FactCheck.org http://www.factcheck.org A Project of the Annenberg Public Policy Center Tue, 31 Mar 2015 16:26:11 +0000 en-US hourly 1 http://wordpress.org/?v=3.8.1 Thune’s Estate Tax Distortions http://www.factcheck.org/2015/03/thunes-estate-tax-distortions/ Tue, 31 Mar 2015 16:26:11 +0000 http://www.factcheck.org/?p=93951 In making his pitch to repeal the estate tax, Sen. John Thune grossly inflated an out-of-date statistic about the percentage of businesses forced to liquidate because of the tax.

Thune claimed that the nonpartisan Congressional Budget Office “said a third of businesses who owe the death tax owe more in taxes than what their assets are worth.” But Thune botched the statistic, leaving out several crucial qualifiers. In fact, the same CBO report that Thune cited concluded the “vast majority of estates, including those of farmers and small-business owners, had enough liquid assets to pay the estate taxes they owed.”

Thune went on to claim that “about a third of the farms in South Dakota” are “liable to pay the [estate] tax,” and that as a result, the tax is discouraging people from passing along the “family farm or business on to the next generation.” However, due to various exemptions in the law, only a tiny fraction of farms in South Dakota, or any other state, actually paid the estate tax in 2013.

Thune cited the statistics during a Fox Business News interview on March 25 in support of his efforts to permanently repeal the federal estate tax. The following day, Thune’s amendment passed the Senate in a 54-46 vote that fell almost entirely along partisan lines.

Effect on Small Business

Currently, the estate tax rate can be as high as 40 percent, though, in 2015, the first $5.4 million of the estate’s value (nearly $11 million for a couple) is exempted. As a result, roughly 3,700 estates, about 0.12 percent of the total, had to pay any estate taxes last year. The estate tax is a tax on the transfer of an estate through a will or other means after a person dies.

Thune argued the tax, which he calls a “death tax,” hits businesses and farmers particularly hard.

Thune, March 26: The Congressional Budget Office in 2009 said that a third of businesses who owe the death tax owe more in taxes than what their assets are worth. So, what typically happens is they have to liquidate the business in order to pay IRS.

In fact, as Thune’s office later confirmed, the South Dakota Republican was actually referring to a decade-old CBO report on the effects of the federal estate tax on farms and small businesses. Here’s the key sentence on which Thune’s claim was based.

CBO, 2005: As a consequence, one-third of estates claiming the QFOBI deduction and owing [estate] taxes in 2000 could not pay the estate tax out of their reported liquid assets.

What is QFOBI? It stands for “qualified family-owned business interest.” To qualify, half of your estate has to be in the family owned business. (See Box 2.) That excludes all estates where less than half of assets are in the family owned business. In other words, it’s a subset of all businesses. Thune left out that important qualifier. He also left out that the CBO was referring to “liquid” assets — in other words, specifically excluding the value of the land and equipment — leaving the mistaken impression that the estate tax bill came to more than the value of the estate in total.

In the very line preceding the one cited by Thune, the CBO report does speak more generally to the universe of small businesses and farms. And, the report states, among small-business owners, the “vast majority … had enough liquid assets to pay the estate taxes they owed.”

CBO, 2005: The vast majority of estates, including those of farmers and small-business owners, had enough liquid assets to pay the estate taxes they owed. However, estates involving farms or small businesses were less likely than the average estate to have sufficient liquid assets to cover their estate taxes. In 2000, about 8 percent (or 138) of the estates of farmers who left enough assets to owe estate taxes faced a tax payment that exceeded their liquid assets, compared with about 5 percent of all estates that owed taxes.

Thune is also citing an outdated statistic. The report referred to 2000, when the estate tax exemption was $675,000. It’s now $5.4 million. But even with the lower exemption, the CBO found that there were just 138 farms in the whole U.S. that might not have enough liquid assets to cover the amount they owed in estate taxes. The report also ran calculations with a few hypothetical figures, including if the exemption were $3.5 million. (In inflation-adjusted dollars, that comes to about $4.8 million in 2015, so it’s much closer to the actual estate tax exemption today.) Assuming that higher $3.5 million exemption, the report estimated there were 13 estates of farmers that would have insufficient liquid assets to pay the estate tax liability. The value of farmland has outpaced inflation since 2000, so presumably that number could be higher now. But we’re still talking about a very small number of farms.

The Effect on Farms

Thune went on to claim that “about a third of the farms in South Dakota are actually over the exemption amount, so they would be liable to pay the tax.” As a result, he argued, the estate tax is discouraging people from passing along the “family farm or business  on to the next generation.”

Thune’s office says the statistic came from a calculation by the American Farm Bureau Federation — which supports repeal of the estate tax — based on U.S. Department of Agriculture reports about farm and cropland values. According to AFBF, because of the rapid appreciation of farmland –  particularly cropland due to strong commodity prices –  a growing percentage of South Dakota farms are exceeding the estate tax exemption level. In 2013, the AFBF states, 12 percent of farm real estate and 32 percent of cropland exceeded the exemption level of $5 million. So Thune used the 32 percent figure for cropland, even though he said simply “farms,” which is 12 percent.

Moreover, even if the value of a third of the farms in South Dakota did exceed the exemption limit of $5.4 million, it’s quite another thing to be legally liable to actually pay the tax. According to IRS data, only 660 estates that listed any farm assets had to pay the estate tax in 2013 (and 100 of them had assets of $20 million or more). That’s nationwide.

According to a Congressional Research Service report in 2013, less than 1 percent of farm operator estates is projected to pay any estate tax.

And that’s because there are exemptions for farmers and small businesses written into the estate tax code that allow most farmers — with a bit of estate planning — to avoid the estate tax altogether. For example, if the heirs agree to farm the land for another 10 years, they can get up to a $1 million exemption by valuing land at its farm use value rather than development value. An additional $500,000 exemption is possible if one agrees to a perpetual conservation easement restricting the use of the land. It is also possible to reduce the value of an estate by giving portions of the estate to heirs as a gift over a number of years. For a full description of exemptions available to farmers, see this Congressional Research Service report, starting on page 2.

The law also includes a provision that allows those who inherit a farm, and are having trouble paying the estate tax, to spread those payments over 14 years at a low interest rate.

We reached out to Neil Harl, an Iowa State University professor of economics and agriculture,who has been studying the estate tax’s impact on small business and farms for decades. He said it is “absolutely untrue that [the estate tax] is a significant problem in the agricultural sector.”

“I have been involved in this area since 1958 and I have never seen land that had to be sold to pay the federal estate tax and I have conducted more than 3,400 seminars in 43 states which included federal estate tax planning,” Harl wrote to us in an email. The italics are his.

Harl said the push to repeal the estate tax is “being funded by a small number of very wealthy families. … The problem, if there is one, is that very large investors want the tax repealed and try to spread the word that it is harming family farmers and ranchers. It is not.”

Roberton Williams, a senior fellow at the nonpartisan Tax Policy Center who spent 22 years at the Congressional Budget Office, agreed. Thune’s claim “just doesn’t jibe with common knowledge,” Williams said.

According to an analysis by the Tax Policy Center, only roughly 20 small business and small farm estates nationwide owed any estate tax in 2013. TPC defined a small business or small farm estate as one with more than half its value in a farm or business and with the farm or business assets valued at less than $5 million. Those 20 estates owed, on average, about 4.9 percent of the estate’s value in tax.

According to a Congressional Research Service report on Feb. 15, 2013: “About 65 farm estates (or approximately one per state) are projected to be subject to the estate tax, and constitute 1.8 percent of taxable estates. Less than a fourth (0.4 percent) [of all taxable estates] is projected to have inadequate liquidity to pay estate taxes. Less than 1 percent (0.8 percent) of farm operator estates is projected to pay the tax.”

As for small businesses, CRS said: “About 94 estates (about two per state) with half their assets in small business and who expect their heirs to continue in the business are projected to be subject to the estate tax; they constitute 2.5 percent of total estates. Less than a half (1.1 percent) [of total estates] is projected to have inadequate liquidity to pay estate taxes.”

– Robert Farley

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Cruz on the Global Cooling Myth and Galileo http://www.factcheck.org/2015/03/cruz-on-the-global-cooling-myth-and-galileo/ Fri, 27 Mar 2015 21:50:26 +0000 http://www.factcheck.org/?p=93876 Sen. Ted Cruz cited a 1975 Newsweek article on “global cooling” to question the evidence of global warming, and in the process made several incorrect and unsubstantiated claims.

