Read Tax Claims Skeptically | Eastern North Carolina Now

    Publisher's note: This article appeared on John Hood's daily column in the Carolina Journal, which, because of Author / Publisher Hood, is linked to the John Locke Foundation.

    RALEIGH     I don't exercise my editorial muscles as much as I used to, and even when editing was a major element of my daily routine, I was never as tough on my writers as I probably should have been. To the extent I succeeded at the job, however, it was because I am by nature a skeptical person. Writers ought to be skeptical, too, but they often aren't. Editors must be. They must always ask such questions as "Who told you that?" and "Did you check the math?"

    Editorial skepticism would have served North Carolina print and broadcast outlets well over the past few days as they fell for the same old trick that the Institute on Taxation and Economic Policy (ITEP) has been playing for years with the help of local partners such as the North Carolina Justice Center.

    ITEP regularly produces a study purporting to measure the fairness of state and local tax codes. In the latest version, it presented the following breakdown of taxes paid by North Carolinians: 9.2 percent of income paid in state/local taxes by the poorest 20 percent of N.C. families, 9.1 percent paid by the next 20 percent, 9.2 percent paid by the next 20 percent, 8.8 percent paid by the next 20 percent, 7.8 percent paid by the next 15 percent, 6.8 percent paid by the next 4 percent, and 5.3 percent paid by the top 1 percent in income.

    Looks positively Dickensian, doesn't it? And it is - by which I mean that it is a fiction, not a dispassionate reporting of facts.

    The most obvious untruth here is that the tax burdens ITEP reports concern only state and local taxes. They don't, as ITEP admits (though not prominently). These are burdens after including the value of the federal tax deduction for state and local taxes paid. While it's useful to consider the entire tax picture when assessing tax fairness, ITEP includes only the effect of a federal income tax deduction without including the federal tax liability against which the deduction is taken. It would be like judging a business a failure by looking only at its costs without comparing them against its revenues.

    ITEP can't afford to do the true calculation, however, because it would change the entire story. Federal income taxes are steeply punitive by income, and even factoring in payroll taxes doesn't change the fact that the federal tax burden as a whole is highly progressive. So when you include all taxes together, the wealthiest 20 percent have tax burdens more than twice as large as a share of income as those of the poorest 20 percent.

    Speaking of which, ITEP also skews the calculation by breaking out the top 1 percent of taxpayers - encompassing many people who are in that category only fleetingly, because of large capital gains - rather than simply using quintiles. Notice that ITEP doesn't compute tax burdens for the bottom 1 percent or 10 percent, many of whom are only marginally attached to the legal workforce and bear little incidence of taxes. That's one reason why using taxable-income data is itself problematic. What we really ought to use is total consumption per household, including the value of non-cash income such as food stamps, public housing, and Medicaid. Doing so would radically change the result.

    But just using income quintiles and excluding federal taxes produces a far less interesting picture of North Carolina tax burdens by income: 9.2 percent for the bottom quintile, 9.2 percent for the lower-middle, 9.5 percent for the middle, 9.3 percent for the upper-middle, and 8.5 percent for the top. That top quintile, keep in mind, pays a disproportionate share of the federal taxes that fund lots of state and local spending.

    If we want to flatten out the distribution of North Carolina taxes even more, we should increase the state's per-child tax credit. That would be a good idea, anyway. No radical change or repeal of recent tax reforms required.

    What is required, if we desire a sensible discussion of tax policy, is that North Carolina's editors rediscover the virtue of skepticism.