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The Ombudsman Column

The Mailbag: Did You Need to Know This About Taxes?

As tax time and the debt ceiling bear down on Americans, PBS's weekly public affairs program Need to Know aired a timely episode last Friday on the debate about "whether the tax laws themselves are fair. Why, for instance," program host Maria Hinojosa asks at the start, "do one third of all Americans get to deduct all sorts of expenses from their tax bill while the other two-thirds end up taking just a single deduction known as the standard deduction? Is that right?" she asks. "Is that fair?"

The program moves on to interviews with four New Jersey residents with very different financial situations who agreed to talk on camera about their 2010 tax returns. "What emerged," Hinojosa said in setting the stage for the report by correspondent Megan Thompson, "was a vivid picture of how some Americans — and not just rich Americans — benefit from the tax code more than others."

As Benjamin Franklin once said, and before him someone else, there is nothing quite so certain as death and taxes. It is not surprising, therefore, that people get exercised about taxes, which they can do something about. So there is lively viewer commentary, pro and con, about this program on the Need to Know website, and a number of letters also landed in my mailbag. All of those, not surprisingly, were critical.

A Two-fer

Aside from the actual program, what is interesting about this half-hour Need to Know episode is that a five-minute excerpt from it was broadcast earlier in the evening as part of the nightly PBS NewsHour. The excerpt was clearly described as such and was meant to promote and call attention to the full program to be aired later that night. But several of the letters to me were from viewers who only saw that excerpt and they didn't like what they saw. The result was that two programs got criticized over one report. I have no idea, but maybe there is a lesson for producers in there somewhere. Taxation is a tough subject to do in shorthand.

A sampling of the letters follows, along with a general response to them from Need to Know's executive producer, Marc Rosenwasser. At the bottom are my thoughts.

Here Are the Letters

After watching the NewsHour on Friday, 1/11/13, I felt compelled to contact you. The report on federal income tax deductions was very misleading. These tax deductions are used by middle income families of all levels, who have a mortgage and pay state and local income taxes, as well as county and school district property taxes. The loss of these deductions would be a hardship for my family. To air this report as if it only affects the wealthy is an outright LIE. It seems to me to be an attempt to advance an agenda, not report the truth.

Sarver, PA

~ ~ ~

The final spot [on the NewsHour] that dealt with tax fairness was unfair, deceitful and wrong. I am in the $40,000 range and can always itemize. Also the total taxes paid by the high-earner was conveniently left off. His total taxes paid would be considerable. Lastly, the first guy should buy instead of rent and quit being so greedy and give to charities.

Paul Jones, Richmond, VA

~ ~ ~

On Friday, January 11, I watched the evening NewsHour which included a short segment on taxes and the effective tax rates paid by a couple of representative taxpayers. In my view, this was either an extraordinarily lazy piece of journalism, or the NewsHour has signed on to promote the president's class warfare plan — either of which is problematic for the show, to say the least. More specifically, I was sadly disappointed by the lack of facts provided in the short piece, and by the apparent lack of journalistic evenhandedness.

Two men were presented, with a few numbers and vague comments about their respective tax situation. One was a "middle class" person earning roughly $85,000, and the other was a person whom earned roughly $780,000, in the 2010 tax year. The latter had (if I remember correctly) an effective tax rate of approximately 15% and the former, approximately 16%, or a roughly 1% difference between the two rates. The lower earner, we were informed, took the standard deduction, having no mortgage, nor having given anything significant to charity that he could recall. The higher earner was said to have made around $400,000 in capital gains, thus resulting in a lower overall effective rate than the lower earner, after all deductions and sources were considered. Other tidbits presented were the higher earner deducted almost $48,000 of NJ state taxes on his federal return, and had also deducted roughly $60,000 for charitable giving. This was the extent of the information provided.