  • The Newsweek story, which did warn of a “cooling world,” has been criticized and largely debunked — by its own author. Cruz’s claim that “advocates of global cooling suddenly shifted to global warming” ignores the fact that there was no scientific consensus in the 1970s about global cooling.
  • Cruz said that “satellite data demonstrate that there has been no significant warming whatsoever for 17 years.” This is misleading. Though the trend line in recent years has been relatively flat, Cruz cherry-picks a particularly warm year (1998) to deny the clear longer term warming trend. There have now been 360 consecutive months when the global temperature was above the 20th century average.
  • Cruz compared “global warming alarmists” to “flat-Earthers” and himself to Galileo, saying “this heretic named Galileo was branded a denier” for insisting the Earth was round. This is wrong. Galileo’s troubles with the church stemmed from his belief that the Earth orbits the Sun. The fact that the planet is round was accepted before Galileo was born.

In an interview with the Texas Tribune (at the 14:24 mark), Cruz, who recently announced his candidacy for president, told reporter Jay Root that the 1975 global cooling story in Newsweek is evidence that “alarmists” simply want the government to control the energy sector.

Cruz, March 24: I read this morning a Newsweek article from the 1970s talking about global cooling. And it said the science is clear, it is overwhelming, we are in a major cooling period and it’s going to cause enormous problems worldwide. … Now, the data proved to be not backing up that theory. So then all the advocates of global cooling suddenly shifted to global warming.

The article in question was a single-page story published on April 28, 1975, by journalist Peter Gwynne. It did indeed paint an ominous picture of a cooling world, with particular concern regarding reductions to crop yields with cooler temperatures. The article, however, was criticized decades later, in May 2014, by its author.

SciCHECKinsert“Here I must admit mea culpa,” Gwynne wrote last year for Inside Science. “In retrospect, I was over-enthusiastic in parts of my Newsweek article.” He specifically cited both the scare over food production declines “that had scant research to back it,” and a connection between cooling and increases in tornado frequency that also was unsupported by evidence.

His primary point was simply that science progresses as time passes; though there were some in 1975 who believed cooling temperatures were on the horizon, climate science has improved dramatically since then. ”Those that reject climate science ignore the fact that, like other fields, climatology has evolved since 1975,” Gwynne wrote. “The certainty that our atmosphere is indeed warming stems from a series of rigorous observations and theoretical concepts that fit into computer models and an overall framework outlining the nature of Earth’s climate.”

According to a 2010 study published in the Proceedings of the National Academy of Sciences, ”97-98% of the climate researchers most actively publishing in the field” support the primary findings of the Intergovernmental Panel on Climate Change: “that it is ‘very likely’ that anthropogenic [human-caused] greenhouse gases have been responsible for ‘most’ of the ‘unequivocal’ warming of the Earth’s average global temperature.”

In the 1970s, though, scientists had not yet determined the relative impacts of two factors on climate: greenhouse gases, such as carbon dioxide, and aerosols, such as those that are spewed out by volcanic eruptions and burning of forests. Some papers in the early part of the decade predicted that increasing aerosol emissions could lower temperatures enough to trigger an ice age, but these conclusions were disputed. By the late 1970s, research had established that the warming associated with greenhouse gases was dominant over the cooling effect of aerosols.

And in fact, reviews of research from that era have shown that even around the time of Newsweek’s 1975 article, a warming climate was of more concern than a cooling one. A study published in the Bulletin of the American Meteorological Society by climate scientists and a journalist in 2008 said there was no scientific consensus in the 1970s that the world was cooling.

Bulletin of the AMS, September 2008: An enduring popular myth suggests that in the 1970s the climate science community was predicting “global cooling” and an “imminent” ice age, an observation frequently used by those who would undermine what climate scientists say today about the prospect of global warming. A review of the literature suggests that, on the contrary, greenhouse warming even then dominated scientists’ thinking as being one of the most important forces shaping Earth’s climate on human time scales.

globalcoolinglitreview

Peterson et al, Bulletin of the AMS, 2008

The survey of the peer-reviewed literature between 1965 and 1979 found only seven papers “indicating” global cooling compared with 44 papers indicating warming (see chart).

The researchers pointed to a 1979 report from the National Research Council, part of the National Academies, that warned about the dangers of continuing to emit carbon dioxide by burning fossil fuels and associated warming. “A wait-and-see policy may mean waiting until it is too late,” the report noted. The Bulletin of the AMS paper concluded: “Clearly, if a national report in the 1970s advocates urgent action to address global warming, then the scientific consensus of the 1970s was not global cooling.”

The 17-Year Cherry-Pick

Cruz also said there has been “no significant warming” in the last 17 years, repeating a claim often made by those who dispute evidence of climate change:

Cruz, March 24: The satellite data demonstrate that there has been no significant warming whatsoever for 17 years.  Now that’s a real problem for the global warming alarmists because all of the computer models on which this whole issue is based predicted significant warming, and yet the satellite data show it ain’t happening.

Cruz cherry-picks data to arrive at a spurious conclusion.

Seventeen years ago was 1998, one of the hottest years since recording began. That year was unusually warm thanks in part to a very strong El Niño event, an ocean-atmospheric phenomenon marked by warm ocean surface temperatures in the Pacific. That year, the average global temperature was 0.62 degrees Celsius above the 20th century average, according to NASA (the agency that produces that “satellite data” Cruz mentioned). In 2014, considered by several research organizations including NOAA and NASA as the most likely candidate for warmest on record, the temperature was 0.68 degrees above average, suggesting very little warming between those two data points.

It would be just as easy, however, to pick out much cooler years as a starting point to show a sharp increase in temperatures. Starting one year earlier or later — at 1997 (0.46 degrees above the 20th century average) or 1999 (0.41 degrees) — would yield between one-fifth and one-quarter of a degree of warming. This would represent as much as 31 percent of all warming the world has seen since 1880, when record keeping began.

Choosing 1997 or 1999 as a starting point, however, would be just as misleading as choosing 1998.

Climate researchers look to longer term trends to determine warming, as there is too much natural variability within any given year. And that long-term trend is unequivocal (see NASA chart below): The world has now gone 30 consecutive years — 360 straight months — where every month has been above the 20th century average, according to the National Oceanic and Atmospheric Administration. Though it may be difficult for many who live in the northeastern U.S. to believe, this winter (December – February) was globally the warmest ever recorded. Nine of the 10 hottest years on record have occurred since 2000, with 1998 the only exception.

Cruz said “[i]f you look at global warming alarmists, they don’t like to look at the actual facts and the data.” The facts and data actually support the scientific consensus on global warming.

nasatrend

Global temperature trend, 1880-2014, NASA

Galileo and Flat-Earthers

Cruz also compared “global warming alarmists” to “flat-Earthers,” and mistakenly cited the Renaissance-era scientist Galileo in connection to that issue:

Cruz, March 24: On the global warming alarmists, anyone who actually points to the evidence that disproves their apocalyptical [sic] claims, they don’t engage in reasoned debate. What do they do? They scream, “You’re a denier.” They brand you a heretic. You know, it is, today the global warming alarmists are the equivalent of the flat-Earthers. You know, it used to be, it is accepted scientific wisdom the Earth is flat, and this heretic named Galileo was branded a denier.

Galileo’s struggle against the Catholic Church had nothing to do with debate over the shape of the planet. In fact, he was persecuted for supporting the idea of a Copernican system, which posited that the sun was the center of the universe and the Earth revolved around it. At the time of this struggle with the church, in the early 17th century, it had long been accepted that the planet is in fact round. Explorer Ferdinand Magellan’s crew completed the first circumnavigation of the globe in 1522 — 42 years before Galileo was born.

Whether he meant flat-Earthers or geocentrists, Cruz is wrong to compare those he casts as “global warming alarmists” to those who denied science. Galileo used the most modern of scientific technology and techniques, which he himself helped develop, assessed the available evidence, and came to conclusions about the world. Modern science, including climate science, is engaged in exactly that process today.

Editor’s Note: SciCheck is made possible by a grant from the Stanton Foundation.

