NYT doesn’t understand the corporate income tax

Power Line spots an egregious error:

As dumb as the Levin-Dorgan press release was, however, it wasn’t dumb enough for the New York Times. The paper got out its calculator, multiplied the gross revenues of the companies in the GAO study by 35%, and came up with this classic of economic ignorance:

At a basic corporate tax rate of 35 percent, all the corporations covered in the study in theory owed $875 billion in federal income taxes.

In theory, a company pays 35% of its net income to the feds, not its gross receipts. That reporters and editors at the New York Times should be ignorant of this basic fact is shocking. How in the world can these people purport to instruct the rest of us on economic matters, when they lack the most fundamental understanding of how our tax system works?

The NYT story is here. They’ve since edited it and added a correction:

An article on Wednesday about a Government Accountability Office study reporting on the percentage of corporations that paid no federal income taxes from 1998 through 2005 gave an incorrect figure for the estimated tax liability of the 1.3 million companies covered by the study. It is not $875 billion. The correct amount cannot be calculated because it would be based on the companies’ paying the standard rate of 35 percent on their net income, a figure that is not available. (The incorrect figure of $875 billion was based on the companies’ paying the standard rate on their $2.5 trillion in gross sales.)

I know the New York Times has had cutbacks, but they still have editors, don’t they? Not one editor understood how the corporate income tax works? We might want to keep that in mind when reading NYT editorials.

It’s even worse than Power Line says, because the correction is wrong too. There is actually a very good way to estimate the tax liability of these companies, which is to look at the actual tax paid. Almost no corporation is going to make the mistake of failing to pay the taxes that their own books show they owe. Corporations reduce their taxes by clever accounting, not by outright failing to pay. So the NYT’s mistake is not just a failure of calculation. The calculation they were trying to do was fundamentally nonsensical. They could argue (as Levin and Dorgan do) that corporations’ accounting unfairly lowers their taxes, but that argument cannot be illustrated by this sort of back-of-the-envelope calculation.

(Via Instapundit, who quips “It was my understanding that there would be no math.”)

UPDATE (8/17): More New York Times innumeracy, including the prevalence of 1-square-foot apartments.  (Via Instapundit.)

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