Free from facts: CNN repeatedly misrepresented "Tax Freedom Day"

Throughout April 13, CNN anchors and correspondents presented to viewers the falsehood that, in the words of CNN business correspondent Christine Romans, "[e]very penny you earned up until this very moment this year went to pay your taxes -- all of these different kinds of taxes." The claim is based on the Tax Foundation's designation of "Tax Freedom Day," the day when, according to that group, America as a whole will have worked enough to cover the nation's total projected tax bill for 2009. However, as the Center on Budget and Policy Priorities (CBPP) has noted, "[Congressional Budget Office] data suggest that 80 percent of U.S. households pay federal tax at a lower rate than the Tax Foundation's estimated 'average' federal tax burden," because "Tax Freedom Day" does not account for the U.S.'s progressive tax structure. Indeed, after twice misrepresenting "Tax Freedom Day" earlier in the day, Romans stated during the 11 a.m. ET hour of CNN Newsroom that "the Center of Budget and Policy Priorities just sent me an email saying, hold on, hold on. A lot of families already had Tax Freedom Day a long time ago, so they say that's misleading." Nevertheless, Roman's CNN colleagues continued to misrepresent "Tax Freedom Day" during the noon ET and 1 p.m. ET hours of CNN Newsroom.

The Tax Foundation's April 2009 report states that "Tax Freedom Day" is calculated annually by "dividing the nation's total tax payments by the nation's income as projected by the Tax Foundation for 2009." The report notes that along with individual federal and state income taxes, this calculation includes payroll, corporate income, property, sales, excise, social insurance, and estate taxes, among others. In a March 2008 paper on its methodology, the Tax Foundation stated that "Tax Freedom Day" does not provide information about the tax burden "for specific subgroups of taxpayers who may face higher or lower tax burdens than this average." The Tax Foundation added:

Tax Freedom Day compares total U.S. tax collections with total U.S. income. It does not provide a distributional analysis of the effective tax burdens faced by taxpayers in different income ranges.

On March 31, CBPP criticized both the Tax Foundation's use of data and journalists who have wrongly suggested "Tax Freedom Day" reflects the average American's tax burden:

Each year, the Tax Foundation releases a report projecting "Tax Freedom Day," which it describes as the day when Americans will have "earned enough money to pay this year's tax obligations at the federal, state, and local levels."

The Tax Foundation's "Tax Freedom Day" report is plagued by two major problems. First, its estimates of state and local tax burdens suffer from a number of serious methodological flaws. Second, over the years, many journalists and policymakers have misinterpreted the Tax Foundation's report as reflecting the tax burdens faced by typical middle-income workers.

In fact, the Tax Foundation's calculation of the "average" tax burden merely measures tax revenues as a share of the economy; it is similar to estimates of total revenues as a share of Gross Domestic Product (GDP). In a progressive tax system like that of the United States, only upper-income households pay tax at rates equal to or exceeding the overall level of revenues as a share of the economy. Authoritative figures from the non-partisan Congressional Budget Office show that middle- and even upper-middle-income Americans pay a considerably smaller share of their income in taxes than the Tax Foundation report implies. The CBO data suggest that 80 percent of U.S. households pay federal tax at a lower rate than the Tax Foundation's estimated "average" federal tax burden.

The Tax Foundation itself acknowledges this issue in a methodology paper accompanying its report, pointing out that its estimates reflect the "average tax burden for the economy as a whole, rather than for specific subgroups of taxpayers." Journalists and others who report on "Tax Freedom Day" as if it represented the day until which the typical or average American must work to pay his or her taxes are misusing these figures and fostering serious misimpressions about the level of taxes most Americans pay.

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The following example shows how the Tax Foundation's methodology can overstate the tax burdens of the typical family. Suppose four families with incomes of $50,000 each pay $2,500 in taxes -- 5 percent of their income -- while one wealthy family with income of $300,000 pays $90,000 in taxes -- 30 percent of its income. Total income among these five families is $500,000, and the total amount paid in taxes is $100,000. Thus, 20 percent of the total income of the five families goes to pay taxes. But the 20 percent figure is highly misleading as an indicator of the typical tax burden for families in this group.

During CNN's American Morning, co-host John Roberts declared, "Tax Freedom Day. You start working for yourself today." Romans responded: "Every penny you earned up until this very moment this year went to pay your taxes -- all of these different kinds of taxes. And then now, the way that, you know, I mean, technically, your taxes are being paid a little bit every day, but today is the day of freedom. Your money works for you." During the 9 a.m. ET hour of CNN Newsroom, Romans similarly stated, "The Tax Foundation says today is the day that the money you're earning actually belongs to you. ... It took 103 days of your -- of your earnings to pay all of your taxes, and then now, theoretically, is when you're working for yourself -- so, Tax Freedom Day, according to the Tax Foundation."

After Romans acknowledged CBPP's criticism during the 11 a.m. ET hour of CNN Newsroom, correspondent Susan Lisovicz nonetheless stated during the noon ET hour of the program that "Tax Freedom Day" represents "the number of days you need to work on average to pay your annual tax burden. ... The income earned after today is theoretically yours to save and spend." Similarly, during the 1 p.m. ET hour of CNN Newsroom, anchor Kyra Phillips said, "From now till the end of the year, what you earn, you keep. And I don't mean you won't keep paying. I mean that this is Tax Freedom Day, when the average American has earned enough to pay his or her yearly debt to the IRS."

