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A Project of The Annenberg Public Policy Center

The Facts About ‘Fat Cats’

Even though we are serious-minded fact-checkers, we are not completely without humor, and MoveOn.org’s latest TV ad on “fat cats” and the “Buffett Rule” is pretty funny. But the ad may leave an im-purr-fect impression. One that’s off by more than a whisker.

The TV ad says, “President Obama’s Buffett Rule would require millionaires and billionaires to pay the same tax rate as the rest of us.” But on average “millionaires and billionaires” already pay more than the rest of us, and about half of them would not have to pay any additional taxes under the Paying a Fair Share Act, as the Buffett Rule is formally known.

The president’s proposal, which was rejected by the Senate on April 16, would impose a minimum 30 percent federal effective tax rate on those with adjusted gross incomes of more than $1 million. The federal effective tax rate, under the legislation, would include not just income taxes, but other federal taxes — including the employee portion of payroll taxes and the new taxes imposed on higher-income taxpayers that were contained in the health care law, effective next year.

So, we looked at the average federal effective tax rate for those earning less than $1 million — which in this TV ad would be considered “the rest of us.”

The nonpartisan Tax Policy Center divided “the rest of us” into 10 groups and found that on average no group of taxpayers earning below $1 million paid an effective tax rate of 30 percent or more as a percentage of cash income in 2010. The average effective tax rate ranged from a high of 28.7 percent for those with cash income of between $500,000 to $1 million to a low of 4.9 percent for those with cash income of $20,000 to $30,000. The average for all taxpayers was 19.5 percent. By contrast, taxpayers with cash incomes exceeding $1 million paid an average effective tax rate of 31.4 percent in 2010.

We stress that these are averages. Yes, there are “millionaires and billionaires” who pay far less than the average — the notable examples being billionaire investor Warren Buffett and Republican presidential candidate Mitt Romney. Then again, there are those who pay more.

Another Tax Policy Center analysis of the Buffett Rule found that about half of all “millionaires and billionaires” wouldn’t be subject to the proposed law — even if the Bush tax cuts were extended beyond Dec. 31, 2012, when they are due to expire. TPC estimated that 217,000 households would have to pay higher taxes under the Buffett Rule, if the Bush tax cuts were extended. That’s about 50 percent of the 438,000 households with income exceeding $1 million.

But MoveOn’s ad says “millionaires and billionaires” without accounting for the wide variation in tax rates paid by high-income taxpayers.

At the end of its ad, MoveOn expands the universe of “fat cats” to include those earning less than $1 million, when it says the “wealthiest 1 percent” aren’t paying “a fair tax rate.” That’s even more misleading.

MoveOn TV ad: When the wealthiest 1 percent pay a fair tax rate like the rest of us, it keeps the American dream alive for everyone.

The top 1 percent — which of course has been a target of the “Occupy Wall Street” protests — takes in a lot more taxpayers. By TPC’s calculation, the top 1 percent included about 1.2 million households and included those who earned more than $532,613 last year. But the TPC analysis found that only 7,000 of the 809,000 households earning between $500,000 and $1 million would be subject to the Buffett Rule — even if the Bush tax cuts were extended.

So, the vast majority of “fat cats” are already paying “a fair tax rate” — at least as defined by the Buffett Rule.

Look, we like humor. (Our sister site, FlackCheck.org, had some fun, in fact, with the “fat cats” ad.) And we understand the larger point about some very wealthy individuals who pay relatively low tax rates. But you know us. We doggedly insist on accuracy.

— Eugene Kiely