Scam watch: If you don’t like the Perry plan, just read a different newspaper!

WEDNESDAY, OCTOBER 26, 2011

The Post revives an old scam: Yesterday morning, Rick Perry released his “flat tax” proposal in little-known Gray Court, South Carolina—population 1021 in the year 2000.

Do you understand what Perry proposed? Different news orgs have described the proposal in amazingly divergent ways.

We recall the old joke about New England weather: If you don’t like the weather, just wait a while! It’s a bit like that with the Perry tax plan:

If you don’t like what Perry proposed, just read a different newspaper!

For starters, consider the way the plan is described in two of our most famous newspapers. Consider the way it’s described in today’s Washington Post—and in the New York Times.

Let’s start with the Times. For figure filberts, the Times provides a chart showing how different families would be affected by Perry’s proposal. (To examine that graphic, click here.) Meanwhile, here’s how the often befuddled Richard Oppel begins his news report:
OPPEL (10/26/11): Gov. Rick Perry of Texas unveiled a plan on Tuesday to scrap the graduated income tax and replace it with a 20 percent flat rate. By throwing out rates as high as 35 percent and eliminating estate and investment taxes, the plan would grant a major tax cut for the wealthy. It is the centerpiece of an ambitious proposal that aims to overhaul political sacred cows like Social Security and Medicare while slashing the federal budget.

Mr. Perry, a Republican presidential candidate, said his proposal would also offer benefits to middle-class Americans by giving a $12,500 deduction for every member of a household while preserving exemptions for state and local taxes, mortgage interest and charitable contributions for anyone making less than $500,000. He said anyone could still file under the current code, and he also pledged to lower the corporate tax rate to 20 percent, from 35 percent.
Is it basic facts you’re after? Oppel provides at least two basic facts in those opening paragraphs:

First, Perry’s plan would employ a single tax rate of 20 percent. (Oppel calls this a "flat rate." We wouldn't.)

Second, that tax rate would be applied to income only after the tax-payer has applied “a $12,500 deduction for every member of a household.”

Each of those facts is important. If you didn’t know that second fact, you’d be hard-pressed to understand most of the data found in that aforementioned New York Times graphic. For example, you would have a very hard time explaining this pair of facts:

Under Perry’s new proposal, a family of four earning $31,000 wouldn’t owe any income taxes at all, according to the Times graphic. A family of four earning $69,800 would owe only $2140—roughly three percent of their income.

You simply couldn’t understand those facts if you didn’t know about those per-person exemptions. Applying that “20 percent flat rate,” you would assume that a family of four earning $31,000 would owe roughly $6200 in income taxes! You’d assume that a family of four earning $69,800 would owe $13,960.

That makes the reporting in today’s Washington Post quite amazing. The Post’s reporting is hard to fathom. Truth to tell, it resembles a scam.

Start with Karen Tumulty’s front-page report in today’s hard-copy Post. Tumulty offers an overview of the tax proposals of various GOP candidates. She turns to Perry’s proposal first. Here’s the way she describes it:
TUMULTY (10/26/11): Latest to put forward a blueprint is Texas Gov. Rick Perry, a former front-runner who fully embraced a number of long-standing and far-reaching conservative goals.

"My plan does not trim around the edges," Perry said as he announced it Tuesday in South Carolina.

The centerpiece is a proposal that would give individuals the option to pay a 20 percent flat tax. Perry also would reduce the corporate tax rate from 35 percent to 20 percent; eliminate taxes on dividends and capital gains; make deep, unspecified cuts in federal spending; and establish individual retirement accounts outside the Social Security system.
Tumulty cites the “20 percent flat tax”—but she doesn’t mention those large per-person exemptions. Her report runs 1400 words, but she never mentions those exemptions at any point.

Good grief! If you don’t know about those per-person exemptions, you don’t have the slightest idea how the Perry proposal works! But Tumulty’s bizarre omission doesn’t seem to be some sort of oversight or accident. On-line, the Post also offers this long report on the Perry proposal, a report by the often befuddled Perry Bacon. (Bacon’s report does not appear in the hard-copy Post.) Like Tumulty, Bacon cites the “20 percent national flat tax” involved in the Perry proposal. But he never mentions those per-person exemptions either.

How strange! Bacon links to Perry’s op-ed piece in yesterday’s Wall Street Journal, the piece in which Perry unveiled his proposal. In that op-ed piece, Perry described the $12,500 per-person “standard deduction” quite early—right there in his fourth paragraph! Why then did Bacon fail to mention this part of the plan in his reporting? Why did Tumulty follow suit?

We don’t know the answer to that. But we’ll make two observations:

First: You can’t understand the Perry proposal if you don’t know about those per-person exemptions. In that sense, the Washington Post has grossly failed to explain this proposal. The error is astonishing—vast.

