I received an email from Vice President Biden telling me that the tax deal struck by Obama and the Republicans in Congress is a good deal. If the Bush-era tax cuts are allowed to sunset, it would cost the average taxpayer $3,000.
Really? The tax deal may or may not be good, but I am very wary about averages. When you are in a situation where there is a huge income disparity, the average gives a distorted picture of reality. If the administration is going to be honest about the numbers, they should provide the median rather than the mean (average). And if they are going to use the mean, they should also show the standard deviation.
Now these guys know that. So the fact that they resorted to a statistical distortion to convince people to support their budget deal made me seek better information.
The Washington Post provides an interactive site so you can seen the impacts of the various options. See story at:
Washington Post Tax Plan Comparison
So, what happens if all the Bush-era tax cuts were allowed to expire as was intended?
The bottom 20 percent of wage earners (earning less than $20,000, will pay an additional $69 dollars on average.
The bottom middle 20 percent (who earn between $20,000 and $37,500) would pay, on average, $583 more.
The middle 20 percent (who earn between $37,500 and $66,000) would pay, on average, $1,016 more in taxes.
The top middle 20 percent (who earn between $66,000 and $111,659) would pay, on average $2,124 more in taxes.
The top 20 percent, who earn more than $111,659 would pay on average, $9,018.
Doesn’t it make you wonder where that $3,000 average comes from since 80 percent of the taxpayers would be paying much less than $3,000 more in taxes.
The Washington Post provides an interesting example of how the extreme wealth of a few will distort averages.
The top 1 percent of income earners, who earn more than $599,181, would pay, on average, $72,446 more
And the top .1 percent of income earners (who earn more than 99.9 percent of all earners)–who earn more than $2.7 million– would pay $371,650 more, on average, in taxes.
Again, keep in mind that these are still averages. Those earning just $2.7 million will pay less than $371,650 and those earning $2.7 billion will pay more.
My point: the extreme high earners increase the average reported here.
So, this is a great example of why an average might be technically accurate but misleading when used in a political debate.