"$500 billion of the extension of the Bush tax cuts for the wealthy goes to 120,000 families."
Joe Biden on Sunday, September 2nd, 2012 in a speech
Biden says $500 billion of Bush tax cuts for wealthy would go to 120,000 families
Vice President Joe Biden moves into high-dudgeon mode when sharing his view that Republican budget cuts would harm average Americans.
He was in that zone during swing-state stops after the Republican National Convention, shouting out this line of attack at a Green Bay campaign rally on Sept. 2, 2012.
"They didn’t tell you why they are eviscerating all these efforts to help the working and middle class people of America," Biden said. "They are doing it all in the service of massive tax cuts for the very wealthy … $500 billion of the extension of the Bush tax cuts for the wealthy goes to 120,000 families. Hear what I just said! One-half trillion dollars will go to 120,000 American families!"
Let’s examine Biden’s math and his characterization of the tax cuts enacted during Republican George W. Bush’s two-term presidency.
The Bush tax cuts
The Bush tax cuts, mostly in 2001 and 2003, lowered federal income tax rates at all levels, decreased the marriage penalty, lowered taxes on capital gains and dividends, boosted the child tax credit and phased out restrictions on how much higher-income people could deduct in mortgage interest and personal exemptions.
Those cuts were set to expire in 2010, but President Barack Obama and Congress agreed to extend them until Jan. 1, 2013.
Going forward, Obama thinks the cuts should stay in place for 98 percent of taxpayers, but wants to end them on income over $250,000 earned by couples or income over $200,000 for individuals.
Republicans, including Romney, want to make all the cuts permanent -- and that’s what drew Biden’s ire.
What about Biden’s half-trillion dollar claim?
His campaign said he based it on 10-year projections by White House budget officials, and private studies. Federal budgets typically look ahead 10 years.
Biden took a budget projection of $968 billion in tax savings, based on the cuts expiring for the top 2 percent. Then he determined that, within that group, the top 0.1 percent includes about 120,000 families -- and got 55 percent of that $968 million in tax savings.
The math comes out to $532 billion for those families -- the "half trillion" Biden shouted about.
Biden got the 55 percent and the 120,000 figures from two studies by the independent Tax Policy Center, a project of the Brookings Institution and Urban Institute that is a primary source of detailed reports on tax plans offered by elected officials and candidates. One of the studies said those 120,000 taxpayers have an average annual income of $8.4 million.
The vice president’s methodology got a thumbs down from Roberton Williams, a senior fellow at the Tax Policy Center, but a thumbs up from Andrew Fieldhouse, the federal budget policy analyst at the Economic Policy Institute, a liberal think tank.
We asked both -- and a third expert, from the business-backed Tax Foundation -- to take their own look at the slice of tax benefits for 120,000 families at the top of the income range. And the Romney campaign offered up its own figures.
Here’s what we learned:
-- Williams did a back-of-the-envelope calculation based on Tax Policy Center data and estimated the 120,000 families would save more than $400 billion but less than $600 billion over 10 years if the Bush cuts were extended. He called that a "best guess."
-- Fieldhouse, of the Economic Policy Institute, used Tax Policy Center data and came up with $523-$570 billion, with the caveat that there are some limitations to the data and complicating factors.
-- William McBride, chief economist at the Tax Foundation, called Biden’s number "plausible" but considers the Tax Policy Center model too limited.
"The economy is much more integrated than they pretend, so tax cuts ‘for the rich’ or ‘for the poor’ are really tax cuts for the private sector ultimately in that the money flows back and forth through multiple transactions," he said.
Meanwhile, Romney campaign spokesman Darrel Ng said they came up with $407 billion, based on another set of data from the same source. Williams said the Romney campaign number was from outdated figures, but in the ballpark of other estimates.
So, there’s a basis for Biden’s $500 billion figure, with the footnote that the numbers are unofficial and somewhat rough.
Let’s turn to the VP’s view that the Bush tax cuts were "for the wealthy."
One way to judge that is who would benefit if they were permanently extended.
The benefits of the reduced capital gains rates and dividends rate, and the cuts in top income tax rates, skew heavily in favor of higher earners, the Congressional Research Service found in a December 2010 study. But the marriage penalty change and cuts in the lowest three income tax rates benefit taxpayers of all incomes, that study showed. The expanded child tax credit helps all but the top fifth of earners.
Overall, the top fifth of earners got 65 percent of the savings from the Bush cuts as a whole, according to a Tax Policy Center study of the cuts’ impact as of 2010. In contrast, the three-fifths bunched in the middle-income tiers got 34 percent. The top 0.1 percent -- the group Biden referred to -- got 19.7 percent of the savings.
The same trend held for the effect on tax rates. The upper 20 percent saw a much greater reduction in their tax rate than did the lower tiers.
The takeaway from all of that: the Bush cuts were not just "for the wealthy," but benefited higher earners more than people in lower income tiers.
One more note: Biden is taking just one point from Romney’s tax plan when he tosses out numbers. Romney also wants to close off or limit some tax breaks.
"If Romney fulfills all of his tax promises, the rich would save relatively little," Williams wrote to us. "They would save something, however, to the extent that economic growth contributes to the plan’s revenue neutrality."
Biden said that "$500 billion of the extension of the Bush tax cuts for the wealthy goes to 120,000 families."
We couldn’t find a definitive study confirming Biden’s figure, but four sources said it’s in that range. His math, and the description of the Bush tax-cut package, needs some clarification.
But, overall, we think this is Mostly True.