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A Project of The Annenberg Public Policy Center

Trump’s Economic Speech


Donald Trump made several false and misleading statements in a speech at the Detroit Economic Club on Aug. 8:

  • He distorted two quotes from Hillary Clinton in wrongly claiming she “wanted to raise taxes on the middle class.” The bottom 95 percent of taxpayers “would see little or no change” in taxes under Clinton’s plan, says the Tax Policy Center.
  • Trump misleadingly claimed that Clinton would “tax many small businesses by almost 50 percent.” The only tax policy change he’s referencing is a 4 percent tax on household income above $5 million, which Clinton has proposed.
  • Trump said he’d repeal the estate tax, saying Americans “should not be taxed again at death.” Fewer than 5,000 people had to pay any estate tax in 2014, and investments wouldn’t be “taxed again,” if they hadn’t been sold prior to the owner’s death.
  • He claimed he would save “2 million American jobs” by repealing the Affordable Care Act. That’s an old distortion of the Congressional Budget Office’s analyses, which found some workers would choose to work fewer hours or retire earlier mainly due to the insurance-expansion provisions of the law.
  • Trump uses outdated Census data to falsely claim that household income is “$4,000 less today” than it was 16 years ago.
  • Trump touted an increase in those who are “outside of the labor force” of nearly 14 million people under President Obama. That figure includes retirees — such as the baby boom generation — teenagers and stay-at-home parents.
  • Trump also said that “58 percent of African-American youth are either outside of the labor force or not employed.” That factors in those age 16 to 24 who are not looking for work, which would include many in school.

Clinton and Middle-Class Taxes

In his speech, Trump combined two misheard quotes to wrongly claim that Clinton wants to raise taxes on the middle class. But as the Tax Policy Center has concluded, under Clinton’s plan, “the bottom 95 percent of taxpayers would see little or no change in their taxes.”

Trump, Aug. 8: Recently, at a campaign event, Hillary Clinton … short-circuited again, to use a now-famous term, when she accidentally told the truth and said that she wanted to raise taxes on the middle class.

There are actually two Clinton quotes taken out of context in this Trump statement.

The “short-circuited” comment came during a conference of black and Hispanic journalists on Aug. 5. Clinton was asked to explain her claim in a “Fox News Sunday” interview that FBI Director James Comey found her public statements about not sending or receiving classified email on her private server to be “truthful.” (It’s a claim we looked at and concluded was false.) Clinton said that she and “Fox News Sunday” host Chris Wallace “were probably talking past each other” and, she said, “I may have short circuited it” —  meaning her answer to Wallace.

Although that context is clear, Trump had some campaign fun with the remark, claiming that Clinton said she herself “short-circuited.”

The second Clinton quote taken out of context came during a speech Clinton gave recently in Omaha, Nebraska. Trump claims that Clinton said, “We are going to raise taxes on the middle class.” The Clinton campaign says that she said, “We aren’t going to raise taxes on the middle class.”

Our fact-checking colleagues at PolitiFact reached out to a linguistics professor at the University of Chicago who ran the audio through a computer program that analyzes phonetics. PolitiFact concluded that Clinton said “aren’t,” “because she definitely pronounced the ‘n,’ though she didn’t really hit the ‘t.’”

Regardless of whether or not one hears the “t,” the context of Clinton’s speech and her consistent claims on the campaign trail make clear that Clinton meant to say that she didn’t intend to raise taxes on middle-income earners. More important, as we have written before, the Clinton tax plan would not raise taxes on middle-income earners.

According to a Tax Policy Center analysis of Clinton’s tax plans to date, “Nearly all of the tax increases would fall on the top 1 percent; the bottom 95 percent of taxpayers would see little or no change in their taxes.”

The Clinton campaign website claims she would give “working families … tax relief that helps them manage rising costs.” The Clinton campaign points to several tax cuts that Clinton supports, such as a tax credit for out-of-pocket health care costs, tax relief for families caring for ailing parents or grandparents, and an extension of a tax credit for college tuition. But those are all targeted tax relief measures, not across-the-board tax cuts for middle-income families.

