Meaningless Statistics

I don’t know nearly enough about Republican presidential candidate Herman Cain’s 9-9-9 tax plan to offer meaningful commentary — in fact, given the limited information available to the public, I would suggest that many of those commenting on it don’t know enough either, but I digress. In any event, the policy has recently been criticized on the grounds that it is regressive and shifts the tax burden away from the rich and more towards, well, everyone else. Some of these criticisms are ultimately meaningless unless we assume that the status quo is optimal.

For example, The Wall Street Journal summarizes the “tax-shifting” argument based on a recent think tank analysis:

Herman Cain’s “9-9-9″ tax plan would boost taxes paid by moderate- and low-income households while cutting taxes for upper-income earners, according to a study released Tuesday by a think tank.

[...]

Liberals are sure to seize on the study as further evidence that the plan is too tough on working families, while conservatives said it underscores the need to focus on the “9-9-9″ plan’s potential to lift the economy and job growth.

[...]

The top 20% of earners would bear 51% of the federal tax burden under the Cain plan, a reduction of almost 17 percentage points, the Tax Policy Center said. The bottom 20% would bear 3.4% of the federal tax burden, up from less than 1% now.

So what? This is a meaningless statistic unless we know the optimal amount of taxation that should come from the top and bottom 20%. In addition, the WSJ article notes that this might be a net positive with Republican primary voters since “almost half of U.S. taxpayers…don’t have to pay federal income tax under current rules.” It is therefore unclear what we are supposed to make of these numbers. Whether this is good or bad seems to depend on who you ask.

Then there is Bruce Bartlett:

As for corporations, Mr. Cain’s proposal is primarily going to benefit those with revenues of more than $1 million a year, because they account for 98.7 percent of all receipts by C corporations. (A C corporation is a legal entity separate and distinct from its owners that is taxed as a corporation; its shareholders pay taxes individually on their gains.) Those companies with receipts over $50 million account for 88.8 percent of total receipts.

Other business entities — sole proprietorships, S corporations (which have between 1 and 100 shareholders and pass through net income or losses to shareholders) and partnerships — would not benefit because they are not taxed on the corporate schedule. But they represent 92 percent of all businesses.

Those are some great statistics, but entirely misleading. The “92 percent of all businesses” that are described do not, in fact, pay the corporate income tax. However, the net income for these firms is paid through the personal income tax. As a result, they would benefit from the lower personal income tax rates. Thus, to say that 92% of all businesses wouldn’t benefit from a reduction in the corporate income tax rate is another meaningless statistic.

What I would like to see is a serious analysis of the policy (any policy for that matter) without the use of meaningless statistics.

5 responses to “Meaningless Statistics

  1. Pingback: White Lies, Budget Style « Thinking Things Through

  2. The ultimate problem with the 9-9-9 plan is that it isn’t Cain’s endgame. His ultimate goal is to have a national sales tax and no income tax (I think). The 9-9-9 is supposed to be a transition tax plan.

  3. Yes, that is another issue altogether (and in my mind, substantially more worrisome than what I know about the 9-9-9 plan).

  4. Agreed. It seems poor politics to bank his whole campaign in 9-9-9 (pretty effectively) then pull the rug out and say it is a step toward the FAIR tax. I could probably support either, but that forces him to defend both.

  5. The fact that the public is somewhat accepting of the 9-9-9 plan shows how terrible these times are. People are willing to think about regime change.

    The positive news in that is that perhaps the public is ready for NGDP targeting.

    I am all for radical simplification of the tax code. Not sure a flat tax is necessary, but I could go for a national sales and gasoline tax, and a flat 20 percent tax on all income above $100k.

    I would prefer consumption taxes—but today we have global capital gluts and may have for decades to come, for social, not economic reasons.

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