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.
. . . So Well Read. . . 