"Under President Obama: $4,000 tax hike on middle-class families."
Mitt Romney on Wednesday, October 10th, 2012 in a campaign ad
Romney says Obama plans $4,000 tax hike on middle class
With jobs and other pocketbook issues the top concerns for most voters, the Mitt Romney campaign has been running ads that warn about rising taxes for the middle class if Barack Obama is re-elected.
In a television ad called "Putting jobs first", a video clip shows Mitt Romney speaking during the Denver debate. Romney says "I’m not going to raise taxes on anyone." As he says that, these words appear on the screen: "Under President Obama: $4,000 tax hike on middle class families."
The ad doesn’t say when this tax hike will take place or point to any plan from Obama to raise taxes on the middle class. In this fact-check, we’ll explore the roots of this claim and whether it’s what the middle class can reasonably expect from a second Obama term.
The ad references a study from the American Enterprise Institute, a conservative think tank. The study focuses on the national debt, and in particular, on the payments needed to cover the interest on that debt. What the authors, Matt Jensen and Aspen Gorry, try to do is figure out how those payments might be spread across different income groups.
The $4,000 figure comes from the results for households making between $100,000 and $200,000 a year. The study found that interest payments on the new debt added in Obama’s first term equal $1,600 for this group. It then takes the president’s 2013 budget plan and projects it out to 2022. It calculates that the added payments during this period would total $2,400. Add the two and you get the number in the ad, about $4,000.
There’s only one problem with saying the study describes a tax hike: It doesn’t. It describes a cost that must be paid, but that is entirely separate from the question of how it is paid, by whom and when. We’ll get into some of the details in just a bit.
A quick way to see the gap between the study and reality is to look at the $1,600 figure for Obama’s first term. By the logic of the Romney campaign, these households already would have seen an increase in their tax bills by that amount. In reality, those families enjoyed a variety of tax breaks during that period, from lower payroll taxes to tax credits for college tuition.
The ad also puts responsibility for the whole $1,600 amount on Obama. As PolitiFact has shown, even with full accounting for the cost of the stimulus, the rising debt stems in part from policies that predate Obama, such as the wars in Afghanistan and Iraq, and the economic recession that began before he took office.
Let us note, none of this is a criticism of the study. One of the authorities on economic modeling is economist Alan Auerbach at the University of California Berkeley. The study’s lead author, Matt Jensen, cites Auerbach. We asked Auerbach what he thought of the study.
"I don’t see any obvious flaws in the way the calculations are done," Auerbach said. But he also called the work "hypothetical".
The Romney campaign took an analytic exercise and presented it as concrete reality.
This shift shows up in the different words used by the American Enterprise Institute and the campaign. The headline on the institute’s web site is "Obama’s big budget deficits could mean a $4,000 a year middle-class tax hike." The operative word is "could". The Romney campaign web site is less restrained. It says the cost of the debt under Obama "would require an additional $2,500 in taxes."
More reasons to be cautious with the study
One of the study’s assumptions is that tax revenues will cover future deficits. That drew a criticism from Jason Peuquet, research director with the bipartisan Committee for a Responsible Federal Budget, a group that favors strong efforts to reduce deficits. Peuquet calls the study a useful exercise but says its approach is too narrow.
"It only looks at the tax side of the equation," Peuquet said. "In reality higher debt could mean much lower spending on certain programs. Including spending in the equation could produce very different distributional outcomes from these illustrative scenarios."
William Gale, a Brookings Institution economist who worked in the first Bush White House, expands on that point. Obama "might cut spending, he might raise taxes differently than the study's assumptions, he might let the debt ride," Gale said. In short, the study is not a prediction of the future.
Our colleagues at Factcheck.org have noted that deficits would continue to rise under the House Republican budget plan championed by Romney’s running mate, Paul Ryan. In their fact-check, they fault the Romney campaign for glossing over that Republicans too would add to the portion of taxes that would need to go to service the debt. The increase under the GOP plan would be much less than under Obama but it would still be an increase.
The Romney campaign ad says Obama’s policies are a $4,000 tax hike on the middle class. But their evidence is a study from the American Enterprise Institute that looks at public debt.
The campaign makes a giant leap when it assumes the debt will be serviced with increased taxes on all income levels and in the time frame it suggests. We actually don’t know how the tax code will spread around the pain of paying for the debt; right now, Obama is proposing tax increases only on higher income households.
Finally, we should point out that debt payments would rise even if Romney wins the presidency. If you accept the ad's logic, then you'd have to accept that Romney too plans tax increases for the middle class.
The campaign distorts the meaning of the study to score political points. We rate this statement Pants on Fire.
Published: Friday, October 26th, 2012 at 2:44 p.m.
Romney for President, Putting jobs first, October 10, 2012
Romney for President, The cost of Obama’s debt: $4,000 in middle class tax increases, October 2, 2012
American Enterprise Institute, A Simple Measure of the Distributional Burden of Debt Accumulation , October 1, 2012
American Enterprise Institute, Study: Obama’s big budget deficits could mean a $4,000 a year middle-class tax hike, October 2, 2012
Factcheck.org, Romney’s $4,000 tax tale, October 17, 2012
PolitiFact, Barack Obama says he’s responsible for just 10 percent of budget shortfalls, September 27, 2012
PolitiFact, Obama inherited deficits from Bush administration, January 29, 2010
Congressional Budget Office, An Update to the Budget and Economic Outlook: Fiscal Years 2012 to 2022, August 22, 2012
Email exchange with William Gale, economist, Brookings Institution, October 24, 2012
Email exchange with Matt Jensen, economist, American Enterprise Institute, October 25, 2012
Email exchange with Alan Auerbach, economist, University of California - Berkeley, October 24, 2012
Email exchange with Jason Peuquet, research director, Committee for a Responsible Federal Budget, October 25, 2012
Email exchange with Robert Terra, Romney for President campaign
Email exchange with Kara Carscaden, Obama for America campaign
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