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Fox Business Network host Neil Cavuto put a college organizer in the hot seat when she came on his show to talk about the need to reduce college debt. Cavuto pressed Keely Mullen with the Million Student March on how she would pay for a program to make public college tuition-free, forgive all current college debt and pay college students $15 an hour.
"If you wanted all that stuff, someone has to pick up the tab," Cavuto asked on his Nov. 12 show. "Who would that be?"
"The 1 percent of society that are hoarding all the wealth and causing a catastrophe that students are facing," Mullen answered.
Cavuto pushed back and presented Mullen with this scenario to demonstrate the limits of getting the wealthy to pony up.
"They’ve done studies on this, Keely," Cavuto said. "I don’t want to get boring here. But even if you were to take the 1 percent, and take all of their money, tax it 100 percent. Do you know it wouldn’t keep Medicare -- just Medicare -- going for three years? "
Several readers asked us to check Cavuto’s basic math. Could the wealthiest 1 percent pay for Medicare for three years or not?
We don’t want to get boring either, but reader be warned: Numbers, multiplication and subtraction lie ahead.
We asked the Fox Business Network for studies backing up Cavuto’s math.
The Fox press office didn’t point us to any studies. Instead, a spokeswoman explained that Cavuto and his producer averaged the yearly income going to the top 1 percent as reported by the Internal Revenue Service for 2011, 2012 and 2013. They came up with "about $1.75 trillion."
For the cost of Medicare, they went to two sources: The Kaiser Family Foundation, which we’ll get to in a moment, and the Centers for Medicare and Medicaid Services web page on national health expenditures for 2013. That page gave them the figure of $585.7 billion of Medicare expenditures.
They multiplied the Medicare number by three and found that it would be $1.755 trillion over three years. The correct number is actually $1.757 trillion, but the point remains the same. Using Cavuto’s estimate, three years of Medicare spending is more than all the money the top 1 percent took in.
We tried to repeat Cavuto’s analysis and ran into some issues.
Problems with the Medicare dollars
Cavuto’s Medicare spending number is not bulletproof. There are credible, lower figures.
Medicare spending is reported in two ways: Gross outlays and net outlays. Gross outlays are basically money out the door, and net outlays reduces the total based on the money Medicare takes in apart from the federal budget and the payroll tax.
We found a discrepancy in the gross outlay number. While the CMS fact sheet does report $585.7 billion in gross spending, the Medicare Trustees, the program’s overseers, reported a slightly lower $582.9 billion for 2013. Since that comes from the Trustees' official report to Congress, we gave it some weight. (The difference is due to accounting rules.)
We also found that the other source cited by Fox Business, the Kaiser Family Foundation, which is widely seen as a neutral source of health care data, focuses on the net outlays, not the gross spending.
Fox Business directed us to the foundation’s Medicare fact-sheet. That page reports the net figure, which factors in billions of dollars of premiums paid by Medicare users, along with recaptured inappropriate payments to providers.
For 2013, Kaiser reported net spending of $492 billion. Juliette Cubanski, a top Medicare analyst at Kaiser, explained that the net amount does a better job of capturing the burden on taxpayers as a whole.
"Showing the gross spending amount would, in a way, overstate federal spending on Medicare because some of that amount comes back to the Treasury in the form of premiums," Cubanski said.
So the Medicare Trustees provided a slightly lower number than Cavuto used, and his other source provided a significantly lower number. Both measures put his math at risk.
Problems with the top 1 percent dollars
Cavuto used IRS data for 2011, 2012 and 2013. It’s easy to find the IRS analysis of the Adjusted Gross Income, or AGI, for the top 1 percent for 2011 and 2012. But the official analysis only comes out about three years after the fact, and the 2013 numbers are not available.
So where did Cavuto get an estimate for 2013 income? His staff said he used an IRS spreadsheet for 2013. However, this only gives you a rough approximation, and when we compared past spreadsheets to the official analyses for 2011 and 2012, we found significant differences.
Nonetheless, there is another issue with Cavuto’s income figure. Adjusted Gross Income misses a fair chunk of the money people actually make. There are many deductions in taxable income that come before taxpayers reaches that point in their tax returns. One of the largest takes the form of tax-free contributions to a retirement account.
In a perfect world, one would be able to say precisely the actual incomes, before any deductions, of the top 1 percent.
In practice, that turns out to be a tricky business, said Daniel Feenberg, a tax expert at the National Bureau of Economic Research.
"There are many ways to do this calculation, including many that are correct but differ from each other," Feenberg said.
The Tax Policy Center, a joint effort of the Brookings Institution and the Urban Institute, has a method to estimate what it calls the "cash income" of tax filers. Its model adds back in the dollars put into a retirement account, along with non-taxable Social Security and pension income, and various other pots of money.