Second: This is precisely the way the Dole campaign mischaracterized the Forbes “flat tax” proposal in 1996. During that year’s New Hampshire campaign, the Dole campaign ran the most deceptive series of TV ads in American presidential history. Basically, the campaign lied to Granite State voters in a gross, extended, deliberate way. (For our earlier report, click here.)

At the time, the Washington Post and the New York Times basically averted their gaze from the Dole campaign’s gross misconduct. By way of contrast, the Boston Globe explained the Dole scam rather clearly. It wasn’t real hard to do.

This morning, the Washington Post seems to be reliving those halcyon days of yore. Dole disappeared the Forbes per-person exemptions. This morning, the Post follows suit with Perry.

Is this morning’s remarkable error being committed for a purpose? We have no idea—but the Post’s reporting is simply astounding. In our experience, Bacon is often befuddled, but Tumulty is quite sharp. What explains the Post’s presentation? We have no idea.

That said, if you don’t like the way the Perry tax plan is being explained, we’ll suggest that you read a different newspaper! In this morning’s New York Times, it’s largely sunshine for those families of four.

In this morning’s Washington Post, cold chilly winds seem to howl.

Later today: If you don’t like the Perry tax plan, just watch a different channel!

11 comments:

  1. ...and nary a mention of participation in social security becoming optional to those entering the work force.

    Does Rick Perry want to kill social security?

    It sure seems like it to us!!

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  2. From the Oppel column:
    "It is the centerpiece of an ambitious proposal that aims to overhaul political sacred cows like Social Security and Medicare while slashing the federal budget."
    Here we go again with the corporate media bullshale. SS, Medicare and Medicaid are "sacred cows?" What utter crap, those programs are survival for more than 50 million Americans. Maybe they are sacred cows for the billionaires and the richy rich class who have no need of such programs. Perry is pushing that toxic filth called private accounts again? Geez, Bush tried to peddle that snake oil in 2005 and it was roundly rejected by the US populace.
    Without those 3 essential programs, tens of millions of Americans will be thrown into abject destitution and will have absolutely no health care. Hands off SS, Medicare and Medicaid, these programs should be strengthened, not cut and not privatized or partially privatized. Eisenhower actually strengthened SS, but they don't make Republicans like him any more. The greedy upper 5% don't want any of their tax dollars going to these programs and they want to pay as little taxes as possible, that's why they back sock puppets like Rick Perry who will deliver the goods for them. They could care less about the destruction Perry's proposals would cause for millions of ordinary Americans. There is nothing ambitious about Perry's proposals because ambitious connotes something serious and worthy of consideration. Perry is a clown and his proposals are clownish and ideologically driven.

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  3. I think the Times chart is deceptive. It's titled "How Rick Perry’s Plan Would Affect Income Taxes" It includes a column called "Perrys Plan." However, I think that column really shows the tax under Perry's optional scale, not the tax under Perry's plan.

    As I understand the Perry plan, each taxpayer would have a choice of either the proposed new scale or the current scale. Presumably, we would each select whichever scale resulted in less tax. So, every individual and every group would pay the same or kower tax. Yet, the chart shows several groups paying more tax.

    I believe the chart really shows the tax under Perry's scale, not the tax under Perry's plan. IMHO it's confusing to show this figure without including the fact that the so-called "Perry's Plan" figure is not what people would actually pay.

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  4. Anonymous, you're right that Bush's plan for partial privatization of Social Security was unpopular. But, you're wrong about it being snake oil. I know that such a plan can work, because Chile converted to that type of plan and it's working fine there. The plan is explaned in wikipedia at http://en.wikipedia.org/wiki/Pensions_in_Chile

    BTW, as wikipedia points out, Social Security is a Pay As You Go (PAYGO) plan (which is why it's similar to Ponzi plan.) The privatized plan is fully funded. That's a big difference. Under SS, one has no legal right to receive SS benefits. Furthermore, the money to pay those benefits hasn't been accumulated. So, during a budget crunch, benefits would be likely to be cut.

    OTOH under a fully funded system like Chile's, each person's earned benefits would be guaranteed by the value of the accumulated fund.

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  5. Chile's plan is not "working fine"; the Chilean government has had to step in repeatedly to help the privatized plan out several times. David in Cal should know better than to rely solely on Wikipedia for answers to anything.

    New York Times: Chile's Retirees Find Shortfall in Retirement Plan

    For all the program's success in economic terms, the government continues to direct billions of dollars to a safety net for those whose contributions were not large enough to ensure even a minimum pension approaching $140 a month. Many others - because they earned much of their income in the underground economy, are self-employed, or work only seasonally - remain outside the system altogether. Combined, those groups constitute roughly half the Chilean labor force. Only half of workers are captured by the system.