At the end of the piece, which lasted only a few minutes, the lower-earning taxpayer decried the system, wondering how on earth the congress could let such a grossly unfair disparity exist. As I mentioned previously, if the objective is to promote the president's agenda, then the piece was spot on. If the objective was to present the issue in a manner that gets people to think about any possible disparity, it was a miserable failure, providing no information that would allow the viewers to make an informed decision. The story gave no information about the total taxes paid by the higher earner relative to the total taxes paid by the lower earner. My guesstimate is the higher earner paid $48k for state taxes, some $12k or more for property taxes, the full boat of SS and Medicare taxes on his regular earnings which would be around $18k, including the employer-paid portion (we don't know what the regular income figure was, only that $400k of his total income was from capital gains and maybe the balance was from teaching engagements), plus the federal taxes of around 15% on $800k, or $120k, for a total annual tax outlay of maybe $150-$200k.

The lower income earner probably paid SS and Medicare, state, and federal taxes totaling maybe $22 - $25k, based on my calculations and the little information available. The effective tax rates (to the second decimal) shown to the viewers gave no indication how that number was derived (the numerator and denominator), offering no further context as to the actual tax bills paid by the two parties. In my view, if the short piece was intended to raise questions about the "fairness" of the situation, it would have included more numbers on the total taxes paid, and would have had the interviewer asking questions to the lower earner such as: Is it ok that someone pays a lower effective tax rate if they pay 10 times what you pay in total tax dollars? Would the fairness issue go away if the 1% difference (maybe $8,000) was paid by the higher earner, making both parties about equal in terms of the percentage rate? Is it fair that a person pays taxes on earnings, then invests them and has to pay a tax on the capital gain? Is it fair the government wants to participate only in the success of the person's risk-taking that leads to capital gains, or should the tax code also offer deductions or credits for all the losses a risk-taker incurs with his already after-tax dollars (not merely offsetting against gains)? Is it ok that the government levies taxes on corporate profits and then again on the dividends it pays to individuals, resulting in double taxation (maybe dividends are not relevant here, but they are usually part of the discussion about how the "rich" make their money)?

In my view, failure to ask these types of questions, and failure to provide valuable context in terms of total dollars paid rather than just the effective tax rates, made this short piece a spectacular and frankly, misleading, failure. If these kinds of so-called news items are going to be presented in this one-sided manner to promote someone's agenda on "fairness," then I, too, question why the American people should want to give any taxpayer funds to the NewsHour.

Daniel Laschober, Wilsonville, OR

~ ~ ~

Need to Know needs to know a lot more about federal income taxes than it displayed in its abysmal interview with four New Jersey taxpayers and a couple of "experts." The man who earned almost $725,000 donated more than $60,000 to charity, paid more than $40,000 in state taxes, and ended up paying an effective tax rate of about 17%. Why does Need to Know think the IRS allows charitable deductions, anyway? The taxpayer who supports charities that the government might otherwise support (if it weren't wasting money on a couple of wars) gets credit for paying the SAME amount of money as if he paid a higher effective tax rate.

The moron who earned more than $84,000 but didn't deduct what he paid in state and local taxes or any charitable contributions paid a lot more federal tax than he needed to, and then whined that "those deductions weren't available to me." Yes, they were. Anyone at ANY income level can deduct state taxes and charitable donations, if the total of such payments is more than the amount of the Standard Deduction. He just didn't bother (and probably didn't donate enough to charity to matter, either).

The woman with orange hair was just as clueless, saying that people with low income can't use the Standard Deduction. That is also nonsense. The Standard Deduction is part of the reason 47% of Americans don't pay any income tax. Anybody who can benefit from using Schedule A should do so, but low-income earners do, in fact, benefit from the Standard Deduction, and the amount of the benefit depends on marital status and number of children claimed.

Anybody who has enough sense to buy a TurboTax software package ($29.99 at Costco for the Deluxe version I use) can follow the "Easy Steps" interview and wind up with a competently prepared return with all allowed deductions. Nobody from the IRS was given a chance to tell the audience that Need To Know obviously knows nothing about taxes. I am thoroughly disgusted with PBS for airing such malarkey.

