Economic illiteracy from the WSJ

The paper's latest editorial tries to debunk Barack Obama's claims about his tax plans, but makes a laughable assertion in doing so.

By Alex Koppelman
Published October 13, 2008 4:30PM (EDT)

It's no secret that the Wall Street Journal's editorial page is in the tank for Republicans, and often makes factually dubious claims and arguments in arguing for its position. But it's not often that it says something so silly that it actually makes me laugh out loud -- that happened today, though.

The editorial, which is on Barack Obama's tax plans, begins this way:

One of Barack Obama's most potent campaign claims is that he'll cut taxes for no less than 95% of "working families." He's even promising to cut taxes enough that the government's tax share of GDP will be no more than 18.2% -- which is lower than it is today.

It's a clever pitch, because it lets him pose as a middle-class tax cutter while disguising that he's also proposing one of the largest tax increases ever on the other 5%. But how does he conjure this miracle, especially since more than a third of all Americans already pay no income taxes at all?

John McCain has also made this claim. It is, frankly, ridiculous, a little like a child's attempt at a zinger -- they think they've got you, that this point is devastating and proves that Obama is a liar. Except it's, in this context, a meaningless statistic. It's totally irrelevant.

Why? Two words: Payroll taxes.

Notice the qualifier the WSJ used in that last sentence? Not "more than a third of all Americans already pay no taxes at all," but more than a third of all Americans already pay no income taxes at all."

But Obama's plan just doesn't deal with income taxes, as the author or authors of that editorial know perfectly well. And with good reason -- as William G. Gale and Jeffrey Rohaly of the nonpartisan Tax Policy Center pointed out in 2003, most Americans pay more in payroll taxes than they do in income taxes:

In 2003, workers and employers each owe 6.2 percent Social Security tax on the first $87,000 of a worker’s earnings, and a 1.45 percent Medicare tax on all wages. Although the statutory obligation to pay payroll taxes is split between the worker and the employer, most economists believe that workers bear most or all of the economic burden.

About 74 percent of filers owe more payroll taxes (including the employer portion) than individual income taxes, including 85 percent of those with income below $40,000. Among returns with wage earnings, 83 percent have higher payroll taxes than income taxes, including 97 percent of those with AGI below $40,000 and 90 percent of those with income below $100,000. If only half of employer payroll taxes are attributed to workers, 48 percent of filers and 53 percent of wage earners pay more in payroll taxes than income taxes, including 76 percent of wage earners with income below $40,000.

Sometimes I'm willing to give people credit and assume that they don't know about the falsity of claims like this. But really -- this editorial was written by people who work for the Wall Street Journal. Presumably they know about the details of tax policy. (If not, well, that's even more embarrassing.) So in this case I just wonder: Does the paper think its readers, who presumably also know a little something about tax policy, won't pick up on this?

Naturally, this claim is being gleefully -- and uncritically -- repeated throughout the right blogosphere today.

Alex Koppelman

Alex Koppelman is a staff writer for Salon.

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