Among the issues most commonly discussed are individuality, the rights of the individual, the limits of legitimate government, morality, history, economics, government policy, science, business, education, health care, energy, and man-made global warming evaluations. My posts are aimed at thinking, intelligent individuals, whose comments are very welcome.

"No matter how vast your knowledge or how modest, it is your own mind that has to acquire it." Ayn Rand

22 August 2012

More Obama Misdirection in Campaign Ad

This last weekend, I saw an Obama ad actually endorsed by him that sought to push Romney to release more tax returns and made the claim that Romney "paid only 14% in taxes -- probably less than you."  I believe this was a fallacious and misleading claim, but PolitiFact.com ruled it true by ignoring the context of the ad with a giant switcheroo.

The Obama ad is a discussion of Romney's tax returns, which report on his income taxes.  One naturally assumes that the final statement by Obama that Romney probably paid less in taxes than you means that he probably paid less than you in income taxes.  So, let us discuss the truth of Obama's claim based on income taxes reported on the income tax forms Obama is demanding Romney add to those already released.

I was stunned because most Americans who pay any attention to politics, government, and the economy are well aware that about 46 - 48% of Americans pay no income tax at all.  Immediately this would make one think it is unlikely that half of Americans are paying 14% in taxes on their Adjusted Gross Income (AGI).  In fact in 2011, Romney paid a 15.37% average effective tax rate on his AGI and he claims he paid 13% or more in every one of the last ten years.  This contradicts Biden's claim that he often paid no taxes in this period of time.  Apparently, Biden's unnamed source was rather impeachable, as is Biden's intellect.

The median household income in 2010 was $47,022.  According to Table 3.4 of an IRS study of 2010 Individual Income Tax Returns, broken down by tax brackets, one can estimate an upper bound on the average effective tax rate on AGI for a taxpayer with median income.  142.89 million individual tax returns were filed in 2010, we can examine when we reach half this number of tax returns (71,446,026 returns) as we work down the column in the table of tax returns by margin tax rate.  Including all returns with a marginal tax rate of 10% or less, we have accounted for 63,744,030 returns.  The next group in the table is 42,321,591 returns in the 15% marginal tax bracket without capital gains.  Adding this to the lower tax brackets takes us way over the mid-point number on the returns of 71.45 million to 106.07 million returns.  The median return is clearly among the first one-fifth of the returns in this large group of returns.  Nonetheless, the average effective tax for this entire 15% marginal tax rate bracket group is only 5.1% of AGI.  The 10% tax bracket that brought us close to the median return paid an average tax of only 0.7%, so it is likely that the median return paid substantially less than 5.1% of AGI!

So, the Obama ad claim that you probably paid more taxes than Romney is false.  But no, according to PolitiFact.com, the Obama claim is true.  How do they substantiate this claim?  Well they decide that Obama, the context of the remainder of the ad notwithstanding, was talking about the sum of income and payroll taxes.  Of course, they choose not to add in property taxes because that is not something the Democrats wish to consider when they talk about comparing the taxes of the rich and the median person.  According to our Democrat politicians, the Medicare and Social Security money extracted from our paychecks by unpaid tax collecting employers goes into a lock box and is paid back to us when we retire or reach age 65.  They like to call it an insurance premium which will lead to payouts to us in retirement which scale in accordance with the amount of premiums we paid in.  But in this context it is convenient to forget all that and treat this payroll extraction as general tax money and forget that Romney gets a worse deal in payback even than the median taxpayer does from these extractions.

Now most people have an employer who according to the government pays half of the Medicare tax and, generally, half of the Social Security tax.  So, the employee's share of Medicare is 1.45% and his usual share of Social Security, before the recent 2% reduction of limited duration, was 6.2%.  Adding these together would produce an upper bound average tax payment on AGI of 12.75% in normal times, but of only 10.75% in 2011.  This is lower still than Romney's effective tax rate.

Oh, but wait.  The truth, always suppressed by Democrats otherwise, is that it is a fiction that the 6.2% for Social Security and the 1.45% for Medicare paid by the employer is really paid by the employer.  People who are self-employed pay it all and those who work for an employer are actually paid less by that amount because of this extraction.  That money would have been paid to the employee in the market for labor if it were not siphoned off by the government instead.  This is the argument of the Tax Policy Center of the liberal Brookings Institute.  As a result they add in both the employee's and the employer's extractions for Social Security and Medicare and claim that the median taxpayer probably does pay more tax than does Romney.

If the Democrat fiction on employer contributions to Social Security and Medicare were maintained, then Romney could claim his share of those payments as a shareholder in many companies with many employees and show that he paid a much, much larger tax due to his huge employer tax payments!  But it does not work that way.  Inventive approaches to issues are the province of Democrats only.  Republicans are usually too straightforward to make such arguments and if they did, the Progressive media would raise an incredible fuss!

We really ought to also remember that the many companies partially owned by Romney as a shareholder may have paid the world's highest corporate taxes on any profits they made.  They also spent a fortune on foolish laws, mandates, and regulations arising from local, state, and federal governments for vanishingly small or non-existent benefits for Americans generally.  More and more, these governments delight in moving the expenses of gifts to others, commonly to special interests, to the accounts of businesses in the private sector.  The governments are awash in red ink, or they would be if they were forced to do the kind of accounting that businesses are forced to do by governments.  So, they force businesses to pick up the tab more and more often without regard to the impact on lower profitability, less hiring, less capital investment, and more bankruptcies for businesses.  Not only does Romney pay out huge sums on his investment in many companies making these government mandated payments, but he also pays a capital gains tax on any money earned by him due to sales of appreciating stock.  Romney does much more than his fair share in supporting the cost of government.

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