From the April 13 edition of CNN's American Morning:

ROBERTS: You know, we should have been celebrating today --

KIRAN CHETRY (co-host): Yeah, today is the day.

ROBERTS: -- and we weren't. Today is the day --

ROMANS: Tax Freedom Day, my friends.

ROBERTS: -- Tax Freedom Day. You start working for yourself today.

ROMANS: Every penny you earned up until this very moment this year went to pay your taxes -- all of these different kinds of taxes. And then now, the way that, you know, I mean, technically, your taxes are being paid a little bit every day, but today is the day of freedom. Your money works for you.

CHETRY: Right, so it puts it into perspective, though, so April 13.

ROMANS: It's a little bit -- it's a little bit earlier than usual. Usually I think this number -- it's usually in May when you get to Tax Freedom Day -- early May. So it might be a little bit earlier this year.

ROBERTS: I'm going to go out and celebrate and --

ROMANS: Spend it.

ROBERTS: -- maybe buy a postage stamp or something.

ROMANS: Well, the price of that is going up pretty soon.

From the 9 a.m. ET hour of the April 13 edition of CNN Newsroom:

HEIDI COLLINS (co-host): Today, Tax Freedom Day?

ROMANS: That's right.

COLLINS: Tell us about that.

ROMANS: The Tax Foundation says today is the day that the money you're earning actually belongs to you. They say it took 103 --

COLLINS: That's nice. Isn't that nice?

ROMANS: Yeah. It took 103 days of your -- of your earnings to pay all of your taxes, and then now, theoretically, is when you're working for yourself -- so, Tax Freedom Day, according to the Tax Foundation. A little bit earlier this year in part because of that stimulus, Heidi.

The tax breaks and the tax credits and the like in that stimulus bumping up the date a little bit, so today is the day you start working for yourself.

COLLINS: All right. Very good. I kind of like the sound of that.

From the 10 a.m. ET hour of the April 13 edition of CNN Newsroom:

COLLINS: Christine, the deadline Wednesday, but today marks something of a tax milestone, actually, doesn't it?

ROMANS: That's right. It's Tax Freedom Day. The Tax Foundation and people who track these sort of things tell us that today is the day that when you go to work and you earn your money, you're not paying taxes anymore. Now the money is for you. All the money up till now was -- you could look at it this way -- it was your taxes for the year, and then the rest is what you earned.

So, a little bit earlier this year. The earliest, in fact, they say, since 1967. One of the reasons is in that stimulus there were some tax credits and a tax refund -- the Making Work Pay credit. That's moving up the date a little bit, meaning you get a little bit more of your own money this year.

Alaska, in case you're wondering, has the lowest tax burden. It celebrated that Tax Freedom Day first. And Connecticut has the highest tax burden, it will settle last -- celebrate last, Heidi.

From the 11 a.m. ET hour of the April 13 edition of CNN Newsroom:

HARRIS: Tax Freedom Day: What is it and, really, what does it mean?

ROMANS: Oh, well, apparently it's controversial, too, by the way.

HARRIS: Yeah.

ROMANS: OK. So the Tax Foundation came out and said that today is Tax Freedom Day. That means up until today, you likely were paying taxes, and then today is the day you are free, and the money you earn for the rest of the year actually belongs to you.

They point out that you pay more in taxes than you do on food, lodging, and clothing in this country. But the Center of Budget and Policy Priorities just sent me an email saying, hold on, hold on. A lot of families already had Tax Freedom Day a long time ago, so they say that's misleading.

So who knew that Tax Freedom Day was so controversial, Tony?

HARRIS: Who knew?

ROMANS: But apparently taxes in this country are controversial. I tell you, they are.

HARRIS: Yes. Absolutely. And I've got to get mine done. I have been charged by Christine to get it done in the break. Christine, good to see you.

ROMANS: That's right.

HARRIS: I'm on the job.

ROMANS: OK.

From the noon ET hour of the April 13 edition of CNN Newsroom:

LISOVICZ: What I can talk about is Tax Freedom Day, because, let's face it, people would rather hear about that than market sell-off. And that is the number of days you need to work on average to pay your annual tax burden -- includes, of course, federal and state, local tax obligations.

Income earned after today is theoretically yours to save and spend. And this year it's the earliest since 1967 -- eight days earlier than last year's, and a two full weeks earlier than 2007.

Why, you might ask, has it been moved up? Well, the recession has reduced tax obligations for many of us, and the stimulus includes some temporary tax cuts, Tony.

HARRIS: Nice. You know, clearly good news for taxpayers, but something tells me if we flip the coin here, this may be creating some problems for the government. Am I correct in this?

LISOVICZ: I was going to say it's a double-edged sword --

HARRIS: Yup.

LISOVICZ: -- but maybe a double-edged coin.

HARRIS: There you go. There you go.

From the 1 p.m. ET hour of the April 13 edition of CNN Newsroom:

PHILLIPS: Here's the best way I know of to push forward on taxes. From now till the end of the year, what you earn, you keep. And I don't mean you won't keep paying. I mean that this is Tax Freedom Day, when the average American has earned enough to pay his or her yearly debt to the IRS. It's the earliest freedom day since 1967, and it helps us kick off three special days of coverage: "Your Taxes: The Real Deal."

Leading up to tax filing day on Wednesday, we're going to show you what you're really paying, what you're getting for your money, and how it varies depending on where you live.