Outside the Perimeter

Everybodys taxes go down, Kerry does not like it

I am going to try to explain the Congressional Budget Office report and avoid the confusing way news reports have been explaining it. I made one stab at this in the previous post, but since I now have the CBO report "Effective Federal Tax Rates Under Current Law, 2001 to 2014" in hand, I thought I would try it again using real numbers.

First, you need to know the definition of a couple of terms: The first of these is the "Effective Federal Tax Rates", or EFTR. The EFTR is the combination of all Federal Taxes a household pays (Income, Social Security, and Medicare) divided by the pre-tax income for that household.

The second term is the "Share of Total Federal Tax Liabilities", commonly referred to as the tax "burden". The "burden" is the percentage of the total tax bill that a segment of the population pays. For example, if the total taxes paid by everyone in the United Stated were $100, and the highest 20% of income earners contributed $50 of those taxes, then the tax "burden" for those top earners would be 50%.

The CBO report breaks down taxpayers into "Quintiles", or into five parts: The Lowest Quintile, the Second Quintile, the Middle Quintile, the Fourth Quintile, and the Highest Quintile. Each Quintile has an equal number of people. On Table A-1 of the CBO report, you can see the income levels (in 2001 dollars) that match these Quintiles:

Lowest Quintile: $14,900
Second Quintile: $34,200
Middle Quintile: $51,500
Fourth Quintile: $75,600
Highest Quintile: $182,700

In other words, those in the Lowest Quintile earn the least amount of money and those in the Highest Quintile earn the most.

What Really Happened with Federal Income Taxes

Now that we have the terms down, let us look at what the report shows. The first thing that is interesting in the changes in the Effective Federal Tax Rate. If the EFTR goes up for a segment of the population (quintile), then that means that segment pays more of their income in Federal taxes. If the EFTR goes down for a segment, then that segment pays less of their income in Federal taxes.

The important questions are: What happened to each segment of the population because of the Bush tax cuts? Did EFTR go up because of the tax cuts or did the EFTR go down?

Table 4 of the CBO report answers these questions. The CBO calculated the difference between what people would have paid in taxes if the tax cuts had not gone into effect compared to what people didpay in taxes because of the Bush tax cuts. Here are the results for 2003 and the estimates for 2004 and 2005:

As the above table shows, at every income for all three years (2004 and 2005 being projections) the amount of federal tax paid goes down. The reason, as provided in some detail in the CBO report, is President Bush’s tax cuts.

The bottom line: Because of the tax cuts, everyone is paying less in Federal Taxes.

The Tax "Burden"

So the question becomes, if everyone's taxes have gone down across the board, then what is John Kerry complaining about? As Kerry says in his press release on the CBO report:

Today's report reinforces what middle-class families across the country already knew about George Bush. His tax breaks have forced them to pay a bigger share of America's tax burden forcing them to bear the brunt of his failed economic policies.

In order to understand his complaint, you have first to understand what the CBO report meant by the tax "burden". First, remember that what Kerry is calling the "burden" is what the CBO report calls the "Share of Total Federal Tax Liabilities".

As in the example at the first part of this post, it is easy to calculate the Federal Tax "burden" for each segment of the population. Here is another example that shows how the Federal Tax "burden" is calculated (using sample numbers):

First, suppose that the total amount paid in taxes to the United States government by everyone in 2000 was one trillion dollars ($1,000,000,000). Next, suppose we added up all of the Federal taxes paid by the Middle Quintile (those with base incomes of $51,500) and ended up with a result of 152 billion dollars ($152,000,000).

Last you would divide the total Federal taxes paid by the Middle Quintile ($152,000,000) by the total of the Federal taxes paid by everyone in all of the quintiles ($1,000,000,000) to figure the Federal tax "burden" for the Middle Quintile:

$152,000,000 divided by $1,000,000,000 = .15 or 15%

This would mean that households that have a base income of $51,500 were responsible for 15% of the total Federal Tax bill. In other words, this 20% of the people (the Middle Quintile) paid 15% of the total taxes of that everyone paid.

