News Release

Leading Think Tank Faulted for Distorting Tax Issues

WASHINGTON — One of the nation’s most prominent think tanks has been putting out deceptive information about tax issues this spring, some independent economists say.

While the Heritage Foundation has marked this tax season with a flood of dire statements about taxes, many of those claims don’t stand up, the economists charge.

John Miller, a professor of economics at Wheaton College in Norton, Mass., said that “the Heritage Foundation has engaged in a politically motivated misreading of the data on the tax burden of most working Americans.”

Economists ripped into claims made repeatedly by the Heritage Foundation this tax season.

* Tax Myth #1: The “average” American family must work until May 9 to pay the year’s tax bill.

In a recent mailing to journalists across the country, the Heritage Foundation declared: “The average family must work until May 9 to earn enough to pay its tax bill.”

But David E. Kaun, an economics professor at the University of California at Santa Cruz, called such assertions dishonest. “The so-called ‘average’ taxpayer is a misleading fiction — a corrupt but convenient notion,” he said. “With our highly skewed income distribution, the truth of the matter is that a big majority of Americans earn less than the ‘average’ and thus are taxed at less than the ‘average’ tax rate.”

Professor Miller agreed, saying that the May 9 calculation “grossly overstates the tax burden of the typical taxpayer….Averages are not typical because they lump together the higher income taxes owed by the wealthiest citizens with the taxes paid by the rest of us.”

Miller added: “The typical family faces higher payroll taxes to pay for social security, not higher income taxes.”

* Tax Myth #2: The current tax system is biased against capital and the well-to-do.

The Heritage Foundation and other conservative think tanks have frequently claimed that the current tax code unfairly penalizes the wealthy.

But Professor Miller points out: “The richest taxpayers, who saw their income go up the fastest in the last 20 years, pay fewer taxes than they did two decades ago. In 1996, the top 1 percent paid one-third of their income in federal taxes, well below the two-fifths of their income that went to federal taxes in 1977.” And “the federal government also taxes capital income at lower rates than wage income.”

Professor Kaun commented that “Heritage is grossly distorting reality.” In fact, he said, the top bracket of marginal tax rates for personal income has plummeted from 91.2 percent during the 1950s to just 39.6 percent today. Drops in the tax rate for the wealthy and corporations have shifted more of the tax burden onto others.

* Tax Myth #3: The problem with the tax code is complexity (not inequity).

“The federal income tax code is complex because it is not comprehensive,” says Miller. “Not all income is taxed and some income is taxed at favorable rates. It is the capital income of the rich — from capital gains to interest on state and local bonds — that is most often tax-exempt or taxed at more favorable rates.”

Some experts said that it was ironic to hear complaints from the Heritage Foundation about the burdensome complexity of federal tax rules. “Taxes are complex because all of Heritage’s rich friends have put those loopholes in there,” said economist Marc Breslow, co-editor of Dollars and Sense magazine.

The inequities of the tax system — even more than the complexities — are the reason for Americans’ frustrations, Breslow added, since “people who are not rich are paying a bigger share.” While taxpayers may be angry around tax time, Breslow noted, U.S. corporations must be giddy: During the 1950s, they paid 28 percent of federal revenues. Now, corporations pay just 11 percent.

“The way to reform the tax code,” Breslow said, “is to eliminate the complexity of loopholes for the wealthy and restore progressivity, so those with the ability to pay do pay.”

The Institute for Public Accuracy is a nationwide consortium of policy experts.