Will millionaires "pay a little more" under Obama plan?
In a campaign ad titled "Worried," President Barack Obama takes aim at Mitt Romney’s economic program while defending his own. In the ad, the campaign repeats a line that the White House has used before -- that under the Obama tax plan, "millionaires pay a little more."
"You watched and worried: Two wars, tax cuts for millionaires, debt piled up," the narrator says in the July 31, 2012, ad. "And now we face a choice. Mitt Romney's plan? A new $250,000 tax cut for millionaires, increase military spending, adding trillions to the deficit. Or President Obama's plan? A balanced approach, $4 trillion in deficit reduction, millionaires pay a little more."
We've heard similar comments from Obama and his aides before:
• In remarks at the White House on Aug. 3, 2012, Obama said, "Instead of the middle class paying more, we should ask the wealthiest Americans to pay a little more, a modest amount, so that we can reduce our deficit and still make investments in things like education that help our economy grow."
• In a campaign event in Minneapolis on June 1, 2012, Obama said that to Republicans, "ideologically, the notion of billionaires and millionaires paying a little bit more in taxes didn’t adhere to the philosophy that they’ve been fighting for over the last several years."
• And in a press briefing on Nov. 28, 2011, White House Press Secretary Jay Carney said that Republican senators "seem not to believe … that millionaires and billionaires ought to pay a little extra in order to ensure that middle-class Americans get a payroll tax cut."
We wondered whether the Obama campaign was justified in saying that millionaires would "pay a little more" in taxes under the Obama plan. We considered putting this to the Truth-O-Meter, but we decided that "a little more" is an opinion, not a checkable fact. Still, we thought it would be valuable to see exactly how much millionaires would pay.
One preliminary note: The term "millionaire" technically refers to people who have $1 million in wealth, not $1 million in annual income. However, the primary analyses of presidential candidate tax plans, produced by the Urban Institute-Brookings Institution Tax Policy Center, do not measure the impact of tax plans on different wealth levels, only on income brackets. Indeed, in the ad we’re looking at, the Obama campaign referred to "a new $250,000 tax cut for millionaires" -- a number that refers to a Tax Policy Center estimate (now outdated) for Americans with $1 million in income. So we’ll stick with the $1 million in income figure.
According to the center’s analysis of Obama’s fiscal year 2013 plan, millionaires would see an average tax increase of nearly $190,000, leading to an 8.8 percent decrease in after-tax income. Roberton Williams, a Tax Policy Center senior fellow, confirmed that the analysis we were looking at included all of Obama’s proposed tax increases that might hit millionaires.
We could not find hard data to make a statistical comparison of how big a tax hit this is to a specific income group. Instead, we asked a few economists for their professional opinion. Did they think the Obama campaign was justified in using that terminology to refer to the proposed tax increases on high earners?
"In the real world, an 8.8 percent reduction in after-tax income is a significant blow," said Daniel Mitchell, a senior fellow at the libertarian Cato Institute.
Dean Baker, co-director of the liberal Center for Economic and Policy Research, said, "For my part, I would grant that this is more than ‘a little.’"
William McBride, an economist with the business-backed Tax Foundation, agreed that 8.8 percent of income "is not a little."
"Historically, the president’s tax plan would be the largest tax increase on high-income earners since World War II," McBride said. "The rates on personal income, dividends, and capital gains would all be the highest in 30 years."
When we contacted the Obama campaign, they argued that the use of the phrasing "a little more" is a judgment call, and they added that Romney once told reporters that the $362,000 in speaking fees he earned in a year was "not very much." But we don’t think Romney’s comment -- an off-the-cuff remark widely ridiculed as a gaffe -- should set the standard in this case, especially since Romney’s net worth is as high as $255 million, making him worth quite a bit more than a garden-variety millionaire.
Supporters of Obama’s tax plan are free to argue that the tax hike on high earners is wise policy or morally justifiable. However, we think that even for a millionaire, an extra $189,000 in taxes on average -- resulting in a decline in after-tax income of 8.8 percent -- goes well beyond chump change.