On Tuesday, I saw a headline at the New York Times Web site, Study tallies corporations not paying income tax. This type of story is right up our ally since our readers know that corporations don’t pay taxes; people do. I didn’t get to research the story on Tuesday, but Power Line just provided a kick in the head tonight and reminded me about it.
It turns out that Lynnley Browning and editors at the Times can’t understand basic logic. They figured since two out of three corporations in the study did not pay any taxes, they might as well take the total gross receipts of two-thirds of the companies and assume that 35 percent of that should be tax going to the feds.
They calculated that the government was being cheated out of $875 billion. Idiots.
A correction was posted two days later, but the damage was done. Those few that still do read the Times received their talking points and confirmed once again – in their mind – that corporations are evil.
As usual, the Democrats were preying on ignorance. As Levin and Dorgan undoubtedly know, most small businesses, and many large ones, don’t pay federal income taxes because they don’t make any money. Most companies, especially small ones, pay their employees, after which there is nothing left to report as profit. Those salaries, of course, are taxed as ordinary income. If the corporations are Subchapter S, any earnings are passed through to the owner(s) and taxed at that level. The idea that “corporations” represent some kind of magical money pot for the government to steal from is just one more Democratic Party fantasy. On the contrary, the United States has the second-highest corporate income tax rates in the world, a fact that hurts our economy badly.
As dumb as the Levin-Dorgan press release was, however, it wasn’t dumb enough for the New York Times. The paper got out its calculator, multiplied the gross revenues of the companies in the GAO study by 35%, and came up with this classic of economic ignorance:
“At a basic corporate tax rate of 35 percent, all the corporations covered in the study in theory owed $875 billion in federal income taxes”.
In theory, a company pays 35% of its net income to the feds, not its gross receipts. That reporters and editors at the New York Times should be ignorant of this basic fact is shocking. How in the world can these people purport to instruct the rest of us on economic matters, when they lack the most fundamental understanding of how our tax system works?
Thanks to John Hinderaker at Power Line for reminding me about this story. Here is the correction posted on the Times Web site today.
Correction: August 14, 2008
An article on Wednesday about a Government Accountability Office study reporting on the percentage of corporations that paid no federal income taxes from 1998 through 2005 gave an incorrect figure for the estimated tax liability of the 1.3 million companies covered by the study. It is not $875 billion. The correct amount cannot be calculated because it would be based on the companies’ paying the standard rate of 35 percent on their net income, a figure that is not available. (The incorrect figure of $875 billion was based on the companies’ paying the standard rate on their $2.5 trillion in gross sales.)
In the correction they admit that the correct amount can not be calculated because they would need to know what the net income was for each individual company in the study and if the taxes were paid some other way.
Since nobody has the time to go through the tax returns of 1.3 million companies, this story – and the full GAO study – is completely worthless. It has no actionable facts. It’s pure politics brought to you by Levin and Dorgan.
How much money was waisted on a bull shit study senators?
Do a quick Google Blog search to see how many bloggers jumped all over this. Please send this article and links to everyone on your mailing list to combat the stupidity of liberals and the New York Times taking Democrat propaganda at face value.