Top 5 falsehoods about the Bush tax cuts
By Angie Drobnic Holan
Published on Tuesday, November 23rd, 2010 at 10:26 a.m.
After lots of talk and debate about extending the Bush tax cuts, it's now crunch time:
The lower rates are scheduled to expire on Dec. 31 unless Congress acts to extend them.
President Barack Obama supports making the current tax rates permanent for most Americans, but he wants to let the lower rates expire for couples that make more than $250,000 or individuals who make more than $200,000. Many Republicans say the tax cuts should be made permanent for everyone. Lately, though, different compromise measures have been floated. One idea is to make the tax cuts permanent for the middle-class and extend them temporarily for higher incomes. Another option would be to pass a two-year extension for everyone. Still other options call for repealing the tax cuts for the wealthy and giving tax breaks to employers who create jobs. We'll have to wait and see what sort of bill Congress actually votes on.
In the meantime, we have fact-checked many claims on the tax cuts and we've noticed some falsehoods keep getting repeated. So here are our top 5 falsehoods, plus a few runners-up.
• "Should Democrats get their way,every income tax bracket will increase on Jan. 1, 2011. Every single one." We've noticed that those who favor extending all the tax cuts will sometimes say that their opponents want to see all the tax cuts expire. But this is not the case. It's not President Barack Obama's position, nor of the Democratic leadership in Congress. And some Democrats think it might be a good idea to extend the Bush tax cuts for everyone, at least until the economy has recovered. Rep. Mike Pence, R-Ind., said this one, and we rated his statement False.
• "Ninety-four percent of small businesses will face higher taxes under the Democrats' plan." Republicans often say they're opposed to the tax increases because they will hit small businesses, but the numbers don't really support that. Under the Democratic plan, a small business owner would have to report profits of more than $250,000 before the tax increases kicked in. (Rates would rise for the top two brackets, from 33 percent to 36 percent and from 35 percent to 39.6 percent.) But most small businesses aren't nearly that profitable. In fact, Internal Revenue Service data shows that of all taxpayers who declare business income, only 2 to 3 percent declare that much. We rated this Pants on Fire when Rep. Randy Neugebauer, R-Texas, said this back in August.
• Small businesses that have "$250,000 in gross sales for the business ... They're the ones that are looking at massive tax increases." This is another variation on the claim that tax increases will hit small business. This statement is wrong because gross sales are all the money a business takes in. Under longstanding IRS rules, businesses get to deduct most expenses before reporting their final taxable income. That includes things like employees' pay, supplies, a car or truck, fuel costs, advertising, and more. Rep. Michele Bachmann said this on Nov. 16, and we rated it Pants on Fire.
• "Democrats are poised now to cause this largest tax increase in U.S. history." To examine this statement, we looked at tax increases measured as a percentage of the entire economy, a method that takes into account inflation and economic growth. If the current tax rates for the wealthy expire, it will raise their taxes, but it will not be the largest tax increase in history. In fact, a 1982 tax increase signed into law by President Ronald Reagan would be larger. If all the tax rates went up in 2011, that would be larger, but the evidence shows that tax increases passed to pay for World War II were larger still. Sarah Palin, the former governor of Alaska, said this, and we rated it Pants on Fire.
• "If all of the tax cuts expire on schedule, the budget will be close to being balanced in four years." Would budget shortfalls be less if you let all the tax cuts expire? Yes, definitely. Would it bring you close to a balanced budget? No. You would still have a deficit of about 3 percent of the Gross Domestic Product, a measure of the entire economy. That might be a sustainable deficit, but it wouldn't be a balanced budget. Rep. Robert C. "Bobby" Scott, D-Va., said this; he supports letting all the tax cuts expire. We rated the statement False.
And there were so many, we even have some runners up ...
• "Middle-class families throughout America (would) have to pay $6,000 per year" to pay for tax cuts for the wealthy. This statement assumes that tax cuts cost the government money. More accurately, it's foregone revenue, or money that the government simply doesn't collect. But what makes this statement wrong is that the number is off. Mathematically speaking, it would be $6,000 over ten years -- that's the value of the lower tax rates divided by the number of households in the United States. Rep. Kendrick Meek, D-Fla., said this when he was running for Senate. We rated it False.
• The United States of America is overtaxed "compared to our competitors." If you think America is overtaxed compared to countries that we compete with economically, you might want to look closer at the numbers. That's what we did after Minnesota Gov. Tim Pawlenty made a substantially similar claim. The Organization for Economic Cooperation and Development compiles data on how much governments tax; they measure it as the proportion of tax revenues compared to the size of the economy. In those terms, the United States is fairly competitive in terms of overall tax burden, with revenues of 28 percent of gross domestic product in 2007. That's lower than the average of 36 percent among 30 major countries. Only South Korea, Mexico and Turkey were lower than the United States. We rated Pawlenty's statement False.
• "Pres. Obama's finance team is recommending a 1% tax on all transactions at any financial institution." This is the claim of a popular chain e-mail that we've seen several times. It's not true; it appears to be something that an anonymous e-mailer put together to scare people. We rated the statement Pants on Fire.
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