Yesterday, Barack Obama made a speech outlining his deficit reduction plan—focusing attention on a variety of spending cuts and tax increases. The Associated Press, as is their habit, issued a “factcheck” piece by Stephen Ohlemacher that managed to bungle the issues involved, making it sound as if Obama was wrong about the taxes that wealthy people pay.
Here’s how it started:
President Barack Obama makes it sound as if there are millionaires all over America paying taxes at lower rates than their secretaries.
“Middle-class families shouldn’t pay higher taxes than millionaires and billionaires,” Obama said Monday. “That’s pretty straightforward. It’s hard to argue against that.”
The data tell a different story. On average, the wealthiest people in America pay a lot more taxes than the middle class or the poor, according to private and government data. They pay at a higher rate, and as a group, they contribute a much larger share of the overall taxes collected by the federal government.
If that’s what you get from “the data,” AP doesn’t do a good job of showing it. The piece points out early on that about 1,400 millionaires paid no income tax at all—that’s a small number of tax avoiders, they explain, though clearly this would be part of what Obama is talking about.
But then they zero in on what seems to be their best case:
This year, households making more than $1 million will pay an average of 29.1 percent of their income in federal taxes, including income taxes and payroll taxes, according to the Tax Policy Center, a Washington think tank.
Households making between $50,000 and $75,000 will pay 15 percent of their income in federal taxes.
Well, that sounds like a slam dunk, right? The rich pay twice as much as middle class earners. Or maybe not:
Obama’s claim hinges on the fact that, for high-income families and individuals, investment income is often taxed at a lower rate than wages. The top tax rate for dividends and capital gains is 15 percent. The top marginal tax rate for wages is 35 percent, though that is reserved for taxable income above $379,150.
So what if much of a really wealthy person’s income is investment income? AP doesn’t get into that; it moves on to discussing the fact that a lot of poor people pay no income tax.
It’s useful to recall that Warren Buffett—supposedly the inspiration for this plan—was saying that he made $46 million but only paid 17 percent in taxes. His secretary, he said, paid more—relative to what she earned. Is Buffett the only one who’s figured out how to do this? One recent report from the Citizens for Tax Justice showed:
The IRS report shows that in 2008 (the latest year for which data are available), the 400 richest income tax filers paid just 18.1 percent of their adjusted gross income (AGI) in federal income taxes.
That is down from 22.3 percent in 2000.
And this post from the Tax Policy Center tries to explain further:
The lower taxes on investment income mean that many high-income taxpayers face a lower ETR [effective tax rate] than middle- and upper-middle-income people who get almost all of their income from working. People in the top 0.1 percent—those with income over $2.18 million in 2011—who get more than two-thirds of their income from gains and dividends face an ETR of just 12 percent, compared with 16 percent for people in the fourth quintile who get less than 10 percent of their income from investments.
It’s worth recalling that Obama’s actual point was this:
They should have to defend that unfairness—explain why somebody who’s making $50 million a year in the financial markets should be paying 15 percent on their taxes, when a teacher making $50,000 a year is paying more than that—paying a higher rate.
It is difficult to see what is wrong with that statement. The Associated Press took a seemingly uncontroversial point and, by magic of its “factchecking” machine, turned into an inaccuracy.
Hardly surprising, coming from AP, whose claim to be a “news service” has very little in the way of hard facts to support it.
But the larger issue is not whether the wealthy pay a little less or more than middle and working class folks, but why they’re not paying a great deal more, as was the case during a good part of the last century, with the top rate at one point being 91 percent, if memory serves.
This in the US and A, that bastian of egalitarianism and radical redistribution of income. Y’know … the one that liked Ike.
And what’s the best many “progressives” can call for? “Shared sacrifice” … as though a family earning just enough to get by, if that, has a responsibility to “tighten their belts” as long as the rich pay a bit more.
You don’t ask a patient on life support to scoot over for someone admitted with a hangnail.
So what we find out from this is that numbers can be manipulated to show whatever the writer wants them to show.
What I get from all this is that most “millionaires” pay a pretty hefty tax bill, especially if they make most of their money from non-investment sources. If anything needs to be tightened up it sounds like the tax on investment income needs to be increased to be more in line with the marginal tax rate. I DON”T understand why the marginal tax rate needs to be increased. Most people making between 100k-500k are paying plenty in taxes right now. As an example, lets take someone making 375k. Maybe a doctor or lawyer. They would pay $238,000 in federal and SS taxes. That does not include Medicare, State and local taxes, property taxes and sales taxes. Conservatively speaking their tax bill for the year would be $275,000 leaving them with $100,000 to spend on their family. Is that fair? And how much more should the government take of that remaining $100,000? $50,000, $75,000?
