CBS News Report on Taxes Doesn't Explain Tax Bills Very Well

September 12, 2008

The CBS Evening News ran a story earlier this week that profiled the tax bills of three hypothetical Ohio families, and how they would fair under Pres. McCain vs. Pres. Obama.

Before I get into the part where CBS News doesn't really explain the issue well, I did find this ironic:

Kendra and Andy Foos have three children....They made nearly $64,000 last year.

To the Foos family, being middle-class means being caught in the middle.

"There seems to be breaks for those with very low income, and lots of breaks for those who are very high income. And we are the ones that are constantly struggling." Kendra Foos said.

"We don't fit into any loophole," Andy said.

That's funny because last year, by having three children, the family saved over $4,500 in taxes. You may not consider that a loophole, but it is a huge tax cut just for having kids. In fact, what percent of the family's income do you think was paid to the IRS in income taxes? 25 percent? 30 percent? Not even close. Try $1,662, or 2.6 percent of income. Now assuming all the income is wages, they will pay payroll taxes, which would bring the percentage up to 16.6 percent (assuming the entire incidence is borne by workers and after adding in to income the employer contribution). (Note we ignore other indirect taxes paid by the family, state-level taxes, and income the family earns that isn't in AGI like employer-provided health insurance.)

Of course, CBS portrays their small income tax cut under either Obama or McCain as some kind of injustice: "does that feel like enough?" This is the classic status quo bias, or what have you done for me lately view?

Now when it came to the high-income family profiled, CBS News played a little loose with the numbers in the way it phrased the apparent tax hike a family would receive from Pres. Obama.

The Wilsons are at the other end of the spectrum, earning $213,000. That puts them in the 28 percent bracket. If Gilbert's business improves, his income could push him into the 33 percent bracket, which under Obama's plan would jump to 36 percent of income.

That would be painful. Another 8 percent of the income," Gilbert said.

That could be at least $5,000 more in taxes.

"Another 8 percent of the income." I don't know what he means by "the income," but it should be made clear that the 8 percentage point jump would only be on the income earned beyond the 36 percent threshold, which for 2008 is $200,300 of TAXABLE INCOME, which the Wilsons aren't actually that close to. (Taxable income is AGI less exemptions less deductions). This assumes the Wilsons aren't in AMT as the article doesn't give us any information on the tax bill beyond filing status, number of people, and income.

And I'm not sure where the "$5,000 more in taxes" came from, what it's relative to, how much extra income the article assumes, etc.

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