December 12, 2010

Deceive the Children: NYT ‘Learning Network’ Frames Federal Income Tax Rate Extension as Benefiting ‘Especially the Wealthy’

A New York Times “Learning Network” graphic informs us that under the proposed Obama-GOP tax and spending compromise, “rates will not change for at least two years for anyone.”

Wow. Somebody at the Learning Network needs to tell the Old Gray Lady’s beat reporters, editorial board, and opinion columnists. Just today, reporter Helene Cooper, in noting how Vice President Joe Biden is playing a “bigger role” in the administration (translation: picking up the pieces from President Obama’s disastrous ongoing alienation of anyone and everyone, friend and foe alike), twice refers to the compromise as involving “tax cuts.” Cooper’s defenders may claim that the Times reporter is partially referring to the proposed one-year reduction in the Social Security payroll tax from 6.2% to 4.2%, but that’s not a contentious issue at the moment (though given how broke the Social Security really is, it should be). Federal income tax rates for 2011 and beyond are.

Anyway, as far as the Learning Network is concerned, so far, so good. But then it commits its own unforced error:

Who Benefits? All taxpayers, but especially high-income households, which had faced a new, higher rate.

Gosh, it’s as if no one but “high-income households” would face “a new, higher rate” if nothing is done between now and the end of the year. Not only is that not true, but the rate increases at lower income levels would hit them proportionally harder:

  • The lowest current rate of 10% would rise to 15%. Household affected by this “new, higher rate” would see their tax bills rise by 50%, and the additional money sent to the government would be much more likely to cause those households to have to make difficult spending choices relating to what most people would see as “necessities.” Even far-lefty Lawrence O’Donnell at MSNBC understands this.
  • By contrast, the rate on higher incomes would rise from 35% to 39.6%, a 13% increase. Obviously, more dollars are involved here, and there would be no shortage of required spending cutbacks; but the point is that this “new, higher rate” is not a unique problem for “high-income households.”

Not to say that the impact on high-earners is unimportant, but in terms of their percentage effect on tax bills and their impact on household spending decisions, the “new, higher rates” that would apply to everyone if nothing is done would hit lower- and middle-income taxpayers harder.

If this is the best the Times’s Learning Network can do, the teachers relying on the information and the schoolchildren receiving said “learning” are better off looking elsewhere for accurate guidance.

Cross-posted at NewsBusters.org.

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2 Comments

  1. Thanking for continuing to emphasis the “high-income” effect, versus the common headline of “wealthy”. The latter is high asset, which does not always correlate to high income.

    A “middle class” person can be high income. The high earners in New York City, because of their cost of living area, end up in “high income” for a dual-income household. A one-time good stock year or work bonus can put you into “high income”.

    And, your tax rate is actually not just “high income” but rather based on Adjusted Gross Income. If you choose to take your money now instead of maximizing the 401K/403B/IRA withholding, then you can be fairly median on income but end up in “high income” for TAXABLE purposes.

    This is not a “high-income” tax rate, it is a “high AGI” tax rate. This same high AGI means the Child Credit is disallowed, the ScheduleB deductions are maxed so some of that is disallowed, the Alternative Minimum Tax may apply, et cetera. Half that income ends up with the feds, and then there’s the state, and maybe a city or school tax rate.

    Great point reminding all that the 10% rate would rise.

    Also, Retaining the 15% Dividend rate will benefit ALL taxpayers. It promotes business practices that can pay a repeatable, reliable return over time; rather than the hit-miss of buy-sell linked capital gains taxes.

    Comment by Cornfed — December 12, 2010 @ 7:39 pm

  2. Thank you. And your high AGI point is great, though I guess technically it’s “high taxable income” (after itemized deductions and personal exemptions).

    Comment by TBlumer — December 12, 2010 @ 8:59 pm

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