NBC Frets Over Income Gap, Touts Advocate for Higher Taxes on Rich

Without a peg to anything in the news, NBC decided Monday night to base a story on a four-year-old contention by a professor that the middle class is worse off now than in the 1970s, followed by a piece promoting Warren Buffett's claim the rich don't pay enough in taxes. In fact, the federal income tax system remains quite progressive. “Not fair,” Brian Williams teased with matching text on screen, “one of the world's richest men tells Tom Brokaw the taxes he pays aren't fair, meaning: Why is his tax rate so low?” Williams later praised Buffett's “brave campaign,” but first he introduced a story on how “the gap between the super-rich and everybody else in this country seems to be growing. The middle class is caught in a kind of financial squeeze.” Reporter Lee Cowan featured the claims of Harvard law professor Elizabeth Warren, a Huffington Post blogger who wrote a 2003 book about middle class families going broke. She declared: “Today's two-income family actually has less cash to spend than their one-income parents had a generation ago.” Cowan ominously concluded: “A generation ago, the middle class was comfortable. These days, they're comfortable but scared, living on a wing and a prayer.”

Next, Brokaw touted Buffett: “It is well known that Warren Buffett is a contrary billionaire. Unlike most of his fellow billionaires, he believes that they should be paying a higher tax rate Buffett sees a fundamental injustice that he says touches all Americans.” Buffett insisted: “The taxation system has tilted toward the rich and away from the middle class in the last ten years.” Brokaw cued him up: “In your own office...you pay a much lower tax rate with all of your wealth than, say, a receptionist does.”

At the anchor desk with Williams, Brokaw outlined Buffett's case for higher tax rates and how they won't inhibit hard work by investors:
He thinks that it's just an unjustifiable system because the payroll tax is the tax rate that most of the people pay on ordinary income. He gets the capital gains tax. He thinks a lot of that should be bumped up. And as for that charge that investors will stop working if they get taxed with a higher rate, he says he remembers when capital gains were 40 percent, people didn't go home at 3:00 in the afternoon and say, "I'm going to a movie, I've paid too much in taxes already." He doesn't think it'll have a big effect on the economy. Pretty controversial.
That's when Williams chimed in with his admiration: “Yeah, it's a brave campaign.”

The 7.65 percent Social Security and Medicare payroll tax, which is phased out as incomes reach about $100,000 ($97,500 in 2007), obviously becomes a smaller percentage as income rises above the phase-out level, but for those at lower incomes it's still less than the 15 percent capital gains tax rate, at least for those who are not self-employed.

But Buffett's anecdotes, about his staff paying a 33 percent rate while he pays only about 18 percent, don't match real tax data for the overall population -- even after tacking on the FICA tax. Unexplored by NBC, how the wealthier pay a much higher income tax rate than those making less and pay a far greater share of income taxes collected than they represent as a percent of all income. In an October 5 Tax Foundation report on 2005 IRS data, Gerald Prante observed: “The tax code still remains highly progressive. The average tax rate in 2005 ranges from 2.98 percent of income for the bottom half of the earning spectrum [$31,000 and below] to 23.13 percent for the top 1 percent [over $365,000].” Adding on FICA, that still leaves the bottom half paying about ten percent. And thanks to the Bush tax cuts, particularly the expanded child credits, more families pay no income taxes.

Prante outlined how a small percent of taxpayers pay nearly all the income taxes, meaning the federal government is re-distributing wealth downward:
The top-earning 25 percent of taxpayers (AGI over $62,068) earned 67.5 percent of the nation's income, but they paid more than four out of every five dollars collected by the federal income tax (86 percent). The top 1 percent of taxpayers (AGI over $364,657) earned approximately 21.2 percent of the nation's income (as defined by AGI), yet paid 39.4 percent of all federal income taxes. That means the top 1 percent of tax returns paid about the same amount of federal individual income taxes as the bottom 95 percent of tax returns.
An excerpt from Prante's illuminating “Summary of Latest Federal Individual Income Tax Data,” published October 5 by the Tax Foundation:
....In sum, between 2000 and 2005, pre-tax income for the top 1 percent group grew by 19.1 percent. On the other hand, in that same time period, pre-tax income for the bottom 50 percent increased by 15.5 percent.

This pattern of income loss and growth at the top of the income spectrum is the same during every recession and recovery. The net result has also been a sharp rise in federal government tax revenue from 2003-2005 compared to previous years.

The IRS data below include all of the 132.6 million tax returns filed in 2005 that had a positive AGI, not just the returns from people who earn enough to owe taxes. From other IRS data, we can see that 90.6 million of the tax returns came from people who paid taxes into the Treasury. That leaves 42 million tax returns filed by people with positive AGI who used exemptions, deductions and tax credits to completely wipe out their federal income tax liability. Not only did they get back every dollar that the federal government withheld from their paychecks during 2005; but some even received more back from the IRS. This is a result of refundable tax credits like the Earned Income Tax Credit, which are not included in the aggregate percentile data here.