    Even many middle-class workers who contributed regularly are finding that their private accounts - burdened with hidden fees that may have soaked up as much as a third of their original investment - are failing to deliver as much in benefits as they would have received if they had stayed in the old system.

    The main advocate for following Chile's program is José Piñera, employed by the libertarian Cato Institute, and the brother of Chile's current extreme right-wing billionaire president, Sebastián Piñera.

    Social Security WORKS. It is a vital program keeping millions of seniors from abject poverty. We should NOT follow a failed plan like Chile's, which doesn't.

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  6. Anonymous -- The fact the the government stepped in to help Chile's plan doesn't mean it's not working. The plan is paying retirement benefits, just like it's supposed to.

    In the US, I believe the federal budget is already subsidizing Medicare and will soon have to subsidize Social Security.

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  7. I find it very annoying that no details are provided in compiling tax comparison graphs. I calculated a tax comparison for a very high income single individual using the following info:

    Business and wage income - $2,000,000
    Interest and NQ Dividends - $ 100,000
    Qualified Dividends - $2,000,000
    Long Term Capital Gains - $2,000,000
    Itemized Deductions - $ 500,000

    Tax Libilities computed:
    Current Law 2011 Rates - $1,138,194 18.67% rate
    Perry Plan - $ 417,500 6.84% rate
    2013 Tax Law, 2011 Rates $1,866,627 30.60% rate

    The effective tax rates are based on $6,100,000 gross income.

    The reason I'm putting in these figures is to provide an idea of what kind of tax bonanza this is for the top .1%.

    I would bet that a CBO study of the plan would point out what a revenue disaster this plan would be, especially since it's formulated so that no one pays more tax than under current law. It's just another example of wingnut fantasy land politics.

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  8. David in Cal:

    The federal budget does not have to subsidize social security. Assuming current CBO projects (which have been consistently conservative since the CBO began making them)in about 15 years Social Security will be unable to pay retirees 100% of the promised benefits. At that point, it is projected to be able to pay approximately 75% of the promised benefits in perpetuity. In order to continue to pay 100% the social security trustees will have to cash in some of the govenrment treasury bills which they are currently holding.

    To characterize this as the federal budget subsidizing social security is to get the causation backwards. Since Reagan and Greenspan tweaked the system in the 1980s, social security receipts have outstripped social security payments, building up a trust fund. The trust fund has then been used to purchase treasury bills, effectively subsidizing the federal budget. In 15 years, social security may no longer be able to do so and may have to request that the federal budget repay some of those subsidies.

    I would also note that the benefit promised to retirees 15 years from now is actually larger adjusted for inflation than the benefit retirees currently receive. In fact, if socials security ended up paying retirees 75% of the promised benefits 15 years from now, it would still be paying them more, adjusted for inflation, than it pays current retirees.

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  9. Oh please, let's stop this crap about Chile's privatized pension system being a success. It's an abject failure, it's not working as promised, maybe it benefits the rich and upper classes. Chile's privatized pension system was imposed on Chile by the murderous fascist dictator Pinochet. What a lovely guy if you ignored the screams from the torture chambers. The military stayed with the traditional public pension system not the new system imposed by dictator Pinochet. Chile has one of the most extreme levels of income disparity in South America. Michelle Bachelet enacted some pension reforms in 2008(?) but I'm not sure if that worked out and how much it altered the workings of the pension system?

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  10. By Richard B. Du Boff, Professor Emeritus of Economics, Bryn Mawr College (2005):
    "Americans might recall that Britain allowed workers to opt out of the public pension system and invest in private accounts in 1988, in an arrangement similar to the privatization scheme promoted in the United States. The new accounts proved costly to set up; some charged 25 percent of the account value in commissions and administrative fees. Even before the stock market crash of 2000, there were widespread complaints about bad financial advice, high fees, and outright deceptions--a public “mis-selling” scandal. By 2005 the financial services industry was forced to shell out $28 billion in restitution payments, the average public pension had fallen to $150 per week, and many Britons were calling for a return to a system much like U.S. Social Security. In Chile a military dictatorship privatized the public pension system in 1981 by having people pay 10 percent of their salaries to investment accounts they controlled. From the start, fees and commissions absorbed 20 percent of contributions; on retirement another fee of 9 percent was charged to convert the account to an annuity. Twenty years on the system was doing so poorly that the government began asking some workers to delay their retirements. Even middle-class workers who contributed regularly were finding that their private accounts, hit with fees that had eaten away a third of their original investment, were failing to deliver as much in benefits as they would have received from the old system. Many Chileans are now trying to create institutions to deal with this “pension damage” (New York Times, January 27, 2005)."

    Gee, you don't hear the free marketeers talking about the Great UK pension privatization fiasco instituted by Maggie Thatcher. She and Pinochet were buddies and soul mates when it came to that privatization thingy. I guess she just ignored the screams of the tortured in Pinochet's hellish empirelet of evil.

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