If there is anything we have learned about goverment and spending is that there is never enough money collected to satisfy the government’s appetite. That’s why so many are saying NO to more taxes before we see significant reductions in what the government is spending.
Mark, you don’t know what you’re talking about! A single person with a $375,000 income would end up paying just over $105,000 in taxes – about a 28% average tax rate. If he was married, it’d be closer to $95 grand. If he’s self-employed, add SS taxes of about $11,000 (only on the first $106,000) and Medicare taxes of about $11,000 on his entire income on top of that – that comes up to $127,000 for a single guy and $117,000 for a married guy! So, instead of paying $238,000, as you claim, and only having about $100,000 left, they’re really left with $250,000 to support their family and pay local taxes, sales tax and property taxes.
If there’s anything we’ver learned about rightwingers, it’s that they’re dishonest or ignorant. Which are you? We’re in the midst of the lowest taxes in generations, and you insist that we have to cut more BEFORE we can even consider raising taxes? You aren’t being realistic. You’re being stupid. No reputable economist says that we can balance the budget with spending cuts alone.
Sue:
You are absolutely right. I went back to my actual tax return since the numbers seemed a little high to me. I calculated SS taxes as $108,000, not the rate on $108,000.
A self-employed tax payer making $375,000 would only pay about 52% of their wages in taxes.
That seems fair….. The government takes more than half of what that individual makes.
I’m ok with that.
update: media matters is reporting
Since publishing their fact check, the AP has subjected it to heavy revisions. However, posts reporting the story at National Review Online, the Weekly Standard, and Hot Air all quote from the original version of the story, ensuring it will live on in conservative mythology.
http://mediamatters.org/blog/201109200032
Mr. Ohlemacher of the AP claims the following (from â┚¬Ã…“Fact Check: The wealthy already pay more taxesâ┚¬Ã‚Â) â┚¬Ã…“There may be individual millionaires who pay taxes at rates lower than middle-income workers. In 2009, 1,470 households filed tax returns with incomes above $1 million yet paid no federal income tax, according to the Internal Revenue Service. But that’s less than 1% of the nearly 237,000 returns with incomes above $1 million. This year, households making more than $1 million will pay an average 29.1% of their income in federal taxes, including income taxes, payroll taxes and other taxes, according to the Tax Policy Center, a Washington think tank. Households making between $50,000 and $75,000 will pay an average of 15% of their income in federal taxes.Lower-income households will pay less. For example, households making between $40,000 and $50,000 will pay an average of 12.5% of their income in federal taxes. Households making between $20,000 and $30,000 will pay 5.7%…â┚¬Ã‚Â
Either the author or his sources are in error conflating different streams of taxes. (See Citizens for Tax Justice: http://ctj.org/ctjreports/2011/09/policy_options_to_raise_revenue_by_eliminating_or_reducing_tax_subsidies_for_wealthy_individuals_and.php <— for the .pdf file on raising revenue). If you look at p. 2 you see that the top 1% of wage earners with an average â┚¬Ã…“cash incomeâ┚¬Ã‚ of $1,250,000 paid 22.1% of that income in federal taxes and 7.9% in local taxes for a total tax rate of 30%. This accounts nicely with the percent cited above, but the highest income group does not pay 29% to the federal government, which claim is erroneous.
The CTJ site does not parse out the $50-$75,000 tax group, but a close approximation would be their 4th quintile with average income of $66,300. They pay 17.3% federal (not 12.5%) and 11.1% local for a total tax burden 28.5% (just 1.5 percentage points less than millionaires). So the author’s claim that $50-$75K earners pay a 12.5% federal effective tax seems to be a reference to local taxes, not federal.
In fact, the total tax burden (federal plus local) of the next highest 9% income group (see the CTJ .pdf file, p. 2), with average income of about $190,000, is about one percentage point higher than that of the richest taxpayers (the top 1%) who earn about 6.5 times that amount.
