TOPLINE UPDATE: Welcome Instapunditeers! Also worth noting — The Times has changed the headline from what you see below to “2005 Incomes, on Average, Still Below 2000 Peak.”
ALSO: See the “SOURCE DATA UPDATE POST” that follows this one if you’re on the home page if you feel a compelling need to dig into more detail. (I have moved the post you are reading to the top so that the Source Data post would follow it.)
August 25: See the correction about the Earned Income Tax Credit, mostly offset by the effect of other credits “kept in reserve,” in the body of the post.
August 26, 9:30 a.m.: There is now a post (“Top Six Errors Committed by David Cay Johnston and/or the New York Times in Their Income Growth Report”) showing that, among many other things, my core contention at the end of this post (“while average pre-tax income may have fallen, average after-tax income has risen â€” even during the Timesâ€™ artificially induced period of analysis.”) is correct.
The New York Times has had to work very hard to make the performance of the economy during the past few years look bad. This morning, David Cay Johnston did his part; the link to his article will come later.
Bear with the technical stuff for a bit; the meat will arrive shortly.
Every year, the IRS publishes information about the tax returns it received in the second preceding year.
2005′s tax-return data was released yesterday (data referred to here is not linked because it is in PDFs and Excel files; anyone who wants to see the underlying data can e-mail me). Among the stats the IRS produces is one with the confusing name of “Adjusted Gross Income Less Deficit.” I will call it “Revised AGI” for this post. “Revised AGI” adds a long list of items back to taxpayers’ reported Adjusted Gross Income (the number at the bottom of Page 1 of the long-form 1040) in an attempt to approximate taxpayers’ total income, whether it is taxed or not.
Though there are problems with the data I will note later, looking at several years of this IRS information can be a useful starting-point indicator of workers’, or the economy’s, well-being.
Now try to imagine what the New York Times did with the following data:
Go ahead. Then click “More” if you’re on the home page to find out.
Here it is (link requires free registration; the Times’ figure of $55,714 differs from the table above because of rounding):
The Times and Johnston chose their “2000-2005″ reportorial spin, even though:
- The more important news by far is that the real increase in Revised AGI in both 2004 and 2005 is greater than during either of the final two good years of the Clinton economy;
- The real decreases in 2001 and 2002 occurred largely because of the bursting of the Clinton-Era dot-com bubble and the September 11 terrorist attacks. The dot-com bubble got mentioned by the Times in the context of quotes from White House sources (the better to make it look like excuse-making); Johnston and the Times made the September 11 attacks invisible.
An obvious omission: The IRS does not include the Earned Income Credit (EITC) in its compilation of Revised AGI, even though the EITC represents real money that either reduces other taxes or goes directly into beneficiaries’ pockets. Total EITCs claimed increased from $19.5 billion in 2000 to $42.4 billion in 2005, largely because of the credit’s expansion in the Bush tax legislation of 2001 and 2003. Spread over the annual average of roughly 132 million tax returns filed during that period, the $22.9 billion increase in the EITC ($42.4 bil minus $19.5 bil) amounts to over $170 per return.
(break in original August 21 post)
CORRECTION, August 25:
David Cay Johnston’s comment #74 calls my estimate of the impact of the Earned Income Tax Credit (EITC) into question. Upon further review, he is fundamentally correct, though my numbers that follow differ slightly from those in his comment. My error was to pick up the number of returns as the dollar amount in 2000. To use “my” famous six words — “I was wrong. I am sorry.” EITC, whether refundable or merely offset against other taxes, went from $32.3 billion in 2000 ($36.6 billion in 2005 dollars) to $42.4 billion from 2000 to 2005. Spread the real difference of $5.8 billion ($42.4 – $36.6) over the average 131.5 million tax returns filed in 2001-2005, and you get an effect of only $44 per return, vs. the $39 Mr. Johnston’s estimates based on what must be only the refundable portion. I think using the gross figure is correct, but I’m not about to quibble over $5. As to why I thought EITC was expanded in 2001 and/or 2003, it’s because I recall reading guidance to that effect from a lot of professional CPA-type publications at the time. (Update: The next two sentences were revised on August 28 for clarity) It’s clear that I was wrong about that and I am sorry. Others also were, but that doesn’t change my incorrectness.
But there’s a corollary to this, which I tend to follow when making a case as I did on Tuesday: Try to hold some supporting points in reserve in case you mess up somewhere.
Mr. Johnston helpfully pointed to one of those “in reserve” items in his comment #74 — The child tax credit, which as I recall went from
$600 $500 to $1000 per eligible child (16 years of age and younger, I believe). I reckoned that child tax credits should have increased pretty significantly from 2000 to 2005, but I ignored their impact. Mr. Johnston did not quantify that difference, nor for that matter did he quantify the effect of increases in all of the credits other than the Earned Income Tax Credit.
So I will.
Credits taken other than EITC in 2000 (not the returns, the credits; I double-checked :–>) amounted to $37.7 billion in 2000 ($42.7 billion in 2005 dollars), and $54.3 billion in 2005. The inflation-adjusted difference of $11.6 billion ($54.3 – $42.7), again spread over 131.5 average returns as per two paragraphs ago, amounts to another $75 per return.
