If the Editors of the NY Times Were High School Students, They Would Flunk

Yesterday the New York Times ran a story on a study by the Government Accountability Office that was commissioned by Democratic Senators Carl Levin and Byron Dorgan. The study found that from 1998 to 2005, two out of three American corporations didn’t pay any corporate income taxes. Levin and Dorgan trumpeted this finding as though it meant something.

As usual, the Democrats were preying on ignorance. As Levin and Dorgan undoubtedly know, most small businesses, and many large ones, don’t pay federal income taxes because they don’t make any money. Most companies, especially small ones, pay their employees, after which there is nothing left to report as profit. Those salaries, of course, are taxed as ordinary income. If the corporations are Subchapter S, any earnings are passed through to the owner(s) and taxed at that level. The idea that “corporations” represent some kind of magical money pot for the government to steal from is just one more Democratic Party fantasy. On the contrary, the United States has the second-highest corporate income tax rates in the world, a fact that hurts our economy badly.

As dumb as the Levin-Dorgan press release was, however, it wasn’t dumb enough for the New York Times. The paper got out its calculator, multiplied the gross revenues of the companies in the GAO study by 35%, and came up with this classic of economic ignorance:

At a basic corporate tax rate of 35 percent, all the corporations
covered in the study in theory owed $875 billion in federal income
taxes.

In theory, a company pays 35% of its net income to the feds, not its gross receipts. That reporters and editors at the New York Times should be ignorant of this basic fact is shocking. How in the world can these people purport to instruct the rest of us on economic matters, when they lack the most fundamental understanding of how our tax system works?

Today, a red-faced New York Times issued this correction:

An article on Wednesday about a Government Accountability Office study reporting on the percentage of corporations that paid no federal income taxes from 1998 through 2005 gave an incorrect figure for the estimated tax liability of the 1.3 million companies covered by the study. It is not $875 billion. The correct amount cannot be calculated because it would be based on the companies paying the standard rate of 35 percent on their net income, a figure that is not available. (The incorrect figure of $875 billion was based on the companies paying the standard rate on their $2.5 trillion in gross sales.)

Unbelievable. Even for the New York Times, absolutely unbelievable.

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