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A Project of The Annenberg Public Policy Center

Mistaken Tax Facts

In a TV ad attacking GOP Sen. Ron Johnson of Wisconsin, the League of Conservation Voters claims the average Wisconsin family pays $7,500 a year in federal income tax. Not so. For the family pictured in the ad with the income specified by the league, the tax would be $724.

Dragging Anchor

We offer this as an example of how political groups sometimes lose their anchor in reality as they strain for partisan effect. The league could have made a respectable argument by citing accurate information. But instead, the very first words in this ad are wildly inaccurate and based on a gross misunderstanding of tax law.

The ad was announced July 27.  It is one of the earliest to appear in the 2016 Wisconsin Senate race, which is shaping up as a rematch between Johnson and former Sen. Russ Feingold, the Democrat whom Johnson defeated in 2010. The league is spending $98,000 and running the ads only on satellite television, league spokesman Seth Stein told us.

The ad begins with an attention-grabbing claim that the “average Wisconsin family” pays as much each year in taxes as oil companies get “per minute” in so-called tax subsidies, which are special provisions that allow oil companies to reduce their federal corporate tax payments.

But the ad errs by starting with a dramatic claim that is far off the mark.

The narrator says, “This is the average Wisconsin family. They pay over $7,000 in federal taxes every year.” Pictured on screen is a couple with two young children, along with the words “$7,500 in federal income tax.” Actually, such a family would pay far less than the league claims.

The league says in its backup for the ad that median household income in Wisconsin was $52,413, citing Census Bureau figures for 2013. So far, so good. But the backup document goes on to claim that IRS tax tables “indicate” such a family would pay $7,519 in federal income tax. Actually, the tax tables indicate no such thing.

The $7,519 figure would be the total owed by a single person with taxable income in 2014 of between $52,400 and $52,450, if this person filed as “head of household.” The league’s fundamental error is to mistake total income for taxable income — after all exemptions and deductions. The league also failed to allow for tax credits. These mistakes have a huge effect on the resulting tax bill.

Another, lesser error was to assume that a married couple would file as “head of household.” That filing status is available only to unmarried persons supporting one or more children or other relatives. A family such as that shown in the ad typically would file as married filing jointly. This doesn’t make a big difference in the outcome, but we note it as further evidence of careless research by the league.

Reality: A $734 Tax Bill

Our own calculations assume — we think quite reasonably — that the family shown in the ad would benefit from the per-child tax credit, since both of the children shown appear to be under age 17. We also assume the family simply claims the standard exemptions and deductions available to all taxpayers who choose not to itemize deductions.

Under those assumptions, their tax bill for 2014 would be $734, not the 10-times-larger figure featured in the ad. (We used the Bankrate.com tax calculator, but other tax calculators give similar results.)

That bill could of course be even less if the family pictured had a very large mortgage or other big deductions that could make it advantageous for them to itemize.

Who’s ‘Average?’

To be sure, the league’s assumption of the “average” Wisconsin family’s income might be too low. “Household” income includes both families and single individuals, such as widows and widowers living alone. “Family” income tends to be higher than “household” income, especially when both husband and wife are employed.

For 2013, the Census Bureau puts the median family income in Wisconsin at $65,618, and when the family includes two earners, the median income rises to $82,272.

But even if the “average” Wisconsin family pictured in the ad is assumed to be a two-earner couple with $82,272 in total income, their tax bill in 2014 would have been $5,203 — still short of what the league claims the “average” family would pay.

Tax Breaks for Oil

There’s a valid argument to be made here. The tax breaks enjoyed by oil companies are substantial. And Johnson voted against consideration of a Democratic measure to repeal breaks for large oil companies, a bill that the nonpartisan Joint Committee on Taxation estimated would produce nearly $24 billion in additional revenue for the government over 10 years.

The ad claims that oil-company tax subsidies cost $7,610 a minute, which is based on a White House estimate that eliminating all oil and gas subsidies would raise more than $4 billion per year. That’s for all companies, not just the big ones featured in the ad and covered by the bill the JCT analyzed.

But even here the ad strains the facts. The announcer states that subsides to “big oil” are “tax dollars coming from us, going to them.” That’s not strictly accurate. The tax breaks reduce the income taxes paid by oil companies, allowing them to keep more of their own profits. They are not dollars paid by the government to the companies.

In fact, the 2012 bill that Johnson (and most other Republicans) opposed would have had little if any effect on the “average” family’s personal income taxes. More than half the $24 billion would have been devoted simply to reducing the federal deficit. The rest would have gone mainly to pay for extending a variety of expiring green-energy tax credits, including those for producing electricity from renewable fuels, building wind power projects, producing biodiesel fuel, building new energy-efficient homes, and buying plug-in electric vehicles.

Our advice: Before taking on anyone’s stance on federal taxes, the league would do well to get its own tax facts straight.

— Brooks Jackson