When telling a story involving data, it’s often a good idea to step back and ask whether particular data points illuminate or mislead. Sometimes even an interesting data point would benefit from additional perspective.
Take the current news involving Donald Trump’s taxes. You’ve likely read that President Trump paid $38 million in taxes on $150 million of income in 2005.
McClatchy News offers us this fun fact:
Trump paid roughly 24 percent of his income in 2005 federal taxes. By comparison, [Hillary] Clinton paid an effective federal tax rate of 30.8 percent in 2005, according to her campaign.
Some might say, “Aha! Donald Trump had a lower tax burden than Hillary Clinton that year.”
Well, not necessarily. This is a case that calls for additional perspective.
Partly out of curiosity, and partly just to prove to myself that I could complete an algebra problem, I calculated the lowest amount of income one would have had to have earned in 2005 to face an effective tax rate of 30.8 percent. (Here’s my caveat: I’m no tax attorney. If someone writes and tells me that I omitted a key credit or deduction, I’m happy to adjust the numbers. The adjustment won’t make much of a dent in my overall argument.)
Given the six tax brackets and top marginal rate of 35 percent in 2005, it turns out that a person with an income of $465,000 could have paid $143,200, or 30.8 percent. That’s if the 465K earner took no deductions and earned no credits. (The illustration shows my calculations.)
Here’s why that’s interesting: Trump paid roughly 265 times as much in taxes as that hypothetical $465K earner. In other words, it would take 265 of those $465K earners to pay as much in federal taxation as one Donald Trump — for the same slate of federal government services.
I suspect that Hillary Clinton’s income was much higher than $465,000 and that her effective tax rate was “reduced” to 30.8 percent because of tax credits and deductions.
But our mathematical exercise shows that it’s entirely possible for Donald Trump, with an effective tax rate of 24 percent, to have a much higher tax bill than another taxpayer with an effective tax rate of 30.8 percent.
That’s an important fact to add to the data points about effective tax burdens.