No truth dividends in tax debate (1/31)

By Brendan Nyhan

The debate over President Bush's new tax cut package has been marred by the administration's blatantly deceptive talking points, which are then spun further by top officials and parroted (often incorrectly) by allies. A case in point is Bush's proposal to eliminate the tax on dividend income from stocks for individuals.

Since this proposal was first introduced, the administration has tried to counter criticism that it is skewed toward the wealthy with claims that a broad swath of Americans would benefit. Vice President Dick Cheney said, for example, "Other critics have suggested that ending the double taxation of dividends is somehow tilted toward a small number of wealthy beneficiaries. The fact is that 54 million Americans own stocks that pay dividends." He then argued that "45 percent of all dividend recipients make under $50,000 per year," while "[t]hree-fourths of them make less than $100,000 per year."

Bush advisor Karl Rove later turned these misleading statistics into pure fiction in a Q&A session with reporters last week, claiming that "45 percent of all of the dividend income goes to people with $50,000-or-less incomes, family incomes. Nearly three-quarters of it goes to families with $100,000 or less family income."

As we have demonstrated, however, the 54 million figure cited by Cheney is misleading because it includes approximately 19 million Americans whose dividend payments accrue solely in tax-free retirement accounts and would therefore not benefit directly from the President's plan; this is why the administration's official talking points use a figure of 35 million.

In addition, Rove is completely wrong about the distribution of dividend income, as Dana Milbank pointed out in the Washington Post:

43.8 percent of tax returns with dividend income are from households with less than $50,000 in income and 73.8 percent of such returns are from households with less than $100,000. But that doesn't mean the little guy earning less than $50,000 gets "45 percent of all the income" or that the Main Street earners below $100,000 get "three-quarters" of dividend income.

In fact, those earning less than $50,000 get 14.7 percent of dividend income, and those earning less than $100,000 get 32.7 percent, according to a Brookings Institution/Urban Institute analysis. The former would get 6.8 percent of the benefit of Bush's dividend plan, while the latter would get 20.9 percent. [italics in original]

For the same reason, Cheney's statistics are misleading. By emphasizing the number of people who receive any dividend income, he implies that the benefits of the elimination of taxes on dividends would be more evenly distributed than the statistics bear out.

The administration has been especially eager to push the benefits of the plan for seniors. Its talking points state that "[a]lmost half of all savings from the dividend exclusion under the President's plan would go to taxpayers 65 and older. The average tax savings for the 9.8 million seniors receiving dividends would be $936." This $936 figure is yet another misleading administration average. As with most such figures, it exaggerates the benefits of the tax proposal at hand because dividend tax payments - like income tax payments - are concentrated toward the top of the income scale, which skews the average upward.

Press Secretary Ari Fleischer elaborated on the putative benefits to seniors with an array of statistics during a briefing on the plan on January 7:

Of the 12.6 million taxpayers 65 and older with income over $15,000, 58 percent receive dividends... There are 8.2 million taxpayers 65 and older with income over $30,000 a year, 66 percent of them receive dividends. So clearly, the number of seniors receiving dividends goes down far lower on the income scale [than reporters had implied in questioning him].

However, new data from the center-left Urban-Brookings Tax Policy Center [6K PDF] shows how Fleischer's numbers are carefully constructed with a lower bound that makes it appear that many more low- and moderate-income seniors receive dividend income than is actually the case. Only 21.3% of those making $10,000-$20,000 would have their taxes reduced at all as a result of the elimination on income taxes on dividend payments, along with 39.7% of those making $20,000-$30,000 and 47.1% of those making $30,000-$40,000. These senior income groups as a whole will receive average tax cuts of $26, $89 and $170, respectively. And as with the public as a whole, the benefits of the dividend tax proposal are concentrated among the higher income elderly - the Center on Budget and Policy Priorities found that "[m]ore than three-quarters of the benefits that would go to the elderly from this tax cut [the elimination of taxes on dividends] would flow to the 19 percent of elderly with incomes above $75,000" and nearly 43% would go to those with incomes greater than $200,000.

Despite these facts, administration allies in the conservative movement and the press have seized on its talking points to laud the plan as a great boon to Americans of modest means, especially seniors. In a Washington Times op-ed, United Seniors Association CEO Charles W. Jarvis carefully regurgitated Fleischer's numbers:

[I]t's not simply the rich who are paying the price for this ridiculous policy [dividend taxation]. It's average Americans and senior citizens who make as little as $15,000 or $30,000 a year. In fact, of the 12.6 million taxpayers who are age 65 and older with an income over $15,000, 58 percent receive dividends. Of the 8.2 million taxpayers 65 and older with incomes over $30,000, a whopping 66 percent receive dividends. The dividend tax falls hardest on retirees.