– Dave Levitan

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Inhofe on Fracking, Water Contamination http://www.factcheck.org/2015/03/inhofe-on-fracking-water-contamination/ Fri, 27 Mar 2015 18:44:20 +0000 http://www.factcheck.org/?p=93749 Sen. James Inhofe says there has never been “an instance of ground water contamination” caused by hydraulic fracturing — fracking — for oil and natural gas. Inhofe’s office told us he is referring only to “the physical act of cracking rocks through hydraulic fracturing.” But drilling operations that involve fracking include other actions that have caused contamination.

A peer-reviewed study published in 2014 found that drinking water wells near fracking sites in Pennsylvania and Texas were contaminated with methane that had the chemical signature of gas normally found only deep underground.

Rob Jackson, a Stanford University professor of earth system science who coauthored the 2014 study, told us that drilling that uses hydraulic fracturing has “contaminated ground waters through chemical and wastewater spills, poor well integrity, and other pathways.”

The Fracking Boom

Fracking involves injection of a large volume of water, sand and a cocktail of chemicals (known as fracking fluid) deep underground to fracture the rock and allow gas to seep out. It is also used for oil extraction. (See EPA diagram at bottom.)

SciCHECKinsert

In common usage, the term “fracking” is sometimes used to describe the entire process of drilling for natural gas, but that isn’t accurate. After a well is drilled, cemented and prepared in other ways, only then is the well “fracked” — the actual stimulation of rock far beneath the earth’s surface to allow extraction of the gas.

Although hydraulic fracturing has been in use since the late 1940s, better technology and changing economics have led to a recent boom in natural gas extraction, in particular from shale formations. U.S. production of shale gas rose by almost 500 percent between 2007 and 2013, according to the Energy Information Administration.

With this boom, however, have come questions regarding water contamination related to drilling activity. This could occur through a number of mechanisms, including spills of gas or fracking fluid at the surface that could leach into groundwater, faulty cement casings inside wells allowing seepage of gas into the water table, and failed pieces of the well, such as steel and cement.

Partially in response to those concerns, the Department of the Interior finalized a regulation on March 20 regarding hydraulic fracturing and related activities on public and tribal land. The regulation includes a number of provisions related to fracking and other aspects of natural gas drilling activity.

For example, the rule includes “[p]rovisions for ensuring the protection of groundwater supplies by requiring a validation of well integrity and strong cement barriers between the wellbore and water zones through which the wellbore passes.” It has specific requirements for constructing cement casings for wells, and monitoring pressure on certain well parts during fracking operations. And it also requires disclosure of the chemical contents of fracking fluids.

Inhofe, a Republican from Oklahoma who chairs the Senate Environment and Public Works Committee, opposes the regulation. He, along with 26 cosponsors, introduced a bill that would specifically put the responsibility for regulating relevant oil and gas operations in the hands of the states rather than the federal government.

In a statement, Inhofe claimed fracking operations have never resulted in any contamination issues:

Inhofe, March 20: Since 1949, my state of Oklahoma has led the way on hydraulic fracturing regulations, and just like the rest of the nation, we have yet to see an instance of ground water contamination.

A spokeswoman for Inhofe, Donelle Harder, told us in an email that “the physical act of cracking rocks through hydraulic fracturing, thousands of feet below ground, has never caused groundwater contamination. What we are not saying is that a surface spill, faulty casing, bad drilling practices cannot be a problem. There is a difference between the hydraulic fracturing process and rest of the well drilling process.”

But scientists we interviewed say that it doesn’t make sense to separate fracking from the entire gas and oil production process, and there is ample evidence that the overall process can cause contamination of water supplies. As we noted above, the new DOI rules cover the entire process including fracking, well casings and other activities.

Well Failures and Water Contamination

Anthony Ingraffea, a Cornell civil and environmental engineering professor, told us in a phone interview that discussing contamination related to the frack per se isn’t useful. “The simpler question to ask is, ‘Is there any instance in which oil and gas development, writ large, has contaminated peoples’ drinking water?’ And the answer is, thousands. Thousands of cases.”

For example, Pennsylvania — which has been at the center of the recent rapid growth in natural gas extraction – maintains a list of hundreds of cases where a “private water supply was impacted by oil and gas activities.” The Pennsylvania Department of Environmental Protection list covers both conventional and unconventional drilling — unconventional gas development refers to drilling for gas in shale and other difficult-to-access geologic formations. But it does not address specifically how the contamination occurred.

Among the first studies specifically linking natural gas development and fracking to water quality was a paper published in the Proceedings of the National Academy of Sciences in 2014 that analyzed drinking well water near fracking operations in Texas and Pennsylvania.

In that study, which was coauthored by Jackson at Stanford, researchers identified the presence of methane — the primary component of natural gas — in drinking well water near unconventional drilling sites in the Marcellus Shale region in Pennsylvania and the Barnett Shale region in Texas. Using chemical signatures of certain gases, the researchers were able to determine in several cases that the methane was from deep underground — evidence that the drilling operations had caused the contamination.

The study found that faulty and leaky wells were likely to blame, and recommended studying “whether the large volumes of water and high pressures required for horizontal drilling and hydraulic fracturing influence well integrity.”

Ingraffea, of Cornell, said sending the water, sand and chemicals down the well puts an enormous amount of pressure on the casing, which could cause it to crack or separate from the steel surrounding it. Many wells are often fracked up to dozens of times, he added, and the repeated increase in pressure could cause failures as well. According to one 2014 paper published in Marine and Petroleum Geology, an estimated 6.3 percent of all Pennsylvania wells drilled between 2005 and 2013 suffered either a “well integrity failure” — meaning failures of barriers including casing, tubing and cement, and actual leakage of gas or fluids into surrounding soil and water — or a “well barrier failure” — meaning failure of one or more barriers with no information indicating actual leakage. The DOI points out that about 90 percent of all new wells are fracked.

Methane has been the primary culprit in proven cases of contamination, but other substances including heavy metals and chemicals related to fracking fluid have been found as well.

A paper published in Environmental Science and Technology in 2013 found higher levels of heavy metals such as selenium and arsenic in wells close to drilling activity in the Barnett Shale region compared with water that was farther from drilling. The researchers concluded that these contaminants could have arrived via a variety of mechanisms, including natural processes or failure of gas well components. Another study found fish kills and damage to other aquatic life following a surface spill of fracking fluid. The fracking process itself was not responsible, but in order to spill fracking fluid at the surface one must intend to frack a well.

Clearly, the DOI’s new regulation is designed to ensure water quality and safety as it relates to the entire process of extracting oil and natural gas, not just to the singular action of fracking. Inhofe is entitled to the opinion that such regulations should be left in the hands of the states, but he is wrong to say or imply that existing regulatory efforts have a perfect track record when it comes to preventing contamination of water supplies.

Editor’s Note: SciCheck is made possible by a grant from the Stanton Foundation.

– Dave Levitan

Hydraulic_Fracturing-Related_Activities

A diagram of a fracked natural gas well. Source: EPA

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FactChecking Ted Cruz, Part II http://www.factcheck.org/2015/03/factchecking-ted-cruz-part-ii/ Thu, 26 Mar 2015 18:29:40 +0000 http://www.factcheck.org/?p=93817 In announcing his presidential candidacy, Sen. Ted Cruz painted a bleak picture of “economic stagnation” and “record numbers” of small-business failures. He’s off base on both counts.

  • Far from being stagnant, the U.S. economy has chalked up five straight years of growth, gaining nearly 11.5 million jobs since early 2010.
  • It is actually new business establishment openings that have recently posted the biggest gains on record. The number of business establishment deaths is currently well below the record — which was set in late 2008 .

When Cruz announced his run for the Republican nomination March 23, we quickly noted a number of the Texas senator’s dubious claims in an item we called “FactChecking Cruz.” But wait, there’s more.

‘Economic Stagnation’

In his address at Liberty University, Cruz repeatedly asked his audience to “imagine” a better economic future. Better than what? Cruz used the classic “straw man” deception, pitting his own bright vision of the future against a sham version of the present.

Cruz said millions of young people are “scared” and “worried about the future.” Perhaps so. But then he said:

Cruz, March 23: Think just how different the world would be. Imagine instead of economic stagnation, booming economic growth.

“Economic stagnation” is commonly defined to mean a prolonged period of little or no growth, and the fact is that real (inflation-adjusted) U.S. gross domestic product grew 2.4 percent last year, which was also the best year for job growth in 15 years.