One can see how Buffett can very well pay taxes at a lower rate than his secretary. If the bulk of his income comes from capital gains and dividends, then he basically pays federal taxes at 15% on millions of dollars in income. His (let’s say) $200,000 salaried secretary will pay $27,000 federal tax (not including social security) plus 28% of all income above $139,000. If he has a taxable income of $190,000, then he’ll pay 28% of the $51,000 excess income or $14,000 + $27,000 = $41,000 out of $200,000 income for a tax rate of about 20.5%. Add social security and medicare taxes of about $9,000 (or 4.5% of $200,000) and the secretary is paying about 25% federal taxes, about 10 percentage points more than Buffett, although Buffett is clearly paying more dollars to the federal government than the secretary.
Cases where the very rich pay federal taxes below some ETR floor, say 25%, can then be surcharged so that they are not paying federal taxes at a lower rate than middle class taxpayers.
Look to your lord and savior(Clinton) for some light at the end of your tunnels.In a recent interview he said “he would not raise taxes at this time.And even if they were raised, it would accomplish nothing “. Ok try to explain that away.Is Clinton a troll?Or senile?Or just a traitor to Obama and the liberal agenda?
Anyway It matters little to us that this bleating sound coming from the left (in ever growing volume) is growing more frantic.The right will not bend this time.NO NEW TAXES for anyone is a promise we mean to keep.
Bill O recently gave a wonderful explanation of current tax policy on his show.Explaining liberal deception and outright lies, he laid it out pretty well for all to see.Newt has had many salient points on the subject lately. Check out either for clarity. Of course I have also listened to Obama and Michael Moore. God what total nitwits.
woodward&Bernstein:
“assuring it will live on” in wingnut mythology.
SEE, MARK.
Mark does raise one useful point, though he wasnt trying to, that none trust Barrak O’BOfA to do the fair or even the smart thing anymore. Trying to squeeze the (way upper) middle class, cause they have the most money you can easily take, is not the optimum solution either. NO-ONE believes that, whatever is said in Washington, Loyd Blankfeins or the Warren Buffetts are going to pay more. Thats what IS SMART ABOUT RAISING THE MARGINAL RATE MARK. You dont bring in 1 billion dollars a year so you wouldnt be subjected to the highest rate. As has been pointed out during Ikes admin ,is over 90%. We as a nation have been coasting on the wealth accumulated during those decades. For 3 decades the rich have gotten break after break while the middle class has decayed . The rich have gotten rewarded and the workers have gotten fired. Now they are saying that the trust fund which responsible adults left for us, has been gambled away by wastrel younger sons and ne’r do well yuppie scoundrels – and they are saying THE POOR MUST PAY FOR IT! ! Keep whining Mark and Co., and keep doing everything in your petty power to “i got mine” the whole world. You only got yours becasue you live in a society that aloows you to profit from the misfotune of others .A Russian Communist I know online recently said “Americans are looking at suffereing, real suffering coming to them. It looks good on you!American Monopoly capitalism will fall. Matter of time only”
Perhaps the Europeans will feel forced to tax transactions (“Tobin Tax”) to get out of the hole they find themselves in. That’d be a blessing, here… because then we could do it, too… and not have to listen to the whine of Wall Street threatening to move en masse to Dubai or Bahrein or the Turks & Caicos Islands. Really, I wouldn’t want them to leave. some of them are good tippers. ^..^
Why I wonder do we not institute a fair or flat tax?Far preferable to what we have now,.And it would end this class warfare.But of course it would take away the governments main arm of power(and the lefts divisive politics).Sounds great to me.
Today we are at great odds.Obama feels that a rich man owes a big percentage of all he is, back to the community that he thrived in.This more so than the community intrinsically being rewarded by full blooded entrepreneurialism, and great success in a free market.He,and people here point to times in our history when we were more “marxist”and try to tie it to any success of those times.It is a spurious argument.Not only is it twisted, and without merit, It also jumps over the seminal point.We are a capitalist country .To our very core.If you mean to change that…….run honestly on that belief.This endless struggle by the left at real change- under the guise of some attempt at hybridism or “tweaking” is tiring upon the minds of the electorate,and breeds this divisive discontent.Better to boldly lay your cards on the table for judgement by the people than to eats in small bites the greatness of this land.Have done with it for Gods sake.