For those keeping score, we’re up to $132 ($44 + $88) out of my original “about $170″ that I erroneously assigned to the EITC alone. That $132 is $38, roughly 78% of what I had before. Mr. Johnston picked on the EITC number because it was quantified. Oh well, I should have held more in reserve.
BUT ….. I didn’t quantify the other factors that follow (the impact of the low-end 15% to 10% rate cut, and the effect of the across-the board rate cuts above that). As I will note below, those impacts are surely greater than the $170 Mr. Johnston focused on, by more than enough to wipe out the difference difference in real “gross income” (don’t get me started) Mr. Johnston uses as the basis for his report.
Note for the record that Mr. Johnston has not attempted to refute my admittedly unquantified contentions about numbers that are much bigger than my original estimate of the EITC’s impact of $170, and much bigger than my current estimate of the impact of all credits including EITC of $132.
(resumption of original August 21 post)
Don’t forget the tax-rate cuts: Now add the benefit of the Bush rate cut in the lowest bracket, which has benefited all but the very top few percent of taxpayers. Since its inception in 2001, that rate cut from 15% to 10% — never mind the reduction in higher brackets — has reduced taxes for most single filers by at least $350 per year, and for most joint filers by at least $700.
The EITC expansion, the cut in the lowest rate just noted, and the reductions in the rates applied in higher income brackets, when combined, surely more than make up for the $477 difference ($55,715 minus $55,238) between 2000′s and 2005′s Revised AGI amounts. So while average pre-tax income may have fallen, average after-tax income has risen — even during the Times’ artificially induced period of analysis.
Johnston’s obviously agenda-driven bottom line (see UPDATE below for a revision of this assessment) is this:
The fact that average incomes remained lower in 2005 than five years earlier helps explain why so many Americans report feeling economic stress despite overall growth in the economy.
The growth in real incomes in the two years noted, the continuation of that growth in 2006, and the positive impact of the Bush tax cuts all make Johnston’s contention about the sources of whatever economic stress may exist absurd.
A more accurate revision to Johnston’s claim would be this: “The fact that Old Media won’t report the success of the economy since the Bush tax cuts took hold helps explain why so many Americans report feeling economic stress despite overall growth in the economy.”
Cross-posted at NewsBusters.org.
UPDATE: I, along with other commenters, salute Mr. Johnston for responding (see Comment 4). He also called me and was eager to explain various things to me. I can assure you that the comment below is his (the source IP addess for his comment made me wonder). Unfortunately, I was in the midst of fixing this post, which had blown up into being all bold and had to be edited at the line-by-line HTML level, so we didn’t get into much substance. He may call back (I think I said that I hope he does), and I will let readers know what happened if he does.
In the meantime, several other commenters have made very good points in response to my post and to Johnston’s comment. The best, in my opinion, is from Jason at #12, who noted that mutual funds are required to show 1-, 3-, 5- and 10-year return data for a reason, i.e., complete context. Though Johnston could argue that the article’s graph covers the 1-3-5-year issue, I don’t think that cuts it, and I suspect that most readers here don’t either. By not specifically noting the stellar 4%-plus performances in each of the past two years, it’s almost impossible NOT to think there’s an agenda.
Adding fuel to the fire, Johnston then doubles down by making the 5-year result the only factor worth mentioning as relevant to how consumers feel now — again, after two really good years of income growth. C’mon, David — How does that get into a non-agendized article? People in this “What have you done for me lately?” world typically aren’t thinking about where they are financially compared to four or five years ago (unless a certain president helps them do it :–>).
The other point I was going to leave a comment on below, until the post blew up and had to be salvaged, is that, contrary to his contention, I was not accusing Johnston of dishonesty or lack of integrity. Those terms, or similar ones, do not appear in my post. Johnston says that any time you accuse a reporter of having an agenda (as I most definitely did), you are in effect accusing them of dishonesty and lack of integrity. I don’t agree.
Let’s leave it at this — If David didn’t have an agenda when writing the article, I have little doubt that his editors felt like they had died and gone to heaven (or wherever it is Times editors think they’ll go after they die) when his article showed up.
UPDATE 2: Back Talk confirms the roughed-out hypothesis in this post that thanks to EITC expansion and tax-rate reduction, after-tax income gains are very real. I believe he’s going to have allow more room for the line on his after-tax graph to go up after he incorporates 2005′s data.
UPDATE 3: Meant to mention this much earlier — Drudge had the Times story near the top left of his home page for quite a while on Tuesday. You would think after all these years of Times misreporting he would know better.
UPDATE 5, Aug. 23: Some are taking issue with Johnston’s alleged lack of econ and stats background (his Wiki entry is here). FWIW, I don’t think it’s worth going there, because this isn’t about creating stats, it’s about selective reporting on published stats, not looking for gaps in the stats, and failing to get fair and balanced thoughts from others. I don’t think it requires a Ph.D. I surely don’t have one, and don’t think I needed one to have done this post. Johnston has clearly accomplished a lot as a journalist and has many accomplishments to be proud of. The subject article, however, is not among them.