So, too, did the Wall Street Journal [subscription required], whose editorials have become a veritable transmission belt of misleading administration statistics:

What about the charge that eliminating double taxation is a sop to the rich? Hardly. Not unless one is prepared to count as "rich" the 46% of taxpayers who have dividend income but earn less than $50,000. Dividend-earning taxpayers are represented in all income levels; IRS data for 2000 show that some 34.1 million tax returns have dividend income, or more than one-quarter of all returns.

Finally, Donald Lambro of the Washington Times recently joined Karl Rove in the pantheon of those who have exaggerated administration statistics to the point of falsehood, claiming in a news report that Bush's "plan to end the tax on stock dividends will largely benefit older, retired voters, 10 million of whom receive much of their income from dividends."Actually, only ten million seniors receive dividend income at all. For many, these payments are quite small as a percentage of their income.

Unfortunately, this pattern has become all too common - it is easy to deceive the press and the public using statistics, and all too rare for the media to point out the truth.

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Related links:
-Confusion reigns in debate on whether Bush tax cut is "progressive" (Brendan Nyhan, 1/30/03)
-State of the Union features more tax cut spin (Bryan Keefer, 1/29/03)
-Not your ordinary averages (Bryan Keefer, 1/24/03)
-Taxing the public trust (Bryan Keefer, 1/10/03)

1/31/2003 11:26:05 AM EST |

Confusion reigns in debate on whether Bush tax cut is "progressive" (1/30)

By Brendan Nyhan

In the Notebook section of the Feb. 3 issue of The New Republic (not available online), the editors criticize a Wall Street Journal editorial for misstating the effects of President Bush's new tax cut package. But without knowing the assumptions of both sides, this debate is very difficult to follow. A closer look illustrates an important - and confusing - point about the distributional effects of Bush's plan that has been obscured by both sides.

TNR denounces the Journal in no uncertain terms:

The new editorial begins with an outright falsehood: "[T]he Bush proposals would make the tax code more progressive, not less." In fact, the top 1 percent of taxpayers would have their tax burden slashed by 9 percent, the middle quintile would have its taxes cut by 4.5 percent, and the lowest quintile would have its taxes cut by 0.8 percent.

Is TNR right that the Journal's statement is "an outright falsehood"? Essentially they are, but good luck following this debate without doing some research. The Journal editorial is based on a Treasury Department press release and distribution table. Under this argument, the Bush plan makes the federal income tax more progressive because, as Treasury claims, families with income under $50,000 "will pay a smaller share of the total income tax burden under the President's proposal than they do under current law" while "families with income of $100,000 or more ... [would] pay a larger share of the total income tax burden." This is due to the fact that the percentage reductions in tax rates would be larger than the overall average for those in the former group, and smaller than the overall average for those in the latter.

The underlying premise of the Treasury/Journal argument is that the progressivity of the tax system is calculated by looking at the income tax liabilities of various income groups, which is determined by their average tax rates and share of the overall income tax burden. By this measure - and generally excluding taxpayers with no income tax liability under current law - they are essentially correct. However, as TNR claims, the Journal was incorrect to claim that its conclusion pertains to the "the tax code" as a whole - that term refers to all federal taxes, not just income taxes.

In response, TNR points to data showing that the effects of the Bush plan are not progressive in terms of the effects on the overall tax burden carried by different income groups. Unlike the Journal and the Treasury Department, it specifically breaks out the effect on the poorest Americans in lowest quintile, who generally pay no income taxes and often receive tax subsidies. But beyond these differing definitions of progressivity, there is a fundamental question that is left unanswered: how can a tax cut simultaneously make the income tax more progressive and the overall federal tax code less so?

It's all too common for this issue to be ignored by liberal opponents of the plan. For more clarity, let's turn to one critic who shows us how to square the circle, the Brookings Institution's Peter Orszag. He recently engaged these points in more detail in testimony to the Democratic Policy Committee [36K PDF], finding that the top 1 percent of taxpayers by income pay 36.7 percent of income taxes but receive 28.8 percent of the proposed tax cut in 2003 (a finding that is broadly consistent with the Treasury figures). But he points out that this 28.8 percent figure is larger than the group's share of the overall federal tax burden, which is 24.8 percent. This means that the Bush plan would reduce the relative share of federal taxes paid by the top 1 percent even as it increased their share of the income tax burden. The explanation for this is that the tax cut reduces income tax revenues as a percentage of overall federal tax revenues, increasing the proportion of federal taxes coming from taxes that fall more heavily on lower-income Americans, such as excise and payroll taxes.

In short, the issue of whether Bush's tax cut is "progressive" or not depends on your views on taxes and your definition of the term. Both sides should make their premises clear so the public can fairly draw its own conclusions - unfortunately, however, this is all too rare.

