The Times reports on the Perry tax plan!

TUESDAY, NOVEMBER 1, 2011

Do you understand how this works: In this morning’s New York Times, Catherine Rampell reports the effects of the Perry tax proposal.

Rampell cites a study by the Tax Policy Center. Her report includes some key information, although we think a few of these key points deserve a bit more attention.

(On-line, Rampell’s piece includes a chart. That chart is not included in the hard-copy Times.)

First key point: The Perry plan “would most likely reduce federal tax revenue by $570 billion, or about 15 percent.”

This is a very key point. Federal revenues are already projected to fall way short of future spending—that’s the nature of the “debt/deficit crisis.” If this new projection is accurate, Perry’s plan would make this problem substantially worse.

Since the existing situation is routinely described as a “crisis,” we think this basic point deserves more than a throw-away line. We think this basic problem should be explicitly stated.

Second key point: Perry’s plan “would primarily benefit the wealthiest Americans.”

In fact, Perry’s plan would benefit these people a lot. Rampell’s report includes some basic information about the size of the tax reductions which would go to the highest earners. That said, we think the following point deserves a lot more attention than it has been getting:

“In this alternative system, long-term capital gains, qualified dividends and Social Security benefits would not be taxed.”

Do you know what “long-term capital gains” and “qualified dividends” are? How many Times readers could explain just what that statement means? There's alot of gorilla dust marbled through that murky statement.

Rampell’s piece does include some basic information. That said, we’ll lodge two basic complaints:

Concerning that key bumper sticker: For our money, this is a very poor explanation. We would have rewritten this passage:
RAMPELL (11/1/11): The plan, released last week as part of Mr. Perry’s campaign for the Republican presidential nomination, allows taxpayers to calculate their personal income taxes under the existing tax code, which is progressive. But it also allows taxpayers to instead have their income taxed at a flat 20 percent rate.
In our view, journalists should avoid the term “flat” in writing about this plan. “Flat” serves as a bumper sticker here; it’s not a descriptive term. And the contrast between "flat" and "progressive" is just basically wrong.

The existing income tax code is “progressive,” as Rampell says—but so is the Perry proposal. Under Perry’s plan, some families would pay no income tax at all. Some would pay as much as 19.99 percent. If a journalist wanted to be descriptive, she would rewrite that passage:
RAMPELL REWRITTEN: The plan, released last week as part of Mr. Perry’s campaign for the Republican presidential nomination, allows taxpayers to calculate their personal income taxes under the existing tax code. But it also allows taxpayers to instead have their income taxed at a single 20 percent rate, after allowing for fairly large per-person deductions.
Proponents like to use the word “flat” is discussing such plans. Journalists don’t have to serve them.

Concerning who gains under Perry’s plan: Do you understand the following passage? Frankly, we do not:
RAMPELL: Of all households in the bottom quintile of the tax distribution, only 18.9 percent would pay less in taxes under the Perry plan.
We don’t understand that. As we are constantly being told, most people among the bottom half of the nation’s earners pay no federal income tax. Since we’re talking about federal income tax here, do you understand how a large chunk of “the bottom quintile of the tax distribution” would pay less under Perry’s plan? We could guess at an answer, but we don’t really know.

We’re not saying Rampell is wrong. We’re saying that very few people could explain what she has written here. In the past week, we’ve seen a lot of such work in the New York Times as reporters and the editors try to explain the effects of Perry’s plan, especially the effects of his plan on the nation’s lower earners.

Thank God we have our new sexy-time Cain distraction! Over the course of the next few days, we can all talk about that!

13 comments:

  1. To answer Somerby's question, no. I do not know what “long-term capital gains” and “qualified dividends” are. NYT should explain that.

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  2. Here's what the Times could have written:

    Long-term capital gains are gains on the sale of assets held over a year. Qualified dividends are corporate dividends qualified for a special tax rate. Most corporate dividend are qualified. These two classes of income are taxed at favorable rates. (I think its currently 15%. I believe an increase in these rates was included in Obama's tax proposal.) It seems radical to not just leave these low rates where they are, but to bring them to zero.

    Regarding the lowest quintile, I think the story may be something like this:

    81.1% of the lowest quintile now pay no income tax. Perry's plan would represent a tax reduction for the remaining 18.9%, since under his plan, nobody in this quintile would pay income tax.

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  3. Current Federal rates for assets held for more than a year is 15%. Of course, the tax is on the profit realized upon the sale of the assets. Rates for assets held less than a year cam be ordinary income rates, or up to 35%. This is to discourage quick speculating and encourage long term investing in new brick and mortar enterprises.

    Qualified dividends are also taxed at 15%. Qualified corporations are domestic or special foreign corporations, and the stock must be held for 60 days before the dividend date. The purpose is to encourage creation of or expansion of corporations that hire employees inside the US. Obama’s tax plan has this feature.
    New plans go into effect in 2013, so these numbers are undergoing scrutiny, and can be changed by fiat.
    Each candidate has his/her own set of numbers, just as they have their own tax plans, and our tax proposals are being sliced and diced more than any dish at Benehana’s.
    The bottom quintile figure is quite vague, since the bottom quintile is the bottom 20%. Does it mean that a lucky few in the bottom 20% get a larger Earned Income Tax credit, in other words, a true negative income tax? Only the Shadow knows.