The Clinton campaign told us “there will be more” middle-income tax cuts, but has not revealed any further details.

https://www.sharethefacts.co/share/739a9ede-08fe-4193-bbd0-5e173e716aa9

 

‘Small-Business’ Taxes

Trump said Clinton’s plan “would tax many small businesses by almost 50 percent.” That’s a reference not specifically to “small businesses” but to households earning more than $5 million a year. Such households already pay a marginal income tax rate of up to 43.4 percent; Clinton proposes an additional 4 percent tax on income above that threshold.

That would apply to a small fraction of “small businesses.”

To be clear, Trump isn’t talking about corporate taxes. Instead, he’s talking about individual income taxes. Business owners who are part of partnerships, LLCs and sole proprietorships pay taxes on profits through their individual tax returns — what’s called pass-through taxes. Anyone who invests in such businesses — not necessarily runs or operates them — and therefore gets disbursements from profits, pays these pass-through taxes on their individual returns.

A footnote to Trump’s speech explains how Trump arrived at the “nearly 50 percent” tax. It says: “the Sum of a Statutory Rate of 39.6%, a Medicare Wage and Salary Surcharge of 0.9%, a Medicare Investment Income Surcharge of 3.8%, and an Income Surcharge over $5 million of 4.0%.” That adds up to 48.3 percent.

Tax experts told us that figure is a little too high because, as Alan Cole, an economist at the Tax Foundation explained to us, the 0.9 percent Medicare surcharge is mutually exclusive with the 3.8 percent net investment income tax. So, he said, adding all those together would never get to more than 47.4 percent.

And all but 4 percent is in existing tax policy.

The top statutory rate is currently 39.6 percent. It was first set at that rate under President Bill Clinton, Cole said, but was then temporarily lowered to 35 percent as part of President George W. Bush’s 2001 tax cuts. However, President Obama and Congress allowed the lower rate to expire under the American Taxpayer Relief Act of 2012.

The 3.8 percent net investment income tax was implemented as part of the Affordable Care Act. So was the 0.9 percent additional Medicare wages tax.

The only new tax that is proposed by Clinton is her plan for a 4 percent tax on income over $5 million (or $2.5 million for married couples filing separately).

“That is based on adjusted gross income (AGI), so it would apply to pass-through business income reported on individual returns,” said Joseph Rosenberg, a senior research associate at the Tax Policy Center.

And, Rosenberg said, it would only apply to a small fraction of business owners with very high incomes.

How many exactly?

Rosenberg told us there is no perfect answer, but based on the most recent year of IRS data:

  • About 34,000 returns had AGI above $5 million.
  • About 9,000 returns with AGI over $5 million reported either a net profit or loss on Schedule C (out of the 23.5 million returns overall).
  • About 30,000 returns with AGI over $5 million reported either a net profit or loss from a partnership or S corporation, which is less than 0.4 percent of the 8.5 million returns overall.

Cole explained: “There are about 34,000 tax filers above Hillary Clinton’s $5 million threshold. Since a lot of such high-income taxpayers have income from one or more pass through businesses, there are probably quite a few businesses that would be affected in some way. But there would also be millions that wouldn’t be.”

So, the current top possible rate on individual income (and therefore, pass-through business income) is 43.4 percent, which would increase to 47.4 percent under Hillary Clinton’s proposals, which would apply to only multimillionaires.

https://www.sharethefacts.co/share/c7214ec9-f1fc-4090-8d91-296acf91030e

 

And Estate Taxes

Vowing to repeal the estate tax, Trump said that “American workers have paid taxes their whole lives, and they should not be taxed again at death.” Very few estates — roughly one out of 500 — were subject to the federal estate tax in 2014.

Trump: Finally, no family will have to pay the death tax. American workers have paid taxes their whole lives, and they should not be taxed again at death – it’s just plain wrong. And most people agree with that. We will repeal it.