Jim Bruner, Oak Harbor, WA

~ ~ ~

I was amused by Schoenberg's report on taxes. He revealed that he makes $749,000 a year, and deducts $150,000 apx. and then later in the report he complains that he doesn't pay more taxes. WHY DID HE TAKE THE DEDUCTIONS IF HE WANTS TO PAY MORE TAXES? ALSO, NO ONE IS STOPPING HIM. I am not rich, but if someone works hard and takes risks and makes a lot of money, he shouldn't have to give almost all to the government so they can throw it away on foolish programs. That is communism.

Vandalia, OH

Need to Know's Executive Producer Responds

Thank you for writing to express your concerns about last week's "Need to Know" report illustrating the complexities of the U.S. tax code — a story that was excerpted last Friday night on the "NewsHour."

Please rest assured that we did all we could to keep the report ideologically balanced, that we had absolutely no intention of highlighting one point of view over another. That's why we specifically cast our story to include both a member of the Tea Party, who expressed his opposition to the recent tax increases on high-income earners, AND also a self-described "progressive" multi-millionaire, who believes he should pay more taxes.

Our quest for fairness is also what was behind our decision to hear from both a liberal economist, who believes the rich should pay more, AND a conservative economist, who reports for "The Wall Street Journal" and believes tax increases are detrimental to economic growth. Any omissions in the report were unintentional and reflect the difficulty of telling stories about enormously complex policy issues.

Finally, what the NewsHour broadcast was an excerpt from the "Need to Know" program and was labeled as such. It was designed to call attention to the full program, not BE a full program. Any problems with the report are the responsibility of "Need to Know," not the "NewsHour."

My Thoughts

I find myself in a situation similar to the NewsHour. This is a tough and dangerous subject to try and take a snapshot of because there is no one who doesn't have experience or an opinion. And I would urge viewers who have not seen the full program but are interested to click on the video above to form their own opinion.

As a viewer, I found this to be a timely, engaging and imaginative program, mostly because having these four individuals discuss their tax and financial situations on camera made for good and revealing television. I think NTK Producer Marc Rosenwasser makes some fair points in defense of the program as viewed by some of the emailers. But, whether intended or not, I did get the sense that a tone to the program — "Is that fair? Is that right? — was set in the introduction by Hinojosa.

As a taxpayer, I also found myself saying to the TV and the correspondent things like: "But what about this . . . that's not the whole picture." So in that sense, I find myself in agreement with some of what the critical viewers are saying, although, as always, I'm not adopting their language and would point out, again, that some viewer comments are based only on the brief NewsHour segment. My layman's sense was that this was not so much a question of fairness and balance, as laid out by Rosenwasser, but more a case of not pointing out some basic choices that taxpayers experience and alternative arguments for why things are the way they are.

In my email to NTK asking for its response to the emails, here is the way I put it:

"One theme that runs through all of the letters is the sense expressed of coming from a point of view, of misleading viewers about deductions, especially the point that large numbers of middle-class families, not just the affluent, take advantage of mortgage, state/local taxes, charitable and other deductions. Why was it not pointed out that low-income earners benefit from the standard deduction, that it is part of the reason a large percentage don't pay any federal income tax, and why no explanation that one has the choice of standard versus itemizing, whichever is more favorable? Why not have someone from the IRS doing the explaining? Why is there no mention of the AMT (Alternative Minimum Tax) that eliminates many deductions for those earning higher incomes? How about explaining some of the counterarguments on charitable giving, as expressed in one letter, or arguments that better explain the pros and cons of capital gains taxes, and reporting the actual amount of taxes paid by high earners."

Admittedly, taxation of incomes is a subject that needs more than a half-hour, and NTK is to be commended for taking on a subject in more depth, and devoting more focused time to it, than elsewhere on television. It was informative and very watchable, and it's easy for me to tell someone to stuff 10 pounds of whatever into the proverbial five-pound bag. But I think a little more context for viewers who know a different reality would have increased its value.