Fact-Checking the President
How many times have you heard Barack Obama say that Mitt Romney wants to cut taxes for the rich? He says it in stump speeches. He says it in TV ads. He said it in his acceptance speech the other night at the Democratic convention.
But then he said something else. President Obama said that we must get our fiscal house in order; that he was willing to work with Republicans to get that done; and that the road map for starting the process is the Simpson/Bowles commission report.
Whoa. What is Simpson/Bowles? For those who haven’t been paying attention, Alan Simpson and Erskine Bowles were the two co-chairs of President Obama’s debt commission — a bipartisan effort to deal with the long-term deficit. Among other things they called for fundamental tax reform, with a top marginal tax rate of 28%.
So what rate is Mitt Romney proposing for the highest income earners? Answer: 28%. (See the comparison here.)
No, that isn’t a misprint. Apparently, if Mitt Romney recommends a maximum 28% tax bracket, that’s a giveaway to the rich. But if President Obama’s own deficit commission recommends the exact same tax rate, that’s sensible tax reform!
It gets better. Simpson and Bowles say that if we’re willing to get rid of all the deductions and loopholes in the tax code, we can get the top rate down to 23% — lower than what even Romney is proposing! (Most wealthy people I know would take that deal in a heartbeat.)
The only thing comparable to the president’s statement about taxes was Joe Biden’s tirade about Mitt Romney’s endorsement of territorial taxation (U.S. companies should only pay taxes in the countries in which they earn their incomes). According to the vice president, this heartless proposal would result in hundreds of thousands of jobs being shipped overseas.
But where have we heard this idea before? It is the very same proposal made by President Obama’s own Job Creation Council — the one that he apparently is too busy to meet with!
How do these guys manage to look into the camera and say these things with a straight face? I suppose it’s possible they are just reading from a teleprompter and don’t really understand what they are talking about.
Back to personal income taxes for a moment. What Mitt Romney is proposing is something similar to what Democrats and Republicans in Congress did in 1986. They pulled off genuine tax reform. By getting rid of loopholes, they broadened the base and were able to bring the top rate down to…you guessed it, 28%!
Specifically, Romney wants to reduce the current tax rates by 20%. So the 35% rate would become 28%; the 25% rate would become 20%; and the 10% rate would become 8%. Further, these changes would be revenue neutral. They are accomplished by eliminating deductions, credits and loopholes. As a result, the highest income earners are expected to pay higher total taxes at the lower tax rates than they pay today.
Now to a certain group on the left, any lowering of the rates is a tax cut for the rich. This is what Paul Krugman would have you believe. I’ve seen Jeffrey Sachs say much the same thing on “Morning Joe.” (Unfortunately for economic literacy, the public is led to believe that these opinions are “economics” rather than the populist gibberish that they really are.)
To muddy the waters a bit, the Tax Policy Center (Brookings/Urban Institute) claimed that to make the numbers add up Romney would have to actually raise taxes on the middle class to reduce the rate for the high income earners. This claim immediately appeared in Obama TV commercials in battle ground states (was the Tax Policy Center really surprised by that?) and into Democratic campaign speeches everywhere.
But it turns out that this was all a tempest in a teapot. As Marty Feldstein explained, there are lots of ways to pull off tax reform without shifting the tax burden to the middle class. I’ll give Harvey Rosen at Princeton the last word on this:
I analyze the Romney proposal taking into account the additional income that might be generated by economic growth. The main conclusion is that under plausible assumptions, a proposal along the lines suggested by Governor Romney can both be revenue neutral and keep the net tax burden on high-income individuals about the same. That is, an increase in the tax burden on lower and middle income individuals is not required in order to make the overall plan revenue neutral.
To wrap up, let’s go back to the president. During the campaign of 2008, Barack Obama was the only serious Democratic primary candidate who said we must reform our entitlement programs, much to the chagrin of Krugman and others on the left. After he was elected, Obama pushed ahead and appointed the members of the deficit commission, even when the Republicans on Capitol Hill said they didn’t want it. He promised Simpson and Bowles he would back their recommendations, regardless of the political consequences. All this made me very hopeful.
But when Simpson and Bowles released their final report, the president said nothing. He ignored them in the State of the Union address and in his next budget. And just to make sure that everyone knew he had no intention of any attempt at bipartisan entitlement reform, he coaxed Paul Ryan to a public meeting where he called Ryan’s reform ideas “un-American” on national TV. All this left me very disappointed.
