CNN’s Expiring “Better Press Corps” Membership

With depressing regularity (and an inattentiveness to comma usage), economics blogger Brad DeLong asks, “Why oh why can’t we have a better press corps?”

Good question. Today’s prime offender is CNN, which has a post on its Political Ticker blog that mimics, whether deliberately or not, conservative propaganda about tax increases. This toxic mix of sloppy journalism and economic illiteracy reinforces the Republican narrative — epitomized by Sen. Jon Kyl’s assertion that the president has a “sort of fixation with raising taxes above anybody making more than $200,000 a year” — that President Obama wants to “soak the rich.” The supposedly centrist news network writes (with the problematic bits highlighted):

The president campaigned on a message that tax cuts should be allowed to expire on households making more than $250,000, while Republicans have pushed for all Americans to benefit from continued tax cuts. In the ongoing negotiations, Congress has yet to come up with a plan that firmly sets a threshold figure.

Wrong. All Americans would benefit from the continued tax cuts that Obama is proposing. Whatever the merits of maintaining Bush-level tax rates for household (married, filing jointly) income under $250,000, it’s not just the “middle class” that would reap the benefits. The first $250K earned by any couple, rich or poor, would be taxed in the Bush-era brackets, which range from 10% for income under $17,850 to 33% for income between $223,050 and $247,000. The new categories, for income above the thresholds of $247,000 and $398,350, would tax the applicable money at 36% (up from 33%) and 36.9% (up from 35%). Neither of these two brackets would affect income below the cutoff points, contradicting CNN’s assertion that all “households making more than $250,000” would see all their tax cuts expire. All Americans would benefit from the continuation of the lower-bracket rates. It’s impossible, after all, to make $1 million without first making $250,000.

Of course, Obama’s own standard phrasing doesn’t help the matter either. When he says that taxes would increase on the top 2 percent, he doesn’t specify that he’s talking about effective rates – the average rates paid by each household. Indeed, high-earning households would pay more if the top rates went up. But they would still benefit from the so-called “middle class” tax cuts, as their first $250K would still be taxed at the preserved Bush levels. It’s more accurate to say that the president thinks some tax cuts should be allowed to expire on households making more than $250K. Or CNN could say that tax cuts should be allowed to expire on income over $250K. But it’s not right to suggest, as Republicans often do, that anyone making a penny over $250K would be hit hard by the president’s proposal, or that those households would see no benefit. If you make a penny over $250K, only that penny is taxed at the higher rates. The rest of your income is taxed at just the same rate as if you’d only earned $249,999. You’re still seeing some perks here.

The Political Ticker post also contributes to the general economic ignorance that afflicts the nation as a whole. The press’ seeming inability to grasp the concept of marginal tax rates has been a bee in the bonnet of progressive bloggers for quite awhile; it most recently manifested itself in the pushback against a Times article in which the reporter failed to point out the inaccuracy of a business owner’s claims about tax increases. Even the Times public editor weighed in on that one. The offending passage, in case you’re interested:

Kristina Collins, a chiropractor in McLean, Va., said she and her husband planned to closely monitor the business income from their joint practice to avoid crossing the income threshold for higher taxes outlined by President Obama on earnings above $200,000 for individuals and $250,000 for couples.

Ms. Collins said she felt torn by being near the cutoff line and disappointed that federal tax policy was providing a disincentive to keep expanding a business she founded in 1998.

“If we’re really close and it’s near the end-year, maybe we’ll just close down for a while and go on vacation,” she said.

In a blog post, public editor Margaret Sullivan agreed that the business owner cited uncritically by the reporter “appeared to believe that if the income went over ‘the cutoff line,’ that all of their income would be taxed at a higher rate. That’s not the case. Only the amount over the limit is taxed at the higher rate.” Sullivan’s verdict? “When someone gets it wrong, The Times has an obligation to set the record straight, right then and there.”

Sadly, it took not a (relatively) well-paid Times reporter but bloggers at new media sites like The Atlantic and The Huffington Post to expose the fallacy. Under the headline “Rich People Who Don’t Understand Taxes Should Be Told So,” Atlantic’s Derek Thompson penned a clarification that the folks at CNN — or at least the CNN intern who crafted the Political Ticker blog post while her superiors were drinking holiday mai tais in Tahiti — would do well to read:

When President Obama says he’s going to raise the top marginal tax rate, the key words there are “top” and “marginal.” According to the president’s plan, every dollar under $250,000 of earned income will enjoy the same tax cut it has today. He’s only pledged to raise taxes on income above that level by about 5%. So, if you make $251,000 next year, your tax bill wouldn’t go up by $12,000. It would go up by $50. A steak dinner, not a small car.

