August 15, 2004

This Stuff Always Pisses Me Off

Mainly because I hate doing math. But no matter. Just looked through the Washington Post article that describes the Congressional Budget Office report released on Friday. (I encourage you to follow the previous link to their site and read the report for yourselves. Print it out, even and have it handy. It's the report titled "Effective Federal Tax Rates Under Current Law, 2001 to 2014.")

As usually happens with these things, they skew the numbers, mainly by telling you only what they think you should know. They assume (and for the most part, rightly so) that you won't bother to look up the numbers for yourselves. That's where I come in. I don't sleep that much anyway.

NOTE: I should preface this all by saying that I am NOT a numbers kinda guy, and that it IS entirely possible that I'm the one that's reading these numbers wrong. But I don't think so. I'll show you what I got, and you can decide for yourselves. Fair enough?

WaPo statement #1:
The CBO study, due to be released today, found that the wealthiest 20 percent, whose incomes averaged $182,700 in 2001, saw their share of federal taxes drop from 64.4 percent of total tax payments in 2001 to 63.5 percent this year. The top 1 percent, earning $1.1 million, saw their share fall to 20.1 percent of the total, from 22.2 percent.

First of all, I'm not sure why, but their first set of numbers (including the ones from their cute little figure box) all come from table 3, which is based on the 2000 tax laws. The second set is from table 2, which is based on the new tax laws. I don't know why they are using the table 3 numbers, as the first of the Bush tax proposals (The Economic Growth and Taxpayer Relief Reconciliation Act of 2001, or EGTRRA) was enacted in 2001, and I'm assuming that when the table says 2001, they mean the taxes you paid FOR 2001, in 2002. AND there certainly is a listing for 2001 under the new tax laws. Any of you accountants out there have any ideas on this one? It really doesn't matter in the long run, because what really matters is the difference between the figures on the two tables--i.e., how the Bush tax proposal changed things. That's where table 4 comes in.

Table 4 measures the difference between what they think would have happened without BushTax (that's what it is from now on) and what they anticipate will happen with BushTax. These are the important numbers. They're measured in percentage points. We're going to look at the ones trumpeted by WaPo--share of total federal tax, and share of income tax. (Well, they didn't exactly trumpet that one, but they did slip it in there.) If the number is negative, that means you have a smaller share under BushTax than you would have had without it--that's good for you. If it's positive, your share is larger--bad for you.
The analysis, requested in May by congressional Democrats, echoes similar studies by think tanks and Democratic activist groups. But the conclusions have heightened significance because of their source, a nonpartisan government agency headed by a former senior economist from the Bush White House, Douglas Holtz-Eakin.

Ahhhhh....See, this is the section where they are duty-bound to inform you that the Democrats requested this study. But, just in case you think it's a partisan thing, they make sure you know that the CBO is impartial. I have no problem with that--I'm sure they are impartial (it's the Post article I'm not so sure about). In fact, I'm going to use their numbers. I'm just going to use more of them.

I should point out though, that there are some problems with the CBO report. For instance, they use "households" rather than "taxpayers." Live with a room mate? Well, CBO is combining your income! This means that the CBO report is including about 14 million people that don't pay taxes! Of course they're not going to have a share of the federal tax! They also don't use the Adjusted Gross Income figure (what's on your tax return), which means their "income" could include things like food stamps or retirement savings. This has the effect of inflating the "income" numbers, and could make someone making $75,ooo a year seem like they're actually making $100,000 a year. So keep that in mind. If you need a better explanation, then check the Tax Foundation's "Cautionary Notes for Comparing CBO’s Household Data to Standard Tax Data." (You can also check out their take on the CBO report here. I think you'll find the message a little different than that of the Post.)

The rest of the WaPo article is just a "he said/she said" between the political parties. You can look up the numbers for yourselves. I'm not going to take any more issue with them than I have already. But I do think it's important that the public be made aware of one last--but extremely important--fact that WaPo doesn't tell you:

Under BushTax, 2004 is probably the worst year you could possibly examine.

At least if you're a Bush supporter. Why? Well, if I had to guess, I'd say it's because 2004 is the first year all measures will have been implemented, and knowing Republicans like I do, I would think that early on in the program, the breaks would go to the businesses--big and small--hoping to give a little jump to the economy. Jobs, increased wages and such. But it certainly doesn't stay that way. The Democrats are no dummies. They requested this particular report, at this particular time, knowing what it was going to say about THIS ELECTION YEAR. But the big picture isn't going to help them once the truth gets out.

It's true that in 2004, the share increased for the 3rd and 4th quintile. That's not surprising, considering that thanks to BushTax, an increased number of us (about 1/3, according to the Tax Foundation) don't pay taxes. That's the whole 1st quintile and more than half of the second. About 44 million people. Since the number of people who don't pay taxes increased, it's only common sense that others will have to pick up the burden. Will it stay that way? Nope. According to the CBO numbers, although the 3rd quintile's share is two-tenths of a percentage higher than it would be without BushTax, by 2005 their share will be one-tenth LOWER, reaching two-tenths lower by 2009. And although the 4th quintile will always pay a little more under BushTax, they go from a seven-tenths higher share in 2004 to a one-tenth higher share in 2005, which they more or less maintain until 2014.

What about that mean old 5th quintile? Those greedy money-makers that--as WaPo points out--had their burden lowered by BushTax in 2004? Well, if you've managed to get this far (and God bless you if you have), you already know what the answer is.

That six-tenths decrease in 2004 lasts year. In 2005, it becomes a three-tenths INCREASE which climbs to eight-tenths in 2010. (which is pretty strong evidence that these cuts do not benefit the least not for more than one year). Let's just take a second to look at that again...

Except for 2004, the richest 20% of households have a HIGHER tax burden under BushTax.

I didn't see that in the Post article. See, they wanted you to think that BushTax caused those middle quintile taxpayers to pay a larger share. What they didn't tell you is that those people would have paid an even larger share under the old tax laws. They want you to think that BushTax lowered the tax burden for that richest 20%; they didn't tell you that it would have been lowered even more under the old laws. The numbers are there--did the reporter just not think it was important enough to mention? And that's just the Federal Tax, which includes things like Social Security, etc. When you look at just the income tax, it's even worse for those mean old rich guys. I won't waste your time going through those numbers. You know where to find the charts...look them up if you want to.

Again, I'm no statistician. I'm just hoping I haven't made some grievous error in my analysis. If I'm wrong, by all means--straighten me out. Just make sure you do it with all the figures.

1 comment:

  1. You're pretty much on target.

    The only thing you have to be cautious of is reporting individual income in lieu of reporting household income. As you correctly point out, using the household number skews the results in the case you specifically cite.

    On the other hand, using the individual number instead of the household number tends to skew unemployment figures (i.e., if they went with the household number to determine the true unemployment rate, it would actually be a lot lower because -- for some reason known only to government bureaucrats -- self-employed individuals who operate their own businesses from home are considered by the U.S. Department of Labor to be, and I quote, "unemployed"... even though many people in that category make well over $100,000, $200,000, or even more per year).

    For obvious reasons, the media doesn't like to look at the household stat when it comes to unemployment because, well, the national unemployment rate would plummet -- and that just wouldn't be good for Senator Kerry now would it?

    What's that saying about lies, damn lies, and statistics?