Read the “Law of Averages”

washingtonpost.com

Law of Averages (Editorial) Friday, February 21, 2003; Page A26

AT A HIGH SCHOOL in Kennesaw, Ga., yesterday to sell his tax cuts, President Bush repeated several of his favorite sound-bite statistics to argue that his plan would help ordinary Americans, small-business owners and senior citizens. But as any math teacher there could have attested, Mr. Bush's arguments rely on a misleading use of averages to make his foolhardy plan appear fair.

"Under this plan, 92 million Americans receive an average tax cut of $1,083," Mr. Bush said. "That's fair." No, it's deceptive. The vast majority of taxpayers -- 80 percent -- would receive less than that amount, according to data from the Urban Institute-Brookings Institution Tax Policy Center. For the truly typical household -- filers in the middle fifth of the income spectrum -- the average tax cut would be $256. Almost half of all taxpayers would see their taxes drop by less than $100. At the top of the income pyramid, however, the tax savings would be huge; the top 1 percent of filers would receive an average tax cut of $24,100. The average tax cut touted by Mr. Bush is more than $1,000 only because the savings for the wealthiest Americans are so large.

"We estimate that 23 million small-business owners across America will receive an average income tax rate cut of $2,042," Mr. Bush said. "That matters." Again, misleading. As with the individual taxpayer statistics, the Tax Policy Center estimates that nearly four out of five tax filers with small-business income would receive less than that amount. More than half would receive $500 or less. Nearly a quarter would receive no tax cut at all -- a group that doesn't drag down Mr. Bush's average because it's simply not included in the calculation. But a small number of wealthy individuals with small-business income would receive huge tax cuts, once again inflating the average.

"It means that 10 million seniors, nearly one in four, who receive dividend income will get relief," Mr. Bush said of his plan to cut dividend taxes. "Now, that's important. . . . Getting rid of the double taxation of dividends is an incredibly positive thing for the quality of life of our seniors." Some seniors would see their quality of life improve a lot more than others, however. You can probably guess which ones. A big slice of the dividend tax cut -- 37 percent -- would indeed go to seniors. But the majority of elderly people -- the two-thirds with incomes below $50,000 -- would save on average $325 or less. Meanwhile, a small number of high-income elderly would reap most of the benefits. More than three-quarters of the part of the dividend tax break that would go to the elderly would flow to the 19 percent of senior citizens with incomes above $75,000; 43 percent of the benefits would go to the richest in that group, the 2.5 percent of senior citizens with incomes greater than $200,000. They would save an average of more than $5,000.

Mr. Bush must know how phony his "averages" are. Any time a salesman has to resort to such deceptive tactics, the customer ought to be wary about what is being sold.

© 2003 The Washington Post Company