In 2015, the first $5.43 million is exempt from the estate tax (and it’s double that for couples). The value of an estate over that is taxed at a rate of 40 percent. As a result of that threshold — much higher than in decades past — very few actually pay any federal estate tax. In 2014, for example, among the nearly 2.6 million deaths, fewer than 5,000 people had to pay any estate tax, according to the IRS.

As for Trump’s claim that families are “taxed again at death” — which echoes a frequent criticism that estates are subject to double taxation — as we have written in the past, that’s only the case for cash that had been taxed when it was earned as income. Investments, such as stocks, bonds and real estate, would not have been taxed before, if they had not been sold prior to the owner’s death.

https://www.sharethefacts.co/share/044affa7-30f5-43a9-abca-d0740ec71dba

 

An Old Distortion of CBO’s Analysis

Trump resurrected an old GOP talking point in claiming he’d save “2 million American jobs” by repealing the Affordable Care Act. Trump is twisting the Congressional Budget Office’s analyses of the law. The CBO has estimated a decline in the amount of labor workers choose to supply — not a reduction in the number of jobs — in response to mainly the insurance-expansion provisions of the ACA.

Trump: One of my first acts as president will be to repeal and replace disastrous Obamacare, saving another 2 million American jobs.

The Trump campaign’s prepared remarks cite a December 2015 report by the nonpartisan CBO, which describes workers deciding to work fewer hours or retire earlier than they otherwise would mainly in response to the law’s income-based subsidies and other coverage-expanding provisions. The report says it all amounts to a reduction in the supply of labor equal to 2 million full-time equivalent workers in 2025. It’s not a loss of 2 million jobs.

CBO, “How CBO Estimates the Effects of the Affordable Care Act on the Labor Market,” December 2015: Some provisions of the law will raise effective tax rates on earnings from labor — for instance, by phasing out health insurance subsidies as people’s income rises — and thus reduce the amount of labor that workers choose to supply. Other provisions will reduce the labor supply by imposing higher taxes on labor income directly; an example is the ACA’s increase in the payroll tax that high-income workers pay for Medicare’s Hospital Insurance (HI) program. And the ACA’s health insurance subsidies will make it easier for some people to work less or stop working without losing health insurance coverage.

Republicans have been distorting this finding from the CBO for years. We wrote about the talking point in 2014, when several members of Congress inaccurately claimed a CBO report was on “lost jobs” due to the ACA. In fact, that report, like the updated estimate released in December, said the health care law would cause a reduction in “the amount of labor that workers choose to supply.”

A day after the 2014 report was released, then-CBO Director Douglas Elmendorf explained in a congressional budget hearing why claims about “lost jobs” would be wrong. “The reason that we don’t use the term ‘lost jobs’ is there’s a critical difference between people who would like to work and can’t find a job or have a job that is lost for reasons beyond their control and people who choose not to work,” Elmendorf said on Feb. 5, 2014.

Back in 2011, in a GOP presidential debate, Rep. Michele Bachmann of Minnesota was twisting an earlier CBO report on this topic.

The 2015 CBO report goes into detail on how CBO calculated its estimates and how the law would impact the amount of labor that some workers would choose to supply. For instance, those who receive premium assistance subsidies (available to those earning between 100 percent and 400 percent of the federal poverty level) would get less in subsidies if their income rises above certain levels, since the subsidies are phased out based on income. That would create a disincentive to work more hours for some of those workers, who essentially wouldn’t get enough of a benefit from the additional work to make up for the loss in subsidies.

Some in that situation may also realize they don’t have to work more in order to pay for health care. “The exchange subsidies also boost recipients’ effective income, on average, by reducing their out-of-pocket spending on health care or health insurance,” CBO explains. This would then “reduce the amount of labor that recipients supply.”

CBO also explains how insurance-regulation provisions that prohibit the denial of coverage to those with preexisting conditions and limit premium pricing based on age “lower the cost of insurance plans available to many older people outside the workplace. As a result, some will choose to retire earlier than they would have otherwise, CBO expects.”

