How to Lie With Statistics: A Recent Example

A recent post by Chuck Marr on a Huffington Post blog provides a nice demonstration of how to use true facts to support a false claim. It contains a series of charts with information on taxes, mostly federal. One of them is labeled: "Bush Tax Cuts Heavily Tilted to the Top," and shows that the percentage increase in after-tax income as a result of the tax cuts was almost three times as large for taxpayers with incomes of more than a million dollars as for those with incomes of $40,000-$50,000.

What it does not mention, but what one can see from other charts on the page, is that high income taxpayers pay in federal taxes about three times as large a fraction of their income as middle income tax payers. So if the tax cuts reduced everyone's taxes by the same percentage, the result would have been almost exactly what the chart shows. Indeed, the author could have made his claim even more striking by pointing out that taxpayers near the bottom of the income distribution got nothing out of the tax cuts—and neglecting to mention that the reason was that they were not paying any taxes.

Another somewhat misleading chart shows that it is possible for a middle income family with relatively little investment income to pay a higher tax rate than a high income family whose income is mostly from investments. It is clear if you read carefully that the author is not claiming this situation is typical--an earlier chart shows that, on average, high income families pay a much higher rate than middle income families. But the author does not mention that his calculation ignores corporate income tax, which arguably should be attributed to the owners of the corporations—the people receiving investment income. 

A final problem, not of dishonest presentation but of the difficulty in adequately analyzing the effect of taxes, is that all of the charts show who pays taxes, not who actually bears the tax burden. It is easy enough to describe situations where the result of taxing the income of group A is partly a reduction of their after tax income, partly an increase in their before tax income, ultimately paid by those who consume the goods or services they produce. To put it in conventional terminology, it is not clear to what extent a tax on A is passed on to B. That problem applies to corporate income taxes as well—the reason for the word "arguably" in the previous paragraph.

One other chart has a different sort of problem. It shows taxes as a fraction of GDP for a range of countries, with the U.S. near the bottom. The author does not mention that the federal government for the past few years has been going largely on borrowed money—at one point almost half of total expenditure—hence that the chart badly misrepresents the more important question, which is what fraction of national income each government spends.