A personal example I can document is from 1997, when I ran a business that made $101,000.00 profit. In addition, I had $50,000.00 in capital gains, $20,000.00 in dividend income, and $3,000.00 in interest income. I was single, childless, and was without sufficient deductions to itemize. Nonetheless, I paid only about $48,000 in federal taxes, which took care of Social Security as well. So, even before the tax cuts of 1999, 2002, and 2003, a single person with no deductions could have income of about $175,000.00 and pay an effective federal tax rate of only 28%. Currently, it would be much lower. This personal experience, which I can document, puts the lie to the notion that Americans are overtaxed. In no other Western country would a single person get off so lightly with the Taxman. No wonder our country us so deeply in debt.
John you did not include a lot of info.What was your salary?Profit ,capital gains,and dividend income could be seen toward net worth, minus your company situation(did you own it?).My guess is your salary was around 120-140K. I have not enjoyed breaks of less than a 28% rate.So let me in on your secret.That term you used”effective”needs to be explained further.
Americans are overtaxed.We are taxed on everything we do.And any Dem government would grow that by measurable strides if they could. But that is not the point really.The point is- is the government a better steward of our money than those who earn it?I would answer that with a resounding no.They stink as money managers.The belief that they can do almost anything(aside the military) better than the private sector, is a part of this discussion -not really discussed.
If you are going to propose drastic, lasting changes, why not fix more things and do it in such a way that only the special interests and super-rich might disagree with, but the majority of Americans would endorse? Here is my suggestion:
1) 17% flat tax on ALL personal income over 2x poverty (about $25K), regardless of the source of that income (yes that means Wall St money too) – no more write offs
2) No corporate tax on any company that has more than 90% of it’s workforce and productivity within our borders
3) tax the crap out of imports
4) maintain current SS tax, but
5) eliminate the cap and
6) payout based on needs analysis and
7) enforce stiffer SSDI qualifications
8) Bring back the CCC (and other ‘work for welfare programs) – unless you are 100% disabled, you need to do “something” for your handout, even if that something is learning a trade or getting a degree
9) offer a nationwide, cost neutral, bare bones health insurance option for those who don’t get employer sponsored health insurance
10) use surpluses generated by above policies to pay back the SS trust fund and
11) separate the SS trust fund from the general federal budget
Howard how about a flat tax on all goods and services?More in line with the constitution.A so called fair tax.Forget trying to interpret what constitutes a persons “income”.This would automatically remove all dodges of the rich and super rich.It would bring a goodly amount of the non paying people into a place where they have skin in the game..Of course it would not apply to certain staples, or food stamps etc.
Jews,Janitors,and jerks………
Buffet off mike was caught saying ,”billionaires should not pay less taxes than a jew”He corrected himself and said he meant to say janitor.What was he thinking I wonder?Imagine if a conservative made such a slip.Where is rev Al when ya need him?Or the great jew baiter, Calypso Loui Farrakhan?Or mr Heimi town himself rev Jackson?Spitting out their dinner in uproarious laughter when they hear him say it most likely.
Try this “Billionairs should not pay more in taxes than blacks “Oh I meant to say fieldhands
Rev Al………..FIRST UP TO BAT
Michael E wants privatization of everything, where everything is subject to the profit motive. Yet, Michael E has lived the last 11 years in an undertaxed and under regulated environment, with capital ruling our Capitol every day, controlling laws, legislators, and elections. Is Michael E. blind to what the outcome has been? High unemployment, Wall Street scandals that nearly broke the economy, states under water, and a business class that has been given a free hand by our Supreme Court to spend unlimited amounts money on the candidates and issues of its choice. Michael E coudn’t refute my plain example because it stands as proof that Americans are not overtaxed. He simply chooses to live in his own reality. He even asks questions about my income breakdown, which I already plainly delineated in my initial post. Michael subscribes to the theory of Social Darwinsim, which can be best described by this wise saying: “All are created equal”, said the elephants as they stomped among the chickens.
AP is garbage. How could anyone take whatever they take seriously is beyond me. This week they also posted a phony article called “The upside of economic worries: lower gas prices”. How they could print that crap with a straight face is laughable. Gas prices are anything but down, they are still way up. Anyways, AP is garbage.
Admittedly the original factcheck article truly stunk and likely changed my attitude towards such articles forever. But it all can be boiled down to something rather simple – dividends. Prior to the Bush cuts the only thing that got capital gains rates was…capital gains. At least the above article and the original article (once) mentions dividends, most articles just say investment income. It wasn’t so long ago that most Americans had most of their investments in bank CDs. Interest income is also investment income but is taxed at ordinary rates (as were dividends up to 10 years ago). Now guess what line on the tax returns of the uber-rich (like Buffet) tends to dwarf all others?