It was the fifth straight year of annual increases in GDP. Since job losses from the Great Recession of 2007-2009 finally turned around in February 2010, the U.S. has gained nearly 11.5 million jobs. Corporate profits have soared to new records, as have stock prices.

All that may or may not quite qualify as “booming” economic growth, but it’s incorrect to call it “stagnation.” The worst that Cruz could accurately say about recent economic growth is that it is somewhat below the historical average.

The average annual change in U.S. real GDP since World War II has been just under 3 percent, while the U.S. economy gained 2.2 percent in 2013, 2.3 percent in 2012, 1.6 percent in 2011 and 2.5 percent in 2010.

‘Record’ Small-Business Deaths

Cruz also got it wrong when he spoke of small businesses closing their doors in “record” numbers:

Cruz, March 23: Instead of small businesses going out of business in record numbers, imagine small businesses growing and prospering.

Actually, the number of business establishment deaths is down by 18 percent from the record of 238,000 — a peak that occurred in the last three months of 2008.

Business deaths

The number of establishments that had closed their doors for at least a full year was 195,000 in the three months ending in September 2013, according to the most recent quarterly figures on business births and deaths from the Bureau of Labor Statistics Business Employment Dynamics report.

As a check on the BLS numbers, we also looked at business bankruptcies, and they are nowhere near “record” levels.

Bankruptcy filings

Since the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 was signed into law — making it more difficult to file for bankruptcy — the highest annual number of  business filings for bankruptcy was just under 61,000 in the recession-plagued year of 2009, according to figures from the Administrative Office of U.S. Courts, as compiled by the American Bankruptcy Institute.

Last year the number of business bankruptcies was down by more than half — to 26,983.

These bankruptcy figures count filings by businesses of all sizes, but practically all of them are small. Less than one-third of 1 percent of all business firms have more than 500 employees, according to Census figures.

Bankruptcy isn’t the only reason a firm goes out of business, of course. Profitable firms can be sold, merged or just abandoned when aging owners decide its time to retire. But if closings were going up, we would expect bankruptcies to be going up also.

And while both business deaths and business bankruptcies are declining, births of new business establishments have recently hit new records.

Business Establishment Births

What is the record for business births? We’ll disregard the huge spike of 584,000 new establishments, which appeared in the first three months of 2013. That’s a statistical fluke that came about when BLS began counting health care workers who serve seniors in their homes as employees of an “establishment” rather than as household workers, resulting in a surge of previously uncounted “establishments.”

Ignoring that — the record is 229,000 establishment births, posted in the second quarter of 2013, and the next highest total was 224,000 establishment births during the third quarter of that year. In the most recent quarter on record — ending in June of last year — there were 220,000 establishment births, still one of the highest on record. BLS started this statistical series in 1992.

A technical note: All these figures exclude the self-employed. An establishment is counted as “born” when its first employee shows up as being covered by unemployment insurance.

Suffice to say, Cruz just got it wrong when he spoke of “small businesses going out of business in record numbers.” And we weren’t the only ones to notice. Our friends at Politifact.com rated that statement as “false” on the website’s truth-o-meter, relying on a different set of figures — from the Census Bureau.

The Cruz campaign has yet to respond to our repeated requests for some evidence supporting his claim. Politifact said it didn’t get a response from the campaign, either.

– Brooks Jackson

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Chicago School Fight http://www.factcheck.org/2015/03/chicago-school-fight/ Wed, 25 Mar 2015 15:13:47 +0000 http://www.factcheck.org/?p=93540 Chicago mayoral candidate Chuy Garcia claims in a new ad that Mayor Rahm Emanuel “took” money from closed public schools and “gave” it to “elite private schools.” Those “private schools,” in fact, are publicly funded charter schools — open to all students tuition-free.

Emanuel and Garcia will face off in an April 7 runoff for mayor of Chicago, after no candidate gained a majority of votes in the Feb. 24 election. Emanuel, who served as the first White House chief of staff to President Obama before resigning in 2010 to run for mayor, has made the expansion of charter schools a priority of his administration. By contrast, Garcia’s campaign website states that the candidate will place “a moratorium on further charter schools” if elected.

In an ad released on March 18, Garcia stands in front of a closed school and states that the mayor “took the money from these schools and gave it to elite private schools founded by his big campaign contributors.”

Garcia has a point about Emanuel’s campaign contributors – which we will get to later – but the schools he criticizes are not “elite private schools.” Although not explained in the TV ad, Garcia’s campaign makes clear in a press release that the candidate is talking about charter schools.

And charter schools, although run by private, nonprofit organizations, are public schools.

A charter school, as detailed in the Illinois School Code, “shall be a public, nonsectarian, nonreligious, non-home based, and non-profit school.” Chicago’s public school district, Chicago Public Schools, describes charter schools as “[p]ublic schools open to all Chicago children.” The first charter schools law passed in Illinois, in 1996, stated that “authorizing charter schools to operate in Illinois will promote new options within the public school system.” Furthermore, the Chicago Tribune writes that charter schools “are approved by the Board of Education but operate independently from the board and each other.”

So while Garcia’s reference to “elite private schools” conjures images of pricey, exclusive prep schools, he’s actually talking about publicly funded charter schools that are open to all students tuition-free. If a school receives more applicants than it has spaces, a “random lottery” is used to determine which students are accepted.

Garcia has every right to his opinion about Emanuel’s policy of seeking to expand the number of charter schools in the city. His assertion that Emanuel is “privatizing our public schools” echoes charter school critics who argue, as the Washington Post put it, that “charters amount to a privatization of public schools because they are run by organizations that don’t answer to the public and in some states aren’t subject to key rules that apply to government agencies, such as open meetings and public records laws.”

In December 2012,  the National Labor Relations Board ruled that a nonprofit operator of a Chicago charter school is a ” ‘private entity’ and therefore covered under the federal law governing the private sector,” as Chicago’s WBEZ reported.

Nonetheless, charter schools in Chicago must be approved by the Chicago School Board, which can pull a school’s charter if it is deemed to be underperforming.

It’s also worth noting that charter schools, though publicly funded, receive less funds on average than their non-charter public school counterparts. The Illinois State Charter School Funding Task Force, an independent state agency established in 2011, said that “on average, charter schools receive 78.3% of the funds that their district counterparts receive. This disparity amounted to approximately $1800 less per pupil in the charter schools.”

Charter School Funding

The ad also implies that Emanuel, as mayor, played a direct role in allocating funds away from traditional public schools and to charter schools. The ad starts with Garcia standing in front of a shuttered school, saying “the mayor shut it down.” He goes on to say that Emanuel “took” money from the closed schools and “gave” it to “elite private schools.”

The mayor of Chicago does play a larger role in education compared with mayors in other cities, but Emanuel does not have direct control over the schools or funding.

The Chicago Board of Education is appointed by the mayor, unlike 98 percent of school boards nationwide and all other school boards in Illinois, as explained in a February 2015 report from the University of Illinois at Chicago. The wave of school closings that Garcia cites occurred in May 2013, when the board voted to close nearly 50 public schools.

Later that year the Chicago Public Schools issued a request for proposal for new charter schools, eventually leading to the opening of 31 new charter schools. 

However, individual school districts in Illinois, such as Chicago Public Schools, receive funding from the state — not the mayor’s office — based on the “general state aid formula,” which allocates funds using “three separate calculations, depending on the amount of property wealth of the local school district.”

In 2014, Chicago Public Schools implemented a new funding formula called Student Based Budgeting, which is “a unified funding formula that applies to both district and charter/contract schools.” In other words, funding for charter schools, like all public schools, is based on standardized calculations set by the Illinois State Board of Education and the school board. Charters are also entitled to start-up costs calculated on a per-pupil basis. A spokesman for Chicago Public Schools told us in an email that Garcia’s “suggestion that funds are somehow ‘diverted’ to charter schools and away from other schools is completely false, since the funds follow the students.”

So, Garcia’s claim that Emanuel personally “took” and “gave” money to individual schools exaggerates the authority of the mayor, even if Chicago’s mayor has more control over the school board than do most other mayors.

Finally, the ad claims that the “elite private schools” that Emanuel supports were “founded by his big campaign contributors.” We couldn’t determine whether any founders of charter schools had contributed to Emanuel’s campaign — and the Garcia campaign didn’t respond to our questions on this topic. However, there is no question that some of Emanuel’s campaign contributors have given large amounts of money to charter schools.

