On Friday’s World News, and again on Saturday morning’s Good Morning America, ABC ran reports highlighting hedge fund manager John Paulson’s "jaw-dropping" 2010 income from capital gains, fretting that he will not pay as high a tax rate as many regular income earners, and referring to Paulson’s lower tax rate as a "loophole" or a "tax break." GMA co-anchor Dan Harris even relayed complaints of "extreme unfairness."
Both reports ignored the historical evidence - recounted below - that raising capital gains tax rates leads to revenue losses for the government, and instead concentrated on the complaints of those who want to see a tax increase. Both reports also misleadingly referred to "so many Americans" or "the typical American" paying income tax rates of "up to 35 percent," without noting that many lower-income Americans pay no income taxes while the 35 percent rate only applies to higher-income earners. And the idea of cutting the income tax rate on many Americans to move it closer to 15 percent certainly was not mentioned.
On Friday’s World News, anchor Diane Sawyer set up that show’s piece:
And, moving on to this question of Wall Street versus outrage on main street in the United States, there was a jaw-dropping payday that caught our eye today: $5 billion made by one hedge fund manager last year. The Wall Street Journal first reported the phenomenal amount netted by John Paulson, which works out at $159 every second - every second of every day. And, as ABC's David Muir reports, this is just one of the many Wall Street paydays benefitting from a giant tax loophole.
After informing viewers of Paulson’s hefty income, correspondent David Muir injected class envy, noting that "some lawmakers" are "angry" about hedge fund managers getting "tax breaks." Muir: "But this newest number comes as unemployment in this country remains stuck at more than nine percent.. The giant paydays are back, but the jobs aren't. Which is why some lawmakers are so angry, asking why are hedge fund managers getting tax breaks the average American does not?"
After using only one brief soundbite opposing a tax increase in the form of Paulson asserting, "but I will say I believe our tax situation is fair," Muir used three soundbites suggesting frustration that Paulson will not pay more taxes, including Michigan Democratic Rep. Sander Levin; Obama Administration Commerce Secretary and former Washington Democratic Governor Gary Locke; and author Sebastian Mallaby.
Before the soundbite of Rep. Levin, Muir misleadingly asserted that "so many Americans pay income taxes up to 35 percent," without noting that the 35 percent rate only applies to high-income earners while many lower-income Americans pay no income tax at all. Muir: "A good portion of Paulson's profits are considered long-term capital gains - income taxed at 15 percent - while so many Americans pay income taxes up to 35 percent."
After the soundbite of Rep. Levin, Muir uncritically passed on the Democratic Congressman’s claim that raising the tax would increase revenue and even seemed to fret that President Obama will not act on such a proposal because he is trying to reach out to businesses. Like Sawyer, Muir described the lower capital gains tax rate as a "loophole." Muir: "He argues that closing the loophole could bring in $25 billion in taxes over the next decade. But good luck closing it because these new profits come just as the White House now tries to strengthen ties to the business community."
As he concluded the piece, Muir again used the term "loophole" to refer to the capital gains tax rate as he again injected class envy and fretted that President Obama is trying to become more friendly with business:
But these blockbuster paydays come, of course, after a fiery first two years between President Obama and big business. The White House, of course, wants a fresh start, reaching out to Wall Street and the Chamber of Commerce. But the question is, Diane, how are you friendlier with corporate America as the rest of America continues to see this giant loophole, these huge paydays?
Saturday’s GMA ran a different report, filed by correspondent Linsey Davis. Anchor Dan Harris set up the piece: "And now to the story of extreme wealth, and some say extreme unfairness. John Paulson made headlines first when he got super rich betting against the housing market before the collapse of the housing market. And now we have learned that last year he had another huge year. He made $5 billion."
Correspondent Linsey Davis showed no soundbites opposing a tax increase, but included three examples of people who seemed either resentful of Paulson’s income, or at the inability of Congress to raise taxes. After a clip of an unidentified man who injected class envy before calling Paulson’s income "mind-blowing," the ABC correspondent suggested that being a "billionaire" was what makes Paulson’s tax rate lower, referring to his lower tax rate as a "significant tax break." Davis: "In addition to the long list of perks that come along with being a billionaire, Paulson is also afforded the luxury of a significant tax break."
After a soundbite of Rep. Levin complaining that there is something "wrong with the tax code," similar to correspondent Muir the day before, Davis misleadingly referred to "the typical American" paying an income tax rate of "up to 35 percent." Davis: "Paulson's profits are largely considered long-term capital gains - which get taxed at 15 percent. The typical American pays income taxes up to 35 percent."
Both ABC reports ignored blatant historical evidence that increasing the capital gains tax rate would likely cause the government to lose tax revenue rather than to gain more.
In the book Dollars and Nonsense - published in 2001 by the Media Research Center, parent organization of NewsBusters - it is documented that, historically, increases in capital gains tax rates have resulted in the federal government collecting less revenue - as investors choose not to sell as much of their capital holdings - while cuts in the tax rates have led to the government collecting more revenue as the amount of capital assets sold increases.
On page 44, Chapter 3 of Dollars and Nonsense recounts: "For nearly 40 years, every time Congress has raised the tax on capital gains, revenues from the tax have declined. Every time the rate has been reduced, revenues have surged. Every time."
The book further documents that, in 1996, when the top marginal capital gains tax rate was 28 percent, revenue from the capital gains tax for that year stood at $62 billion. But, after the top marginal rate was lowered to 20 percent in 1997, annual revenues grew and reached $109 billion in 1999.
