Obama's 95% "Illusion"

Wall Street Journal editorials are so filled with distortions that if we tried to rebut them everyday we wouldn't have time to write about anything else. But I've received several requests to explain what's wrong with this piece, so here goes:

The title of the editorial is "Obama's 95% Illusion," which seems to cast doubt on Obama's assertion that he would cut taxes for 95% of working families. Politifact--by far the most rigorous of the fact checking sites--declared that yes, Obama's proposals would cut taxes for 95% of working families. (You can read their analysis here.) So the first thing to realize is that the WSJ editorial writers are starting with a statement that is true and then seeking ways to lie or redefine terminology and claim that it is not.

The WSJ tries to argue that a reduction in your tax bill due to a tax credit does not constitute a tax cut. But this is an arbitrary language game. I'm pretty sure that when the child tax credit was expanded back in 2001, the WSJ heralded this as a tax cut. What they really hope to do now is to redefine the term "tax cut" to exclude anything Obama is proposing. At the end of the day, if you get a tax credit, you write a smaller check to the government. For people not trying to deliberately distort the issue, this is a tax cut.

Next the WSJ plays the usual conservative game of mixing up overall taxes and income taxes. You hear this kind of claim all the time on Fox and conservative websites: "X% of people don't pay taxes." It's not true. Yes, many tax filers don't owe any income tax. But anyone with a salaried job pays other taxes, particularly payroll taxes.

The WSJ says "Taken together, however, these tax credit payments would exceed payroll levies for most low-income workers." This is almost certainly false, by any reasonable definition of "low-income worker." This Tax Policy Center table shows that under Obama's proposals, average effective tax rates would go negative, meaning that they would actually receive get money back from the government, only for those making less than $10K a year.

Finally, the editorial makes the discredited claim that Obama's tax plan would hike marginal rates for low-income workers, and they include the figure from AEI's Alex Brill and Alan Viard screed as an illustration. Jonah explained the dishonesty in their piece in this post last August. Since then, an objective analysis of the effects of the candidates' proposals on marginal rates has been published by TPC. Their analysis shows that with Obama's proposals in 2009, the effective marginal tax rate would increase for only 15% of households, and an even smaller percentage of those making under $30K. (See Table 1.) In fact, under Obama's proposals, 61% of all households would face a lower effective marginal tax rate, precisely the opposite of what the hacks at the WSJ would have you believe.

(Note that I'm loosely using the term "households" to refer to what are actually tax units.)

More of the story: never believe anything you read in a Wall Street Journal editorial. For trustworthy analysis of tax proposals, the non-partisan Tax Policy Center is the only place to go.