Which party truly supports hard workers? That question is at the heart of a recent article from CNN’s Paul Begala. He claims that conservatives support a tax code that “honor[s] wealth and punish[es] work.” By contrast, “It is liberals who honor, extoll and reward hard work.” Unfortunately, his arguments, despite their popularity, are fraught with errors.
First, he says that liberals’ love of hard work is “why President Obama, Nancy Pelosi, Harry Reid and virtually all Democrats support raising the minimum wage”. I do not doubt that these people support hard work, but Begala chose an unfortunate example to prove it. Whether minimum-wage laws truly help the poor is a subject of some debate. Higher wages mean it costs more for employers to hire, and common sense should tell us that higher costs mean less-experienced applicants will likely be passed over. Those less-experienced are disproportionately likely to be the exact people minimum-wage laws are supposed to help. Low-cost jobs are needed for people to get the job experience that will qualify them for higher-paying jobs. As a result, minimum-wage laws may make it much harder for people to rise out of poverty.
He goes on to say that “President Obama and the Democrats cut taxes on working people by $3,600 over four years.”
Begala’s language makes it easy to come away thinking Democrats cut taxes by $3,600 each year for four years, when in truth, it is $3,600 total over the course of four years. The $3,600 figure comes from a report from the National Economic Council.
It comes from the Making Work Pay tax credit, which only lasted during 2009 and 2010, and the 2% reduction in FICA taxes during 2011 and 2012. The Making Work Pay credit was a fully-refundable tax credit worth a maximum of $800 for married couples filing jointly, reached when the couple made $12,000 in income. That makes $800 each year for two years, a total of $1,600.
The FICA reductions came from the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. The Census Bureau says that in 2011, the median American household income was $50,054. Thus, a 2% reduction in FICA taxes on $50,000 yields $1,000 in savings for each of the two years FICA taxes were reduced, a total of $2,000.
If these were really such successful programs that Begala uses them to prove that Democrats in general support the poor, why were they both allowed to expire after only two years? There are no plans to renew them.
Begala says that “Republicans seem to honor wealth and punish work. How else can you explain that they want a tax code in which a billionaire heiress pays nothing on her inheritance, while the hard-working maid who makes the heiress’ bed pays taxes on every nickel she earns?”
Why is it an injustice if nobody pays tax on their inheritance? What about someone dying gives government the right to their money? Further, there is a tax on inheritances. It’s called the estate tax. It just happens before the survivor inherits. This allows Begala to claim that there is no tax on the survivor, because the tax has fallen on the decedent’s estate, but that is a disingenuous word-game.
His final, and worst, argument is this: “Republican presidential nominee Mitt Romney pocketed $42 million during 2011 and 2012. He did not earn that money from work — he accrued it through wealth. His investments garnered him tens of millions while he ran around the country campaigning. And yet Romney merely paid 12% in taxes. By contrast, a cop married to a teacher, each making the median income of around $50,000 a year, pays a marginal tax rate of 25%. Even with deductions they are almost certainly paying a greater percentage of their income in taxes than mega-millionaire Romney.”
The problems here are numerous. For one, there is no readily accessible public information about Mitt and Ann Romney’s income in 2012 and Begala fails to cite the sources for his statistic. The Romneys’ tax documents for 2011 show that their income was $13.7 million, which includes money earned through foreign investments. This is far short of the $42 million Begala claims, and unfortunately, there is little evidence to trust his number.
Second, it is not true that the Romneys paid 12% of their income in taxes. They paid about $2 million in taxes, which makes their effective tax rate 14.1%. Simple web searches repeat the 14.1% statistic. However, none of these sites included the amount of foreign taxes they paid, which makes 14.1% an inaccurately-low estimate of their tax burden. Including foreign taxes paid shows the Romneys’ actual effective tax rate: 14.9%. Begala does not show any of his work nor give any evidence to suggest that 12% is the correct figure.
Begala’s hypothetical family (let’s call them the Joneses) made $100,000 in income, which would put them in the 25% bracket. He compares the Romneys’ effective tax rate (the average tax paid on every dollar earned) to the Joneses’ marginal tax rate (the highest tax paid on the next dollar earned). In setting up the Romneys’ real-world family against a gravely simplistic thought experiment, Begala disingenuously compares apples to fictitious oranges. Even if the Joneses ignore the most basic savings available to them and pay tax on their full $100,000 income, their effective rate is only 17.2%.
Begala assumes that deductions will give the Joneses little benefit. This is simply false. The Joneses should reduce their taxable income by $19,000 just by taking two personal exemptions ($3,700 each) and the standard deduction ($11,600). This alone brings their effective rate down to 12.5%. This is only 0.5% higher than the dubiously-low rate Begala quoted for the Romneys, and already much lower than their actual effective rate. But let’s continue assuming the Joneses are the average middle-class family Begala wants them to be.
2010 Census Bureau data says that the average number of minor children married couples had was 1.94. Assuming not much changed between 2010 and 2011, let us suppose the Joneses had two children under 18. This gives them two dependency exemptions and two doses of the child tax credit ($1,000 each). Tax Policy Center data from 2010 suggests that 65.5% of taxpayers like the Joneses in the 25% tax bracket itemized instead of taking the standard deduction. These people saved 2.4% on average over and above the standard deduction by itemizing. The Joneses then, being perfectly average, would save another $2,400. Combined, this brings their taxable income down to $69,200. In 2011, the 15% tax bracket ended at $69,000. Begala is right that deductions probably would not have reduced their marginal rate, but then again, the average four-person family making $100,000 is only in the 25% bracket by two hundred dollars.
With $69,200 in taxable income, the Joneses’ effective rate would have been 9.5%. The Romneys’ effective rate was 14.9%.
The debate can continue about which party truly supports hard work, but the arguments Begala presents should never be used for that purpose. Common sense and basic research with publicly-available data refute them. His language appeals to emotion, not to logic. His math is full of unverified assertions, disingenuous comparisons, and unreasonable assumptions.
The Romneys are not an example of unfairly-hoarded wealth. There should be no sense of outrage on behalf of the poor, middle-class Joneses. There is no injustice here.
But that is not what Paul Begala would have you believe.