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A Project of The Annenberg Public Policy Center

A Bogus Tax Attack Against Obama

The latest multimillion-dollar attack ad from Crossroads GPS claims President Obama  broke a promise to not increase taxes for families making less than $250,000 a year. That’s almost entirely false.

The truth is that Obama repeatedly cut taxes for such families, first through a tax credit in effect for 2009 and 2010, and beginning in 2011, through a reduction in the payroll tax that is worth $1,000 this year to workers earning $50,000 a year. And while it’s true that some tax increases contained in the new health care law would fall on individuals, they have mostly not taken effect yet and are small compared with the cuts the president already enacted. And this ad exaggerates them greatly.

The 60-second ad was announced May 16. Crossroads GPS said it would run in 10 states (Colorado, Florida, Iowa, Michigan, North Carolina, New Hampshire, Nevada, Ohio, Pennsylvania and Virginia) at an initial cost of $8 million. It is the first salvo in what the group says will be a month-long, $25 million ad initiative intended to “frame the national debate on jobs, the economy, ObamaCare and government debt.”

Tax Nonsense

The ad — titled “Obama’s Promise” — lists several pledges that it claims the president has broken. The worst distortion it contains — one we haven’t addressed in this campaign — is an almost entirely groundless assertion that he broke his often-repeated promise not to raise taxes on persons making less than $200,000 a year, or couples making less than $250,000.

The ad shows Obama saying in a 2008 campaign speech, “If you are a family making less than $250,000 a year, you will not see your taxes go up.” Then, to the sound of shattering glass, the narrator says, “Broken! Obamacare raises 18 different taxes.”

But that’s dishonest nonsense. Only a few of the tax changes in the new health care law will fall on families making under $250,000 a year, or individuals making less than $200,000 for that matter. And they make up only a small part of the $503 billion figure that appears on screen. That 10-year total falls overwhelmingly on individuals who are above those income thresholds — just as Obama promised — or on corporations. Money to be collected from individuals regardless of income would come mostly from taxes (or penalties) that are not yet in effect.

The truth here is that Obama has lowered taxes for all workers through a 2 percentage point reduction in the Social Security payroll tax that started in 2011 and is scheduled to continue through the end of 2012. The cut is equal to $1,000 this year for a worker making $50,000 a year — or as much as $2,202 to any worker earning at least the maximum taxable level of wages or salary ($110,100 for 2012).

Obama had previously signed a tax cut that benefited nearly all working families and was in effect from 2009 through 2010. The “Making Work Pay” tax credit was part of the stimulus bill he signed shortly after taking office.

That credit was worth a maximum of $400 per person, or $800 for couples during those years. It phased out at higher income levels, and so its benefit went entirely to individuals making less than $95,000 a year, or couples making less than $190,000. The White House figures it went to “95 percent of working families.” And even allowing for those who are retired or unemployed, it benefited more than 75 percent of all individuals and families, working or not, according to the nonpartisan Tax Policy Center.

The Crossroads GPS ad simply ignores these very real tax cuts — and points to the health care law instead. To back up the claim that 18 taxes are being raised, the ad cites on screen an analysis by the conservative Heritage Foundation.

But of the $503 billion in taxes listed by the Heritage document, $210 billion falls specifically on individuals making more than $200,000 a year, or couples making over $250,000. And we count another $190 billion that falls only on businesses, including corporations in general, or in particular on health insurance companies, pharmaceutical manufacturers and importers, makers of medical devices and even producers of biofuels.

To be sure, some unknown portion of the taxes that fall directly on individuals would be paid by persons who are below Obama’s promised threshold. For example, a 10 percent tax on indoor tanning services went into effect in 2010.

But several taxes would affect only persons with income high enough to claim itemized deductions on their federal income tax returns. For example, $15 billion is to come from limiting deductions for medical expenses to the amount exceeding 10 percent of adjusted gross income (up from 7.5 percent currently). That doesn’t go into effect until 2013, and is the largest tax increase that applies only to individuals. And high-income persons are far more likely to itemize than low-income or middle-income persons, so much if not most of the $15 billion will be paid by those not covered by Obama’s promise.

Another $13 billion would come from limiting the amount of money that can be put into tax-advantaged flexible spending accounts to $2,500 a year. That won’t take effect until 2013, and of course would affect only those with enough income to set aside thousands of dollars in such accounts.

Although not mentioned by the ad, Obama also signed legislation in February 2009 that raised tobacco taxes, which are regressive taxes that fall more heavily on low-income smokers. The bill raised the federal tax on a pack of cigarettes by 61 cents to $1 per pack to pay for an expansion of the Children’s Health Insurance Program.

Mandate = Tax Increase?

The Heritage tax figure includes $65 billion that comes from penalties to be paid by larger businesses that choose not to offer coverage for workers, and by individuals who don’t meet the law’s mandate to obtain coverage. The law doesn’t label those penalties a tax, and the president has argued that the individual penalties are “absolutely not a tax increase,” and therefore don’t break his promise. But that’s a matter of opinion. In fact, the administration’s lawyers argued before the Supreme Court that the mandate penalties are taxes, and the justices have yet to decide that legal point. So for now, we’ll leave it to our readers to judge whether those penalties would violate Obama’s promise on taxes.

What we can say is that the $65 billion in penalties would fall mostly on businesses, not individuals. And they don’t take effect until 2014.

Heritage didn’t attempt to break down the $65 billion figure, so we contacted the paper’s author, Curtis Dubay, who told us via email that he drew the figure from a Congressional Budget Office estimate from March 20, 2010. The figure for “Penalty Payments by Employers and Uninsured Individuals” appears in Table 2.

But how much of that is from individuals? We found the answer in Table 4 — $17 billion. Or about $4 billion a year once fully phased in.

That estimate was too low. In fairness to Crossroads GPS and Heritage, we must note that the CBO has since increased its estimate and figures that in 2019 — the last year covered by the original estimate — individuals will pay $7 billion in penalties, not $4 billion. And CBO now figures that would rise to $9 billion in 2022.

But that’s a tiny future increase compared with the tax cuts Obama has already delivered, including an estimated $120 billion in 2012 alone from the 2 percentage point cut in payroll taxes. And so we judge the Crossroads claim that this promise was broken to be mostly false, and its use of a $503 billion figure that is mostly to be paid by businesses and high-income individuals to be simply dishonest.

Footnote: We are still researching the other claims in this ad and will address them at a later time in a separate posting.

— Brooks Jackson