Sep 13 2010

ABC’s Broken Tax ‘Factcheck’

World News bolsters Republican myths

One of the core debates about federal tax policy concerns the expiring Bush tax cuts. A September 8 “factcheck” segment on ABC World News did more to propagate myths than to set the record straight.

The White House position is that the Bush tax cuts, which under current law expire in 2010, should be extended for the vast majority of the population. Rates would go up only for taxable income above $195,550. The Republican counter-argument is that increasing the taxes paid by the wealthy will actually harm small businesses. As anchor Diane Sawyer put it: “Republicans say raising taxes even on the wealthy will hurt too many small businesses, and that will stall the creation of jobs. So, who is right? We asked Jonathan Karl to check the facts.”

But Karl’s factcheck only served to muddy the debate. Karl interviewed two small business owners who claimed they would be adversely affected. One said an increase in his personal tax bill would cost his company between $20,000 and $40,000. Karl’s second source claimed a potential tax bill increase of $120,000; when Karl asked him to predict how many jobs would be lost, he replied: “It would be a minimum of two. Up to probably four.”

If the point was to illustrate how the tax changes would affect small businesses, ABC chose what appear to be remarkably unrepresentative examples; those estimated tax bills would suggest that both of these small business owners are bringing home what most people would consider to be enormous personal salaries. If their numbers on how much the tax changes will cost them are accurate, then the first business owner makes roughly $700,000-$1.1 million a year in taxable income, while the other takes home about $2.9 million annually. (These incomes were calculated based on tax bracket information from the Center on Budget and Policy Priorities, 8/13/10.) The Washington Post (8/12/10) published a graph using data from the Joint Committee on Taxation that illustrates just how rich you have to be in order to be seriously disadvantaged by Obama’s tax proposal.

And the focus on jobs was misleading. The Congressional Budget Office (1/10; cited by CBPP, 8/3/10) found that “increasing the after-tax income of businesses typically does not create much incentive for them to hire more workers in order to produce more, because production depends principally on their ability to sell their products.”

Karl claimed that the first business owner “says raising the top rates would cost his company $20,000 to $40,000 next year…because his company’s profits exceed $200,000 and are declared on his personal tax return.” The owner, Drew Greenblatt, is quoted, “Well, this is gonna pull cash out of our company, so we’re gonna have less money to invest.”

But personal income is by definition money that’s been taken out of the company; if he wanted to invest it in the company, he could leave it in the company, and not put it into his personal bank account where he’ll have to pay personal income tax on it, regardless of what the rate is. Taxing Greenblatt’s personal income doesn’t cost his company anything–unless he decides to pay himself a larger salary to maintain a lavish standard of living.

Likewise, taxing the multi-million dollar personal profits of the second business owner doesn’t force him to cut two to four jobs; the company’s profitability doesn’t have anything to do with what percentage the boss pays on his personal income.

After spending ample time on these issues, Karl finally turns to “factchecking” the question–will Obama’s proposed tax changes “hurt too many small businesses”?–that Sawyer posed in introducing the segment: “Democrats say only a tiny fraction of small businesses would be affected. That’s true, according to the Tax Policy Center, which says only 2.5 percent of small businesses would see their taxes go up.” So after giving viewers misleading anecdotes about the harm that might come from allowing tax cuts for the wealthy to expire, ABC‘s Karl finally delivered data that might be useful for assessing this policy question.

But then he found a way to try to overstate the impact of the tax increase: “So, 2.5 percent affected. We asked the Tax Policy Center how many businesses that is. Their answer? 894,000 small businesses that would see their taxes go up. A small percentage, but a large number of small businesses.”

Transforming a percentage that perfectly illustrates the effect a policy will have into a much larger, out-of-context number seems designed to reinforce the Republican side of this debate. Why would ABC‘s “factcheck” aim to mislead viewers?


Tell ABC World News that their September 8 “factcheck” report on the tax cut debate was misleading.


ABC World News with Diane Sawyer

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