Sunspots: The Sun omits part of the story on tax reform ideas

Yesterday, the Washington Post identified some of the ideas which may become part of President Bush's tax reform agenda.

The Seattle Times published the same article, including a byline identifying the reporters and the Washington Post as the source.

Playing catch-up today, The Sun of Bremerton, Washington, copied some of the original article verbatim, omitted its clear statement of a crucial concept, and added some "balance"--that is, criticism from some of Washington's Democratic congressmen. The article in The Sun contained no byline other than "by Sun staff and news services."

One of the possible changes in federal income tax law would be to eliminate the deduction of state and local taxes.

As noted by The Sun, such a change would take away the recently approved income tax reform which allows (for the next two years) the deduction of sales taxes paid by individuals who itemize deductions on their federal tax returns:

According to sources familiar with the ongoing tax deliberations, the Bush overhaul plan could repeal an income tax deduction for state and local sales taxes on federal income tax returns in Washington and other states, enacted just five weeks ago, to help pay for proposed dramatic tax cuts on savings and investment.

Advisers said the administration is considering that move, along with the idea of scrapping the business tax deduction for employer-provided health insurance and the federal income tax deduction for state and local income taxes in those states that have such a tax.

The Sun neglected to state clearly the idea that President Bush intends to reform the tax code while keeping the financial impact "revenue neutral." Had the staff at The Sun simply copied this part of the Washington Post article, the idea would have been stated:

But before the tax panel is even named, administration officials have begun dialing back expectations that they will move to scrap the current graduated income tax for another system.

Instead the administration plans to push major amendments that would shield interest, dividends and capitals gains from taxation, expand tax breaks for business investment and take other steps intended to simplify the system and encourage economic growth, according to several people who are advising the White House or are familiar with the deliberations.

The changes are meant to be revenue-neutral. To pay for them, the administration is considering eliminating the deduction of state and local taxes on federal income tax returns and scrapping the business tax deduction for employer-provided health insurance, the advisers said.

In short, every reduction or elimination of a tax in one part of the code must be offset by a tax increase or an elimination of a deduction in another part.

The Sun deleted the word "Instead" and copied the rest of one of those three paragraphs:

The administration plans to push major amendments that would shield interest, dividends and capital gains from taxation, expand tax breaks for business investment and take other steps intended to simplify the system and encourage economic growth, according to several people who are advising the White House or are familiar with the deliberations.

The third of the above-quoted paragraphs--except for the "revenue neutral" part--was stated in the third paragraph of The Sun's article (also quoted above).

Having hit all around the original Washington Post article's statement about revenue-neutral tax reforms, The Sun presented an incomplete report.

While it would be true that the temporary tax deduction for sales taxes would end--either at the close of the two years now authorized or earlier as part of a larger reform--an offsetting tax reduction would balance out the effect on Washington's taxpayers.

The temporary authority to deduct sales taxes eliminated an inequity (which had existed since 1986) by making both sales taxes and state and local income taxes deductible. Before this recent change, the federal income tax code favored those states which relied substantially on income taxes--and discriminated against the few states which relied instead on sales taxes.

If neither sales taxes nor income taxes imposed by state and local governments were deductible, there would be no discrimination in favor of one form of taxation or another.

If the change is "revenue neutral," the amount of federal income tax collected would be roughly the same--and the impact on individuals would be roughly the same.

Since the people who itemize deductions are virtually all among the group of people who save and invest, eliminating the sales tax deduction and reducing the federal income tax on savings and investment earnings would result in no adverse impact on most taxpayers.

It would reward those who save and invest, thereby increasing the available capital--which would, in turn, increase the rate of growth of our economy and the rate at which new jobs are created.

A close reading of The Sun's article reveals a concise statement of the method for achieving a "revenue neutral" result in its concluding paragraph, but The Sun's staff couldn't resist doing so in a pejorative way:

To pay for those large tax cuts, the administration is looking at eliminating both the deduction for state and local taxes, and the business tax deduction for employer-sponsored health insurance. That would raise nearly $926 billion over five years, according to White House and congressional documents.

The offsetting tax changes which achieve the revenue-neutral objective are, in the parlance of The Sun, a means "to pay for those large tax cuts." The amount the reform would "raise" is presented as though the effect is something other than zero on the people affected by the possible reforms.

If The Sun won't provide its readers an unbiased and complete report of the facts, its staff ought to acknowledge the source of the article they partially copied--so readers of The Sun can readily go to that source for additional information and "balance."

Knowing that our Democrats oppose the reforms is useful information, but knowing what they oppose is essential. Without the latter, one cannot know what to make of the opposing statements of the Democrats.