TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Monday, November 19, 2012 The Tax Cliff and the IRS's Enforcement of ObamaCare

FactCheck LogoFacts Falling Off the Fiscal Cliff:

In press conferences on the so-called fiscal cliff, House Speaker John Boehner greatly exaggerated the negative effect on the economy of raising taxes on upper-income individuals.

  • Boehner erred when he said that “the problem with raising tax rates on the wealthiest Americans is that more than half of them are small-business owners.” That’s incorrect. Boehner’s spokesman said the speaker simply misspoke, but Boehner is a repeat offender with this bogus claim.
  • Boehner repeatedly cited an Ernst & Young analysis to claim that raising taxes on upper-income earners would “destroy nearly 700,000 jobs in our country.” But that analysis assumes revenue from the taxes would be used “to finance a higher level of government spending,” even though Obama would use the added revenue to reduce the deficit. The analysis also takes an extremely long view: Only “two-third to three-quarters of the long-run effect” is expected to occur within a decade.
  • Boehner said raising taxes on those making over $250,000 “would slow our economy.” But according to a recently released report by the nonpartisan Congressional Budget Office, the effect on the economy would be “relatively small.”

The “fiscal cliff” is shorthand for a $560 billion mix of tax hikes and deep spending cuts that are scheduled to kick in at the end of 2012. The Congressional Budget Office warned that absent intervention by federal legislators, the confluence of tax hikes and spending cuts “will lead to economic conditions in 2013 that will probably be considered a recession.” President Barack Obama and congressional Democrats have advocated that the George W. Bush tax cuts be allowed to expire for those making over $250,000. In a press conference on Nov. 9, Boehner said he believes a tax hike on the wealthy would harm an already fragile economy.

Boehner has got a point — some small-business owners will see taxes go up, and the CBO projects some restraint on economic growth as a result. But he and other Republicans exaggerate this greatly, even to the point of making statements that are downright false sometimes.

ObomaCare Form_Page_1Group’s ‘Obamacare Tax Form’ Evades Facts:

A conservative group misleads taxpayers on the Affordable Care Act and the IRS’s future role in enforcing it. Americans for Tax Reform posted a “projected” IRS tax form on its website that claims to “help families and tax specialists prepare” for new tax provisions under the health care law. But ATR makes several false claims:

  • The group claims taxpayers will have to disclose “personal identifying health information” to the IRS to prove they have insurance. It quotes an IRS official who said taxpayers will report their “insurance information.” But the official also said the agency will not collect “any personal health information.”
  • ATR says employers must offer preventative coverage that includes “abortion and hair loss treatment.” That’s not true. The law requires smaller insurance plans to cover preventative services, but states decide if those services include abortion. Even then, each state must have at least one plan that does not cover abortion.
  • The group says failing to comply with the law could result in “interest against your property.” The law specifically bans the IRS from filing liens and levies against persons who fail to pay the tax for lacking insurance.
  • ATR claims taxpayers can apply for a waiver from the health care law. That’s false. The government has given temporary waivers to some companies — not taxpayers — regarding one provision of the law, which involves benefit caps.

ATR says it created the tax form — just days before the presidential election — as a ”service to the public.” Our public service is to correct the record.

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The difference in expected outcomes is based on differenct premises. Boehner believes that the added gov't revenue will just fund more gov't spending. believes the Obama premise that it will be used to reduce the deficit (but it doesn't "fact check" that assumption). Regardless of your political persuasion, which expection is more realistic: the gov't is going to spend more money or less money the next four years?

Posted by: TexEcon | Nov 19, 2012 9:20:52 AM

Please tell me about those magic years when government raised taxes and used that money to reduce the deficit.

Norquist Is Right: Tax Increases Will Lead to More Spending, Not Lower Deficits

Ronald Reagan is reported to have said that the 1982 tax increase was the “biggest mistake” of his presidency. And since Congress never followed through on commitments to reduce spending by $3 for every $1 of higher taxes, he wryly remarked that, “I’m still waiting on those three dollars of spending cuts I was promised from Congress.”

Posted by: Woody | Nov 19, 2012 12:50:08 PM

Actually, President Clinton raise taxes in 1993 and, after a few years time, was able to run a budget surplus for four consecutive years. A budget surplus reduces the outstanding federal debt. In 2001,. Alan Greenspan was worried that the government was so likely to pay down the debt that there would be a shortage of Treasury bills and notes in the market. This was one of the excuses he gave for supporting the Bush tax cuts. We know how that worked out, deficit-wise.

Posted by: Mitchell S. Fishman | Nov 20, 2012 11:55:06 AM

Clinton makes claims and wags his finger in your face, but the reality is a little more complex.

The Myth of the Clinton Surplus

"Over the past 25 years, the government has gotten used to the fact that Social Security is providing free money to make the rest of the deficit look smaller," said Andrew Biggs, a resident scholar at the American Enterprise Institute.

Truth-O-Meter: Bill Clinton says his administration paid down the debt

In each fiscal year from 1993 to 2001, the gross federal debt increased, because the increase in money in government trust funds exceeded the annual decreases in the federal budget deficit.

Further, Clinton more than spent the tax rate increase. The other growth in revenue was due to a temporary bubble.

Posted by: Woody | Nov 20, 2012 6:31:33 PM