Now that the president faces a serious possibility of defeat in the fall election, we are once again hearing about Simpson and Bowles and his willingness to work with the other party.
What’s that phrase? Fool me once…
You mean Obama has trouble with facts?
Ken: big time.
There was a lovely blog on here about Romney’s territorial tax plan a few weeks ago. The precedent for trickle down is impressive, S&B have great ideas, and misleading voters makes me ill.
Unfortunately, John, readers of your blog already know that President Obama’s positions have the consistency, logic and structure of a soup sandwich. But the election will be decided by the uninformed middle, who do not look deeply into issues or read extensively to educate themselves. And as long as the media carry water for Obama and ignores this type of thing, he has the edge. Personally, I think that we are facing fiscal and economic collapse, followed by political and social collapse. If Romney is elected, our situation will be desperate. If Obama is reelected, I think it will be hopeless. I will link to this from my Old Jarhead blog. (www.tartanmarine.blogspot.com)
Robert A. Hall
Massachusetts Senate, 1973-83
Author: The Coming Collapse of the American Republic
All royalties go to help wounded veterans
For a free PDF of my 80-page book, write tartanmarine(at)gmail.com
I realize there are different schools of thought on taxes — and that many Progressives truly believe the government can actually tax its way to social justice without negatively impacting job creation by those expected to pay exorbitant taxes. However, I’ve also come to the conclusion that, in many instances, those calling for high taxes actually do understand that high taxes affect a detremental change in behavior by those being taxed. But rhetoric has tied the hands of politicians who advocate for higher taxes.
Back in the 1970s, tax rates where sky high — but loopholes were numerous. My late father — a farmer — would go through all sorts of inefficient strategies to legally lower his tax burden. He would hold on to land he couldn’t use because selling would result in a tax. He would refuse to sell stocks that were unproductive because of capital gains taxes. He would store grain for years (suffering deterioration and spoilage) in an attempt to hold down his tax burden once he sold it. He would buy equipment he really didn’t need because it was cheap when you consider the taxes saved. Many people in his circumstances looked for tax-reducing schemes that were unproductive. Many of my father’s neighbors bought private airplanes as a business deduction. Some of these farmers really needed an airplane. Other bought them because the taxes saved made the price affordable. Many of these unproductive assets would never have been bought if tax rates were low.
Excellent, concise explanation, John. It needs to be spread far and wide.
I agree with Greg. There is little awareness among the electorate about the Simpson-Bowles plan and the President’s on-again, off-again relationship with it.
The chart says Romney’s economic plan will balance the budget by 2020.
The chart says Obama’s economic plan will balance the budget by…. never….
I think it’s fairley obvious who is serious (more serious?) about our debt.
Fool me once, shame on you;
Fool me twice, shame on me;
Fool me three time, shame on the both of us.
Good post. Even those of us with average math skills should be able to connect the dots on this tax business. Simple is always better. Having a complicated tax code burdens the system (taxpayers) with the ancillary costs of CPAs and attorneys (not to mention thousands of extra IRS employees).
I hope Romney has some data in this regard ready for the debates. While he is at it he might want to visit with John Goodman and other healthcare financing gurus to form an intelligent response to questions he is being asked about healthcare. So far he is sounding more like Joe Biden trying to explain the theory of relativity when asked questions about his healthcare plans.
There is a price to pay for dumbing down the electorate. The price may be “and to the Republic…”.
Very informative! They need to do more fact checks like this to every statement our President makes.
its all propaganda. That’s how dictators get power from the masses. Confusion and believe what you are told. The power remains with the dictator in power, and whatelse is new. Most people can’t interpret this. The masses are easily deceived.
When I was age 18-30, I would believe what I was told by “respected politicians.”
John, you nailed it.
To be absolutely sure I looked up their proposal again. In their graph they use 28%, but in the text they said 29% and then added “Additional tax expenditures could be added to the provisions above, but must be paid for with higher rates.”
“• 2.1.1 Cut rates across the board, and reduce the top rate to between 23 and 29 percent. Real tax reform must dedicate a portion of the savings from cutting tax expenditures to lowering individual rates. The top rate must not exceed 29%.”
If I remember correctly Ryan had some objections so as the VP candidate his objections suddenly become quite important. Did he object to ANY tax provisions?