Philanthropists Gary Brinson and Patricia Crown have provided grants to Chicago charter schools through their foundations, Crown Family Philanthropies and the Brinson Foundation. Brinson and Crown contributed $55,300 and $50,000, respectively, to Emanuel’s two mayoral campaigns, according to the state campaign finance website. That does not include contributions from family members. For example, others with the last name “Crown” who list the same address as Patricia Crown contributed $200,900 to Emanuel’s mayoral campaigns.

However, in its backup for the ad, the Garcia campaign goes too far when it claims that supporters “of the private charter school industry have financed Rahm Emanuel’s campaign to the tune of more than $700,000.” In an attachment titled “School Privatization Advocates for Rahm,” the campaign says its $700,000 contribution figure consists of “campaign contributions from charter school supporters, companies that fund charter schools, and those companies’ employees.”

In other words, because an individual like Harvey Medvin, former chief financial officer of Aon Corp., now sits on the board of directors for the Noble Network of Charter Schools, Garcia’s campaign included 30 Aon employees in its list of charter school industry supporters. But here’s the rub: Not one of the 30 Aon employees “founded” or “operated” a charter school, and there is no record of Medvin contributing to Emanuel’s campaign.

Garcia would be correct if his ad claimed that the Chicago Board of Education, appointed by Emanuel, voted to close nearly 50 public schools. And he would be accurate if he said in the ad that some of Emanuel’s biggest contributors are charter school advocates who have helped fund Chicago’s charter schools. But he’s wrong to characterize charter schools as “elite private schools,” and he exaggerates by claiming Emanuel “took” money from public schools and “gave” money to “elite private schools.”

– Alexander Nacht

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Ted Cruz’s Presidential Eligibility http://www.factcheck.org/2015/03/ted-cruzs-presidential-eligibility/ Tue, 24 Mar 2015 18:43:09 +0000 http://www.factcheck.org/?p=93665 Q: Is Sen. Ted Cruz, who was born in Canada, eligible to be the U.S. president?
A: Most likely. The legal consensus is that Cruz qualifies because he was born to a U.S. citizen living abroad, making him a U.S. citizen at birth.

FULL QUESTION

Is Ted Cruz eligible to run for president based on the fact he was born in Canada but his mother was American? Exactly what does the Constitution and our other laws say about this?

FULL ANSWER

Sen. Ted Cruz announced on March 23 that he will seek the Republican nomination to be president of the United States in 2016. But, as some readers were quick to point out, Cruz wasn’t born in the U.S. His birth certificate shows he was born in Calgary, Alberta, on Dec. 22, 1970.

The U.S. Constitution requires a president to be a “natural born Citizen.”

Article II, Section 1: No Person except a natural born Citizen, or a Citizen of the United States, at the time of the Adoption of this Constitution, shall be eligible to the Office of President; neither shall any Person be eligible to that Office who shall not have attained to the Age of thirty five Years, and been fourteen Years a Resident within the United States.

That should disqualify him from being president, right? Not so fast.

Cruz, who came to the U.S. at age 4, is a citizen by birth because his mother was a U.S. citizen when he was born. For that reason, legal scholars argue that he can likely be president.

In 2013, Sarah Helene Duggin, a Catholic University law professor, wrote: ”There is a strong argument that anyone who acquires United States citizenship at birth, whether by virtue of the 14th Amendment or by operation of federal statute, qualifies as natural born.”

The nonpartisan Congressional Research Service reached a similar conclusion in 2011.

CRS, Nov. 14, 2011: The weight of legal and historical authority indicates that the term “natural born” citizen would mean a person who is entitled to U.S. citizenship “by birth” or “at birth,” either by being born “in” the United States and under its jurisdiction, even those born to alien parents; by being born abroad to U.S. citizen-parents; or by being born in other situations meeting legal requirements for U.S. citizenship “at birth.” Such term, however, would not include a person who was not a U.S. citizen by birth or at birth, and who was thus born an “alien” required to go through the legal process of “naturalization” to become a U.S. citizen.

And this month, Neal Katyal and Paul Clement, two former U.S. solicitors general, writing for the Harvard Law Review, said that Cruz qualifies as a “natural born citizen.”

Katyal and Clement, March 11: All the sources routinely used to interpret the Constitution confirm that the phrase “natural born Citizen” has a specific meaning: namely, someone who was a U.S. citizen at birth with no need to go through a naturalization proceeding at some later time. And Congress has made equally clear from the time of the framing of the Constitution to the current day that, subject to certain residency requirements on the parents, someone born to a U.S. citizen parent generally becomes a U.S. citizen without regard to whether the birth takes place in Canada, the Canal Zone, or the continental United States.

Case closed? Cruz thinks so, as he told Fox News host Sean Hannity on March 23:

Cruz, March 23: The facts are clear. I was born in Calgary. My parents — as a legal matter, my mother is an American citizen by birth. And it’s been federal law for over two centuries that the child of an American citizen born abroad is a citizen by birth, a natural born citizen.

Indeed, the Naturalization Act of 1790, passed three years after the U.S. Constitution was written, said that “the children of citizens of the United States, that may be born beyond sea, or out of the limits of the United States, shall be considered as natural born citizens.”

But as the CRS pointed out in its report, the 1790 law was superseded by the Naturalization Act of 1795, which changed the language from “natural born citizens” to just “citizens.”

So there is still some lingering uncertainty about Cruz’s eligibility. That’s because the Supreme Court hasn’t ruled on the meaning of “natural born citizen,” which the Constitution doesn’t define.

This is not the first time that a Republican presidential candidate faced such questions. As we have written before, John McCain, who was the Republican nominee in 2008, was born to U.S. citizens in the Panama Canal Zone, and Barry Goldwater, who was the party’s nominee in 1964, was born to U.S. citizens in Arizona before it was a state. George Romney, who was born to U.S. citizens in Mexico, ran for president in 1968, but did not win the nomination.

Even Duggin, who wrote in her 2013 article that “a scholarly consensus is emerging … that anyone who acquires citizenship at birth is natural born for purposes of Article II,” acknowledges that the issue may not be settled.

“In the absence of a definitive Supreme Court ruling — or a constitutional amendment — the parameters of the clause remain uncertain,” she wrote.

– D’Angelo Gore

Sources

Gillman, Todd. “Dual citizenship may pose problem if Ted Cruz seeks presidency.” Dallas Morning News. 18 Aug 2013.

U.S. Department of State. Acquisition of U.S. Citizenship by a Child Born Abroad. Accessed 24 Mar 2015.

Duggin, Sarah Helene. “Is Ted Cruz a natural-born citizen eligible to serve as president?” Constitution Daily. 28 Oct 2013.

Maskel, Jack. “Qualifications for President and the ‘Natural Born’ Citizenship Eligibility Requirement.” Congressional Research Service. 14 Nov 2011.

Katyal, Neal and Clement, Paul. “On the Meaning of ‘Natural Born Citizen.’ ” Harvard Law Review. 11 Mar 2015.

U.S. Constitution. Article II, Section I.

Naturalization Act of 1790. 26 Mar 1790.

Naturalization Act of 1795. 29 Jan 1795.

Bank, Justin. “John McCain’s Presidential Eligibility.” FactCheck.org. 16 Jun 2008.

Hulse, Carl. “McCain’s Canal Zone Birth Prompts Queries About Whether That Rules Him Out.” New York Times. 28 Feb 2008.

“Hannity.” Transcript. Fox News Channel. 23 Mar 2015.

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FactChecking Ted Cruz http://www.factcheck.org/2015/03/factchecking-ted-cruz/ Mon, 23 Mar 2015 22:29:44 +0000 http://www.factcheck.org/?p=93649 Texas Sen. Ted Cruz became the first major Republican candidate to declare himself officially in the 2016 presidential race. In announcing his presidential ambition, Cruz repeated a number of dubious claims we have heard before, and a few we haven’t.