Dollars and Nonsense further relates: "This was not a one-time aberration. After the capital-gains rate was cut from 28 to 20 percent in 1981, the government’s revenues from this tax leapt from $12.5 billion in 1980 to $18.5 billion by 1983 - a 48 percent increase."
In fact, revenues had more than tripled by 1986.
The book soon continues, referring to the amount of capital gains rather than specifying tax revenues: "Conversely, the perverse action in 1986 of raising the capital-gains tax caused total asset sales of taxable capital gains to evaporate, from $326 billion in 1986 (the year before the rate was raised back to 28 percent) to $154 billion in 1989."
Below are complete transcripts of the relevant stories from the Friday, January 27, World News followed by the Saturday, January 28, Good Morning America on ABC:
#From Friday’s World News :
DIANE SAWYER: And, moving on to this question of Wall Street versus outrage on main street in the United States, there was a jaw-dropping payday that caught our eye today: $5 billion made by one hedge fund manager last year. The Wall Street Journal first reported the phenomenal amount netted by John Paulson, which works out at $159 every second - every second of every day. And, as ABC's David Muir reports, this is just one of the many Wall Street paydays benefitting from a giant tax loophole.
DAVID MUIR: It is a staggering sum of money - one man, one year, more than $5 billion in profits. Industry experts say it could be the largest yearly haul ever. And it turns out the last record set was by the same man, hedge fund manager John Paulson - $4 billion back in 2007 - after betting against those risky mortgages that brought down the housing market. But this newest number comes as unemployment in this country remains stuck at more than nine percent.. The giant paydays are back, but the jobs aren't. Which is why some lawmakers are so angry, asking why are hedge fund managers getting tax breaks the average American does not? Paulson has defended this before.
JOHN PAULSON, PAULSON AND COMPANY HEDGE FUNDS: -but I will say I believe our tax situation is fair.
MUIR: A good portion of Paulson's profits are considered long-term capital gains - income taxed at 15 percent - while so many Americans pay income taxes up to 35 percent.
REP. SANDER LEVIN (D-MI): I think it's outrageous. He should pay like everybody else does, ordinary income tax.
MUIR: He argues that closing the loophole could bring in $25 billion in taxes over the next decade. But good luck closing it because these new profits come just as the White House now tries to strengthen ties to the business community. Even so, just today, the Commerce Secretary did acknowledge to ABC News "Top Line" that this hedge fund payday is enormous.
GARY LOCKE, COMMERCE SECRETARY: -it’s really part of the bizarre tax code that we have.
SEBASTIAN MALLABY, AUTHOR OF MORE MONEY THAN GOD: The government has looked repeatedly at trying to tax these guys more, and they tend to back away because of lobbying, and so I expect that they'll continue to make these astronomical sums.
MUIR: But these blockbuster paydays come, of course, after a fiery first two years between President Obama and big business. The White House, of course, wants a fresh start, reaching out to Wall Street and the Chamber of Commerce. But the question is, Diane, how are you friendlier with corporate America as the rest of America continues to see this giant loophole, these huge paydays?
SAWYER: And will both parties tackle the question of tax reform? And that's ahead.
MUIR: We'll watch.
SAWYER: We’ll watch. Thank you, David.
#From Saturday’s Good Morning America:
DAN HARRIS: And now to the story of extreme wealth, and some say extreme unfairness. John Paulson made headlines first when he got super rich betting against the housing market before the collapse of the housing market. And now we have learned that last year he had another huge year. He made $5 billion. And Linsey Davis is here with the story. Linsey, good morning.
LINSEY DAVIS: Good morning, Dan. He’s starting to give you a little competition. At 55 years old, John Paulson’s net worth is $12.4 billion. He earned almost half of that just last year. Forbes ranks him number 20 on its list of richest Americans, even beating out Mark Zuckerberg and considerably higher than Oprah. He is hedge fund manager John Paulson. And the Wall Street Journal says last year he raked in a jaw-dropping $5 billion.
UNIDENTIFIED WOMAN, LAUGHING: Good for him. Too bad it's not me.
DAVIS: Just to put that in perspective, $5 billion is the entire GDP of Greenland and Fiji combined. That’s more than $13.5 million a day; $158 a second for an entire year. How did he do it? By betting big on gold and other precious metals and investing in troubled Citibank. In 2007, he made $4 billion by placing bets against those subprime mortgages that ultimately crashed the economy. He was allegedly involved in a series of trades with Goldman Sachs in which the SEC charged Goldman sold products to investors it believed would fail so that Paulson could then bet against them. Paulson was never charged with wrongdoing.
UNIDENTIFIED MAN: With people living on the margins, with health care problems, and people having problems with their mortgages and really living on their savings, unemployment benefits running out, it's really, it’s mind-blowing.
DAVIS: In addition to the long list of perks that come along with being a billionaire, Paulson is also afforded the luxury of a significant tax break.
REP. SANDER LEVIN (D-MI): I think the Paulson example shows the country what's wrong with their tax code.
DAVIS: Paulson’s profits are largely considered long-term capital gains - which get taxed at 15 percent. The typical American pays income taxes up to 35 percent.
SEBASTIAN MALLABY, AUTHOR OF MORE MONEY THAN GOD: The government has looked repeatedly at trying to tax these guys more, and they tend to back away because of lobbying.
DAVIS: Now, we did reach out to Paulson's hedge fund and did not hear back. His company started about 16 years ago. Since then, it's made $26 billion. That's the third largest amount of all hedge funds. And Paulson is quoted as saying that he expects his funds to outperform in 2011.