Now, let's look at the real numbers (though 2004 and 2005 are projections) for the Federal tax burden for all of the segments of the population (From Table 2 of the CBO report):

As you can see, the Federal tax "burden" does change from year to year. In addition, John Kerry is literally correct - The Federal tax "burden" is projected to go down for the Highest Quintile ($182,700 base income) from 64.1% in 2003 to 63.5% in 2004. The Federal tax "burden" is projected to go up for the Middle Quintile ($51,500 base income) from 10.4% in 2003 to 10.5% in 2004.

But So What?

John Kerry can, and does, say that the Federal tax "burden" is going up for the middle class. It is an accurate statement. But ignorance is John Kerry's friend, because even though it sounds bad that your "burden" (if you are in the middle class) is going up, the bottom line is that the percentage of the whole of the taxes you pay does not really matter - only the actual amount of taxes you are paying matters.

And every one of us is paying less.

So what is John Kerry complaining about? Simple, even though all of us are paying less in Federal taxes, some segments, or quintiles, have not had their taxes reduced as much as other segments. That is actually a legitimate topic of debate: Should all taxpayers have had their Federal Taxes reduced by the same relative amount?

Instead, Kerry makes a dishonest argument by when talking about the Federal tax "burden". Kerry is implying, by saying the "burden" has increased, that the middle class is paying more in Federal taxes.

That is quite simply and, as the CBO report shows, statistically untrue.

Moreover, shame on some in the media for playing along.

Correction: I was using the wrong numbers from Table 2 of the CBO report. Table 2 above and the text has been corrected to show the accurate numbers - the Share of Federal Taxes.

Fuzzy Math

"Tax burden shifts to the middle", screams the headline of an article at MSNBC (from the Washington Post):

WASHINGTON - Since 2001, President Bush's tax cuts have shifted federal tax payments from the richest Americans to a wide swath of middle-class families, the Congressional Budget Office has found, a conclusion likely to roil the presidential election campaign.

Well, President Bush is in trouble for making the middle class pay more in taxes:

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.

Over that same period, taxpayers with incomes from around $51,500 to around $75,600 saw their share of federal tax payments increase. Households earning around $75,600 saw their tax burden jump the most, from 18.7 percent of all taxes to 19.5 percent.

My goodness! How much more in taxes are individual taxpayers have to pay?

For the bottom 20 percent of households, the combined Bush tax cuts averaged $250 each. The middle 20 percent received $1,090, while the top 1 percent garnered $78,460, said Democrats on the Joint Economic Committee who analyzed the report.

Wait a second. Everyone is paying less in taxes, and yet somehow the "burden" on the middle class has increased. How does that work exactly?

Let us try this example:

Suppose three people, Rich Guy, Middle Guy, and Poor Guy all pay taxes. Rich Guy pays $65 in taxes (65% of the "burden"), Middle Guy pays $25 in taxes (25% of the "burden"), and Poor Guy pays $10 in taxes (10% of the burden).

Now, let us suppose everyone gets a tax cut, and now Rich Guy pays $40 in taxes, Middle Guy pays $20 in taxes, and Poor Guy pays $8 in taxes. How does that shift the "burden"?

Rich Guy's "burden" is now 59% of the total, Middle Guy's "burden" is now 29% of the total, and Poor Guy's "burden" is now 12% of the total. So you see, Rich Guys "burden" is now 6% LESS, while Middle Buy's "burden" is 4% MORE, and even poor Poor Guy's "burden" is 2% MORE.

That's right, because of fuzzy math, and even though everyone is paying less in taxes, one could truthfully claim that the "burden" on the middle class has increased. And this is just the The Washington Post/MSNBC is claiming. A literally truthful, but ultimately deceptive, claim. (Paging Michael Moore!).

What is wrong about the way they present it is that they make it appear as if President Bush has raised taxes on the middle class. When in fact everyone who pays taxes now has to pay less.

Another point: For anyone who has an even basic understanding of math and who has been paying attention to the tax cut in the news, this should come as no surprise. The upper income earners were paying a huge percentage of their income in taxes before the cut. Because of the tax cut, that percentage was decreased more than the percentage paid by other income brackets. That fact has never been a secret.

The reality (and a little basic math) shows the claim that taxes have been raised on the middle class is not true. So why is The Washington Post/MSNBC hyping this?

Answer here.

The way to answer this: Excuse me, everyone who pays taxes in now paying less thanks to President Bush's tax cuts. That being true, how can the "burden" have increased on the middle class?

Force the other side into making the complex explanation; don't try to do it yourself.

