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Friday, October 3, 2008

Tax Gaffes in Last Night's Biden-Palin VP Debate

FactCheck.org and the Tax Foundation's Tax Policy Blog detail the tax gaffes in last night's Vice-Presidential debate between Joe Biden and Sarah Palin.  From FactCheck.org:

  • Palin repeated a false claim that Obama once voted in favor of higher taxes on “families” making as little as $42,000 a year. He did not. The budget bill in question called for an increase only on singles making that amount, but a family of four would not have been affected unless they made at least $90,000 a year.
  • Biden wrongly claimed that McCain “voted the exact same way” as Obama on the budget bill that contained an increase on singles making as little as $42,000 a year. McCain voted against it. Biden was referring to an amendment that didn't address taxes at that income level.
  • Palin claimed McCain’s health care plan would be “budget neutral,” costing the government nothing. Independent budget experts estimate McCain's plan would cost tens of billions each year, though details are too fuzzy to allow for exact estimates.
  • Palin wrongly claimed that “millions of small businesses” would see tax increases under Obama’s tax proposals. At most, several hundred thousand business owners would see increases.

See the detailed discussion below the fold:

Palin's False Tax Claims

Palin repeated a false claim about Barack Obama's tax proposal:

Palin: Barack Obama even supported increasing taxes as late as last year for those families making only $42,000 a year. That's a lot of middle income average American families to increase taxes on them. I think that is the way to kill jobs and to continue to harm our economy.

Obama did not in fact vote to increase taxes on "families" making as little as $42,000 per year. What Obama actually voted for was a budget resolution that called for returning the 25 percent tax bracket to its pre-Bush tax cut level of 28 percent. That could have affected an individual with no children making as little as $42,000. But a couple would have had to earn $83,000 to be affected and a family of four at least $90,000. The resolution would not have raised taxes on its own, without additional legislation, and, as we've noted before, there is no such tax increase in Obama's tax plan. (The vote took place on March 14 of this year, not last year as Palin said.)

Palin also repeated the exaggeration that Obama voted 94 times to increase taxes. That number includes seven votes that would have lowered taxes for many, while raising them on corporations or affluent individuals; 23 votes that were against tax cuts; and 17 that came on just 7 different bills. She also claimed that Biden and Obama voted for "the largest tax increase in history." Palin is referring here to the Democrats' 2008 budget proposal, which would indeed have resulted in about $217 billion in higher taxes over two years. That's a significant increase. But measured as a percentage of the nation's economic output, or gross domestic product, the yardstick that most economists prefer, the 2008 budget proposal would have been the third-largest since 1968, and it's not even in the top 10 since 1940.

Biden's False Defense

Biden denied that Obama supported increasing taxes for families making $42,000 a year – but then falsely claimed that McCain had cast an identical vote.

Biden: Barack Obama did not vote to raise taxes. The vote she's referring to, John McCain voted the exact same way. It was a budget procedural vote. John McCain voted the same way. It did not raise taxes.

Biden was correct only to the extent that the resolution Obama supported would not by itself have increased taxes; it was a vote on a budget resolution that set revenue and spending targets. But he's wrong to say McCain voted the same way. The Obama campaign attempted to justify Biden's remark by pointing to a different vote, on a Senate amendment, that took place March 13. The amendment passed 99-1, with only Democratic Sen. Russ Feingold dissenting. It would have preserved some of Bush's tax cuts for lower-income people. The vote on the budget resolution in question, however, came in the wee hours of March 14 and was a mostly party-line tally, 51-44, with Obama in favor and McCain not voting.

Palin's Health Care Hooey

Palin claimed that McCain's health care plan would be "budget-neutral," costing the government nothing.

Palin: He's proposing a $5,000 tax credit for families so that they can get out there and they can purchase their own health care coverage. That's a smart thing to do. That's budget neutral. That doesn't cost the government anything ... a $5,000 health care credit through our income tax, that's budget neutral.

The McCain campaign hasn't released an estimate of how much the plan would cost, but independent experts contradict Palin's claim of a cost-free program.

The Urban-Brookings Tax Policy Center estimates that McCain's plan, which at its peak would cover 5 million of the uninsured, would increase the deficit by $1.3 trillion over 10 years. Obama's plan, which would cover 34 million of the uninsured, would cost $1.6 trillion over that time period.