Including all tax returns that had a positive AGI, those taxpayers with an AGI of $145,283 or more in 2005 constituted the nation's top 5 percent of earners. To break into the top 1 percent, a tax return had to have an AGI of $364,657 or more. These numbers are up significantly from 2003 when the equivalent thresholds were $130,080 and $295,495. Top incomes in 2005 are also continuing to surpass the peak they reached in 2000. At the height of the boom and bubble, $313,469 was the threshold to break into the top 1 percent, and then it fell to $285,424 in 2002 only to finally recover fully last year.

The top-earning 25 percent of taxpayers (AGI over $62,068) earned 67.5 percent of the nation's income, but they paid more than four out of every five dollars collected by the federal income tax (86 percent). The top 1 percent of taxpayers (AGI over $364,657) earned approximately 21.2 percent of the nation's income (as defined by AGI), yet paid 39.4 percent of all federal income taxes. That means the top 1 percent of tax returns paid about the same amount of federal individual income taxes as the bottom 95 percent of tax returns.

Average tax rates increased once again as the economy continues to grow, even though there were no significant pieces of tax legislation enacted in 2005. Overall, the average tax rate for returns with a positive liability went from 11.9 percent to 12.1 percent from 2003 to 2004 and then up to 12.5 percent for 2005. (Note this does not include any refundable credits.)

The 2003 tax cut was the second in three years, but the tax code still remains highly progressive. The average tax rate in 2005 ranges from 2.98 percent of income for the bottom half of the earning spectrum to 23.13 percent for the top 1 percent.
Cowan's story recited Harvard professor Elizabeth Warren's numbers for increased costs facing middle class families, but failed to cite the high state and local taxes faced by those living in the most-populous states or how Warren also noted ways life has improved for the middle class. A 2003 Harvard Gazette article about her 2003 book, The Two-Income Trap: Why Middle-Class Mothers and Fathers Are Going Broke, reported: “Today's family is spending 21 percent less on clothing, 22 percent less on food -- including eating out -- and 44 percent less on appliances than they did a generation ago.”

The MRC's Brad Wilmouth corrected the closed-captioning against the video for the back-to-back stories on the October 29 NBC Nightly News:
BRIAN WILLIAMS: While the stock market is not far off its all-time highs, the gap between the super-rich and everybody else in this country seems to be growing. The middle class is caught in a kind of financial squeeze. Wage earners are finding it is getting tougher to make it from one paycheck to the next. That story tonight from NBC's Lee Cowan.

LEE COWAN: At Chicago's Faith Tabernacle Baptist Church, they're raising the rafters, but not raising much money.

PASTOR DONALD SHARP, FAITH TABERNACLE BAPTIST CHURCH: A dollar only goes so far.

COWAN: Pastor Donald Sharp can tell a lot about the nation's financial health from his collection plate. It's emptier than ever these days.

SHARP: There's little expendable funds left over.

COWAN: His parishioners come from mostly middle class neighborhoods, like this one. For Bob and Stacy Saw, this American dream has a question mark.

BOB SAW, CHICAGO RESIDENT: When are we going under, or if we go under, I mean, what do we do then?

COWAN: They earn about $55,000 a year. They have one house, two cars, three small kids, and zero savings.

STACY SAW, CHICAGO RESIDENT: We can never catch up with the economy. We can't catch up.

COWAN: Harvard Law Professor Elizabeth Warren.

PROFESSOR ELIZABETH WARREN, HARVARD LAW SCHOOL: Families live close to the financial edge.

COWAN: Compared to the middle class of the '70s, that's a big difference.

WARREN: Today's two-income family actually has less cash to spend than their one-income parents had a generation ago.

COWAN: She says the average middle class mortgage is now 76 percent higher than the last generation's; the cost of health insurance has gone up 74 percent; and transportation costs have gone up by more than 50 percent. That doesn't mean, though, that the middle class still isn't going out to dinner or buying designer clothes or drinking $4 lattes. But it's not those discretionary items that are breaking the bank. It's the fixed costs -- housing, health care, and taxes.

DON GRAFF, MIDDLE CLASS HOMEOWNER: As soon as you try to get a little bit ahead, something comes along to, you know, beat you back down a little bit.

COWAN: The Graffs live well on $85,000 a year.

MARY ELLEN GRAFF, MIDDLE CLASS HOMEOWNER: We're not rich enough to get rich or poor enough to get help.

COWAN: But for them, even a steep heating bill could tip the scales. A generation ago, the middle class was comfortable. These days, they're comfortable but scared, living on a wing and a prayer, and for now letting the collection plate pass them by. Lee Cowan, NBC News, Chicago.

