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Numerous readers have asked us to fact-check a chain email they’ve received recently about rising tax rates from Obamacare. Here’s the full text of the email, with its original typos intact:
Here is what happened on January 1st 2014:
Top Income tax bracket went from 35% to 39.6%
Top Income payroll tax went from 37.4% to 52.2%
Capital Gains tax went from 15% to 28%
Dividends tax went from 15% to 39.6%
Estate tax went from 0% to 55%
Remember this fact: if you have money, the democrats want it. These taxes were all passed only with democrat votes, no republicans voted for these taxes.
These taxes were all passed under the affordable care act, aka Obamacare."
We’ll take these claims in order:
"Here is what happened on January 1st 2014"
To the extent that these tax rates were changed -- and as we’ll see most of them didn’t change in the way the email says -- the changes didn’t take effect on Jan. 1, 2014. They took effect on Jan. 1, 2013.
That may seem like a minor difference, but in this case, it makes all the difference.
The tax rates that changed on Jan. 1, 2013, were all passed as part of the American Taxpayer Relief Act of 2012. That was the bipartisan deal -- and we’ll discuss just how bipartisan in a bit -- that passed after the 2012 presidential election to avoid the "fiscal cliff." The "cliff" refers to the expiration of tax cuts originally passed under President George W. Bush, combined with mandated federal spending cuts.
The law made permanent many of the Bush-era tax cuts, but it did raise some taxes that primarily hit upper-income taxpayers. That’s what the email is attempting to spotlight, but it does so in a way that introduces a host of inaccuracies.
"Top Income tax bracket went from 35% to 39.6%"
The timing is wrong, but the numbers are correct.
"Top Income payroll tax went from 37.4% to 52.2%"
Usually people think about income taxes and payroll taxes separately. But it’s not uncommon for tax experts to look at the combination of income and payroll taxes together, because they give a sense of the overall burden of direct taxation on individuals. That’s what the email did here.
On Jan. 1, 2013, the top combined rate for the income and payroll tax went from 37.9 percent to 42.5 percent. The top combined rate to 43.4 percent due to an additional Medicare tax in Obamacare.
So if you just look at the federal rate, the email overstates the current top rate.
If you take state taxes into account, the email is closer, but still inaccurate. The Tax Foundation, a business-backed group that also receives funding from individual donors and foundations, has calculated 2013 combined tax rates for each state. The group found that the top marginal tax rate, averaged across all states, is 47.9 percent.
Of course, any state taxes would have been imposed by state governments, and thus were not part of the Affordable Care Act. And this would not be an apples-to-apples comparison; to make the comparison fair, the initial tax rate would need to be adjusted upward for state and local taxes as well.
"Capital Gains tax went from 15% to 28%"
On Jan. 1, 2013, the capital gains tax rate went from 15 percent to 20 percent. The health care law took that up to 23.8 percent. So the email is high by more than 4 percentage points.
If you add in state and local taxes, the Tax Foundation says the current rate, averaged across the 50 states, is 28.7 percent, but Tax Foundation economist Kyle Pomerleau said this is "sort of an apples-to-oranges comparison."
"Dividends tax went from 15% to 39.6%"
This next line would have been correct if the Bush tax cuts had expired the way they were initially supposed to. But the December 2012 deal ended up going with a top marginal tax rate of 20 percent on dividend income instead of the pre-Bush rate of 39.6 percent on dividend income. It rose to 23.8 percent due to Obamacare.
So the final rate cited in the email is far higher than the current rate.
"Estate tax went from 0% to 55%"
Both ends of this claim are wrong. The estate tax was gradually wound down by the Bush-era tax cuts, disappearing entirely in 2010. For 2011 and 2012 it was reimposed at 35 percent, then raised to 40 percent on Jan. 1, 2013 as part of the "fiscal cliff" bill.
"These taxes were all passed only with democrat votes, no republicans voted for these taxes. These taxes were all passed under the affordable care act, aka Obamacare."
Most of these changes were passed as part of the 2012 fiscal cliff deal, which was enacted with bipartisan support. Facing expiration of the Bush tax cuts, which would have meant a massive tax increase up and down the income scale, both parties felt compelled to strike a deal that neither side was really enthusiastic about.
In the Senate, the measure passed by an 89-8 margin. Forty Republicans voted for it, and just five Republicans voted against it.
In the House, it passed by a 257-167 margin. While a majority of Republicans (151) voted against the bill, 85 Republicans did vote for it. So the email is flatly wrong to say that no Republicans voted for these taxes.
It’s also incorrect to say that these taxes were all raised by Obamacare. The health care law did add marginally to three of the five taxes -- 0.9 percentage points extra on the top payroll tax rate, and 3.8 percentage points higher for the capital gains and the dividends tax -- but the bulk of the increases came from the fiscal cliff deal. All told, less than a third of the actual increases in the taxes cited by the email came from Obamacare.
The chain email said that "no Republicans voted for" recent hikes in the income tax, payroll tax, capital gains tax, dividend tax and estate tax, arguing that they "were all passed under … Obamacare."
The email gets many things wrong, including the effective date of the increases and most of the rates, which are uniformly higher than the actual rates. Most obviously, the email is flat-out wrong when it blames Democrats, and Obamacare, exclusively for the increases. The bulk of the tax hikes stem from a different bill entirely -- the fiscal cliff bill, which received support from a large majority of Senate Republicans and a significant minority of House Republicans.
This email is so riddled with errors -- and gets so few things correct -- that we rate it Pants on Fire.
Chain email sent by readers to PolitiFact
Text of the American Taxpayer Relief Act of 2012 (H.R. 8)
Senate roll call vote on H.R. 8
House roll call vote on H.R. 8
Urban Institute-Brookings Institution Tax Policy Center, "Tax Provisions in the American Taxpayer Relief Act of 2012," Jan. 9, 2013
Email interview with Kyle Pomerleau, economist with the Tax Foundation, May 14, 2014
Email interview with Roberton Williams, fellow at the Urban Institute-Brookings Institution Tax Policy Center, May 13, 2014
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