Some highlights:

  • Cruz railed against a “government … that seeks to ban our ammunition.” The Obama administration sought to ban a certain type of armor-piercing bullet, not all types of ammunition. The proposal has since been postponed.
  • Cruz claimed that as a result of the Affordable Care Act “millions … have lost their health insurance.” In fact, about 10 million people on net gained insurance between September 2013 and December 2014, according to the Urban Institute.
  • Cruz also claimed that as a result of the law “millions [have been] forced into part-time work.” There’s no solid figure on how many may have had their hours cut to part time, but one analysis of monthly labor surveys said the number was “likely” a few hundred thousand.

Cruz announced his candidacy in an address at Liberty University on March 23. We’ll review that speech and then highlight some of our work on claims Cruz has made over the past two years as a senator.

The Liberty Speech

In his announcement speech, Cruz accused the Obama administration of seeking “to ban our ammunition.” The administration isn’t seeking to ban the public from buying ammunition, but it recently sought to ban a certain type of armor-piercing bullet.

The federal Gun Control Act of 1968 already bans armor-piercing ammunition with exemptions for ammunition it deems “primarily intended for sporting purposes.” On Feb. 13, the Bureau of Alcohol Tobacco, Firearms and Explosives proposed withdrawing an exemption it had granted in 1986 for the “M855 ‘green tip’ ammunition,” according to the agency’s public notice explaining the proposal and seeking comments. The National Rifle Association said the M855 is commonly used in AR-15 rifles.

Cruz was one of 53 senators who signed a March 9 letter to the ATF objecting to the bureau’s proposal for the M855. On March 10, the ATF announced it would postpone issuing a final decision, saying the “vast majority” of the 80,000 comments it had received to date were critical of the proposed change and required “further study.”

Cruz also made a pitch to repeal “every word of Obamacare,” and he claimed that as a result of the law “millions … have lost their health insurance.”

Cruz isn’t the first to make this claim, which stems from President Obama’s ill-fated promise, “If you like your health care plan, you can keep your health care plan.” That was clearly proven false when, in the fall of 2013, several million people received cancellation notices for individual market plans that no longer met the law’s benefit requirements.

But to claim simply that millions lost their health insurance is misleading. Those individual market plans were discontinued, but policyholders weren’t denied coverage. Many upgraded to compliant plans (albeit at a higher cost, for some).

Moreover, there is evidence that far more have gained coverage than had their policies canceled. According to an Urban Institute report in March, the number of insured Americans rose by nearly 10 million between September 2013 and December 2014. Overall, the rate of uninsured in the U.S. fell during that period from 17.7 percent to 12.8 percent, the report said.

Cruz also claimed that the Affordable Care Act was hurting workers, saying “millions” were being “forced into part-time work.” There may have been some impact on the hours of part-time workers, but we couldn’t find any hard data that backs up Cruz’s claim of “millions,” or even approaches that figure.

In January, part of the employer mandate took effect, requiring businesses with 100 or more workers to offer health insurance to their full-time employees or pay a fine. Full-time, for purposes of the law, is defined as 30 hours or more per week. (The requirement will apply to businesses with 50 or more workers next year, with businesses below that staffing threshold remaining exempt.) This aspect of the law has led to anecdotal stories of employers cutting workers’ hours to keep them under 30 hours.

When we asked Mark Zandi, chief economist of Moody’s Analytics, about this issue, he told us that he didn’t think the law had had much of an impact on job growth. But “[i]f there is an impact it is on the number of part-timers who would like to work full-time. This has declined since the recession, but remains high by historical standards. This probably still reflects the ill-effects of the recession, but it may also reflect the impact of Obamacare.”

One analysis, by FiveThirtyEight’s chief economics writer, Ben Casselman, found it was “likely” that the law had “led a few hundred thousand workers to see their hours cut or capped,” based partly on a small increase in the proportion of part-time employees working between 25 and 29 hours a week from 2009 to 2013 and a small drop in the proportion working between 31 and 34 hours. That’s based on the monthly Current Population Survey compiled by the Bureau of Labor Statistics and the Census Bureau. An analysis by the Urban Institute and Robert Wood Johnson Foundation also used CPS data and found “a small increase in part-time work in 2014 beyond what would be expected at this point in the economic recovery.” But that increase affected those working between 30 and 34 hours a week, as well as those below 30 hours. The analysis said the increase in part-time work was “more likely due to a slower than normal recovery of full-time jobs following the Great Recession.”

The nonpartisan Congressional Budget Office also has estimated that more than 2 million workers would cut their own hours — voluntarily — or retire earlier than they normally would have by 2021 because of the ACA. The reason? The law offers a secure option for purchasing individual insurance through the exchanges, and it provides more financial resources, in the form of subsidies, to those with low incomes.

In January, Andy Puzder, the CEO of CKE Restaurants (owner of Carl’s Jr. and Hardee’s), made the same claim as Cruz — that “millions” had moved from full-time to part-time jobs. But that number was speculation, based on Puzder’s conversations with other restaurant-chain CEOs, as our fact-checking colleagues at Politifact wrote.

Cruz also repeated several misleading claims that we have written about before:

  • Cruz vowed to repeal “every word of Common Core,” which he called an effort by the federal government to “dictate school curriculum.” As we have said before, the standards were developed by governors and state education officials and voluntarily adopted by states, and the curriculum is set by state and local school officials.
  • Cruz also warned that the Affordable Care Act puts the government “between you and your doctor.” As we wrote when Cruz made a similar claim back in 2013, the law doesn’t create a government-run system. If anything, the law comes between you and your insurance company, forbidding them from capping your coverage or charging you more based on health status.
  • Cruz blamed the law for “skyrocketing health insurance premiums.” But as we have written before, premiums for those who buy their own private insurance will go up or down, in some cases significantly, depending on individual circumstances. And premiums for employer-sponsored plans, where most Americans have coverage, have increased at a much slower rate than they did under President George W. Bush.

The Cruz File

A 30-second video announcing Cruz’s candidacy for president begins, “It’s a time for truth.” Here at FactCheck.org, we couldn’t agree more.

But as our archives show, Cruz is no stranger to FactCheck.org’s pages. We have checked more than a dozen dubious claims Cruz has made since entering the Senate in January 2013. And as we will do for all of the politicians who get into the presidential race, we’ll highlight some of the misleading claims that we have examined.

Immigration Claims

Cruz voted against and has been a vocal critic of a Senate-passed immigration bill, S. 744, which has stalled in the House. After a series of border security measures are met, the bill would have allowed a pathway to citizenship for immigrants living in the U.S. illegally since at least Dec. 31, 2011. The earned path to citizenship included paying fines and back taxes, proving gainful employment, completing background checks, learning English and civics, and going to the back of the line of prospective immigrants. Cruz has called any path to citizenship “amnesty.”

  • Cruz claimed in November that the 2014 midterm elections were “a referendum on amnesty” and voters had sent a clear message opposing it. But Cruz was wrong. Election voters, by a margin of 57 percent to 39 percent, said those living in the U.S. illegally but working should be offered a chance to gain legal status, according to exit polling.
  • Cruz has regularly drawn applause in recent speeches for his suggestion to abolish the Internal Revenue Service and put “every one of those 110,000 [IRS] agents … on our southern border.” But, as we have written, the IRS has nowhere near 110,000 employees, let alone that many agents. The number of IRS employees has been on the decline, and currently stands at about 82,000. Less than a quarter of them are revenue agents, special agents or revenue officers.
  • On July 21, 2013, Cruz warned that if the Senate immigration bill became law, there will be “20 or 30 million” people living in the U.S. illegally “in another 10, 20 years.” That’s his opinion, but we wrote that the nonpartisan Congressional Budget Office says the bill, if enacted, will reduce future illegal immigration in 10 years by 33 percent to 50 percent compared with current law.

Health Care/Affordable Care Act

Cruz has been a staunch opponent of the Affordable Care Act, also known as Obamacare, regularly calling for its full repeal, as he did in his announcement speech. But Cruz’s criticisms of the health care law have not always been on the mark.

  • In a press conference on Oct. 16, 2013, Cruz claimed that “families of special needs children will face a new penalty for using savings” to pay for medical expenses. He was referring to a $2,500 cap on pre-tax contributions to flexible spending accounts. Actually, advocates for special needs children told us that provision hasn’t had much of an impact, and the new law “greatly benefits people with disabilities.”
  • In September 2013, Cruz distorted the impact of the Affordable Care Act on premiums. He claimed that the Ohio Department of Insurance announced an 88 percent average increase for the individual market. It didn’t. The department estimated a 41 percent increase on average in a press release that called for the law’s repeal.
  • In a TV ad, Cruz misconstrued the words of the health care law’s lead author. Claiming “there’s bipartisan agreement that Obamacare isn’t working,” Cruz said Max Baucus, a Democratic senator at the time, called the law “a huge train wreck.” But Baucus didn’t say “Obamacare isn’t working,” and he didn’t call it “a huge train wreck.” He was critical of the education and outreach efforts of the administration during implementation of the law, not the law itself.

