NY Times Snow Job on Recently Nominated Treasury Secretary

by | Dec 26, 2002

Newspapers are supposed to report the news — facts — so that people can use those facts when they form their opinions. But where do newspapers get facts? How do reporters know that what they are reporting is true? How do readers know? These questions are most critical in economic and business reporting, where the […]

Newspapers are supposed to report the news — facts — so that people can use those facts when they form their opinions. But where do newspapers get facts? How do reporters know that what they are reporting is true? How do readers know? These questions are most critical in economic and business reporting, where the line between fact and opinion is often blurry, and even the seemingly most objective facts are subject to nuanced definition and interpretation.

Consider an article from a recent New York Times business section, “A Career as a Window to the Future” by Claudia H. Deutsch and David Cay Johnston. It’s a review of the career of CSX Corporation CEO John Snow, who was recently nominated to be Treasury Secretary. Appearing among many seemingly objective facts about Snow’s past performance as an executive is this paragraph:

“CSX, through a variety of legal techniques, also managed to avoid paying federal income taxes in three of the four years from 1998 to 2001, when it earned a total of $934 million in profit, according to data in its reports to shareholders first disclosed by Citizens for Tax Justice, a labor-backed group whose figures are widely accepted. CSX received $164 million more in refunds than it paid during those years, it told shareholders.”

What is the “fact” reported here? Apparently it is that CSX paid no taxes in three of the last four years. Properly, the source of the fact is given (Citizens for Tax Justice), and properly, it is noted that this source has possible reason to be biased (it is “labor-backed”). But, improperly, these qualifications are themselves qualified away by the assertion — as a “fact” — that Citizens for Tax Justice’s “figures are widely accepted.” By whom (other than the authors of this article at this moment)?

I, for one, do not accept these figures. These figures arbitrarily focus on the amount of taxes physically paid during arbitrary regulatory reporting periods, rather than the much larger amount of taxes accrued on the company’s books to be paid in the future when they become legally due.

What Citizens for Tax Justice doesn’t tell you is that in each of the last three years, CSX has accrued significant deferred tax liabilities — which get counted against pre-tax earnings on the company’s income statement to arrive at reported after-tax earnings, and which will eventually have to be paid to the government. In every year examined by Citizens for Tax Justice, CSX’s total tax expense, including deferrals, swamps whatever rebates they were able to collect. In fact, in 1999, taxes paid were more than 100% of U.S. pre-tax profits because taxes deferred in prior years had to be actually paid out in that year.

Accounting for large, complex companies involves many deferrals through time — both of income items and expense items, including taxes. Companies typically carry deferred tax assets or liabilities — assets if they have had net operating losses in prior years that can be applied against taxes in the future, or liabilities if they have recognized income for financial reporting purposes in the current year that will not be recognized for tax purposes until a later year.

The Citizens for Tax Justice press release has deliberately ignored CSX’s deferred taxes as though they don’t exist, in order to create the misleading impression that the company has found a way to never pay any taxes.

Now did the New York Times do any original research into CSX’s financial reports to verify or qualify the claims of Citizens for Tax Justice, whom the reporters themselves admit are biased? No, they just reported those claims as facts, and absolved themselves of responsibility as they absolved themselves of hard work — by noting the source and (sort of) disclosing potential bias. Job done. Time to go home for Christmas, or “remember the neediest,” or whatever New York Times business reporters do with all the spare time that is freed up by not having to report facts.

Is there any “fact” at all in this? Yes. The fact is that a particular lobbying organization made a particular claim. The fact is not the content of the claim — but the fact that they made it. Yet now the content of the claim has been embedded as “fact” in America’s “newspaper of record.” And mark my words — it will be reported again over the coming years, over and over and over, passing into a realm of historicity where it is beyond questioning. And the source that will be cited? The New York Times.

Don Luskin is Chief Investment Officer for Trend Macrolytics, an economics research and consulting service providing exclusive market-focused, real-time analysis to the institutional investment community. You can visit the weblog of his forthcoming book ‘The Conspiracy to Keep You Poor and Stupid’ at www.poorandstupid.com. He is also a contributing writer to SmartMoney.com.

The views expressed above represent those of the author and do not necessarily represent the views of the editors and publishers of Capitalism Magazine. Capitalism Magazine sometimes publishes articles we disagree with because we think the article provides information, or a contrasting point of view, that may be of value to our readers.

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