Coloring the Tax Hike

american_dollarThe American Taxpayer Relief Act of 2012 is the first big political story of 2013. Reactions have been mixed, but I’ve noticed that many news reports have focused on how the bill will affect the wealthiest Americans. This despite the fact that 77 percent of the nation will see a tax hike this year. Think Progress has published a helpful “by the numbers” article that explains how the bill affects payers at different levels:

The first major tax increase for the wealthy in 20 years. Allowing the expiration of some of the Bush tax cuts amounts to the first major tax increase for the wealthiest Americans since the 1990s.

The Bush tax cuts expire for just 0.7 percent of taxpayers. The expiration will occur on income in excess of $400,000 (or $450,000 for a couple). This translates into “a little over 1 million Americans” according to the Tax Policy Center. The capital gains and dividend tax will also increase to 20 percent for wealthy earners.

The top 1 percent will pay an average of $73,633 more in taxes. Bloomberg News noted that, “among households with incomes between $500,000 and $1 million, taxes would go up by an average of $14,812.”

77 percent of households will see a tax hike. Due to the expiration of a cut in the payroll tax, most workers will see their taxes increase slightly in 2013. The expiration of the payroll tax cut will deal a significant blow to the economy.

Beside the news that this is the first significant tax increase for the rich in 20 years, that last bit of information is probably the biggest story to emerge from the bill. As the article says, the richest 0.7 percent of taxpayers amounts to only 1 million Americans or so.  Bloomberg notes that the majority of Americans will see a tax increase “because of the expiration of a payroll tax cut.” While they claim that the heaviest “burden” will fall on the richest tax payers, they also admit that the so-called burden “is concentrated at the very top of the income scale.”

The Wallstreet Journal paints a similar picture, but their report emphasizes the purported effect on the rich to an even greater degree:

But most of the changes in the bill affect high earners. All told, more than 90% of the tax increases in the bill would fall on households with income of $1 million or more, said economist Roberton Williams of the Tax Policy Center, a nonpartisan group in Washington.

For a couple with one child and $1 million of income, including $250,000 of itemized deductions, the tax increase from higher rates and other provisions taking effect next year would run almost $37,000 over what they paid in 2012, according to estimates made by Dave Kautter, an official with the Kogod Tax Center at American University.

There’s no mention of the payroll tax cuts until more than halfway through the article:

For millions of wage earners, the most immediate effect of the bill would be the payroll-tax increase, which would reduce their take-home pay. For an individual earning the maximum 2013 cap of $113,700 or more, the increase would amount to nearly $200 per month.

There aren’t any numbers provided for people making less than $113,700, but at the end of the article they do they mention the American Opportunity Tax Credit, the Child Tax Credit, and the Earned Income Tax Credit. Apparently the rich get taxed and the poor get tax credits.

For someone making $1 million a year, $37,000 is less than four percent of their income. I’ve seen different numbers from different sources, but the middle class is seeing a roughly proportional—though not equal—increase in taxes because the payroll tax cut is expiring. The Associated Press reports that someone making $50,000 a year will pay approximately $1,000 more in taxes in 2013, or roughly two percent of their income. That same Associated Press report, which was used on numerous websites from NPR to Fox News, ends with the following quote from Robertson Williams: “If you’re rich, you’re almost certain to get a big tax increase.” That’s the idea these stories want to leave you with.

And it’s true, the rich are going to pay more in taxes. But the way these stories are reported clearly emphasizes—even exaggerates—this fact. They color the story so as to suggest that the wealthiest citizens will feel the effects of this tax hike the most. But neither the Associated Press nor the WSJ mention effective tax rates or the history of tax cuts for the country’s highest earners. And only Politifact noticed that President Obama broke his promise to close loopholes in corporate tax deductions for CEOs:

Section 162(m) of the Internal Revenue Code, enacted in 1993, limits how much executive compensation can be deducted at publicly traded corporations to $1 million per executive. But the provision has an exception — corporations may deduct “performance-based” compensation. Critics say this amounts to a major loophole, because while shareholders must approve the compensation, they are not required to receive detailed accountings of the compensation plan.

report released in August 2012 by the liberal Economic Policy Institute estimates that tax-deductible executive compensation cost the federal treasury $30.4 billion between 2007 and 2010.

However, no legislation or administration rule revisions addressed the deductibility of CEO pay

In fact, I’ve not read a single comprehensive source that mentions any of this, and I have to believe readers would react differently to the WSJ’s numbers if they had this kind of information at hand.

Conducting a quick Google search or two, I found only one report that emphasized how middle and lower income families might be affected. Brief as it is, NPR published an interesting report by Tamara Keith that focuses on the benefits Bush’s tax breaks for such families:

“I remember when [Bush era tax cuts] went into place and being pleasantly surprised by how much more money we got back,” she says.

In part, that’s because the tax cuts doubled the tax credit for each child from $500 to $1,000. The cuts also created a new tax bracket for the lowest levels of income, which gives most families an $875 break. If these cuts were to expire, the Cartmill-Walling family’s after-tax income would drop by about $2,500.

“That’s a substantial amount of money,” says Cartmill. “Generally … what we do with our tax refund is we use that as kind of our savings in the bank for [if] the car breaks down or the water heater goes or whatever and we have a big expense all at once.”

Among middle income families, does paying more taxes generally mean less money for transportation, savings, paying bills, medicine, and food? That doesn’t seem like an unreasonable assumption. And what about the rich? Do more taxes mean they have to tighten their food budget? Or will they tighten their budgets in other places?

Whether or not this tax hike is a “burden” depends on how people are affected. Cutting back on food expenditures and cutting back on luxury expenditures are two different things. So as usual, the numbers don’t tell the whole story. Worse than that, focusing on the numbers means omitting more important information, like how different groups were benefiting from lower tax rates. If anyone knows of an analysis that takes how people spend their tax money into account, please leave it in the comments. But until I see a credible report that shows the rich suffer from tax hikes the same way lower income families do, I refuse to believe that the rich are suffering an economic burden at all.

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3 comments

  1. Reblogged this on C h a r l e s O l i v e r and commented:
    The media outlets continue to squash your information. If it doesn’t fit their agenda you are not going to be aware of it. The major press outlets by an overwhelming majority lie to you everyday by omission…

  2. [...] the American Taxpayer Relief Act by focusing on how it will affect the most affluent Americans. Earlier this month, I linked to a WSJ article that claimed “most of the changes in the [Relief Act] affect high [...]

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