Update: Believe it or not, the NY Times offers a much more balance view of the CBO report here.

Correction: The example above should have said that the Middle Guy pays $20 after the cut, not $25. The percentages were right, but the amount was mistyped. The post has been corrected.

I kill myself

I posted this at the AJC political blog, and like it so much I though I would copy and paste it here (with the addtion of some song lyrics):

You know, if I were a paranoid conspiracy theorist, I could very easily come up with an explaination for the major media's reaction to the swift boat vets story:

Kerry's bravery in Viet Nam is the centerpiece of his campaign for the middle. If that is neutralized, then Kerry does not have anything else going for him and he will lose the election. Worse yet, that means Bush will win.

The major media, as evidenced by their cheering for Kerry at the UNITY conference, does not want this. So they are going to cover the story only discredit it. You can't put your readers in a position where they can make up their minds for themselves, don't you know.

Wow, if Miramax would give me a budget, I could make a pretty good "cut-n-paste" Michael Moore movie out of this, with the added plus of not actually having MM in it. Except I would have to pick the AJC and Kerry as the scapegoats.

The title: "Holiday in Cambodia", from the song by same name from the Dead Kennedy's, of course:

The law don't mean shit, if you've got the right friends.

It's only a flesh wound!

Since Kerry has apperently should himself in the foot with his changing Cambodia story (as discussed at Captain's Quarters) does that means he wants another Purple Heart?

Hack Attack Journalists for the "Truth"

The local Democratic talking points memo, um, I mean the Atlanta Journal-Constitution, has found a way to dedicate a page to the ongoing "Swift Boat Veterans for the Truth" contriversy. In an article titled, "ELECTION 2004: Author of Kerry book a longtime detractor", which takes the author of "Unfit for Command", John O'Neill to task. But how to avoid talking about anything actually in the book? Simple, shoot the messenger:

O'Neill currently is a partner in the Houston law firm of Clements, O'Neill, Pierce, Wilson and Fulkerson, whose major clients are oil and energy interests.

You get it, right? The writer, Scott Shepard, just throws out a fact, and then forces the reader to draw their own conclusions.

Of course, it helps if you are already a progressive conspiracy theorist, so your ethos helps you draw the right conclusion from that fact. Simply put: Bush and Cheney came from the evil oil industry. O'Neill came from the evil oil industry. The book must be some kind of plot to keep the evil oil barrons in power by attacking John Kerry.

It seems you can learn something real by watching a Michael Moore movie.

Like how to ignore the subsinative issues and eyewitness accounts of the swift boat vets quoted in the book. Or even that the book has forced Kerry to change his claim, which was supposed to be "seared" in his memory, of being in Cambodia in 1968 while President Nixon (who was not actually President at the time) denied that the U.S. had troops in Cambodia.

"News" Judgement

I believe I have the formula down that the Atlanta Journal-Constitution using in deciding on the placement of news articles in their paper: A news article is placed based on the inverse proportion of how much it will help the Bush Administration. For example, the banner on today's AJC was U.S. ally a fugitive in Iraq, since Chalbi is associated with the Bush Administration.

On the other hand, the ramifications of the United States most important catch in the War on Terror (the capture of Al-qeada computer nerd Muhammad Naeem Noor Khan) was reduced to two paragraphs split up between the "Nation in Brief" and the "World in Brief" sections buried later in the paper.

It seems the AJC is all too aware that the War on Terror is Bush's strongest issue, so they seem determined to make sure it is not on the mind of the readers of the AJC.

Finally, I'll be able to get a decent slice of pizza

Its official, the Atlanta contingent of Protest Warrior, is sending some people up to join the counter-protest at the Republican National Convention. Your humble correspondent will be one of them.

How does a guy recently without a job possibly afford to travel and stay in New York City? Thank goodness for frequent flyer miles and the fact that not too many people want to travel to NYC during that period. FF seats are (or at least were as of Saturday) still open. In addition, I will not be staying at the Four Seasons, but on a mattress at PW headquarters. I also do not mind "eating street" in the Big Apple.

I probably not going to be able to take a computer with me, so hopefully I can get Internet access somewhere. I plan to take my camera and will report the sights and sounds of the NYC streets from a conservative point of view. If not ongoing, as soon as I get back.

It should be quite an event.