This Week:

Quote of the Week

Anti-War Resource of the Week

Facts Wrong, Story Wrong, Policy Wrong: A Case Study

Greetings,

I wasn’t able to go to the lecture by Tariq Ali that I promoted last week, as I was busy that night laying some media science on a class at the University of Minnesota (thanks, Alan!) However, I heard from a reader who did try to go that “the place was absolutely swamped, lines of cars and people everywhere, and we couldn't get in!” Sellout crowds in Minneapolis to hear a sane voice willing to intelligently—and on principled grounds—question the U.S. move to empire!

I haven’t offered a Nygaard Notes Alternative Headline for a while. You’ll find one this week, at the end of a story about the IRS. A headline is supposed to summarize the “angle,” or main point, of a news story. Sometimes they do, sometimes they don’t. A NN Alternative Headline underlines the difference that can be made when two reporters with different views of the world look at the same story. Next time you read the paper, see if you can come up with your own “alternative headline.” It’s just one of the many games I play with the media in the ongoing effort to remember what’s important.

Usually I have several short features in every issue of the Notes. This week, much to my surprise, I have just one rather lengthy one. Every once in a while it’s good to do a little case study, and this is apparently the week. Kind of odd, in fact, since I had already written an entirely different Notes, then this came along and I threw the rest out. Ain’t that the way it goes? See ya next week,

Nygaard

"Quote" of the Week:

The New York Times (“All The News That’s Fit To Print”) of February 27th brought us an article headlined “Pentagon Seeking to Deploy Missiles Before Full Testing.” The article reported on a short paragraph “included in an appendix to the Bush administration’s 2004 budget” that would allow the U.S. military to begin deploying the “Star Wars” missile defense system on the West Coast next year. Apparently a 2004 deployment of this system is a goal of Mr. Bush. The article doesn’t mention the almost-comical-if-it-weren’t-so-dangerous record of test failures, fraud, conflicts of interest, and coverups that have plagued this ridiculous program from its beginnings in the Reagan administration.

Anyhow, the most chilling quotation in the article comes from the Secretary of War, Donald Rumsfeld, whose remarks the Times paraphrased as follows:

“Defense Secretary Donald Rumsfeld said that a missile threat from North Korea warranted the quick deployment and that the Pentagon often learns how to improve weapons systems by simply using them.”

Anti-War Resource of the Week

Reader Deborah sent along this week a website that I think should be looked at by all those actively working to stop the U.S. drive to war with Iraq. (Actually, I’m on the verge of boycotting the word “war” when referring to the planned attack. The forces are so unequal that I think “slaughter”—with all the shame that goes with it—would be more accurate.)

The group Global Exchange has organized a special “Iraq Campaign” that can be found at http://www.globalexchange.org/campaigns/iraq/. Of special interest for anti-war workers is the “Activist Toolkit” that can be downloaded at the site (you’ll need Adobe Acrobat software; your library will have it.) The 20-page kit includes sections on Working with Elected Officials, How To Organize a Demonstration, How to Pass a Local Resolution, How to Organize a Teach-In, How to Host a House Party, and a great section on How to Use the Media to Broadcast Your Message. I noticed a few pointers in here about things that are often done poorly in local demonstrations, and I’m sure organizers in other cities could use some of this information, as well.

On a related, and crucial, note, I encourage anti-war organizers all over the country to read the “Open Letter On Movement Building” found on the ZNet site at http://www.zmag.org/weluser.htm. The letter was written by 15 activists in New York City who call on all anti-war organizers to “acknowledge the connection between the forms and institutions of white supremacy embedded in U.S. society and the practice of white supremacy within our movement.” Even though the specific examples they give come out of organizing efforts in New York, they are absolutely crucial for organizers here in Minnesota and, I would think, everywhere in the U.S.

I especially encourage so-called “white” peace and justice workers to read this letter and discuss the implications in our anti-war groups. Dealing with the issues these organizers raise is not a distraction from our “real” work. It is our work.

