Yesterday Barack Obama made a speech outlining his deficit reduction plan–focusing attention on a variety of spending cuts and tax increases. The Associated Press, as is their habit, issued a "factcheck" piece by Stephen Ohlemacher that managed to bungle the issues involved, making it sound as if Obama was wrong about the taxes that wealthy people pay.
Here's how it started:
President Barack Obama makes it sound as if there are millionaires all over America paying taxes at lower rates than their secretaries.
"Middle-class families shouldn't pay higher taxes than millionaires and billionaires," Obama said Monday. "That's pretty straightforward. It's hard to argue against that."
The data tell a different story. On average, the wealthiest people in America pay a lot more taxes than the middle class or the poor, according to private and government data. They pay at a higher rate, and as a group, they contribute a much larger share of the overall taxes collected by the federal government.
If that's what you get from "the data," AP doesn't do a good job of showing it. The piece points out early on that about 1,400 millionaires paid no income tax at all–that's a small number of tax avoiders, they explain, though clearly this would be part of what Obama is talking about.
But then they zero in on what seems to be their best case:
This year, households making more than $1 million will pay an average of 29.1 percent of their income in federal taxes, including income taxes and payroll taxes, according to the Tax Policy Center, a Washington think tank.
Households making between $50,000 and $75,000 will pay 15 percent of their income in federal taxes.
Well, that sounds like a slam dunk, right? The rich pay twice as much as middle class earners. Or maybe not:
Obama's claim hinges on the fact that, for high-income families and individuals, investment income is often taxed at a lower rate than wages. The top tax rate for dividends and capital gains is 15 percent. The top marginal tax rate for wages is 35 percent, though that is reserved for taxable income above $379,150.
So what if much of a really wealthy person's income is investment income? AP doesn't get into that; it moves on to discussing the fact that a lot of poor people pay no income tax.
It's useful to recall that Warren Buffett–supposedly the inspiration for this plan–was saying that he made $46 million but only paid 17 percent in taxes. His secretary, he said, paid more–relative to what she earned. Is Buffett the only one who's figured out how to do this? One recent report from the Citizens for Tax Justice showed:
The IRS report shows that in 2008 (the latest year for which data are available), the 400 richest income tax filers paid just 18.1 percent of their adjusted gross income (AGI) in federal income taxes.
That is down from 22.3 percent in 2000.
And this post from the Tax Policy Center tries to explain further:
The lower taxes on investment income mean that many high-income taxpayers face a lower ETR [effective tax rate] than middle- and upper-middle-income people who get almost all of their income from working. People in the top 0.1 percent–those with income over $2.18 million in 2011–who get more than two-thirds of their income from gains and dividends face an ETR of just 12 percent, compared with 16 percent for people in the fourth quintile who get less than 10 percent of their income from investments.
It's worth recalling that Obama's actual point was this:
They should have to defend that unfairness–explain why somebody who's making $50 million a year in the financial markets should be paying 15 percent on their taxes, when a teacher making $50,000 a year is paying more than that–paying a higher rate.
It is difficult to see what is wrong with that statement. The Associated Press took a seemingly uncontroversial point and, by magic of its "factchecking" machine, turned into an inaccuracy.