Thursday, May 11, 2006

Figures Don't Lie...

My son apparently developed an interest in the world around him, and has started watching CNN Headline News in the morning before school. That’s certainly not something I want to discourage…but it has the unfortunate side effect of forcing me to face the world before I’m fully awake. Ah, well, we all make sacrifices for our children, right?

Today, CNN was telling us about Congress’ recent approval to continue the Bush tax cuts, as they were modified last year. They posted a graphic showing the average savings for the cuts in various income brackets – taxpayers making $1,000,000 a year and up will save an average of over $42,000, while taxpayers making less than $25,000 a year will save only $9. There were two other brackets shown, but I was unable to locate them on – at any rate, they clearly indicated that the rich would be getting richer, while the poor gained almost nothing.

On further reflection, though, I’m pretty sure that’s misleading. After all, how much taxes are those poor people paying? Looking at the 2005 Form 1040A, I see that for a married couple with two kids making $25,000 a year, $22,800 of that is exempt from taxes. That’s the standard exemption plus the deduction for four dependents. The tax bill on that $2,200 remaining is $279. Then, of course, they get the Child Tax Credit of $2,000 to apply against that $279 – that credit doesn’t allow for negative numbers to be paid to the taxpayer, but it does kill that $279. In fact, for our family of four to actually come up with a positive tax bill, they have to make at least $41,000 – and then they’ll have to pay $4.00. Yes, that’s four dollars. Anything less than that, and they get back every penny that was withheld from them. And that’s not with any fancy tax strategies… that’s just the basics.

Note that I didn’t include Earned Income Credit or the Additional Child Credit – those programs actually pay the taxpayer above and beyond what they put into withholding, so any changes in the tax plan that let them keep more of that money count, for me, as a savings. But as far as I know, this plan didn't make changes to those programs.

Of course, not everyone is in a family of four. For a family of three, you have to make $29,600 (for a married couple with one child) or $33,700 (for a single parent with two children) to pay a single penny in taxes. Even a single parent with one child has to make $23,700 to pay any taxes at all. No wonder the average savings for incomes under $25,000 is so low…you can’t cut the price below zero!

I don’t want to play around with the other end of the spectrum, the folks pulling down a million or more a year. The top bracket is 35%, so they should be paying somewhere near $350,000 on that million (a little less – they get deductions and exemptions, too)…but we all know that various stupid tax tricks can reduce that number considerably, and I’m not familiar enough with tax law to make a reasonable guess on those numbers. But when you start looking at averages at the top of the scale, you run into the skewing that results from people at the extremes. The average savings in that bracket is $42,000 a year…but if nine multi-millionaires are saving $1000 a year (that’s a third of a percent of their tax bill), while one Bill Gates is saving $411,000 a year (on his billion dollar tax bill, so that’s one-twentieth of a percent), then that works out to that average of $42,000 a year, while still being an insignificant savings for all of them! (Yes, I made up the numbers for Bill Gates – I couldn’t find any numbers on what he makes from investments and capital gains, and I couldn’t properly account for his incredibly huge charitable donations. Replace his name with the multi-billionaire of your choice. Or do your own math, and tell me what you came up with.)

I didn’t check out the Fox News version of the tax story. Somehow, I suspect that they focused on the percentage savings for various tax brackets, showing how much greater a savings it was for lower- and middle-income people…while still being just as misleading. I think all news organizations that display statistics of any sort should be required to provide a full disclosure of where they got their numbers and how they did their calculations – they could post it on their web site, or whatever. I expect we’d see a lot less statistics. But since most people can't or won't do simple math anymore, the press can get away with whatever spin they want to put on the numbers.

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