Tax Notes's Tax Hypocrisy

http://www.futureofcapitalism.com/2010/04/tax-notess-tax-hypocrisy

As mentioned earlier, a former tax reporter for the New York Times, David Cay Johnston, devoted his "Tax Notes" column this week to discussing a story reported here:

Stoll, who edited a smart and now defunct right-wing newspaper called The New York Sun, frames the tax issue in a way that, unfortunately, does not contribute to thoughtful debate but just inflames the mindless partisanship that puts politics ahead of policy.

"Are we really at a point where we want the government taking more of what we earn? Mr. Hubbard and Mr. Rove sound like Nancy Pelosi," Stoll wrote on his blog...

The Harvard-educated Stoll should know better. Smarter tax policies come not from being glib, but being thoughtful. The government already is taking more without raising taxes. It took more with seeming abandon during the George W. Bush years, as so-called discretionary spending rose at a faster clip than when Lyndon Johnson was president (who produced a balanced budget his last year while fighting two wars, one against Ho Chi Minh and the other against poverty).

When government borrows, it takes even more than when it taxes. Borrow-and-spend is a tax on the future, that also crowds out commonwealth improvements today as taxes are used to pay interest.

Talk about glib! Mr. Johnston sets up a false dichotomy between tax-and-spend and borrow-and-spend. He prefers tax and spend to borrow and spend. Fair enough. But there is a third option that I prefer and that he doesn't mention -- spend less. President Obama's 2011 budget proposes to spend $3.834 trillion. In 2000, federal outlays were $1.789 trillion. Democrats are always talking about restoring the Clinton-era tax rates. How about restoring the Clinton-era spending levels? People will say it's unrealistic to propose cutting federal spending in half. But if, in 2000, someone proposed over the next 11 years a doubling of the amount the federal government spends, people would have said that was unrealistic, too.

The other point Mr. Johnston leaves out as he insists "higher taxes can actually make you better off" is that his column is being published by a business, Tax Analysts, that itself is tax exempt. According to its latest IRS Form 990, dated November 3, 2009, Tax Analysts had total revenue of $21 million and paid out salaries, other compensation, and employee benefits of $14 million. Even at Goldman Sachs and JPMorgan Chase, which have taken a pounding in the press lately for how much the employees take out in compensation, the compensation as a share of revenue isn't anywhere near that high.

Tax Analysts justifies its tax-exempt status on the basis that its purpose is "educational" -- promoting "freedom of information" and "ensuring the disclosure of tax information to the public." "The fundamental goal of Tax Analysts is to serve the public," the organization says. But, at $2,000 a year or so for a subscription, according to Mr. Johnston, the information developed by Tax Notes isn't free. It's not even widely available to the public. Instead, it's behind a pay wall so expensive that most of its subscribers are probably highly paid accountants and tax lawyers who take the cost of the subscription as a business expense.

The Tax Analysts' tax return discloses at least two other ways that the organization is set up to minimize tax exposure for itself and its employees. The first is particularly ironical given that Mr. Johnston called me up on the phone the other day to vent his frustration at the ability of hedge fund managers with offshore funds to defer tax payments to future years. It turns out, according to the Form 990, that Tax Analysts executives are deferring their own compensation. Of the $242,997 in total compensation that the president of Tax Analysts, Christopher Bergin, reported for the year, $9,200 was in "deferred compensation."

The second is that Tax Analysts is the beneficiary of a $15.5 million tax exempt bond issue from the City of Falls Church Economic Development Authority in Falls Church, Va.

To summarize, Mr. Johnston is insisting that higher taxes can make you better off, arguing that tax-and-spend is better than borrow-and-spend, and criticizing me for being too glibly and partisanly anti-tax -- and doing all this from the platform of a publication that doesn't pay any corporate income tax because it is a non-profit, sells a product its customers can deduct from taxable income as a business expense, pays its executives deferred compensation that helps reduce their taxes, and finances itself with tax-exempt bonds.

I'm grateful to Mr. Johnston for the attention and for the copy of his book Free Lunch that he sent along. But from the perspective of someone who is competing with him in covering taxes (I'm for lowering them, unlike him), and who is out capital-raising without benefit of a tax-exempt bond authority, and for a business that actually pays taxes, the set-up that Tax Notes has is outrageous.

by Ira Stoll  |  Apr 12, 2010 at 9:42 am Related Topics:  Non-Profits, Press, Taxes receive the latest by email: subscribe to the free futureofcapitalism.com mailing list