Sanity Injection

Injecting a dose of sanity into your day’s news and current events.

Let the disinformation begin, Part II: Corporate taxes

Posted by sanityinjection on August 18, 2008

Last week, a number of major media outlets, including the Associated Press, filed stories with headlines like this: “Most Companies in U.S. Avoid Federal Income Taxes.” The basis for these stories was a report from the Government Accountability Office showing that, in fact, 60 to 70 percent of American companies pay no federal tax in a given year. Certain legislators, inclduing Speaker of the House Nancy Pelosi, seized on this as an argument for increasing taxes on corporations. So what’s wrong with all this?

Proving that a little knowledge is a dangerous thing, none of the news stories or left-wing legislators bothered to ask the question of *why* so many companies pay no federal taxes. The answer is very simple: The vast majority of “companies” in America are small businesses, many of which in any given year do not make any profit, and therefore do not pay any taxes. What little money they make is generally paid out to the owners as wages rather than having to be taxed as a dividend. For larger corporations, 75% do pay federal tax in a given year, and of the ones that don’t, they usually end up paying the following year.

The point is that in this case the media, and legislators like Pelosi, are either guilty of deliberately misrepresenting the facts in order to justify their goal of raising taxes, or they are badly uninformed and rushing to judgment based on insufficient information. I’m not sure which is worse.

The following article, although written by a very partisan source, explains the problem in detail. The issue is not that you can’t advocate for raising taxes, but if you’re going to do that, it shouldn’t be based on inaccurate information or deliberate falsehood:

http://bloomberg.com/apps/news?pid=20601039&sid=aJHKNW1lro9Y&refer=columnist_hassett

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