28% top rate with no deductions would result in a tax increase since currently, effective top tax rate is about 21%- including payroll taxes! What is really deceitful though is Obama’s reference to “millionaires and billionaires who didn’t ask for nor need a tax cut” when his tax would apply to those with incomes of $250,000. These “quarter millionaires” are taxed the same rates as the richest 400 people in the country!
Obama the tax-cutting politician is going to have a hard time running against Obama the against-tax-cuts politician.
Much of the general population, even if inclined to follow the flow of information, does not have sufficient time to do so. I believe the Christian Science Monitor has done a fantastic deal of boiling down the key issues, as shown here on taxes:
http://www.csmonitor.com/USA/DC-Decoder/2012/0904/Obama-vs.-Romney-101-5-ways-they-differ-on-taxes/Bush-era-tax-cuts
Figures lie but liars figure. You figure it out…
Obama did not pick up and endorse the Simpson-Bowles Commission’s report because there was not a bi-partisan consensus (thanks in part to Ryan). I suspect it was thought that with out consensus it would become the democratic position and then be drawn right in negotiations.
However the Simpson-Bowles report is still relevant! The TPC did show that Romney’s plan is unworkable, and Feldstein did show that a different tax reform could work. If we take both into account, why not Simpson-Bowles?
Tax Policy Center is another liberal policy think tank that tries to conceal its ideology.
“The TPC did show that Romney’s plan is unworkable”
August, you may want to stop right here before we rationalize further. I’m not sure the TPC is the defining opinion on this. If we ware seeking facts for solutions we should avoid confusing slants as facts.
The problem with Feldstein’s redue cut in tax loophols that he stated in Mankiws’s blog is that when you start messing with the States tax free bonds loophole by eliminating the people who make over $100k you make it impossible for States to raise money at an advantaged interest rate. Our States are going bankrupt, to make it much harder and more expensive for them to raise money would be the kiss of death for a State like Calif.( yes that might be good long term but this would have to be introduced over time). But more importantly this would also be true for charitable deductions and they are very important to helping the truely disadvantage. So where I agree with the kind of tax reform that is being advocated by Romney, the wholsale eliminations of tax deductions, for all those making over $100k is going to be a problem that needs to be thought through and politically very difficult given all the special interest that feel entitled to their special loopholes. What is needed is a dramatic reduction in the size of Gov. Period!! Ex. in 1976, 36 years ago, our Gov. debt came to a percapita expenditure on each citizen of approx. $2,400. The population has grown by 43% since then and the percapita expenditure, as of 2010, is approx. $46,500 per citizen. That is an 1,837.5 times increase in the size of our Government debt?? Unfortunatly both parties are to blam for this explosion in the size of our Gov. The question we should be asking is how did it get so bad and why has it taken so long for all of us to recognize this??? Romney looks to have a plan? Obama’s plan is to tax the successful so he can spend even more and entitle even more people to his idea of Big Government……so very scary!!
“Give me Liberty, or Give me Death!” – Patrick Henry
What a brilliant ruling by the United States Supreme Court on the affordable health care act (Obamacare). Stunningly brilliant in my humble opinion. I could not have ask for a better ruling on a potentially catastrophic healthcare act than We The People Of The United States received from our Supreme Court.
If the court had upheld the constitutionality of the individual mandate under the commerce clause it would have meant the catastrophic loss of the most precious thing we own. Our individual liberty. Thank you! Thank you! Thank you! Supreme Court.
There is no mandate to buy private for-profit health insurance. There is only a nominal tax on income eligible individuals who don’t have health insurance. This is a HUGE! difference. And I suspect that tax may be subject to constitutional challenge as it ripens.
This is a critically important distinction. Because under the commerce clause individuals would have been compelled to support the most costly, dangerous, unethical, morally repugnant, and defective type of health insurance you can have. For-profit health insurance, and the for-profit proxies called private non-profits and co-ops.
Equally impressive in the courts ruling was the majorities willingness to throw out the whole law if the court could not find a way to sever the individual mandate under the commerce clause from the rest of the act. Bravo! Supreme Court.
Thanks to the Supreme Court we now have an opportunity to fix our healthcare crisis the right way. Without the obscene delusion that Washington can get away with forcing Americans to buy a costly, dangerous and highly defective private product (for-profit health insurance).