A Medicare payroll surtax in the law — of 0.9 percentage points for those earning more than $200,000 (or $250,000 for couples) a year — will also reduce the supply of labor, CBO says.

The CBO noted that these estimates are uncertain for various reasons, one of which is that the analysis relies on estimates of how people may react to work incentives.

Conversely, in a June 2015 report on the impact of repealing the ACA, the CBO estimated that repeal would “increase the aggregate number of hours worked by about 1.5 percent over the 2021–2025 period.”

https://www.sharethefacts.co/share/bceb49f9-f88c-417b-b2a1-f875be0a3aac

 

Household Income

Trump falsely claimed that household income is “$4,000 less today” than it was 16 years ago. That was the case in 2014, but not today.

Trump: American households are earning more than $4,000 — think of that — $4,000 less today than they were 16 years ago.

The Trump campaign points to annual Census data for real median household income, which is adjusted for inflation, to support his claim. But that Census data — which is derived from the American Community Survey — is current only through 2014.

Real median household income was $53,657 in 2014 — down from $57,724 in 2000. That’s how Trump arrives at his “more than $4,000″ figure.

However, as we have written before, Sentier Research provides more current household income estimates based on the monthly Current Population Survey, a different statistical series from the Census Bureau and the Bureau of Labor Statistics. Sentier’s most recent report places the median household income at $57,206 as of June — slightly below the $57,826 it was in January 2000, which is when this statistical series started. That’s a difference of just $620 — not more than $4,000.

The Sentier Research estimate reflects economic changes since 2014. As we have also written before, paychecks are rising faster than inflation — especially in the last two years. The most recent figure on average weekly earnings for all workers in June was 3.1 percent above the figure for the same month in 2014.

Trump’s use of the 2014 Census data is outdated and inaccurate.

https://www.sharethefacts.co/share/e7039e49-db4b-4ed9-aaa7-0792820117d2

 

Labor Force Participation

Trump said that the number of people “outside of the labor force” is up by 14 million under President Obama. However, that figure includes millions of retirees and students who do not want to work.

Trump: There are now 94.3 million Americans outside of the labor force. It was 80.5 million when President Obama took office, an increase of 14 million people.

Trump’s figures are correct based on the most recent seasonally adjusted data from the U.S. Bureau of Labor Statistics. Those who are not in the labor force are not working and not looking for work. And most of those people have no desire to work.

BLS provides a breakdown of the 92.9 million people outside the labor force as of July 2016 (that’s the nonseasonally adjusted figure). It includes almost 39 million retirement-age Americans 65 and older. It also includes 9.5 million teenagers — age 16 to 19 — many of whom aren’t looking for jobs. It includes 5.8 million 20- to 24-year-olds, some of whom are in college. Millions of stay-at-home parents are also among those not in the labor force, as well as early retirees and anyone else who doesn’t need or want to work.

Of all those not in the labor force, just over 6.2 million want a job, according to BLS data. When Obama took office in January 2009, the figure was 5.9 million.

As we have written before, the change in the labor force is mostly due to demographic factors, such as the retirement of post-World War II baby boomers.

Trump also said that “58 percent of African-American youth are either outside of the labor force or not employed.”

Trump’s campaign cited annual average data for 2015 from the BLS. That year, 583,000 African Americans age 16 to 24 were unemployed. That was roughly 9.9 percent of the total civilian noninstitutional population for African Americans in that age group.

To get to 58 percent, the Trump campaign also counted the nearly 2.88 million African Americans 16- to 24-years-old — many of whom are in school — who were not in the labor force, which, as we mentioned, means that they are not working and not looking for work.

As of July 2016, 22.5 percent of the labor force for African Americans in that age group — who were not enrolled in high school or college — were unemployed, according to the most recent nonseasonally adjusted data from the BLS.

Correction, Aug. 9: We originally wrote that the unemployment rate for African Americans age 16 to 24 averaged 10 percent for 2015. That’s the percentage of the civilian noninstitutional population for African Americans in that age group that were unemployed.

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