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  4. The Real AnonymousNovember 1, 2011 at 1:43 PM

    "Compared with current tax policy, the plan would most likely reduce federal tax revenue by $570 billion, or about 15 percent."

    This is a non-starter.

    Why waste time with the rest of the details? It's not a serious plan for dealing with our economic situation.

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  5. Is "current tax policy" the law in effect in 2011 or the law as currently written that will be in effect in 2013?

    As is often discussed, the latter is quite a bit different, and quite close to a sustainable rate.

    At this stage in the campaign, it might actually be more important to note that Perry is a raving, clueless buffoon than to try and analyze his foolish voodoo.

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  6. I kind of agree with The Real Anonymous. The media don't do a good job of analyzing proposals that are likely to become law, such as health reform. That gave rise to Nancy Pelosi's famous comment, "We Have to Pass the Bill So That You Can Find Out What Is In It." In fact, the media haven't even done that good a job of explaining health reform now that it's passed.

    If the media can't even explain actual laws, it's unreasonable to expect them to explailn a proposal by someone who isn't going to be President and who couldn't get that proposal enacted even if he were somehow elected.

    In some other world, the media would analyze and explain both laws and proposals. But, they evidently don't have the degree of technical ability needed to do that.

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  7. The Real AnonymousNovember 1, 2011 at 2:58 PM

    David in Cal said...

    "That gave rise to Nancy Pelosi's famous comment, "We Have to Pass the Bill So That You Can Find Out What Is In It."

    Your argument seems to be with the legislative process itself.

    How, pray tell, can anybody say for sure what exactly is in the final version of a bill before it passes when numbers are juggled and parts keep moving right up until the final vote?

    Your's is the kind of logic that spun Kerry's admisson he was opposed to one version of a bill but supported a different version of the same bill, the famous "he was against it before he was for it", into nefarious flip-flopping rather than a fact of legislative life.

    On the other hand, if numbers or language in a bill change before the final vote to garner more support, you'd probably be the first to brand all politicians, or at least those on the dem side of the aisle, liars since what was passed isn't what they said was in the bill when they were last interviewed.

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  8. DinC--

    I don't doubt that some in the mass media are as dim as you suggest. However, that seems like a necessary though hardly sufficient explanation.

    It seems to me reporters like Rampell have internalized a whole set of assumptions about life that are common to the elite elements of American society, who not coincidentally own most of the media. These 'reporters' are literally incapable of writing stories that counter the elite narratives because they self-censor anything that does not fit the script. Why call something by a straighforward term like 'unearned income', when instead you can use a technical mumbo jumbo, such as 'qualified dividends,' which will be understandable to those rich enough to earn them, but passed over by everyone else?

    There is an excellent post mortem of the mass media's self-censorship, in regard to a totally different set of issues if you read Herman and Chomsky's book, Manufacturing Consent. I don't think anyone can really understand the depth of depravity among our 'press corps' until reading this book.

    Even if you disagree with the authors' politics, the basic issue they raise regarding media bias in favor of elite interests and government power is unassailable.

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  9. TRA asks How, pray tell, can anybody say for sure what exactly is in the final version of a bill before it passes when numbers are juggled and parts keep moving right up until the final vote?

    In response, I ask, In our democracy, how can I provide input to my elected representatives on an important bill if I don't know what's in it?

    In an ideal world, I think the media would explain how health reform would work during negotions. TRA is right that the final bill might change, but that shouldn't relieve the media of their obligation to explain the draft versions.

    Sadly, as Bob keeps pointing out, the media are more focused on trivia. Chris Prom might be correct as to the media's motivation, but I lean toward Hanlon's Razor. A third possibility is that the media may believe that their audience is more interested in trivia than real news coverage.

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  10. DinC--Just to clarify, I am not trying to argue that the media are actively malicious, but that they have assumed a whole set of assumptions and worldviews that make it impossible for them to explain events through anything other than the lens of the upper class. I think Bob has documented pretty well over the years how this happens to a whole set of people who come out of a so-called middle or working class background, but end up using a set of interpretive tools that don't adequately or impartially explain events. It is not that they actively try to do this or are evil, but that the whole system encourages laziness.

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  11. "Of all households in the bottom quintile of the tax distribution, only 18.9 percent would pay less in taxes under the Perry plan."

    Of all the households in the bottom 20% of the tax distribution, only 18.9% would pay less in taxes under the Perry plan.

    "Quintile" is not a really difficult word.

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  12. No quintile is not an obscure word . The means it was employed for , did raise several questions . Raised here in which the indication that the use of quintile was in a percentage of non federal tax paying individuals , as that income nowadays excludes you from responsibility towards the federal level of taxable income , and it apparently offered relief where none could be offered .
    This by no means relieves this income level from every other fee and tax at the state , retail sales , level etc .
    The difficulty with quintile in this use is it almost interchangeable with all or every person in the lower quintile . Persons "in" this group don't have federal tax liability , so why offer relief ?
    This is the matter as I understand it . The inclusion of a tax relief offer for a burden not borne seems to be the real rub with the use of quintile , if I am not mistaken .

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