Not Non-Partisan Tax Policy Studies

This past Friday news services were reporting with glee a "preliminary" study comparing the tax plans of Presidential candidates Senator Barrack Obama (D - Illinios) and Senator McCain (R - Illinois). One reason this report was so widely reported (or should I say celebrated) is the sponsoring think tank.

The report was issued by the Tax Policy Center. According to the tank's website

The Tax Policy Center is a joint venture of the Urban Institute and Brookings Institution. The Center is made up of nationally recognized experts in tax, budget, and social policy who have served at the highest levels of government.

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The report was widely acclaimed as being from a "non-partisan" think tank. See the report on CNN for as an example.

But voters really want to know one thing: How would the presidential candidates' views trickle down to their tax bills? A report released Wednesday by a nonpartisan policy group in Washington, D.C., takes a big first step toward answering that question.

It is true that these two think tanks label themselves as "non-partisan". But the only just description of these two think tanks is "left-leaning". The Brookings Institute has been a vociferous critic of the war in Iraq. The urban institute demonstates its bias with statements such as:

An even larger fallacy in the President's claim is that it rests on the assumption that the tax cuts are a costless gift from a beneficent government. In fact, deficit-financed tax cuts eventually have to be paid for.

Apparently the Tax Policy Center is taking after its joint venture parents. This report on the candidates tax policies tries to be even-handed but cannot contain its wholesale adoption of left-leaning dogma. For example, the report states:

It should be noted that both the Republican Study Committee and the presidential campaign of Senator Fred Thompson have proposed optional alternative taxes. We estimated that those plans would result in dramatically reduced revenues—by as much as $6–7 trillion over the next decade compared with current law (Burman, Leiserson, and Rohaly 2008). Those proposals would have disproportionately benefited those with very high incomes, making the tax system less progressive.

and

Given the large pending increases in public spending on senior citizens due to the forthcoming retirement of the baby boomers, it seems inappropriate to target special income tax breaks to this group.

Thus, the authors of the report fail to recognize that tax cuts stimulate growth and adopt wholesale that progressive tax codes (and class warfare) are preferred over other tax codes.

Most egregious is the author's total failure to comment on the Obama effective average tax rates for those earning $20K or less. They do manage to comment that:

But his plan would drastically alter the distribution of tax burdens and make the tax system significantly more progressive. Households in the bottom quintile of the cash income distribution (the 20 percent of the population with the lowest incomes) would receive an average tax cut of 5.5 percent of income ($567) and those in the middle fifth of the income distribution would receive an average cut equal to 2.4 percent of income ($1,042). In contrast, taxes would rise by an average of 2.0 percent of income ($4,092) for households in the top quintile. And the increases would be even more dramatic within the top quintile. Taxpayers in the top 1 percent would see their taxes rise by an average of 8.7 percent of income or about $116,000. The top 0.1 percent—the richest 1 in 1,000—would face an average tax increase of more than $700,000, or 11.5 percent of income.

and

Taxpayers at the very top of the income distribution would be hit hard by the increase in the top two tax rates from 33 and 35 percent to 36 and 39.6 percent as well as the increase in the top tax rate on capital gains and qualified dividends to 25 percent.

But, the report fails to discuss that for individuals in the lowest quintile (those making less that $18,981) the average tax rate would by -.7%. It might seem trivial but for 2005 tax data (the latest available on the irs.gov website) this would represent a $50 billion net transfer of money from the rest of the U.S. to this low earning income group. The negative sign indicates that those in this group would receive welfare payments amounting to $7 billion the first year. You may have thought the welfare era was over here in the U.S., but not if Obama has his way.

Agree or disagree with the incorporation of welfare into the U.S. tax code, agree or disagree with Obama's various schemes to transfer funds to the lowest income quintile, it must be obvious that this is a topic that should be discussed in a truly non-partisan tax policy analysis.

This report has bias, it is left-leaning, and the intelligent observer should examine the candidates tax policy positions and this report, then reach their own conclusions. My analysis of Obama's tax plan can be read here.