We also dealt with a flurry of misleading claims Cruz made about the Affordable Care Act during his 21-hour talk-a-thon on the Senate floor — which started Sept. 24, 2013, and ended the following day. We tackled those claims in two separate stories. Among the misleading claims:

  • Cruz misrepresented union opposition to the health care law. Cruz claimed unions, including the International Brotherhood of Teamsters, want to “repeal” the health care law “because it is a nightmare.” Three unions used the word “nightmare” in a letter to Democratic leaders in Congress. But they asked that the law be fixed, not repealed.
  • Cruz falsely claimed that the spouses of 15,000 UPS employees will be “left without health insurance” and forced into “an exchange with no employer subsidy.” UPS announced it was dropping coverage for spouses, but only if they can get insurance with their own employer.
  • Cruz repeated the false claim that members of Congress are exempt from the health care law. As we have written numerous times, the law requires congressional members and their staffs to get insurance through the newly created exchanges, so they are not exempt. In fact, the law prevents them from getting insurance through the Federal Employees Health Benefits Program, like other federal employees. However, the federal government will continue to make contributions toward the premiums of lawmakers and their staffs — just as most large employers do for their employees.

Miscellaneous

In a recent critique of NASA spending on earth and atmospheric sciences, Cruz claimed there has been a “disproportionate increase” since 2009 in funding of earth sciences. There has been an increase, but spending on earth sciences is lower now as a percentage of NASA’s budget than it was in fiscal 2000. And the increase reflects an effort to restore funding that had been cut. Cruz also suggested that NASA’s “core mission” does not include earth sciences. In fact, studying the Earth and atmosphere has been central to NASA’s mission since its creation in 1958.

In a video response to President Obama’s State of the Union address in January, Cruz claimed that “not a word was said about radical Islamic terrorism.” Obama didn’t use the phrase “radical Islamic terrorism,” but he vowed to combat “violent extremism” and asked for congressional authority to use force against the Islamic State. Cruz also said Obama “could not bring himself even to bring” up the president’s executive action on immigration. But he did. Obama said he would veto legislation that attempts to undo it.

Cruz condemned Obama’s announcement that he would normalize relations with Cuba, calling the communist country “a leading state sponsor of terrorism.” That’s a stretch, to say the least. While Cuba – along with Iran, Syria and Sudan — is listed by the State Department as one of four “State Sponsors of Terrorism,” the department’s annual Country Report on Terrorism, published in April, provided little evidence of Cuba sponsoring terrorism, especially compared with the extensive portfolio of the others on that list.

One last thing for the record: While we noted that Cruz is the first major candidate to officially enter the 2016 presidential race, he is by no means the first. According to the Federal Elections Commission, 194 candidates, including 55 Republicans, beat Cruz to the punch.

Updated, March 27: Please see “FactChecking Ted Cruz, Part II” for more about Cruz’s announcement speech. 

– Robert Farley, Lori Robertson and Eugene Kiely

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Obama’s Exaggerated Health Care Claims http://www.factcheck.org/2015/03/obamas-exaggerated-health-care-claims/ Fri, 20 Mar 2015 23:02:04 +0000 http://www.factcheck.org/?p=93604 President Obama made some exaggerated claims during a recent speech in Cleveland about the Affordable Care Act and the House Republican proposal for Medicare.

The president said his health care law is “reducing the overall costs — $1,800 in people’s pockets.” The $1,800 is not a reduction in insurance premiums, but rather the difference between the cost of the average employer-sponsored plan in 2014 and what the average premium would have been if based on average rate increases from 2000 through 2010. The calculations were done by White House economic advisers, but even they say the Affordable Care Act isn’t responsible for the full $1,800 difference.

Obama also said the GOP budget would “gut the guarantee at the center of Medicare by turning it into a voucher program.” The House plan makes significant changes, but it keeps traditional Medicare as an option. Congressional experts say a plan like this one would reduce premiums by 6 percent on average in 2020, but the cost of premiums would vary depending on where seniors live and what plan they choose.

Putting ‘$1,800 in People’s Pockets’?

Obama gave a speech March 18 at the City Club of Cleveland that focused on what he called “middle-class economics.” In talking about the economic impact of the Affordable Care Act, the president said the law doesn’t get credit for reducing health care costs.

Obama, March 18: If premiums had kept on growing over the last four years at the rate they had in the previous decade, the average family premium would be $1,800 higher than it is today. Now, we don’t get a lot of credit for that. But keep in mind that some of the reforms that we’re putting in place are not only giving more people insurance, but we’re actually reducing the overall costs — $1,800 in people’s pockets. They don’t notice it because it’s what didn’t happen.

When we asked the White House where the president got the $1,800 figure, we were given a copy of a September 2014 report by the White House Council of Economic Advisers. That report is based on the Kaiser Family Foundation’s annual surveys of employer-sponsored health care plans. The 2014 report found that the average family premium was $16,834 — 3 percent more than it was in 2013.

White House Council of Economic Advisers, Sept. 24, 2014: In 2014, employer premiums grew at the slowest rate since the KFF/HRET survey began in 1999. If premiums growth had matched its 2000-2010 average since 2010, the average premium would be $1,800 higher today. Lower premiums make it easier for employers to add jobs today and ultimately translate into bigger paychecks for workers.

First, as we have written, the growth of the cost of employer-sponsored health insurance premiums has slowed in recent years, but experts attribute it largely to the sluggish economy and only partly to the ACA. Not even the Council of Economic Advisers credited the Affordable Care Act with the full $1,800 difference. Its report said, “A significant fraction of the recent slowdown in health care price inflation can be linked to Medicare reforms in the Affordable Care Act.” The report did not say how much of the $1,800 was attributable to the Affordable Care Act, and the White House did not provide us with any more information.

Second, the $1,800 difference is the amount that would have been paid by employers and employees, so not all of the $1,800 would wind up directly in employees’ pockets.

The White House told us that the president did not say, or at least did not mean to say, that the law was responsible for putting the entire “$1,800 in people’s pockets.” But that’s certainly the impression he gave.

Gutting the Medicare Guarantee?

The president also contrasted the impact of his policies on the middle class with the proposals in the fiscal 2016 budget resolution that was released a day earlier by the Republican-controlled House Budget Committee. In particular, he criticized the budget for proposing changes to Medicare — the health care program for seniors.

Obama, March 18: They would try once again to gut the guarantee at the center of Medicare by turning it into a voucher program. Instead of the promise that health care will be there for you when you need it, you get a roll of the dice. If you get sick and that voucher is enough to cover the costs of your care then you win. But if not, you lose.

The House GOP plan doesn’t “gut” the guarantee of Medicare, but it makes significant changes to the program. The impact on premiums would vary depending on where seniors live and what plan options they choose.

The plan would make no changes for those currently on Medicare and those over age 55 who will be on Medicare in the near future. Future beneficiaries (those currently 55 and under) would receive a government subsidy to purchase insurance on a newly created Medicare exchange once they are eligible for Medicare. The subsidies can be used to purchase a private plan or traditional fee-for-service Medicare plan. The amount of the subsidy would be based on the average of all bids submitted by private insurers plus traditional Medicare, and a greater subsidy (so-called risk-adjustment payments to health plans) would be available for sicker Medicare recipients with higher medical expenses.

Opponents of the plan have argued that the subsidies wouldn’t keep pace with health care costs, increasing premiums and out-of-pocket expenses for seniors. In their latest budget, the House Republicans responded to critics by citing a 2013 report by nonpartisan congressional budget experts.

“In September 2013, the Congressional Budget Office (CBO) analyzed premium support options. They found that a program, in which a premium support payment was based on the average bid of participating plans, would result in savings for beneficiaries, as well as the Federal Government,” the budget said.

That’s not exactly accurate.

The CBO report does say that such a plan would reduce government spending on Medicare, and it does say that the average Medicare beneficiary would pay 6 percent less in 2020 than under current law.