The nonpartisan U.S. Budget Watch's fiscal voter guide estimates that McCain's tax credit would increase the deficit by somewhere between $288 billion to $364 billion by the year 2013, and that making employer health benefits taxable would bring in between $201 billion to $274 billion in revenue. That nets out to a shortfall of somewhere between $14 billion to $163 billion – for that year alone.

Palin also said that Obama’s plan would be "universal government run" health care and that health care would be "taken over by the feds." That's not the case at all. As we’ve said before, Obama’s plan would not replace or remove private insurance, or require people to enroll in a public plan. It would increase the offerings of publicly funded health care.

Palin's Small Business Balderdash

Palin repeated a falsehood that the McCain campaign has peddled, off and on, for some time:

Palin: But when you talk about Barack's plan to tax increase affecting only those making $250,000 a year or more, you're forgetting millions of small businesses that are going to fit into that category. So they're going to be the ones paying higher taxes thus resulting in fewer jobs being created and less productivity.

As we reported June 23, it's simply untrue that "millions" of small business owners will pay higher federal income taxes under Obama's proposal. According to an analysis by the independent Urban-Brookings Tax Policy Center, several hundred thousand small business owners, at most, would have incomes high enough to be affected by the higher rates on income, capital gains and dividends that Obama proposes. That counts as "small business owners" even those who merely have some sideline income from such endeavors as freelance writing, speaking or running rental properties, and who get the bulk of their income from employment elsewhere.

For other tax commentary on the debate, see:

http://taxprof.typepad.com/taxprof_blog/2008/10/tax-gaffes-in-l.html

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Comments

Tax Prof,

Isn't the claim of "not one penny" in tax increases for anyone making less than $250,000 repeated last night by Joe Biden something less than true? That is, at least, what the Tax Policy Center says. Yet I've seen no media watchdog/lapdog curiosity about this claim which sits at the center of the Obama campaign's policy proposals.

Posted by: Andrew | Oct 3, 2008 10:05:50 AM

"which at its peak would cover 5 million of the uninsured, would increase the deficit by $1.3 trillion over 10 years. Obama's plan, which would cover 34 million of the uninsured, would cost $1.6 trillion over that time period."

That just doesn't pass the smell test. Although both numbers could be derived in good faith, they clearly are not using the same assumptions, and to compare them is highly misleading. An additional 31 million insured for $300 Billion? I'm just not buying that, sorry (unless there is some drastic cut in benefits under the Obama plan, then it is at least possible).

Posted by: Nobody | Oct 3, 2008 11:47:36 AM

What's the point of these "debates" if they're nothing but pandering and false info?

Posted by: Steve | Oct 3, 2008 12:02:53 PM

Palin claimed McCain’s health care plan would be “budget neutral,” costing the government nothing. Independent budget experts estimate McCain's plan would cost tens of billions each year, though details are too fuzzy to allow for exact estimates.

It does seem to me that to the degree that this is untrue, then Biden's claim about McCain's plan hurting workers would also be untrue.

Roughly speaking, the health care plan gives tax credits to the uninsured and self-employed, while taxing benefits over a certain amount for people, generally well-off, with particularly generous health plans. (It is of course possible that for some of those people, a response would be to shift money from now-taxed benefits to additional wages, an economic plus but irrelevant to the discussion of the effect on the Treasury.)

If Palin were correct, and the budget effects were neutral, then there would have to be a significant amount of additional tax from well-off workers to pay for the credits for those buying insurance individually instead of from company benefits. Biden's attack relied upon that, saying that the plan would cost workers with very good health plans currently. To the degree that the plan actually costs the Treasury money, that means that not a lot of workers have the sorts of plans that would make them pay more taxes, and the more irrelevant Biden's attack becomes.

Posted by: John Thacker | Oct 3, 2008 12:35:55 PM

Andrew is wrong. The Tax Policy Center report he cites does not back him up. There is simply no cite of a single tax increase proposed by Obama that would apply to folks under $250,000.

Andrew distorts a table from the Tax Policy Center. Their methodology distributes corporate tax changes to individual households based on their share of capital income (interest, dividends, capital gains, and rents). So anyone with any capital income, no matter how little, gets counted as being affected by Obama's tax plan, even though they are not personally liable for those taxes.