Facts Wrong, Story Wrong, Policy Wrong: A Case Study

The headline in the February 2nd newspaper read: “Bush Targets Tax Scofflaws in IRS Budget Increase.” Hmm. That sounds good, doesn’t it? As I reported in Nygaard Notes #182, the budget for enforcement of the tax laws has been decreasing dramatically over the past five years. In an era of budget shortfalls, this seems like a problem we might want to address. So, is the “President” really targeting scofflaws with his budget, as this Associated Press story, reprinted by the Star Tribune (Newspaper of the Twin Cities!), reported? No, just the opposite.

This story is a classic case of distortion and error, leading to a radically incorrect understanding of the problem, with the result that Bush’s “IRS Budget Increase” might seem to the casual reader to almost make sense. I’d like to use this short article as a mini-case study of how to misreport an important story. Let it serve as a cautionary tale for those who were planning to use the mass media to understand what is going on with the Bush budget proposal.

What the Article Said

According to the article, Mr. Bush “would strengthen the IRS’s ability to pursue tax scofflaws” in two ways. First, by adding $133 million to the IRS enforcement budget to conduct “audits of businesses and high-income taxpayers.” Second, the article says, “To reduce fraud, the IRS would use an additional $100 million to gather added information on people before they qualify for the earned income tax credit, which provides benefits to lower-earning Americans.” Pamela Olson, the Justice Department’s assistant secretary for tax policy, is quoted saying that “The president’s budget for the IRS will target the real problem areas in a fair and evenhanded manner.”

The article goes on: “The [Bush budget] proposal would seek to let private collection agencies help the IRS pursue people who owe unpaid taxes. Similar plans have failed in the past in the face of concern that taxpayers’ rights might be violated.”

Here’s a key paragraph: “[M]ore than $13 billion in unpaid taxes is going uncollected because the IRS lacks the resources to pursue scofflaws, the Treasury Department said. In addition, the department said that as much as $9.9 billion in earned income tax credits was paid in error.”

Some Facts and Context

A look elsewhere in the media, plus just a few minutes of checking non-media sources, yielded some essential information that tells a very different story.

The first place I looked, not surprisingly, was Nygaard Notes. Sure enough, back on December 6th (in issue #182) I wrote about this very subject. You can go to the website at www.nygaardnotes.org to see what I said then, but one of the things I said was that the amount of uncollected tax revenue known to the IRS is about $30 billion, or more than double what the Associated Press report in the Star Trib.

Even if the uncollected taxes due are $30 billion instead of $13 billion, it still sounds like almost a third of the fraud in the system is due to cheating by poor people receiving the Earned Income Tax Credit (EITC). If true, that’s pretty serious, and might justify the fifty percent of the IRS enforcement budget increase that is being directed at these low-income tax-scammers. It’s not true, though.

First of all, note that the AP story actually reported that $9.9 billion in earned income tax credits was “paid in error.” It occurred to me that an “error” doesn’t necessarily mean an overpayment. Fortunately, the advocacy group the Coalition on Human Needs, which looked at the EITC numbers in a brief released in September of 2001, explained the meaning of the phrase.

They noted that the Treasury Department, in their 1997 report on the subject, “substantially overstates the extent of the problem” by considering payments to be “made in error” even if there was no monetary benefit involved, such as when the error was “simply the result of the wrong relative in a household claiming the benefit.” CHN added that the Treasury Department numbers “also failed to adjust for the 1.7 percent of cases that involved underpayment, rather than overpayment, or to account for changes that have been made since 1994 to improve compliance [with EITC rules].”

Here’s the key passage from the CHN brief: “The IRS estimates that about 29 to 30 percent of business income goes unreported [each year]. The error rate for the income tax as a whole is estimated to be about 15 percent, resulting in $100 billion in lost revenues each year. EITC-related errors comprise less than five percent of this amount.” (Note: The $100 billion dollar figure is higher than mine, since it includes not only fraud but honest errors.) You can read the entire brief at http://www.chn.org/issuebriefs/eitc.asp.