Basically, Kristina Collins is making a miscalculation that’s probably worth tens of thousands of dollars. No wonder she doesn’t want to expand her company.

More broadly, writers at New York Magazine and MSNBC have voiced exasperation at the media’s repeated and constant parsing of Obama’s tax plan – which would impose higher rates on income above $250,000 – in simplistic terms that suggest people making more than $250K would see no benefits. As Thompson notes, even millionaires would be taxed at the same rate as paupers on the first $250K of income. No one – not Warren Buffet, not Warren Buffet’s secretary, not even Sheldon Adelson – would see higher rates on that money. The higher marginal rates apply only to income above the cutoff of $247,000.

Most Americans already don’t understand marginal rates; like the woman in the Times story whose grasp of basic TurboTax principles is frighteningly weak, they think a top rate of 35% means the feds collect 35% of Adelson’s entire multi-million-dollar income. This confusion of effective and marginal tax rates plays into Republican hands by painting Obama’s plan as starkly dividing the country between rich and poor, when in reality “keeping rates low for the middle class” benefits the upper crust as well. For sure, lower rates on the first $250K are worth less, as a percentage of income, for someone whose income is 99% above that level. But it doesn’t mean that the lower rates are worthless. And it doesn’t make CNN’s phrasing any more accurate.

CNN isn’t the only offender here. Politico, which is notoriously more interested in crafting “narratives” (often proved false after reality intrudes in the form of, say, an election that Mitt Romney loses) and pushing the same inside-the-Beltway false equivalence that motivates the billionaires behind Fix the Debt to advocate lower tax rates at the expense of Social Security, also makes the error:

Backed by Obama, Reid has insisted that the lower rates should be allowed to lapse for taxpayers earning more than $250,000 a year, though the president has floated a $400,000 cutoff as a compromise. If there’s no deal, Reid is prepared to push for a vote Monday to extend tax rates for those who earn less than $250,000.

The lower rates would still apply, of course, to taxpayers who earn more than $250,000. They just wouldn’t apply to those people’s income above $250,000. It’s a subtle but crucial difference, though it’s hardly a surprise that an outfit like Politico — which all too often hews to the counterfactual Pete Peterson line that going over the “fiscal cliff” would be bad for deficit reduction — would fail on basic math.

Less excusable is this post from Bloomberg’s opinion section. Coming from a news organization ostensibly dedicated to business journalism, this is particularly irritating. Paula Dwyer seems no less informed about marginal tax rates than the chiropractor in the Times story. Hint to Dwyer: Don’t finish Obama’s quotation for him if your paraphrase mischaracterizes his position:

“If all else fails,” Obama said, the first bill on the House and Senate floors, once a new Congress convenes on Jan. 3, would cut taxes for households earning less than $250,000.

The sloppy language at Bloomberg isn’t restricted to its opinion writers. A news article contains the following distortion:

Republicans and Democrats agree that George W. Bush-era income tax cuts should be extended for the vast majority of taxpayers. Obama and other Democrats want to let the tax cuts expire for the top 2 percent, or married couples earning more than $250,000 a year. Republicans oppose higher tax rates for any income level.

Actually, some of the tax cuts would be extended for all — not just the vast majority — of taxpayers. The top 2 percent would see some, but not all, of their tax cuts expire. The article’s phrasing is more a sin of omission; it’s not technically wrong to say tax cuts will lapse for couples earning over $250K, but it is incomplete.

Some news organizations, however, get it right. It seems silly to give props to the Washington Post and ABC News for the simple fact that they refer to income instead of households when writing about taxes, but on this issue bar is awfully low. Here’s ABC, from a blog similar to Political Ticker — proving, I suppose, that rapid-fire posting is not an excuse for inaccuracy:

Reid’s backup legislation would reflect the Democrats’ side in this quagmire, demanding a tax boost for household incomes greater than $250,000.

And here’s the Post:

Republicans were seeking tax increases only on income higher than $400,000 or $500,000 a year, while Obama wanted to set the threshold at $250,000 a year.

Despite the previous kerfuffle over marginal tax rates, the Times is also clear:

With the Bush-era tax cuts expiring, Mr. Obama and Democrats have said they want tax rates to rise on incomes over $250,000 a year; Republicans want a higher threshold, at perhaps $400,000.

