings and beginnings. For most of the about  1.8 million people who just graduated from college, this season marks the end of at least 17 years of formal education and the launch of their careers.

My career started a little sooner than that. 

My first real job was as a student organizer during my senior year at American University, in Washington. Right before I graduated two years ago, when I filed my tax return, I was surprised to learn that I owed an extra $1,200 on the less than $13,000 I earned.

Why did I owe the  Internal Revenue Service so much? Because my employer misclassified me as an independent contractor, I owed self-employment taxes in addition to regular income taxes. And, because I had no idea I needed to pay these taxes every quarter, I owed a large lump sum that Tax Day.

It was a big wakeup call. As a 21-year-old soon-to-be college graduate majoring in economics, I was financially illiterate. Neither in college nor at  top-ranked Wootton High School, in Rockville, Md., did I learn how to manage my money beyond making sure I could budget for the basics.

When I talk to my friends about those tax troubles, I find that their grasp of personal finance is just as poor or worse. While we might feel ready to start our careers after graduation, we’re woefully unprepared to look out for ourselves in the economy.

And we aren’t alone. A recent Financial Industry Regulatory Authority (FINRA) study showed that less than a quarter of millennials could correctly answer at least four out of five questions on a basic financial literacy quiz.

As the lackluster recovery from the Great Recession lumbers forward, personal finance matters more than ever. Some 53 million Americans — one in three working people — are freelancers. And according to software company Intuit, 40 percent of the workforce will be freelancing or working as an independent contractor by 2020. That’s a pleasant way of saying they lack job stability.

In the so-called gig economy, juggling multiple part-time or temporary jobs to make ends meet is commonplace. Unless they qualify for health care subsidies, people working in this sector pay for medical insurance completely out of pocket. If they manage to save for retirement, they have to do it alone.

Many millennials are learning the rules of the game as we’re playing it. But we’re actually a lot like our elders. The FINRA study showed significant rates of financial illiteracy among Boomers and Gen Xers as well.

The difference is that our generation faces a job market that’s nothing like the one our parents faced. Combined with the $1.2 trillion of student-loan debt currently owed, that means we need more financial smarts if we’re going to thrive in today’s precarious economy.

More public K-12 school systems across the country need to follow the example of states like Virginia by prioritizing students’ financial literacy and requiring a course in personal finance regardless of whether they’re college-bound or not. Everyone needs to know enough of the basics to fend for themselves.

Of course, if our nation’s employers took the high road and paid fair wages, provided health care and retirement benefits, and gave regular, reliable schedules, we wouldn’t have to rely so much on our own wits to get by. But if our bosses won’t look out for us, we have to look out for ourselves.

Many Millennials are struggling to pay our bills now, much less build a solid future. Just as I’ve had to educate myself financially, my entire generation needs to get up to speed on how the economy works (or doesn’t), so we can join together to make it more sustainable for everyone.

Ethan Miller (Ethan99@gmail.com), is a labor-rights activist  and a New Economy Maryland Fellow with the Institute for Policy Studies.  This originated at OtherWords.org.

Bob Lord: A tax cut for tax cheats

If the most frequently dialed federal agency in America can’t even answer two-thirds of the millions of phone calls it gets, should the government cut its budget?

Congress thinks so. That agency is the Internal Revenue Service (IRS). And lawmakers have hacked at its budget yet again.

Worse still, those cuts will cost more money than they’ll save. They’re basically “a tax cut to tax cheats,” said IRS Commissioner John Koskinen.

Regardless of your feelings about the IRS, Koskinen is right.

The government has slashed the enforcement portion of the IRS budget by nearly 20 percent over the last five years. That’s forcing the IRS to shrink the number of employees working on enforcement by 15 percent.

Talk about being penny-wise and pound-foolish. For every dollar the IRS spent in 2013, it collected $255, according to National Taxpayer Advocate Nina Olson.

Imagine that someone told a CEO that a given department was bringing in hundreds of dollars to his company for every dollar it spent. “It is difficult to see how the CEO would keep his job if he chose not to provide the department with the funding it needed,” Olson said.

Yet, she noted, “that is essentially what has been happening with respect to IRS funding.” Congress has slashed the IRS budget four times in five years. And those cuts are feeding the budget deficit that conservatives supposedly fret about.

It’s all about political expedience. Remember when the IRS faced accusations of singling out conservative nonprofits for tax scrutiny? Along with other experts, I predicted that it would spur further IRS budget cuts. Now Republican lawmakers are taking their revenge.

It’s a vicious cycle. Critics attack the IRS for making mistakes, darkening the public’s view of it. That gives political opportunists a chance to lobby successfully for cuts. A smaller budget virtually guarantees future mistakes by a cash-strapped agency.

Taxpayer services are underfunded too. The IRS now is unlikely to answer even half the phone calls it gets from taxpayers, Olson says. The average wait time is 30 minutes.

So another vicious cycle plays out as taxpayers who try to do the right thing get frustrated. Evasion rates rise. Pressure on the IRS enforcement team mounts.

On top of all that, taxpayers and collectors alike are coping with a tax code that’s more complex than ever. The IRS is responsible for implementing about 40 new provisions of the Affordable Care Act alone, for example.

And it could get more absurd.

The Republican Party is fundraising on the promise of abolishing the IRS altogether, as Citizens for Tax Justice reports. What happens when a country can’t collect taxes?

“Italy and Greece have been stuck in vicious cycles in which tax evasion runs rampant,”Washington Post columnist Catherine Rampell recently wrote. So politicians “raise tax rates to extract more money from the few law-abiding saps still out there, encouraging people to hide economic activity from even higher tax rates, and so on.”

That kind of dysfunction hurts honest taxpayers and bankrupts governments.

Let’s change course before it’s too late.

Bob Lord, a veteran tax lawyer, practices and blogs in Phoenix.  He is an Institute for Policy Studies associate fellow. This was distributed via otherwords.org.