The CHN brief likely understated the amount of corporate fraud. After all, in September of 2001 we didn’t understand the “Enron Syndrome” like we do now. Consider, for example, another Associated Press story that ran in the Star Trib on February 14, two weeks ago. “Enron Used Schemes to Avoid Taxes, Inflate Income, Investigation Finds” was the headline, and the lead paragraph amplified: “Enron set up an array of dizzyingly complex schemes to hoodwink the Internal Revenue Service, reap more than $2 billion in questionable tax and accounting savings, and inflate its income as it paid its executives lavishly,” the report said.

Or, as the NY Times put it in their report on the subject, “Enron and other big companies have escaped taxes in recent years through financial maneuvers so complex that the Internal Revenue Service has been unable to understand them.”

This isn’t exactly news. Back in Nygaard Notes #151 of March 29th 2002 I reported, using figures from the NY Times of March 1, that “The roughly 5 percent of taxpayers who make more than $100,000 pay more than half of all income taxes. Such taxpayers also have the greatest opportunities to shortchange the government because they receive most of the non-wage income.” I also reported that there has been “a dramatic decrease in funding [at the IRS] resulting in a 28 percent decline in the number of IRS auditors since 1995.” The result was that audits of the over-$100,000 crowd “fell to a record low” in 2001. This, of course, is like blood in the water to sophisticated corporate and wealthy private individuals (who likely pay their tax accountants more each year than any ten EITC recipients combined earn on their paychecks).

What I didn’t report at that time, but could have, was the statement of now-departed Commissioner of the Internal Revenue Service, Charles O. Rossotti, that it would require a funding increase of $1.9 billion per year—an increase of 51 percent in its enforcement budget—“to close the law enforcement gap” and effectively audit suspected tax cheats. That’s a little more than Mr. Bush’s $233 million dollar budget increase proposal, you’ll notice.

Rossotti’s claim is bolstered by the comment of a corporate tax lawyer at Sullivan & Cromwell, who told the NY Times that tax avoidance has become so sophisticated that “the government needs to devote 10 times as many resources as it does now if it wants to tax capital effectively.” It seems clear that “the government” doesn’t want to tax capital effectively, however, a point which should be highlighted in this and all other stories about the IRS.

It’s worth noting here that every dollar spent on enforcement yields many dollars (Four? Ten? estimates vary) in revenue collected. As I reported at the time, Mr. Rossotti would have testified about all of this before Congress last November, but the hearing was called off after the Bush administration forbid Mr. Rossotti from uttering these words.

I also reported at that time that “audits for the working poor rose 48.6 percent,” a relevant fact for those wishing to understand what the government “wants” to do.

What’s the Story?

Here’s the impression one might get from the Associated Press story in the Star Tribune: Rich and poor alike are cheating on their taxes. In fact, about three-quarters of the fraud is by poor people (the $9.9 billion “paid in error” is about three-fourths of the $13 billion total cited). The “President,” seeing this problem, has increased the IRS enforcement budget to go after all cheaters in a “fair and evenhanded manner.” Enforcement didn’t work in the past, so now we had better let private collection agencies “help” the IRS.

Here’s the impression one might get if Nygaard had written the report in the Star Tribune (as if they would ever let me!): As the federal government and most state governments face budget deficits that are crippling their capacity to fund crucial public programs and services, a key source of needed income could be the collection of unpaid taxes due. The Bush proposal—which includes a proposal to partially privatize the IRS collection functions—allots less than fifteen percent of the funds needed to address the problem, failing to reverse a steep decline in tax law enforcement over the past few years.

Despite government claims of “fair and evenhanded” enforcement, an analysis of the audit activities of the IRS in recent years shows a dramatic decrease in enforcement aimed at the richest Americans. Meanwhile, enforcement aimed at low-income Americans, whose tax errors and efforts to defraud the government, combined, account for roughly five percent of tax revenue losses, have seen a dramatic increase in enforcement efforts.

Time for a Nygaard Notes Alternative Headline: “As Billions Are Being Lost to Tax Fraud, Bush IRS Budget Shields Rich, Targets Poor, Fails to Address Problem.”