The WSJ’s dubious fiscal reporting

By Felix Salmon
May 3, 2011
John McKinnon, whose WSJ story, headlined "High-Earning Households Pay Growing Share of Taxes", appears in the paper's ostensibly impartial news pages, as opposed to its wing-nut editorial page. Here's the lede:

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I’m not impressed with the fiscal reporting of John McKinnon, whose WSJ story, headlined “High-Earning Households Pay Growing Share of Taxes”, appears in the paper’s ostensibly impartial news pages, as opposed to its wing-nut editorial page. Here’s the lede:

As President Barack Obama pushes to raise income taxes on high earners, opponents are seizing on data that indicates these U.S. households already pay a large and growing share of taxes, even compared with high-tax European countries.

The context is clearly laid out in the opening words: the big debate on income taxes which is going on right now between the White House, which is pushing — um, hang on a sec. What debate? What push? As far as I can tell, President Barack Obama is engaged in quite a large number of fiscal debates at the moment, not least the one surrounding the debt ceiling and how he can persuade Congress to raise it. But there’s rather a large difference between the debt ceiling, on the one hand, and “income taxes on high earners”, on the other.

After all, it’s only a few months since President Barack Obama extended the Bush tax cuts on people earning more than $250,000 a year, saying that doing so was “a win for American families, American businesses and our economic recovery”. As far as I can tell, he has evinced no desire whatsoever to reopen that particular can of worms since then.

So what’s McKinnon talking about when he says that Obama is pushing to raise income taxes on high earners? A link would help, but McKinnon seems to be allergic to links. The story is peppered with references to primary documents — the second sentence, for instance, refers to “a new congressional study” showing that most US households paid no federal income tax in 2009. But there’s no link to that study. Maybe because it’s not really a study at all: McKinnon is just talking about a memo from the Joint Committee on Taxation which would easily fit on a single page if it wasn’t for the size of the letterhead. And far from being a formal study, in fact it’s just a “backcast” — a forecast of what the 2009 numbers are likely to show when the final data arrives.

The WSJ then puts together this graph, with its “heavier burden” headline:


The first thing to notice is that this is one of those charts where the top is a straight line — we’re looking at the percentage of the total tax base, not at total taxes. What happens in these charts has nothing to do with whether taxes are going up or going down. (In fact, of course, thanks to the Bush tax cuts and to the recession, they’ve been going down for a while.) Insofar as the richest Americans are paying a higher share of taxes, then, they’re just contributing a larger slice to a smaller tax-collection pie. But there’s no way you can tell that from these charts.

The big picture, when it comes to taxes, is that we’re not paying enough of them. Government expenditures are high and are set to rise substantially in coming years, thanks to healthcare cost inflation and an aging population. Meanwhile tax revenues aren’t nearly enough to cover those expenditures. So they have to go up.

If the European countries that McKinnon is talking about cut their federal tax burden to less than 15% of GDP, I’m sure that they would look more progressive too. But instead they have taxes, like nationwide sales taxes, which increase the total national tax burden but which are also regressive. It’s easy to make your tax system look progressive when you’re only raising a relatively small sum in taxes. But that’s a point which McKinnon never makes. And obvious factual points about the limitations of the income-tax factoid are turned into partisan talking points:

As for those Americans who pay no federal income tax, most of them still pay Social Security and Medicare payroll taxes that can take a significant share of their income, Democrats said.

There’s absolutely no need for the “Democrats said” appended to that sentence — unless you want to cast sly doubt on the assertion, which is entirely true and uncontroversial.

Meanwhile, McKinnon’s bikini statistics (what they reveal is less interesting than what they conceal) are presented as simple fact, rather than being attributed to Republicans:

Upper-income taxpayers have paid a growing share of the federal tax burden over the last 25 years.

A 2008 study by the Organization for Economic Cooperation and Development, for example, found that the highest-earning 10% of the U.S. population paid the largest share among 24 countries examined, even after adjusting for their relatively higher incomes. “Taxation is most progressively distributed in the United States,” the OECD study concluded.

Meanwhile, the percentage of U.S. households paying no federal income tax has been climbing, and reached 51% for 2009, according to a new analysis by the Joint Committee on Taxation.

Again, there’s no link to the OECD report, which is much longer and much more carefully hedged than McKinnon makes it sound. (The “conclusion” comes on page 104 of the 312-page publication.)

McKinnon does have a classic “to be sure” graf at the very end of his piece, quoting “some experts”:

To be sure, some experts say the share of tax borne by the wealthy is not the best measure of a system’s progressivity.

Well of course it isn’t. But that doesn’t seem to have stopped McKinnon writing a whole article based on the implicit assumption that it is. If he’s going to do that, he should at least try to make the case that metrics like the share of tax borne by the wealthy are particularly interesting or useful variables to look at. And the fact that he doesn’t is a strong hint that this article is more a parroting of Republican talking points than it is a dispassionate look at a vital matter of fiscal policy.


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