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On the ‘millionaire tax’ – you are what you own, not what you earn

Logo for Phillip Blanchard blog posts“Senate Democrats will replace tax increases proposed by President Obama to pay for his $445 billion jobs bill with a more politically popular 5 percent surcharge on millionaires, Senate Majority Leader Harry Reid, D-Nev., said on Wednesday.” (National Journal)

That’s not what the Democrats proposed. If they really wanted to impose a “5 percent surcharge on millionaires,” it would be considerably less “politically popular.”  The proposal would impose a  surcharge on income above  $1 million a year. (The  Democrats later said the surcharge, which is unlikely to pass Congress, would be 5.6 percent.)

The difference is significant.

A “millionaire” is someone whose wealth totals a million dollars or more.  In 2010, there were about 8.4 million U.S. millionaires, according to a report from Spectrem Group. That number does not count the value of primary residences. The vast majority of them did not earn $1 million in that year.

According to the Internal Revenue Service, 235,413 U.S. taxpayers earned more than a million dollars in 2009, the last year for which figures are available.  Some of them doubtless are millionaires, but not all of them.

That’s pretty straightforward, but the temptation to call the proposal a tax on millionaires is too strong for many headline writers to resist. “Millionaire tax” is convenient shorthand that misrepresents the facts. The lazy choice of words is often contradicted in the stories underneath the headlines. Sometimes the stories contradict themselves from one sentence to the next.

“Senate Democrats add millionaire tax to jobs bill,” said the headline atop a Wall Street Journal story. “Struggling to deliver the big jobs package proposed by President Barack Obama, Senate Democrats are using the issue to force Republican senators to vote on tax increases for millionaires,” the lede said, only to be corrected in the next paragraph: “Senate Majority Leader Harry Reid, D-Nev., said Wednesday he is changing Obama’s jobs package to add a 5 percent tax on income above $1 million.”

Mr. Monopoly, Rich Uncle Pennybags

This photo of Mr. Monopoly, also known as Rich Uncle Pennybags, was taken by Flickr user HarshLight.

The press has a long history of taking the easy — and misleading — approach to money.

“Retired truck driver J. R. Triplett is on Easy Street: He stepped forward yesterday to claim a $239 million lottery prize, the second-biggest undivided jackpot in US history,” the Associated Press reported in 2004.  That’s certainly a lot of money, but Triplett won no such prize.

“The Tripletts took their winnings in a pretax lump sum of $141.5 million, instead of $239 million in 26 annual installments.” That’s no $239 million prize. It would have been if Triplett got a check for that amount. If you think it’s the same thing, I’ll tell you what: I’ll take the $239 million upfront, and you take it over 26 years. I’ll check back with you in 2037, and we’ll see who got the better deal.

Even McDonald’s plays the game. It touts a $1 million top prize in its popular “Monopoly” giveaway. The papers play along. But when you read the rules, you learn:  “The $1,000,000 Prize will be awarded as a $50,000 check each year for twenty (20) years, without interest.”  If you win, the prize does not make you a millionaire — and you wouldn’t have to pay the  5.6  percent surcharge, either.

 

In Featured, Phillip Blanchard.

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