Grading PolitiFact (Ohio): Marcia Fudge gets a break on her factses

• Is the statement leaving a particular impression that may be misleading?

--Principles of PolitiFact and the Truth-O-Meter

Words matter -- We pay close attention to the specific wording of a claim. Is it a precise statement? Does it contain mitigating words or phrases?
--Principles of PolitiFact and the Truth-O-Meter

The issue:

The fact checkers:

Sabrina Eaton:  writer, researcher
Robert Higgs:  editor


Analysis:

Context first:



(transcript mine, yellow highlights indicate portions quoted by PolitiFact)

James:

Good morning.  Um,  I got a couple things I want to talk about.  One in particular, you know, I hear all the time about 50 percent of the people not paying their taxes.  But, you know, 50 percent of the people are pretty much living from day to day and in poverty.  That's, um, one.

The other thing about paying your fair share of taxes, uh, I'm in business for myself.  And I can write off pretty much everything.  And the larger businesses can write off more than I can ever begin to write off.  So they're not paying any taxes, you know, people talk about, uh,  paying your fair, uh, share, uh, or gaming the system.  Uh, these large businesses, they have parties, they write off all their food, they write off everything.  Clothes, and the whole bit.  Now you have people that are poor that can't write off anything.  I would much rather be in the position that I am in than to get welfare.  If you're getting welfare, food stamps, and that, you can' t pay your bills.  You're working from day to day, and you're definitely (?) conservative because if you weren't conservative you wouldn't be able to survive 30 days off of uh welfare and food stamps and anybody that thinks that they can, they need to trade that position with some of these people that are getting food stamps.

Rep. Fudge
There are corporations in this nation, some of the biggest corporations in this nation, who do not pay taxes.  You are certainly correct.  Um, But it's a matter of tax policy.  Over the last probably 15 years in this nation, tax policy has skewed to the very wealthy.  It's not that they are cheating, it's not that they are doing something wrong, they're, they're, they're using what we have given them.  We have given them tools to keep them from paying taxes. 

Uh, and so the policies need to change.  We need to take a look at tax policy in general.  But we certainly need to take a look at corporate tax policy.  Because when we continue to allow the wealthiest people and the biggest corporations in this nation to not pay taxes that is why we have created this huge gap between rich and poor.  Um, I know that we often talk about middle income people but at some point we have to talk about the gap between rich and poor, which has consistently gotten bigger in this country over the last 10 years.  And now it is larger than anyone ever imagined it could be.  So I think that it is absurd to say that it, that, that taxes should not be increased on the wealthiest people in this nation, who some pay probably less taxes than I pay.  And that we should not do things for the people who are most in need.  I think it's, it's absurd.

The above method of examining the original context can emphasize the degree to which a reporter massaged a quotation into shape. This example has Eaton pushing, if not shredding, the envelope by omitting material in the midst of a quotation without using an ellipsis:

"It is not that they are cheating," Fudge continued. "It is not that they are doing something wrong. We have given them tools."

We thought examining Fudge’s tax claim would be worthwhile, since representatives of some of the nation’s biggest companies, such as Cincinnati’s Procter & Gamble, argue that Congress should be cutting business taxes.

Eaton spelled out something of an agenda with the latter paragraph.  Corporations need their taxes cut?  We'll see about that!

PolitiFact:

Are some large U.S. businesses not paying taxes, as Fudge claims?

To back up her assertion, Fudge’s office cites media reports about particular companies – like General Electric and Bank of America -- that did not pay 2009 taxes as well as a July 2008 report from Congress’ Government Accountability Office that showed it’s relatively common for big companies to pay no taxes.

Remember, Fudge argues that corporations aren't paying taxes because the government gives them the tools to avoid paying taxes.  Let's follow the links:

NEW YORK (CNNMoney.com) -- General Electric filed more than 7,000 income tax returns in hundreds of global jurisdictions last year, but when push came to shove, the company owed the U.S. government a whopping bill of $0.

How'd it pull off that trick? By losing lots of money. 

Thanks for the tools, federal government!

As for Bank of America - after major losses in 2009... it ended the year with a tax benefit of almost $2 billion.

CNN anchor Jack Cafferty offers no clue as to how he calculates a "tax benefit" or what the term actually means.  My investigation suggests that he is misinterpreting and/or misrepresenting its meaning.  It appears to mean that a past write-off was recovered and had to be reported as income for the current tax year--which would increase the income tax if the company had demonstrated a net income.

And how about that GAO report?  Yes, it showed that big companies often pay no (income) taxes.  Because big companies often lose money at the bottom line.  From the report's "Results in Brief":

Corporations can establish the basis for no tax liability at different places on their tax returns. For example, some corporations could have zero income before deducting expenses and others could have zero net income after deducting expenses—both of which could result in no tax liability. In 2005, large FCDCs and USCCs differed little in where on their tax returns they first established no tax liability. Most large FCDCs and USCCs first established no tax liability where they reported their net current income after deducting expenses. A smaller proportion—about 10 percent—reported losses from prior years that eliminated any tax liability.

The final two sentences seem especially relevant, since they suggest that most corporations establish the status of no tax liability by posting an operating loss.  All part of the government's plan to keep the rich from paying taxes, no doubt.

PolitiFact does a good bit of fiddling with the statistics from the GAO report, but the stats ultimately don't mean much.  Businesses that consistently lose money--especially large businesses--don't stay in business for long.  And the businesses that make money pay income taxes on the income.  It is difficult to see how that finding supports Fudge's claim.  How does the fact that businesses don't pay income taxes when they don't have net income have a significant effect on the gap between the rich and the poor?  We could use an explanation.  But we're not going to get one.

What, conclusion time already?

PolitiFact:

The nation’s big business representatives don’t dispute the (GAO) report’s findings, even as they stress it should not be misconstrued to mean businesses are evading taxes they owe. During her television appearance, Fudge stressed that the businesses who don’t pay taxes aren’t cheating or doing anything wrong.

Our research finds solid ground beneath her claim that some large U.S. companies don’t pay taxes. That’s why we rate her statement as True.

The rating is ridiculous.  Fudge did not mention the fact that when U.S. companies do not pay income taxes it is because they did not make money.  Nor did she distinguish between income taxes and other types of taxes such as property and sales taxes.  Ask Allen West how that can affect your Truth-O-Meter rating if you're a Republican.  The "True" rating is supposed to apply when "there’s nothing significant missing."  It is inconsistent to rate West "Barely True" for a parallel statement lacking that sort of context and then find a similar omission insignificant when rating Fudge.


The grades:

Sabrina Eaton:  F
Robert Higgs:  F


Journalists who fail to apply proper standards are journalists reporting badly.  In this case, the PolitiFacters did not care whether the statement left an impression that was misleading and did not pay close attention to the specific wording of the claim nor the context with its underlying point.