Corporate Income Taxes – Gross Stupidity at the NY Times

A few days ago I wrote about that stupid GAO study that attempted to highlight corporate evasion of federal income taxes. The reason the study is stupid is because it goes for a cheap headline rather than objectively presenting a very complex topic and then looking at it from a competitive standpoint.

Furthermore, the study attempts statistical gymnastics by calculating the impact of pass through entities, such as S corps who don’t pay corporate income tax but rather tax on profits through the owners (all profits are converted to dividends annually) but then not including them in the results. The study is confusing to say the least but for journalists and editors looking for a quick hit headline it provided red meat.

In a stunning display of incompetence, the NYTimes tried their hand at mathematics and suggested that $875 billion in taxes are being skirted by those evil corporations. How could they calculate tax liabilities when financial data is available only for public corporations, a small slice of American businesses? Well the geniuses at the business desk, who apparently have never actually been involved in a business, assumed that businesses are required to pay taxes on revenue rather than income! Yeah, they took the 35% tax rate and multiplied it against the $2.5 trillion in gross receipts reported by the study.

By the NY Times business desk calculations, the NY Times Company should be paying income taxes on against $3.1 billion in revenue instead of $38 million in earnings… $1.22 billion in taxes instead of the $20 million they actually paid.

Yesterday the NY Times not only issued a correction but in a rather uncommon move they revised the original article, which indicates not only the severity of the error but the NYT’s embarrassment that it ran in the first place.

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.)

[From Study Tallies Corporations Not Paying Income Tax – NYTimes.com]

When it comes to foreign affairs and military reporting, American journalism simply sucks because the practitioners have limited actual experience with these matters, now we can add business and economics to the mix. The only thing that is more embarrassing than reporting like the above is that the broader American public demands little more from major media, but it is worth pointing out that Americans are flocking to alternative reporting sources so maybe they are demanding not by protest but through their attention!

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Read more on Taxes, Corporate Income at Wikinvest