Averaging the center’s estimates of cash income for the top 1 percent for 2011, 2012 and 2013 produces a total of $1.85 trillion. That’s about $100 billion more than Cavuto’s estimate for the top 1 percent.
The center’s co-director William Gale warned us that using tax returns to measure income totally misses a major source of income for the top 1 percent: gains on financial holdings that accrue but aren’t cashed out.
"When Warren Buffett’s stocks go up up by X billion over a year, none of that shows up in his AGI unless he sells some of the assets," Gale said.
Setting aside the huge policy debate involved here, measuring income in any given year is a particularly poor yardstick for the financial capacity of the top 1 percent. Way more than most people, they get to decide when to turn their wealth into income.
Running the numbers
For the last step of this fact-check, we stress-tested Cavuto’s assertion. The math is simple: You triple a given Medicare spending number and subtract that from an income estimate.
We did the math using three different amounts for Medicare spending and three different estimates of the income of the top 1 percent.
For the IRS, we use the most recent available AGI figure from 2012. (We know that due to efforts to avoid higher capital gains taxes, many people sold assets in 2012. This artificially raised the AGI figure that year, but we’ve yet to find a report that shows the size of that effect in terms of the income of the top 1 percent.)
With that caveat, here is the table -- using all the sources above -- showing what you’re left with when you take one year of income for the 1 percent and subtract the three-year cost of Medicare. A negative number means the Medicare total was more than the income -- as Cavuto said.
The green background is where Cavuto is correct. The red is where he is not. The amounts are in billions of dollars.
There’s only one outcome that supports Cavuto’s assertion that the income of the 1 percent wouldn’t pay for three years of Medicare spending — the one that uses his own sources. The remaining eight scenarios based on other reputable sources show the income of the 1 percent exceeding three years of Medicare spending, ranging from a difference of $1.3 billion to $504 billion.
Cavuto’s method is very sensitive to small shifts in the numbers. Even using his income estimate but relying on the gross spending figure from the Medicare Trustees, he missed the mark. Not by much, but his assertion is still not right.
The gap only gets wider if you use any other estimate of income and any other Medicare spending amount.
If you use the Kaiser Family Foundation’s number for Medicare ($492 billion) and the the Tax Policy Center’s number for income ($1.85 trillion), the money from the wealthiest 1 percent would cover Medicare for about three years and nine months.
Cavuto said that one year of the income of the top 1 percent would not pay for three years of Medicare. His point was that the financial capacity of the top 1 percent is not unlimited.
He bolstered his point with a definitive statement, but the underlying math is flawed.
Cavuto used the highest number we could find for the cost of Medicare. While he may have relied on an official web page for his Medicare number, we found an equally official source, the Medicare Trustees, that reported a lower figure. That small difference in itself made his claim incorrect. Other measures of Medicare spending made it even more incorrect.
His income figure, based on an approach he never fully described, is guaranteed to undercount the actual income of the top 1 percent.
There is a sliver of accuracy in his calculation, but the weight of the numbers goes against him.
We rate this claim Mostly False.
Fox News, Cavuto Coast to Coast, Nov. 12, 2015
Centers for Medicare and Medicaid Services, 2014 Annual Report of the Board of Trustees
Centers for Medicare and Medicaid Services, 2015 Annual Report of the Board of Trustees
Centers for Medicare and Medicaid Services, National Health Expenditure fact sheet - 2013, Aug. 28, 2015
Kaiser Family Foundation, The Facts on Medicare Spending and Financing, July 24, 2015
Kaiser Family Foundation, The Facts on Medicare Spending and Financing, July 28, 2014
Congressional Budget Office, April 2014 Medicare Baseline, April 14, 2014
Congressional Budget Office, March 2015 Medicare Baseline, March 9, 2015
Internal Revenue Service, Individual Income Tax Shares, 2012, Spring 2015
Internal Revenue Service, Individual Income Tax Rates and Shares, 2011, Spring 2014
Internal Revenue Service, Individual Statistical Tables by Size of Adjusted Gross Income
Tax Policy Center, Baseline distribution of cash income 2013, Jan. 17, 2013
Tax Policy Center, Baseline distribution of cash income - 2012, Jan. 17, 2013
Tax Policy Center, Baseline distribution of cash income - 2011, Sept. 13, 2012
Interview, Caley Cronin, spokeswoman, Fox Business Network, Nov. 18, 2015
Email interview, Juliette Cubanski, health care analyst, Kaiser Family Foundation, Nov. 18, 2015
Email interview, William Gale, fellow, Tax Policy Center, Nov. 17, 2015
Email interview, Roberton Williams, fellow, Tax Policy Center, Nov. 18, 2015
Email interview, Daniel Feenberg, economist, National Bureau of Economic Research, Nov. 17, 2015
Interview, Marshall Steinbaum, research economist, Washington Center for Equitable Growth, Nov. 17, 2015
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