Monday, October 3, 2011

Sublime Bloviations: President Obama and the Buffett Fallacy

Daryl Hannah once taught us that mermaids can only survive in the water. In a similar fantastic vein, the "fact" that Warren Buffett pays a lower tax rate than his secretary can only exist in the murky world of PolitiFact. 

They've dealt with a few statements relating to Buffett's now infamous op-ed, and you don't need to be Carnac to divine which way the Truth-O-Meter fell. But our fact-famished readers have nothing to fear, as PFB editor Bryan White chronicled the whole sordid affair.

Bryan's most recent post takes on PolitiFact's treatment of President Obama's version of Warren's wobbly whopper:

Image from

 Bryan sums up the fact check nicely:
Though the president's statement qualifies as slightly ambiguous, the PolitiFact judgment seems reasonable on its face: Obama is saying that a $50,000 earner is routinely taxed at a higher rate than the $50 million earner. Therefore the president requires more than just a few appropriate individual cases to justify his claim.

We found an IRS chart for tax year 2008 that shows a variety of tax information broken down into 18 ranges of adjusted gross income for the filer.

This chart lists three types of tax returns -- filers who have income for a child who earns more than $1,900 (meaning the child’s income is taxed at the parent’s rate); those who have income reported on Schedule D (primarily capital gains); and those without either of these types of income. For the purposes of our calculations, we are combining data for all three types of returns.
It's hard to see why PolitiFact went to all that trouble when the Congressional Budget Office--ordinarily a trusted source--has already done the work for them.

PolitiFact crunched the IRS numbers, after a fashion, and didn't find much to vindicate Obama:
By these calculations, Obama would be incorrect in most cases.
I saw nothing in the calculations, inadequate though they might be, to indicate that Obama would ever be correct.
Bryan makes a great point about PolitiFact avoiding any information from the CBO. In a recent fact check they cited four CBO reports to defend stimulus job creation. Why not use them now?

PolitiFact dusts off the pity piano and plays us a sad song about the rigors of sorting out the truth for its readers:
These figures are for federal income taxes only. There are also a bunch of other federal taxes that could, and probably should, be included in the calculation. The burden for some [sic] some taxes, including corporate taxes, excise taxes and estate taxes, are hard to attribute to individual returns, so we’ll set those aside. But one federal tax is straightforward to throw into our calculations: payroll taxes.
Bryan quickly spots the flaw:
Figuring the burden for corporate taxes, excise taxes and estate taxes way [sic] well provide a stiff test for researchers, but given the of [sic] admitted relevance of those taxes why not make use of the previously-mentioned CBO report that estimates the effective tax rate with corporate and excise tax burden estimates figured in?

Apparently PolitiFact's version of fact checking only involves consideration of the most regressive tax (by far) in the group, payroll taxes. Ironically, payroll taxes are probably the least relevant tax in the group since the Social Security tax is peddled as retirement insurance--a premium paid for a fixed benefit package at retirement. The argument for progressive insurance premiums based on the ability to pay lacks something in terms of moral authority. Shall the rich also pay more per unit for milk, tea and gasoline?
Well, that would be asking PolitiFact to wade into commentary, and we wouldn't want them to do that. Besides, when the CBO isn't non-partisan enough, PolitiFact can always rely on the reliably liberal Brookings Institute to dole out the cold, hard math:
We asked two researchers at the Urban Institute-Brookings Institute Tax Policy Center, Roberton Williams and Rachel Johnson, for their advice on how to factor in payroll taxes. They estimated that combining the workers’ share of the payroll tax with the employer’s share -- the usual practice among economists -- would mean an extra 15 percentage points for our hypothetical middle-class worker, and less than 2 additional percentage points for the high-income taxpayer.
Don't you just love the back-of-the-envelope methodology?

Let's take a figure calculated by journalists based on data that ignore a number of relevant taxes such as excise and corporate taxes, then call on the left-leaning Tax Policy Center to give us a modification based on (regressive) payroll taxes. While we're at it, let's ignore the work done by the highly respected CBO touching the issue.
Bryan delves deep into the numbers, and scores some direct hits on PolitiFact's flawed methodology. He also slams them for failing to recognize Obama's implication that capital gains tax rates are somehow a "loophole" (Obama's word). They're not, but PolitiFact is far too enamored with their subject to notice.

There's a lot of information involved in these critiques and I couldn't do justice to Bryan's work here. As always I urge you to go to the source and enjoy his blog in its sublime bloviating. For now though, I'll leave you with Bryan's summary:
 If you fudge the numbers enough in Obama's favor you can make it seem possible that he's possibly correct in some individual cases.
I also suggest you read his other critiques of PolitiFact's recent tax ratings here, here and here.

And please don't miss the most damning update he's written here on PolitiFact's dubious technique of adding the employer's share of the FICA tax to the employee's side of the tax burden.

Edit-10/04/11: Removed errant "s" from Buffet in 1st paragraph. Jeff 
Edit-10/06/11:  Added enough t's to ensure consistently proper spelling of Buffett's last name.  --Bryan

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