WILLIAMS: After setting the table there on the economy, we should say all of this comes with a looming tax fight in Congress. The Democrats want to revamp the tax structure and get rid of some of the loopholes that the wealthy and corporations enjoy to pay less taxes. And it may surprise you to learn that one of the universally accepted richest guys in the world, Warren Buffett, feels he pays too little by percentage. This interesting campaign of his was unveiled in a recent conversation with Tom Brokaw, who is here with us in the studio with more on this. This is fascinating.

TOM BROKAW: Brian, it is well known that Warren Buffett is a contrary billionaire. Unlike most of his fellow billionaires, he believes that they should be paying a higher tax rate. And to prove his point, he decided to compare what he pays as a tax rate with what the people who work for him pay.

BROKAW TO BUFFETT: Is this what you had in mind when you were 17, Warren?

WARREN BUFFETT: Well, in a very, very, very general way-

BROKAW: It is no secret that Warren Buffett, the "Oracle of Omaha" and the world's third richest man, doesn't have a great deal in common with his fellow billionaires. Here you are hitting against Bob Gibson.

BUFFETT: Right.

BROKAW: But amidst the sports memorabilia center in the modest office that is the nerve center of his empire, Buffett sees a fundamental injustice that he says touches all Americans.

BUFFETT: The taxation system has tilted toward the rich and away from the middle class in the last ten years. It's dramatic, and I don't think it's appreciated, and I think it should be addressed.

BROKAW: You've gone very public with this.

BUFFETT: Right.

BROKAW: You talk about it, in your own office, for example, you pay a much lower tax rate with all of your wealth than, say, a receptionist does.

BUFFETT: That's exactly right, Tom. And I think the only way to do it is with specifics. And in our office, 15 people cooperated in a survey out of 18. I didn't make anybody do it. And my total taxes paid, payroll taxes plus income taxes, mine came to 17.7 percent. The average for the office was 32.9 percent. There wasn't anybody in the office, from the receptionist on, that paid as low a tax rate, and I have no tax planning. I don't have an accountant. I don't have tax shelters. I just follow what the U.S. Congress tells me to do.

BROKAW: Buffett is particularly critical of the lower tax rates paid by hedge fund managers who reap millions of dollars from the investments made by others.

BUFFETT: And I do know that the hedge fund operators spent a record amount lobbying in recent months, so they give money to the political campaigns, and who represents the cleaning lady?

BROKAW: The hedge fund operators and the U.S. Chamber of Commerce and others have said it's going too far. And, in fact, these hedge fund operators have created enormous wealth for the little guy, as well -- pension funds and other people who participate in those private equity partnerships.

BUFFETT: Well, they say they work hard and that, in the process of working hard, they make other people money. And that's true of a whole bunch of people in the world, but that doesn't entitle them to a preferential tax rate.

BROKAW: Now, Warren's taking care of you because he's worrying about your tax rate, you know. Even some of Buffett's own employees had no idea what kind of a rate they were paying for taxes until he told him. You know, at the end of this year, you're going to pay a higher tax rate, percentage of your income, than this guy will.

WOMAN IN BUFFETT'S OFFICE: Yes, I have learned that since I started.

BROKAW: He'll have a little more left over than you will at the end of the year probably.

WOMAN: It's not right.

BROKAW: Here's your first tax return.

BUFFETT: Yeah, that was when I was 13.

BROKAW: Right.

BUFFETT: I owed $7.

BROKAW: Buffett doesn't hold out much hope that Congress will pass his favorite idea, a progressive consumption tax. But that does not mean he's going to stop speaking out. After all, his employees now are counting on him. If you could rewrite the rules, what would you do?

MAN IN BUFFETT'S OFFICE: I'd first ask Warren how he would rewrite them.

BROKAW TO WILLIAMS: And to further prove his point, Buffett has challenged, he's offered $1 million to charity to any of the Forbes 400 richest people who can show that, on average, they pay a higher tax rate than their secretaries pay. But so far, Brian, he's had no takers.

WILLIAMS: Now, he believes he's paying too low a rate. Does that also mean, by extension, he feels he should pay more to the federal government?

BROKAW: He thinks that it's just an unjustifiable system because the payroll tax is the tax rate that most of the people pay on ordinary income. He gets the capital gains tax. He thinks a lot of that should be bumped up. And as for that charge that investors will stop working if they get taxed with a higher rate, he says he remembers when capital gains were 40 percent, people didn't go home at 3:00 in the afternoon and say, "I'm going to a movie, I've paid too much in taxes already." He doesn't think it'll have a big effect on the economy. Pretty controversial.

WILLIAMS: Yeah, it's a brave campaign, and he can afford to launch it. Tom Brokaw, always a pleasure. Thank you.

BROKAW: Nice to be here.
Brent Baker
Brent Baker
Brent Baker is the Steven P.J. Wood Senior Fellow and VP for Research and Publications at the Media Research Center