During the passage of ACA/Obamacare some politicians said that the ACA was better than nothing. But the truth was that until the Supreme Court fixed it the ACA/Obamacare was worse than nothing at all. It would have meant the catastrophic loss of your precious liberty for the false promise and illusion of healthcare security under the deadly and costly for-profit healthcare system that dominates American healthcare.
As everyone knows now. The fix for our healthcare crisis is a single payer system (Medicare for all) like the rest of the developed world has. Or a robust Public Option choice available to everyone on day one that can quickly lead to a single payer system.
Talk of privatizing/profiteering from Medicare or social security is highly corrupt and Crazy! talk. And you should cut the political throats of any politicians giving lip service to such an asinine idea. Medicare should be expanded, not privatized or eliminated.
We still have a healthcare crisis in America. With hundreds of thousands dieing needlessly every year in America. And a for-profit medical industrial complex that threatens the security and health of the entire world. The ACA/Obamacare will not fix that.
The for-profit medical industrial complex has already attacked the world with H1N1 killing thousands, and injuring millions. And more attacks are planned for profit, and to feed their greed.
To all of you who have fought so hard to do the kind and right thing for your fellow human beings at a time of our greatest needs I applaud you. Be proud of your-self.
God Bless You my fellow human beings. I’m proud to be one of you. You did good.
See you on the battle field.
Sincerely
jacksmith – WorkingClass 🙂
Amen Comrade Jacksmith, What possible good can come from the profit incentive? We have plenty of good hearted and benevolent bureaucrats that are ready and willing to take care of us, and I can’t imagine how there could ever be corruption and graft in 20% of the economy being controlled by thoughtful and honest politicians. We can all live blissfully knowing that we are in good hands. Of course we have to know how to grease the right pols and bureaucrats, but that’s no problem for those of us in the Politburo. Forward.
All of this gives me a pain. So much unthinking support for an unthinking government, willing to set policy through discussion and opinion polls. I have a frequent day-dream. All candidates who plan to run for office above the local level are required to obtain an in depth grounding in economics, from taxing policy to the effects of a capitalist economy. An Academy, like those Socrates led in ancient times. All we have now are these manipulative speeches with uncritical press participation.
The most successful countries have been market-driven. The least successful have been socialist. Yet there are still people who unthinkingly think that government can control and regulate an entire sector of society without severe negative consequences.
OUR legislators are not only ignorant about economics but know virtually nothing about the healthcare system and how it is already transforming itself through new science entrepreneurship and responses to population and disease changes in local, regional and state-wide markets. I wouldn’t give them policy authority over a chain of day care centers, much less major research centers with tremendous “knowledge assets.”
The gap between the knowledge base of the healthcare system itself and Congress is too large to reduce during the period a bill is being considered. Likewise, the realities of long and short-wave economic cycles are “mystery meat” to people arguing about which tax rate is appropriate. They also seem not to have made use of modern decision support software that permits simulation of effects of various clusters of decision elements.
Just a brief plea: quit using means of communication that do not reach the people who need to learn facts–they don’t read blogs! If you want the middle-class voter to understand something, use visuals, place them with the kinds of TV programs that the target audience watches, and repeat ad nauseum, preferably with some rap music, some sports celebrities, and some reality shows with good prizes for call-in answers.
Wanda J. Jones
President
New Century Healthcare Institute
San Francisco
John, I appreciate you sending this. I’ve forwarded it to a number of friends.
I’ve known Erskin Bowles for many years. He accepted the job with Alan Simpson on the condition that the President would implement their plan.
The first President to lie to Erskin was Bill Clinton, the second term he served as White House Chief of Staff. So now he’s had two Democrat Presidents screw him! You may remember it was Elisabeth Dole who defeated Erskin in his run for Senate.
Dan
Wanda:
Very good responce. I especially like the idea like an Acadamy that all candidates have to go to and I would add that their passing grade should be published. It is embarassing watching these people on C Span.
Jacksmith:
This is the second time I have seen you post this garbage…. get some new ideas!! But 1st get some economic education. As it is said life is tough but much tougher for uneducated people.
@John,I hope you only assumed the initial top rate was 28% with Simpson,Bowles because as you mentioned if all loopholes ,deductions were closed the rate wouldn’t be 23% as you stated more like 35% or more,the wealthy have much more in deductions legally than your middleclass tax payer because of investments,etc.That’s why thieves like Romney take months to rig their tax work,middleclass doesn’t have that luxury because they don’t have the extra money laying around to invest,theirs are for paying bills,etc…