Tax Foundation–up to its usual nonsense

by Linda Beale

Tax Foundation–up to its usual nonsense

The Tax Foundation claims to be a nonpartisan institute interested merely in researching and informing people about taxes. That’s far from the truth, however. Its work is aimed at one purpose–convincing Americans that they pay too much in taxes and that government is too big.
One of its most useful distortions is its self-proclaimed “tax freedom day.” It adds up all the state and local and federal income, excise, social security, property, and other taxes on individuals and businesses,including corporations, and then considers how many days of work, at a consistent amount per day, are required to raise that amount of taxes. See Tax Freedom Day 2012, Tax Foundation.

But of course the entire enterprise of tax freedom day is baloney. Nothing in that formula actually relates to what an individual earns or what an individual pays in taxes. But because the date is announced as the day that Americans quit working to pay government and start working for themselves, many media outlets and readers interpret the “tax freedom day” as meaning that they themselves must work that long to pay off their share of taxes. There is no such thing as an average American, and it isn’t clear at all that many of the excise, corporate and other businesses taxes are borne by ordinary Americans. Moreover, thinking about this on an individual level means averaging in the super-rich like Warren Buffet with ordinary Joes like “Joe the Plumber” and poor folk like those barely scraping by on teacher or janitor salaries results in sheer nonsense. There is no such thing as an “average” amount of taxes paid or a day in the year when each and every American can say–this is the last day I have to work to pay taxes.

The Tax Foundation often goes through some rigmarole to insist that it doesn’t ever imply that the “tax freedom day” is anything other than a cute figure of speech that captures a meaningless statistic. But look at what it says in its announcement of the 2012 date:

Tax Freedom Day® 2012 arrives on April 17 this year, four days later than last year, due to higher federal income and corporate tax collections. That means Americans will work 107 days into the year, from January 1 to April 17, to earn enough money to pay this year’s combined 29.2% federal, state, and local tax bill.

Now, a typical person reading those two sentences would conclude that this is a straightforward statement that that particular American will work 107 days to pay off his own personal taxes. Nothing could be further from the truth. Some would have to work only a few days to pay off their share of taxes, while others don’t work at all–those living on capital gains from inherited wealth–and still others may work considerably longer. The statistic is meaningless and by confusing ordinary Americans into thinking that it can be applied to their own particular situation it becomes detrimental to understanding of the US tax system or government costs.
Further down, the Tax Foundation makes this statement.

Tax Freedom Day is a vivid, calendar-based illustration of the cost of government, giving Americans an easy way to gauge the overall tax take.

And there one sees the anti-government bias of the Tax Foundation. By using a formula that pretends to show Americans how hard they must each work to fund government, and providing no counterbalance (such as showing how many people are benefitted by various government programs, or how much harder each American would have to work without the various subsidies for home ownership, financial institution soundness, health research, and old age health care and retirement benefits), the Tax Foundation succeeds in convincing many Americans that government is indeed a wasteful exercise that demands too much of their own sweat.

Just about as bad is the more recent Fiscal Fact: Americans paying more in taxes than for food, clothing and shelter, Tax Foundation (May 3, 2012). This look at government tax collections (using the same data used for the tax freedom day calculation, so including all taxes paid by individuals or businesses, whether income, property, excise or other and whether paid to local, state or federal government) and compares that to government figures for expenditures on essentials.

This is again misleading, as the Tax Foundation itself acknowledges, since it counts taxes that are used for social programs that pay for those same essentials. Redistribution programs that use the collective wealth to support those who cannot support themselves (vulnerable elderly and children, unemployed, mentally incapacitated, prisoners) serve a vital government function. Similarly, it again deals with national statistics that ordinary people are likely to interpret as applying to their own situations, even though the statistics cannot be applied in that way. Consider the wealthy billionaire with a private island and seven multimillion dollar homes in the US–taxes collected on those properties will be much more than what ordinary folk pay on their single residence. Likewise, taxes collected from billionaire CEOs will be much more than those collected from ordinary workers, even though the CEOs may also have considerable investment income that is taxed at ridiculously low preferential rates. So no conclusions can be drawn from aggregate numbers of housing, food and clothing expenditures to individual taxpayers, just as no meaningful analysis can be drawn from aggregate federal, state, and local expenditures to benefits received (or costs borne) by individual taxpayers.

So why does the Tax Foundation produce such deceptively simple statistical studies that are cast in terms that are bound to mislead ordinary Americans about the role of taxes and government and even the amount of taxes they pay? It seems likely that the primary purpose is to mislead ordinary Americans about the role of taxes and the amount of taxes they pay. The Tax Foundation gets my maximum “boo” for its shameless exploitation of statistics to mislead Americans about both their own tax burdens and the role of government in our lives.

crossposted with ataxingmatter