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A Project of The Annenberg Public Policy Center

Fiscal Cliff Air Wars

The presidential election ended last month, but the partisan air wars continue with competing fiscal cliff ads from the conservative Crossroads GPS and the Democratic Congressional Campaign Committee. Most of what is in the ads falls into the realm of opinion, but we found a couple points to quibble with in each.

  • The DCCC ad claims “tea party House Republicans are holding the middle class hostage to get more tax cuts for millionaires,” but nearly six out of seven who would face tax increases under President Obama’s plan do not earn $1 million a year.
  • The Crossroads GPS ad, meanwhile, claims that Obama’s plan adds “even more debt.” It’s correct that annual deficits would increase under the president’s plan, but the growth would be “significantly smaller” than it would if Congress acts as it has in the past, according to the Congressional Budget Office.

As we explained in our story “Facing Facts on Fiscal Cliff,” a combination of massive tax increases and spending cuts are scheduled to take effect beginning Jan. 1. Without government intervention, CBO says the fiscal cliff would push the unemployment rate back above 9 percent. But Republicans and Democrats have not been able to agree on some combination of spending cuts and increased revenues. The dueling ads from DCCC and Crossroads GPS make the case for the respective positions held by Democrats and Republicans.

‘More Tax Cuts for Millionaires’?

The DCCC has entered the fiscal cliff air wars with Web and radio ads targeting 21 “vulnerable” House Republicans who have opposed the Democrats’ plan to extend the Bush-era tax cuts only for individuals making less than $200,000 and couples making less than $250,000. Most Republicans favor making the Bush tax cuts permanent for everyone, regardless of income.

According to the Web ad, which features the image of a car careening off a cliff, “A middle class tax cut is on the table, but tea party House Republicans are holding the middle class hostage to get more tax cuts for millionaires.”

The radio ads say: “Tea Party Republicans in Congress are about to send our middle class tax cuts off the fiscal cliff. Tell Congressman [fill in the blank]: don’t hold the middle class hostage to get more tax cuts for millionaires.”

The Democratic-controlled Senate has passed a bill that would extend the Bush tax cuts only for couples who earn less than $250,000, and that plan has been resisted by the Republican-led House. But we would quibble with the DCCC claim that House Republicans are “holding the middle class hostage to get more tax cuts for millionaires.” Most of those who would see a tax increase under Obama’s plan do not make $1 million a year — most make somewhere between $250,000 and $1 million.

We should note — as a number of our readers point out — that in this debate the term “millionaires” is shorthand for people who earn more than $1 million a year, not those who have accumulated $1 million worth of wealth over any number of years.

According to the nonpartisan Tax Policy Center, there are just over 2.8 million high-income individuals or couples who would be subject to higher tax rates under Obama’s plan. But just 433,000 of them have cash income above $1 million a year. That comes to about 15 percent. So nearly six out of seven people who would face higher taxes under the Obama plan are not “millionaires.”

The ad’s claim is not just a meaningless exaggeration. In fact, some Republicans have suggested that a palatable compromise in the fiscal cliff negotiations might be a slightly higher tax rate, if the threshold for those facing tax increases went from $250,000 to $500,000 or $1 million. For example, Republican Rep. Mike Simpson of Idaho said he could accept higher tax rates for couples earning more than $500,000 a year, provided Democrats concede to spending cuts in entitlement programs.

‘Time for Politics Has Ended’?

Crossroads GPS, which spent about $70 million on advertising during the 2012 campaign without much to show for it, is back on the air with a TV ad and five radio spots in an attempt to influence the fiscal cliff debate.

The TV ad says, “The time for politics has ended.” Yet, the radio ads target five Democratic senators up for reelection in 2014: Mark Begich of Alaska, Mary Landrieu of Louisiana, Kay Hagan of North Carolina, Tim Johnson of South Dakota and Jay Rockefeller of West Virginia.

The TV ad, which is titled “Over,” and the radio ads, which are titled “Balanced,” urge  Obama to come up with a “balanced plan” to reduce the deficit — co-opting the language of the president, who used the phrase “balanced approach” throughout his reelection campaign to call for a combination of tax hikes and spending cuts.

The radio ads say the president’s deficit-reduction plan is “one-sided” (debatable), includes “massive tax increases” (subjective), and adds “even more debt” (yes, but less than it otherwise would be).

Let’s take the issue of debt first.

The president’s starting position in the fiscal cliff negotiations was outlined in his 2011 deficit-reduction plan, which was later incorporated in his fiscal 2013 budget. The 10-year plan includes $1.6 trillion in tax increases and generously assumes about $3 trillion in savings — including $1 trillion in discretionary spending cuts agreed to a year ago and $800 billion less in military spending from ending the wars in Iraq and Afghanistan.

It’s true that the president’s budget would add “even more debt,” despite raising taxes. The nonpartisan Congressional Budget Office estimates (Table 1) that the president’s budget would result in $6.4 trillion in cumulative deficits over 10 years from 2013 through 2022.

However, CBO adds that is “significantly smaller than the amounts projected in the alternative fiscal scenario,” which assumes Congress will act as it has in the past — including extending the Bush-era tax cuts for all taxpayers, as proposed by Republicans. “Under that scenario, budget deficits would total $10.7 trillion over the 2013–2022 period, and debt held by the public would rise to $23.0 trillion by 2022,” CBO writes.

Also, the claim that the president’s opening proposal is “one-sided,” as Crossroads says, is debatable.

As we have written before, the administration exaggerates the amount of spending cuts in the plan. Treasury Secretary Timothy Geithner says the ratio of spending cuts to tax increases is “roughly 2 to 1,” which would rebut the suggestion that the plan is “one-sided.” But the administration includes about $800 billion in savings over 10 years from ending the Iraq and Afghanistan wars, and critics have said it’s a “gimmick” to include that money as “spending cuts.”

The president’s plan also includes:

  • About $600 billion worth of what the plan calls “cuts and reforms to mandatory programs” over 10 years. The plan proposes, for example, reduced Medicare payments to certain providers, including teaching hospitals and post-acute care facilities. But it also saves money by charging higher Medicare premiums and imposing new fees for some seniors — which would raise new revenue, not cut spending.
  • About $1 trillion in savings from caps on discretionary spending that are contained in the Budget Control Act of 2011. Republicans don’t view these as new spending cuts, because they are not part of the current negotiations. But Democrats count them because the 2011 negotiations resulted in spending cuts but no agreement on ways to raise more revenue.

The combination of more tax revenues and reduced spending would lower debt service payments by about $600 billion, according to the president’s plan.

— Robert Farley and Eugene Kiely