[Addendum: In the same Notebook item, TNR rightly hits the Journal for a highly misleading claim that it recycled from the Treasury press release: "[T]axpayers with incomes over $200,000 could expect on average to pay about $99,000 in taxes under Mr. Bush's plan." This is another deceptive average figure that is skewed upward by the taxes paid by wealthy Americans, who have incomes far higher than $200,000.]

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Related links:
-State of the Union features more tax cut spin (Bryan Keefer, 1/29/03)
-Not your ordinary averages (Bryan Keefer, 1/24/03)
-Taxing the public trust (Bryan Keefer, 1/10/03)

1/30/2003 12:44:18 PM EST |

State of the Union features more tax cut spin (1/29)

By Bryan Keefer

President Bush's State of the Union address tonight prominently featured a repetition of the deceptive White House talking points about the distribution of benefits that a typical family could expect to receive from his tax cut proposal.

Early in his speech Bush repeated a pair of misleading talking points. The President claimed that under his tax plan "92 million Americans will keep, this year, an average of almost $1,000 more of their own money. A family of four with an income of $40,000 would see their federal income taxes fall from $1,178 to $45 per year." As I have demonstrated before, however, these figures are carefully constructed to provide a misleading portrait of what a typical taxpayer near the middle of the national income distribution could expect to receive.

The Urban-Brookings Tax Policy Center, a center-left economic think tank, calculates that under Bush's proposal a family in the middle one-fifth of the income distribution could expect to see an average of $256 cut from their taxes in 2003. A family in the next highest one-fifth of the distribution (from the 60th to the 80th percentile) could expect an average reduction of $574. Both are a far cry from the figure of $1,100 cited by the President, which is arrived at by dividing the cost of the cut by the total number of taxpayers - a method that provides a poor measure of the cuts for middle-income households (due to the large absolute value of cuts for taxpayers at the upper end of the income spectrum). Bush's theoretical family with an income of $40,000 is also misleading in that it benefits disproportionately, relative to other taxpayers of comparable income, from the reduction of the so-called marriage penalty and the child tax credit.

Bush should, of course, campaign aggressively for his policies. That campaign, however, should not include misleading the public about what they can expect from his tax package.

Update 2/3/03: The above estimates of the benefits of the tax cut to middle-income taxpayers have been changed to reflect the Urban-Brookings Tax Policy Center's revised estimates. An earlier version of this article relied on the Center's preliminary estimates, which were released January 7, 2003.

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Related links:
-Not your ordinary averages (Bryan Keefer, 1/24/03)
-Taxing the public's trust (Bryan Keefer, 1/10/03)

1/28/2003 09:03:11 PM EST |

Dems keep up inflammatory anti-Bush rhetoric (1/28)

By Ben Fritz

Outrageous rhetoric aimed at the Bush administration seems to be the order of the day for some Democrats, as they continue to equate the President's opposition to affirmative action, his nominations of conservative judges, and his opposition to legalized abortion with retrograde views on civil rights.

As we noted last week, several Democrats took the President's opposition to the University of Michigan's policy on the use of race in admissions and his re-nomination of Judge Charles Pickering to the 5th Circuit Court of Appeals as an excuse to accuse him of opposing "civil rights." Senator Charles Schumer, D-NY, has now taken that rhetoric a step further. "For years, the federal courts served as the shield protecting basic civil rights in this country. This administration wants the courts to become the sword that destroys those rights," Schumer stated on January 8, implying that Bush's disagreement with him on several issues constitutes a desire to "destroy" a broad spectrum of civil rights, most of which are not under threat.

Senator Edward Kennedy, D-MA, used similar rhetoric regarding Pickering and other nominations in a speech last week. "It is therefore deeply discouraging that this Republican president continues to put forward judicial nominees who are plainly hostile to civil rights."

Finally, although speaking somewhat facetiously, former Vermont Governor and Democratic presidential candidate Howard Dean went the furthest overboard in rhetoric aimed at Bush, speaking at a recent NARAL Pro-Choice America dinner. "It's not just abortion rights or reproductive freedoms [that are under attack]," Dean stated. "Title IX is under attack by this administration. And I think if one of us doesn't win, next thing girls won't be able to go to school in America, you watch." [Dean's statement is approximately 1:09 into this video in Real Player format.]

Comparing the Bush administration's opposition to abortion rights and consideration of changes to Title IX with opposing education for girls, a policy most recently known for its practice in Taliban-ruled Afghanistan, is an offensive cheap shot. It makes serious debate about the merits of these positions impossible, hardening partisan lines and putting inflammatory rhetoric ahead of a remotely reasonable discourse. That, however, is where it seems much of the recent discussion of civil rights and abortion rights has been heading.

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1/28/2003 07:19:40 AM EST |

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