Grading PolitiFact (Virginia): Eric Cantor and small business taxes

The issue:

The fact checkers:

Warren Fiske:  writer, researcher
Daniel Finnegan:  editor


Analysis:

PolitiFact rated Cantor "Barely True" on this item.  As to the why of it ...


We pick up with the third paragraph:

Cantor, like many Republicans, says raising the highest income bracket will penalize small businesses.

"The question is are we going to raise taxes on small businesses right now, when we’re looking at those very individuals, those small businesses, to create jobs," Cantor, the soon-to-be House majority leader, said on CNN. "I don’t think many people think that’s a good idea."

Already there's a problem that will go unnoticed by most.  The context of the Cantor quotation above provides no indication that he was talking only about the highest income tax bracket.  The context suggests that he was talking about all of the Bush tax cuts.  There simply isn't anything about the "highest income bracket."

ROBERTS: And one of the open questions going into the midterm elections, what happens with the Bush tax cuts? Do they sunset? Do they remain in place for the middle class? Do they remain in place for everyone? When all is said and done, where are the Bush tax cuts going to be in January of 2011?

CANTOR: Let's set the record straight here. Come January 1, one of two things are going to happen, either taxes go up or they stay the same. No one is going to get a tax cut. So let's take that by definition off the table. The question is, are we going to raise taxes on small businesses right now when we're looking to those very individuals, those small business people to create jobs? I don't think many people think that's a good idea.

(CNN transcript)

Raising taxes on taxpayers across the board will undoubtedly raise taxes on small business, so the premise of Cantor's question based on all of the tax cuts is unquestionably true.  And even if Cantor was only talking about the top two tax brackets (all of the highest bracket and part of the second), taxes will be raised on any small businesses owned by persons in those tax brackets.  So Cantor's premise remains true.

As it turns out, PolitiFact ends up fact checking an opinion piece by Cantor published in the Wall Street Journal.  PolitiFact provided only a small snippet from it (I'm not a subscriber):

In addition, Cantor wrote in a Sept. 20 Op/Ed in the Wall Street Journal "roughly half of small business income in America will face a higher rate" if the Bush tax cuts die.
(yellow highlights added)

Presumably PolitiFact meant "if the Bush tax cuts die for top earners" instead of "if the Bush tax cuts die."  It makes a big difference.

Cantor's statement, on its face, probably refers to the recommendation of Democrats to raise taxes on those with taxable income over $250,000.  While that's a valid subject for a fact check, it isn't the fact check PolitiFact claims to be doing either in the quotation above or in the headline/deck areas reproduced in the image near the top.

PolitiFact:

Cantor’s assertion focuses on the top bracket of income taxpayers: individuals with earnings more than $200,000 a year and families making more than $250,000. President Bush cut the top tax rate to 35 percent. President Obama wants to raise it to its previous 39.6 percent level, saying it would lower the deficit.

Obama's proposal, as per a source PolitiFact later uses to back its claims, also includes a reinstatement of a 36 percent tax rate for married couples with over $250,000 taxable income ($200,000 for single filers):

Administration's upper-income tax proposals are: reinstate the 39.6 percent top rate; reinstate the 36 percent rate for married taxpayers with income over $250,000 ($200,000 for singles); reinstate the limitation on itemized deductions and the personal exemption phase-out for married taxpayers with income over $250,000 ($200,000 for singles); impose 20 percent tax rate on capital gains and qualified dividends for taxpayers in the top two tax brackets.

Why would fact checkers tell only part of the story?  If they don't know the part of the story they're not telling then how good is the fact check?

After PolitiFact asserts the impossibility of determining how many in the target realm are small business owners, PolitiFact proceeds to grade Cantor on that point:

Although there’s no concrete definition of a small business owner, it seems reasonable to us that he or she would make half of his or her income from business ventures. The Tax Policy Center found that 272,000 of the wealthiest filers do that.

The average adjusted gross business income -- the money they keep after all deductions -- for these taxpayers is $718,827. "The spin-miestering version of the argument doesn’t mention this," said William Ahern, director of policy and communications for the Tax Foundation, a business-backed tax policy group  in Washington. "The viewer would think we’re talking about the appliance store owner on the corner."

I detect some perverse reasoning in the above.  Apparently if a person in one of the top tax brackets owns a business that contributes less than 50 percent of their taxable income then it is supposed to follow that raising their taxes will not impact the business.  That does not seem realistic.

