Tax Return Shenanigans Not a New Thing

by | ARTICLES, BLOG, FREEDOM, POLITICS, TAXES

The National Review reprinted an article from their archives, first written on May 30, 1994. It recounts the media treatment of George Bush, Sr.’s tax returns from 1991. Not surprisingly, the analysis omitted certain facts from the return to make the Bushes appear to pay less income taxes for a high income earner, in order to satisfy a particular agenda.

It’s worth it to read the old article in its entirety to appreciate how such media manipulation has been going on for at least a generation.

“Donald Barlett and James Steele are two of the most successful journalists in the United States. As reporters for the Philadelphia Inquirer, they have won two Pulitzer Prizes. Their gargantuan nine-part series, “America: What Went Wrong?,” was published in 1992 and reprinted in numerous newspapers. The series became an immediate best-seller when it was turned into the book of the same name.

Barlett and Steele’s new book, America: Who Really Pays the Taxes?, has now been excerpted, syndicated, and run as a series in newspapers throughout the United States. It is undoubtedly destined for the same bestseller status. The authors’ answer to the question posed in the new book’s title is — not surprisingly, in light of their earlier work — that the tax system is rigged against average Americans, who pay more than their fair share of income taxes while higher-income Americans pay less.

This thesis is demonstrably false. Although average Americans are indeed overburdened by taxes, upper-income taxpayers are even more so. Furthermore, although Barlett and Steele have described themselves as supplying “detailed information” that their readers “can get nowhere else,” their economic journalism constitutes little more than slanted anecdotes mixed with statistical sleight-of-hand.

Every year, the Internal Revenue Service analyzes tax returns and publishes data showing how much income was reported and how much tax paid by taxpayers in various income groups. These IRS figures are widely distributed, and no one writing an entire book on the subject could possibly be unaware of them. Barlett and Steele’s avoidance of these hard data is easy to understand, however, because the IRS figures destroy their thesis. In 1991, the most recent year for which the figures have been compiled, the top 1 percent of tax filers reported 13 percent of the nation’s total adjusted gross income (i.e., before most deductions), but paid 24.6 percent of all federal income taxes. The top 5 percent of taxpayers reported 26.8 percent of the income, but paid 43.4 percent of the taxes. And the top 10 percent — those earning over $61,952 — reported 38.2 percent of the income, but paid 55.3 percent of the taxes. The bottom 50 percent of tax filers, by contrast, reported 15.1 percent of the income, but paid only 5.5 percent of the taxes, leaving 94.5 percent of the tax bill to be paid by those with above-average incomes.

Barlett and Steele contrast the present day with what they view as the golden era of the 1950s, when the top individual and corporate tax rates were higher than they are today. They argue that in recent years higher-income taxpayers have successfully pushed tax burdens onto those who are less well off. What Barlett and Steele fail to mention, however, is that the tax code of the 1950s was so riddled with loopholes that those top rates collected virtually no revenue because hardly anyone paid them. IRS data show that the share of the total tax burden borne by upper-income individuals grew steadily from 1981 to 1991. It is particularly noteworthy that since 1982, when marginal tax rates were cut across the board, the proportion of taxes paid by upper-income people has increased. The share paid by the top 1 percent of tax filers rose from 17.6 percent in 1981 to 24.6 percent in 1991; the share paid by the top 5 percent went from 35.1 to 43.4 percent; the share paid by the top 10 percent rose from 48.0 to 55.3 percent. It is clear, therefore, that the central theme of Barlett and Steele’s book is simply false.

Upper-income Americans pay a disproportionate and growing share of the total tax bill. If middle-income Americans are overtaxed — and they are — it is not because those above them on the economic scale are getting a free ride. The Bushes’ Tax Return Shoddy and uninformed economic analysis is bad enough, but Barlett and Steele’s portrayal of George and Barbara Bush’s taxpaying record can only be described as maliciously misleading. The authors argue that there are “two separate and distinct tax systems,” one for “the rich and powerful” and one for “everyone else.”

The centerpiece of their argument is a comparison of the 1991 taxes paid by the Bushes and those paid by an Oregon resident named Jacques Cotton. Under the rubric of “The Privileged Person’s Tax Law,” they report that George and Barbara Bush earned $1,324,456 in 1991 and paid a total of $239,063 — 18.1 per cent of their adjusted gross income in taxes. They report that Mr. Cotton, on the other hand, paid a total of $6,618 in state, federal, and Social Security taxes on a gross income of $33,499. Barlett and Steele calculate that these tax payments add up to 19.8 per cent of Mr. Cotton’s income, a slightly higher percentage than the Bushes paid. This calculation is set forth under the heading “The Common Person’s Tax Law.” Barlett and Steele conclude from this comparison that the American tax system “responds to the appeals of the powerful and influential and ignores the needs of the powerless.” That’s a rather sweeping conclusion to draw from a comparison of two out of millions of tax returns. But is the comparison a fair one to start with?

It didn’t take much investigation to find out that it isn’t. The Bushes’ 1991 tax return was made public when it was filed, and a number of news stories were written about it at the time. That return was newsworthy because the couple’s income that year was three times as high as in any other year of Bush’s Presidency. Why? Because Barbara Bush earned $889,176 in royalties on Millie’s Book, a humorous look at White House life written from the point of view of the family dog. And why were the Bushes’ taxes relatively low, compared to their income?

Because Barbara Bush donated substantially all of the proceeds of Millie’s Book to charity — $818,803, or 62 per cent of the couple’s income that year. They contributed to 49 different charities, everything from Ducks Unlimited to the United Negro College Fund, but the main beneficiary was the Barbara Bush Foundation for Family Literacy, which received $789,176. After giving away more than 60 percent of their income to charity, George and Barbara Bush had $505,653 left, of which they paid $239,063 — 47 percent — in taxes.

Barlett and Steele must have known these facts, yet chose to mislead their readers by portraying George Bush as a greedy, tax-dodging rich person. We wondered why. In fact, we tried to find out why. We left numerous messages for Barlett and Steele, but they declined to return our calls. We faxed a letter to them asking a number of questions, including why they failed to disclose the Millie’s Book income and the Bushes’ extraordinarily generous charitable contributions. But they declined to respond. We also asked them for copies of their 1991 tax returns. Needless to say, we did not get them. But we think it highly unlikely that these tireless campaigners against greed have ever donated 62 percent of their very large incomes to charity.”

The same scenario plays out over and over again when we discuss marginal tax rates, tax cuts, and tax returns. The media plays upon the fact that most Americans don’t understand how everything works and uses that to stir the pot for class warfare. This article could have been written today, and serves as a reminder that these tactics are nothing new.