But CBO also said that the cost would vary by region and that in “many regions” those who chose to remain in a traditional fee-for-service Medicare plan “would pay higher premiums than they would under current law.” That’s a point made last year by the liberal Center on Budget and Policy Priorities in an analysis of the fiscal 2015 House budget plan, which contained the same Medicare proposal. The White House sent us a copy of the analysis to support the president’s criticism of the GOP plan.

Center on Budget and Policy Priorities, April 8, 2014: The proposal’s impact on individual beneficiaries would differ depending on whether traditional Medicare or private plans cost less in their region, but it would disadvantage beneficiaries in at least two ways. First, in many regions, traditional Medicare would cost more than the premium-support voucher, so beneficiaries who chose to enroll in traditional Medicare would have to pay higher premiums than under current law.

The CBO was in agreement on that point. But then the center speculates on what would happen in future years — saying, for example, that if the risk-adjustment payments are “inadequate” then more seniors would abandon traditional Medicare and ultimately the system would “unravel.” That’s a matter of opinion.

The fact is the CBO analysis shows that the immediate impact would be less dire. Medicare would still exist, and it would cost less on average. It would cost more for some and less for others. What happens in the future — and how future Congresses deal with the intended and unintended consequences of the law — is unknown.

– Eugene Kiely     

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March 20: Medicare, Taxes, Iran http://www.factcheck.org/2015/03/march-20-medicare-taxes-iran/ Fri, 20 Mar 2015 20:37:01 +0000 http://www.factcheck.org/?p=93981
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Perry ‘Never’ Raised Taxes? http://www.factcheck.org/2015/03/perry-never-raised-taxes/ Fri, 20 Mar 2015 20:18:15 +0000 http://www.factcheck.org/?p=93524 Former Texas Gov. Rick Perry said he “never raised taxes” in his 14 years as governor of the state. That’s not the case. During his tenure, he increased taxes on businesses, cigarettes, fireworks, diesel equipment and insurance.

It’s true that Perry did not raise broad-based taxes such as an individual income tax — the state doesn’t have one — or the state retail sales tax while governor. Texas’ tax burden for state and local individual taxes ranks 47th in the nation, according to the Tax Foundation’s fiscal 2011 numbers, the most recent available. (Tax burden is the total amount of taxes paid by state residents divided by total income.)

But “never raised taxes”? That’s a tough boast to back-up, and, in fact, Perry can’t accurately claim it.

A spokesman for Perry says that he “never increased taxes, on net.” But that’s not what the governor said, and that qualifier would only negate some of the tax increases that were packaged with tax cuts under Perry’s tenure.

Perry, a Republican presidential candidate in 2012 and a potential one for 2016, made the tax claim in New Hampshire, at a politics and eggs breakfast event at St. Anselm College in Manchester on March 12 (see the 40:57 mark).

Perry, March 12: Under my leadership, we had 14 years of balanced budgets. Never skipped a debt payment, never raised taxes. In fact, I signed the largest tax cut in Texas history.

We’ll note that the state Constitution requires a balanced budget and prohibits the Legislature from appropriating more money than the state is expected to have in revenue.

The “largest tax cut” in state history that Perry mentions was actually a 2006 package of school property tax cuts paired with increases in business franchise, tobacco and used-car sales taxes. Even on net, the Texas Taxpayers and Research Association, a nonprofit organization supported primarily by businesses and trade groups, says the tax package, which it estimated at a net $2.5 billion per year, was the biggest cut in Texas history. Dale Craymer, president of the group, told us that was based on sheer dollars, not inflation-adjusted amounts. But the big tax cuts in state history, he said, made for a short list. Another — a 1997 property tax cut under then-Gov. George W. Bush — amounted to $1.04 billion, according to a January 2015 report by the Texas Comptroller of Public Accounts. That total isn’t close to the 2006 package estimate after adjusting for inflation.

And, as it turned out, the change in business franchise taxes didn’t bring in as much revenue as had been expected. The measure was supposed to raise about $6 billion a year, but brought in $4.5 billion in 2008, a 41.6 percent increase from the amount raised by the franchise tax in 2007, says the Comptroller’s Office report, which gives a detailed account of state taxes and fees from 1972 through 2014. 

The 2006 package of bills was designed to restructure school financing, which is attained through local property taxes. Perry has argued in the past (see the 33:00 minute mark of this 2010 interview with the Texas Tribune) that the revamped franchise tax doesn’t count as an increase, since the sum of the various tax measures was a net decrease. Some will agree with that assessment. For example, the group Americans for Tax Reform, which asks political candidates to sign a pledge to not raise taxes, doesn’t count an increase paired with larger cuts, or even revenue-neutral cuts, as a violation of the pledge.

But the tax package wasn’t a net tax decrease for all affected parties — some paid more, some paid less. The changes to the business franchise tax have been controversial. The Tax Foundation said in a 2011 report that the revamped tax had caused “significant confusion” and “should not be used as a model tax reform for any other state.” In its 2012 scorecard on governors’ fiscal policies, the libertarian Cato Institute said Perry’s “record on taxes is mixed,” citing the 2006 franchise tax changes and tax and fee increases in 2003. The governor got a grade of “C” from the group that year, but the latest report card from 2014 gives Perry a “B,” and notes adjustments made to that business tax and other tax cuts.

The revamped franchise tax expanded the businesses that were subject to it, and changed the way the tax was calculated, from one based on capital and earned surplus, to one based on “margin,” which is total revenue minus cost of goods sold or total compensation, whichever is greater. That’s why it’s referred to as the “margin tax.” The Texas Taxpayers and Research Association found that businesses with under $1 million in revenue (which later became exempt from the tax) saw their taxes drop by 46 percent from 2007 to 2009, according to the group’s October 2011 report. And those with revenue between $1 million and $10 million saw a 72 percent increase.

Overall, for all businesses, the impact was a 46 percent jump in tax owed. TTARA said the tax caused “substantial differences in tax liability across, and in some instances, even within, industry groups.”

In that 2006 package, the cigarette tax was raised by $1 per pack and the tax rate on other tobacco products, except cigars, was raised by nearly 5 percentage points to 40 percent. Taxes paid on personal used-car sales were also increased to bring in $30.6 million in 2007 and $85.1 million in 2008-2009, according to the Comptroller’s Office report. Buyers now have to pay sales tax on the “presumptive value” of the car, not what they said they had paid for it.

Beyond the 2006 tax package, however, there were other tax increases under Perry. All figures come from the January Comptroller’s Office report:

  • In 2001, a tax on the sale of fireworks was enacted, estimated to generate $848,000 in 2002 and 2003. Also, that year the Texas Emissions Reduction Plan Fund was created, and the legislation included a sales tax on diesel construction equipment and a tax surcharge on certain diesel vehicles as part of the funding mechanisms. The total net gain of the law was expected to be $231.8 million for the next two years.
  • In 2003, another law increased the revenue measures for the emissions reduction fund, with an estimated net gain of $230 million for 2004-05. Another piece of legislation expanded taxation on premiums and insurance to Medicaid and CHIP insurance, raising an estimated $51.1 million.
  • In 2009, a new law limited the use of a $10 gift tax for car transfers, raising an estimated $26 million for 2010-11.

There were also some fee increases under Perry, including the 2001 reinstatement of a petroleum products delivery fee, a new admissions fee for strip clubs in 2007, an increase in assessments on property and casualty insurance to fund a Volunteer Fire Department Assistance Fund, and increases and surcharges on motor vehicle fees as part of the 2001 and 2003 emissions reduction measures.

When we asked Travis Considine, a spokesman for Perry, about the tax increases beyond the 2006 tax package, he told us that Perry had cut taxes more than 75 times and sent us a spreadsheet of those cuts and their savings over five-year periods.

We’re not saying that Perry didn’t cut taxes — or that he raised taxes significantly while governor. The comptroller’s report notes that when facing a revenue shortfall in 2003, the Legislature didn’t enact major tax increases, instead “focusing on spending reductions and relatively obscure fee/assessment hikes.” (The report later notes that “there is no one universally agreed upon distinction between taxes and fees, and many people may not be able to tell the difference when paying a government levy.”)

But Perry’s claim was that he “never raised taxes,” a definitive statement that goes too far. Never say never.

– Lori Robertson

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