PolitiFact:

Cantor bases his Wall Street Journal claim that "roughly half of small business income in America will face a higher rate" if the Bush tax cuts die on a July 12 congressional report. "According to the Joint Committee on Taxation," deputy press secretary Megan Whittemore

But that’s not what the report says. It says 50 percent of all flow-through business income in the top bracket would be subject to a higher levy if the Bush tax cuts expire. And it adds this caveat: "These figures for net business income do not imply that all of the income is from entities that might be considered `small.’’’
(PolitiFact had the wrong link for the report when I posted this quotation--I've replaced it with a correct link to the referenced report-bw)

PolitiFact added the italicized emphasis.  I'd be surprised if failing to note the addition of emphasis to a quotation meets the standards of objective reporting.

More to the point, the caveat is irrelevant.  It would have been a different story if it read something like "These figures for net business income do not imply an approximation of the percentage of small business income subject to the higher rates."  But that's not what the report says.

As for Whittemore's justification for Cantor's claim, it's hard to see it in the report other than as implied in the numbers for net business income.  Cantor did, after all, say his figure was approximate while the committee report skipped the use of a qualifier.  Perhaps that extrapolation is reasonable, but the report does little to firmly establish that and as such was a less-than-appropriate supporting citation.  I'd like to see the entire text of Whittemore's e-mail response to PolitiFact.

After flagging another Whittemore citation, PolitiFact starts the rush to judgment:

Let’s summarize:

Would ending the Bush tax cuts raise levies on small businesses, as Cantor’s says? Sure, some extremely successful small businesses would be affected, but probably not many.

For a fact check, this story plays it pretty fast and loose with words.  Ending the Bush tax cuts across the board, as implied in PolitiFact's wording, would raise levies on probably many small businesses.  Small business with greater numbers of employees and the greatest capacity for hiring would more likely suffer the consequences of rescinding the tax cuts on the top two brackets.  Taken literally, the PolitiFact claim is flatly wrong.

But the torture doesn't end there:

The IRS does not offer a standard definition for a small business. Cantor consistently takes IRS data on the percentage of top earners who report some business income and says it comes from small business. You can’t make that leap, as one of the reports cited by Cantor says.

Again, PolitiFact is flatly wrong.  The report said that the income could not be assumed to come entirely from small business.  That says nothing about the percentage, and the percentage is the figure at issue.  As to whether Cantor "consistently takes the IRS data on the percentage of top earners who report some business income and says it comes from small business," I haven't seen it, and PolitiFact provides precious little evidence of the supposed pattern.  Indeed, the pattern seems like a PolitiFact fantasy only hinted at in Whittemore's defense of Cantor.

Fiske's confusion of the percentage figure with the net business income figure while apparently making assumptions about Cantor's methodology forges a shiny bit of irony.

Yet we have even more excruciation to endure:

What we know is that a sizable percentage of the nation’s top earners make some of their money from business profits. Their business income could come from any number of places, including stores or partnerships in law firms, medical practices or Wall Street trading houses.

About 272,000 Americans in the highest income tax bracket report more than half of their earnings come from business profits. Their average business income is $718,827, according to the Tax Policy Center, whose figures Cantor sometimes uses. That hardly sounds like a corner shop owner, whose image Cantor seems to invoke when he says Democrats are trying to raise taxes on small businesses.

This would have been a fine time for PolitiFact to use the median figure for the business income.  Then it would sound quite a bit more like a shop owner, and PolitiFact would offer less appearance of spinning its fact check.  Those who don't immediately see why the median would offer a more reasonable figure can take advantage of this handy explanation from Dr. Salary.

Despite the impossibility of determining the number of small business owners fall in the relevant tax brackets, PolitiFact was able to find Cantor "Barely True."  It's amazing how PolitiFact can base its fact checks on uncertainty.

The grades:

Warren Fiske:  F
Daniel Finnegan:  F

How awful was this fact check?  Let me count the ways:

• falsifying context
• misrepresenting fact check in title
• ruling incorrectly on fact check in title
• inappropriate "highest bracket" fixation
• the percentage/net business income faux pas
• offering opinion without supporting evidence on Cantor's supposed pattern
• using mean where the median was the right statistical reference point

Tagged with "journalists reporting badly."  I hope I never read a PolitiFact story worse than this one.

Disgraceful.

Afters:

Cantor made the same argument, apparently again based on the entire set of the Bush tax cuts, back in September on NBC.


Dec. 1, 2010:  Tinkered with phrasing in a number of places ... perhaps I'll learn some kind of lesson about rushing to publish during late night/early morning hours.