Take note, CNN. That wasn’t so hard, now was it?

Thou Shalt Not Lie

Anyone who knows me knows I am a fan of the New York Times. I am not a fan, however, when the paper is wrong. And I am especially not a fan when its reporters and editors know they are wrong, yet continue to contribute to a widespread falsehood. In an article about the upcoming State of the Union address, Jackie Calmes writes that Republican candidate Mitt Romney “said he paid a rate of about 15 percent. That is a lower rate than many taxpayers who make much less income pay, reflecting a tax break opened in the past decade by the Bush administration and a Republican-led Congress for taxpayers whose income relies on investments rather than wages.”

The Times is wrong, and it knows it. Just yesterday, David Leonhardt, the paper’s Washington bureau chief, dispelled the myth of Romney’s lower tax rate in a news analysis entitled “Why Taxes Aren’t as High as They Seem.” The marginal tax rate — i.e. the rate applied to the highest dollar of a person’s income — for someone making $70,000 is 25%, which is obviously more than 15%. But, as Leonhardt points out, Romney was referring to his effective tax rate, the percent of his total income he pays in taxes. Because the vast majority of his income is taxed at the capital gains rate of 15%, his effective tax rate is not very different. The effective rate for an average American family is nowhere near the marginal rate of 25%. The first $8,500 of anyone’s income is taxed at the lowest rate of 10%; as income increases, the rates also increase, up to the maximum of 35%. Add in deductions (for mortgage interest, etc.) and credits (the child tax credit, the earned-income tax credit), and most people pay a lower effective rate than Romney’s 15%. In fact, as Leonhardt writes, “a large majority of American households — about two out of three — pays less than 15% of income to the federal government, through either income taxes or payroll taxes.”

CNN reports the following: “If you consider income tax liability alone, the average effective federal tax rate for people with incomes between $40,000 and $50,000, for instance, is just 3.2%, according to Tax Policy Center estimates. For families making $50,000 to $75,000, the effective tax rate is 5.7%. From $75,000 to $100,000, it’s 7.2%. And if you make $200,000, it goes up to 9.9%.”

The Center on Budget and Policy Priorities, a respected left-leaning think tank, confirms that “middle income Americans are now paying federal taxes at or near historically low levels.”

• “A family of four in the exact middle of the income spectrum will pay only 4.7 percent of its income in federal income taxes this year. The 4.7 percent effective tax rate — the percentage of its income that a family pays in taxes — is well below the 15 percent marginal tax rate that a family of four in the exact middle of the income spectrum faces.”

Even when payroll taxes are included, middle-income families pay less than the 15% that Romney pays in income taxes alone. (Payroll taxes are not levied on capital gains, however, so his overall federal tax rate is likely close to his federal income tax rate.)

• “Households in the middle fifth of the income spectrum paid an average of 14.3 percent of their income in overall federal taxes in 2007, the latest year for which data are available.”

Anyone interested in the specific numbers should check out the Tax Policy Center’s data on historical effective tax rates. That data makes clear that, while President Obama’s so-called “Buffett Rule” (under which Warren Buffett would not be allowed to pay a lower tax rate than his secretary) may make for a good campaign slogan, it would change very little about the tax system. Warren Buffett, who has estimated his own tax rate at 17%, already pays a higher rate than his secretary. But the fact that her marginal rate (probably 15% or 25%) is higher than her effective rate (probably close to 4.7%) allows Obama to — well, to lie. When liberals tell you Romney and Buffett pay a lower tax rate than the average American, that’s a lie. Or, as Al Gore would say, it’s an inconvenient truth.

Look, there are lots of problems with our tax system. There is a good argument for taxing capital gains at the same rate as regular income, and there’s an even better argument for taxing the sort of private equity income Romney receives (“carried interest”) at a higher rate as well. In fact, those arguments are so good that there is no reason to resort to peddling false information. The wealthy need to pay more in taxes than they currently do. Personally, I’d like to see several brackets added above the 35% for all income above $391,151. It makes no sense to tax the millionth dollar at the same rate as the 300,000th. At the very least, the lower rates established by George W. Bush should be allowed to expire, returning the top rate to 39%.

America needs to have a debate about taxes, and I believe it’s a debate liberals can win. But we’re not going to win by fudging numbers and making up stories. We don’t need to lie. For that reason, the Times, which regularly takes Mitt Romney to task for lying about President Obama’s policies, should be ashamed of itself.