The big idea: As the 2012 presidential campaign moves into full swing, the news media, bloggers and activists will continue to write stories about how various wealthy taxpayers are not paying their fair share of taxes. Are the commentators using the correct information to make this judgment?

The scenario: During the 2004 presidential campaign, Sean Hannity reported on his show that Teresa Heinz Kerry, the wife of Sen. John F. Kerry (D-Mass.), paid only a 14.4 percent average tax rate in 2003. Hannity suggested that she didn’t pay her fair share of taxes because she invested in municipal bonds, which pay tax-exempt interest. Five months later, the Wall Street Journal printed an article entitled “Teresa’s Fair Share” with a similar statement. The article states that the investment in municipal bonds puts her 12.4 percent “tax rate at well below that of other filers in her super-rich neighborhood. But it also means that she is paying a lower average tax rate than nearly all middle-class taxpayers paid in 2001.”

The resolution: First, when most people think of taxes, they think of the taxes directly paid to the government. These are the taxes to which Hannity and the Wall Street Journal were referring. However, taxpayers can also pay implicit taxes, which are ignored in the public “fair share” debate. Implicit taxes are paid by taxpayers through the lower pre-tax returns that they earn on the tax-favored assets that they hold, such as AAA 10-year municipal bonds, relative to the higher pre-tax returns that they could have earned if they had held fully taxable assets of the same risk, for example 10-year U.S. Treasuries or AAA corporate bonds. The municipal bonds have lower pre-tax returns because of taxable investors’ demand for tax-favored municipal bonds bids up the price of those bonds, thus lowering their pre-tax return. Who receives the implicit taxes paid by investors in municipal bonds because these investors accept a lower pre-tax return? The municipal governments do, because they can borrow at a lower rate than if the federal government had not provided the benefit of tax-exempt interest. So in 2003, Teresa Heinz-Kerry paid $628,401 in direct taxes to the federal government as well as the millions in implicit taxes that benefited municipalities.

Second, the Wall Street Journal article compares apples to oranges. The article uses the average tax rates reported by the Tax Foundation as its benchmark. If the article had calculated her 2003 average tax rate in the same method as its benchmark tax rates, Heinz Kerry’s tax rate would have been 27.4 percent, not the 12.4 percent reported. If the article had then compared her 27.4 percent average tax rate to the benchmark tax rates from 2003 instead of 2001, the article would have reported that Heinz Kerry actually paid 27.4 percent compared to 24.3 percent for the top 1 percent and 11.9 percent for all taxpayers. Why is comparing the same year important? The year 2003 was the first year of the Bush tax cuts, so everyone faced lower tax rates in 2003 as compared to 2001.

The lesson: Nothing, especially tax policy, is as simple as a pundit sound bite, a one-page editorial or even a case in point. For example, Mitt Romney’s release of his 2010 tax return in January inspired the same old sound bites, including inaccurate statements about “carried interest.” They were just made by different reporters about a different wealthy candidate.

— Mary Margaret Frank

Frank is an associate professor of business administration at the University of Virginia Darden School of Business.