While you can debate where the incidence of corporate taxes lands (lower after-tax corporate profits may lead to lower CEO pay, lower hourly wages, or higher consumer prices) and how higher taxes on the wealthy affect middle income folks (taxes on yachts might reduce the number of jobs for shipbuilders, there is simply no basis for the claim that Obama would raise taxes on anyone earning less than $250,000.

If you disagree, cite the specific proposal - not an artifact of the Tax Policy's microsimulation.

Posted by: Joe | Oct 3, 2008 3:11:32 PM

That counts as "small business owners" even those who merely have some sideline income from such endeavors as freelance writing, speaking or running rental properties, and who get the bulk of their income from employment elsewhere.

That's true, but I think the larger point is valid... those that WOULD be affected are the ones "making $250,000 or more" and who are likely to actually employ other people.

Posted by: DaveS | Oct 3, 2008 3:11:52 PM

The Palin claim of "millions of small business owners getting affected" makes little sense.

She was insinuating that small business people take most of their corporate profits through means that would be taxed under income tax.

There are a lot of ways to do tax planning, but I haven't come across too many that advocate taking corporate profits as income rather than through dividends or other more exotic means.

Rather, the idea usually is to minimize income taxation through tax planning and get the monies through channels that are taxed a lot less.

Posted by: Taxer | Oct 3, 2008 8:25:35 PM

I appreciate you showing your bias by noting the 2 "Gaffes" of Palin while only mentioning one of Biden's 14!!! I love to see the bias exposed by people who espouse it. However,your "tu quoque" was duly noted by this reader and the humdreds of folks in my address book will appreciate hearing about that. FIAT LUX!

Posted by: Stan Villavaso | Oct 4, 2008 1:52:11 AM

Senator Biden was also incorrect on constitutional matters. He said Article I clearly described the Vice Presidency as an executive office, when in fact Article I pertains to the legislature and defines the Vice President as presiding over the Senate (except when acting as President). He also said the Vice President had no legislative role except in a tie in the Senate, but he overlooks the role of presiding over the Senate.

Posted by: Tom Zavist | Oct 4, 2008 7:02:56 AM

Ha! LOL at your statement: "The independent Urban-Brookings Tax Policy Center". I guess you'd have to cut out the "Brookings Tax" part of that statement to make it independent. Even the mainstreet media--even the media!---routinely describes Brookings Institute, from which the Urban-Brookings Institue was created, as "liberal".

Posted by: tbabka | Oct 4, 2008 8:06:30 AM

Leaving aside the "families" vs. "persons" issue, the direct quote from Palin says that Obama "supported" increasing taxes. This is "refuted" by saying he didn't "vote to increase taxes." So the only way to "support" something is to vote directly for it? You can't "support" something by voting for a budget resolution which calls for it? Assuming the answer to this is "no" -- i.e., support for a position can be manifested by actions other than direct votes for it -- then wouldn't Palin's claim been true had she said "singles" rather than families?

I might note that I find Obama's support for raising taxes on singles earning $42,000 to be a strike against him. The nitpicking here is a little too nitpicky.

Quis custodiet custodies ipsos?

Posted by: Tom O'Bedlam | Oct 4, 2008 11:10:52 AM

Your bias truly shows through, but thanks for straightening out some of the error/misstatements by the VP candidates, even if you couldn't do it in an unbiased fashion. I too think switching "family" for "single person" at the $42,000 in earnings mark isn't a stretch and I would have been personally affected. I think it is worse taxing the single person at that level. He/she has a far greater burden to provide for himself/herself, then a couple earning $83,000. But singles are easy pickings. They get skewered by our tax code. The only tax relief for middle class Americans is the tax deduction for mortgage interest and property taxes...and all other itemized deductions that come into play once you've passed the standard deduction. The majority of renters don't pass that standard deduction and lose out on many otherwise qualified itemized deductions. I would venture to guess that far more couples benefit from this then single people. Couples in this day and age are typically both working, thus more likely to be able to use their combined earnings to purchase a home and benefit from the tax break. How ever you look at it, it is a regressive tax against those who can not afford to buy a home and just one more reason to burn our tax code and put people like you to work in real jobs that bring real benefits to our country.

Posted by: Douglas | Oct 5, 2008 7:35:59 PM