A fact-checking travesty

During the course of my most recent "Grading PolitiFact" item, I questioned a figure PolitiFact used to estimate the portion of an individual's average tax rate.

PolitiFact asked a pair of Center for Tax Policy experts to estimate the effects of payroll taxes on the tax rate of a person making about $50,000 per year.  And mine were not the only eyebrows raised by the estimate returned by Roberton Williams and Rachel Johnson.

From PolitiFact's Facebook page:

Zwack asks a good question, and we're still waiting for any sort of response from PolitiFact.

An Annenberg Fact Check (factcheck.org) story linked through the PolitiFact website helps confirm one of my two proffered solutions to the payroll tax percentage mystery.

The Annenberg item, unlike the PolitiFact story, took its calculations out of the black box and put them on display:

In all cases, when calculating combined payroll and income tax rates, we have followed the same method used by Buffett in his New York Times piece (and in general by economists and tax analysts as well). That is, we have counted the employer-paid portion of both Social Security and Medicare taxes as though they were paid by the worker, and we have also added those amounts to the worker’s income when calculating the overall rate. This is based on the economic theory that employers see the taxes as a part of total compensation, and that they would pay it as salary if the worker paid that half of the tax instead.

The above justification makes sense.  But even the Annenberg researchers do not make clear that the calculations were performed correctly.

To illustrate the problem, consider the person making $50,000 per year.  Most of us think of that figure as the person's salary--the gross amount on the paycheck stub before taxes and other deductions.  If the person making $50,000 pays a 6.2 percent payroll tax on that amount, then the effective tax portion stemming from the payroll tax is 6.2 percent--an easy calculation.  But the employer's share works differently.  If the employer's share of the payroll tax (a match of the 6.2 percent) counts as employee income then the employees is making 6.2 percent of his salary added to his $50,000 salary:  $53,100.

That total income figure, in turn, affects the person's average tax.  Instead of adding the employer's match to the employee's share to reach 12.4 percent for the share of payroll tax, we take the total tax ($6,200) and take that as a share of the $53,100 total.  Which comes to about 11.7 percent.

The same principle appears to apply to any other aspect of employee compensation, and there are quite a few of those potentially adding $10,000-$20,000 to the total compensation of the employee earning a $50,000 salary.

It isn't clear that the Annenberg fact check took all these things into account.  It's pretty clear that the PolitiFact fact check did not:

We asked two researchers at the Urban Institute-Brookings Institute Tax Policy Center, Roberton Williams and Rachel Johnson, for their advice on how to factor in payroll taxes. They estimated that combining the workers’ share of the payroll tax with the employer’s share -- the usual practice among economists -- would mean an extra 15 percentage points for our hypothetical middle-class worker, and less than 2 additional percentage points for the high-income taxpayer.

Adding these to the percentages we previously found for the income tax alone produces a new, "final" rate of 22 to 23 percent for the construction worker and 20 to 30 percent for the $50 million earner.

Williams and Johnson very probably were not responsible for the faulty equation PolitiFact uses for its calculation.  But if either Tax Policy Center expert reads their press then what stops them from pointing out PolitiFact's error?

And what stopped PolitiFact from considering total compensation in certain other fact checks from the past?

Regardless of the reasons, PolitiFact botched the calculation and called it fact checking.