Finally, it's over. It was painful and I would have rather been watching baseball, but honestly, it was not quite as bad as the previous two debates between Sens. John McCain and Barack Obama in terms of abuse of the facts on taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. issues. That being said, however, both candidates did make many of the same dishonest and misleading statements they've made in the past two debates and on the campaign trail. And given that these falsehoods have been debunked countless times not only here but by other organizations like CNN, CQ, and Factcheck.org, the fact that they continue to spout them suggests that they don't really care about the truth and would rather just say what sounds good in front of a camera.
Since Sen. McCain went first in the debate, we begin with an analysis of his misleading and less-than-perfect comments.
Fact Checking Sen. McCain
Early in the debate, John McCain once again voiced his concern over the rising national debt and claimed that he could balance the budget in his first four years in office. But given that his tax policies contain major tax cuts that will not pay for themselves (especially in 2011 and 2012 after the Bush tax cuts expire), it is a pretty safe bet that Sen. McCain is not going to be balancing the budget in 2012. We definitely know that neither Obama nor McCain is going to balance the budget in the first year or two of his administration.
Next in the debate, for about the millionth time in the past six months, McCain said this about Sen. Obama's voting record:
Sen. Obama talks about voting for budgets. He voted twice for a budget resolution that increases the taxes on individuals making $42,000 a year.
Once again, that was a non-binding party-line vote taken earlier this year in the Senate. And if voting records on tax issues are relevant despite what the senator is proposing as a candidate, then shouldn't Sen. McCain's position on the Bush tax cuts in 2001 and 2003 (he opposed them) be fair game?
On the issue of energy, Sen. McCain said this about trade with Canada:
By the way, when Sen. Obama said he would unilaterally renegotiate the North American Free Trade Agreement, the Canadians said, "Yes, and we'll sell our oil to China."
What he doesn't understand is that even if Canada shipped the oil to China, the effect on the U.S. would be relatively small given that other oil that is currently going to China would flow to the United States. The difference would be transportation costs and any impact of a tariffTariffs are taxes imposed by one country on goods imported from another country. Tariffs are trade barriers that raise prices, reduce available quantities of goods and services for US businesses and consumers, and create an economic burden on foreign exporters. . Basically, this statement ignores the fact that there is a world market for oil.
Moving to the issue of health care, Sen. McCain said this in support of his $5,000 per family health care tax creditA tax credit is a provision that reduces a taxpayer’s final tax bill, dollar-for-dollar. A tax credit differs from deductions and exemptions, which reduce taxable income, rather than the taxpayer’s tax bill directly. :
The average cost of a health care insurance plan in America today is $5,800. I'm going to give them $5,000 to take with them wherever they want to go, and this will give them affordability.
The reason I bring this up is because later, Sen. Obama quoted the figure as being $12,000. It appears that Sen. McCain got his figure from this report, which says this: "Nationwide, annual premiums averaged $2,613 for single coverage and $5,799 for family plans in the 2006-2007 period. For single policies, annual premiums ranged from $1,163 for persons under age 18 to $5,090 for persons aged 60-64. For family policies, premiums ranged from $2,325 for policies covering children under age 18 to $9,201 for families headed by persons aged 60-64."
Obama's $12,000 figure appears to come from this Kaiser report.
Finally, McCain once again made this misleading claim about Sen. Obama's spending priorities:
Why can't we have transparency, accountability, reform of these agencies of government? Maybe that's why he's asked for 860 — sought and proposed $860 billion worth of new spending and wants to raise people's taxes in a time of incredible challenge and difficulty and heartache for the American families.
While the Tax Foundation has done no analysis on this issue, Maya MacGuineas of the Committee for a Responsible Federal Budget was quoted by CNN as saying the statement was "a misleading figure taken out of context."
Fact Checking Sen. Obama
Throughout the debate, Sen. Obama repeatedly showed an unfortunate ignorance of one of the fundamental principles of taxation: all taxes are paid by people. On multiple occasions, Obama claimed that businesses or corporations "can afford" to pay higher taxes. This statement is just ridiculous. Companies have no "ability to pay" taxes. Does the corporation's building pay the tax? How about its fax machine or water cooler? No. People pay the taxes. Here is one such example of why Sen. Obama would get an F in public finance:
Then Exxon Mobil, which made $12 billion, record profits, over the last several quarters, they can afford to pay a little more so that ordinary families who are hurting out there—they're trying to figure out how they're going to afford food, how they're going to save for their kids' college education, they need a break.
What Sen. Obama doesn't understand or doesn't want to tell the American public is that when Exxon Mobil writes that check to Uncle Sam, some person is paying the price for that. In the short run, that person could be a shareholder, a worker, or a consumer. But the fact that Exxon Mobil has a lower after-tax profit means that some person is worse off. For example, Exxon Mobil would likely reduce its dividend payment, or its share price could fall, and that hurts every person who was invested in Exxon Mobil at the time the tax was enacted.
And this reasoning isn't controversial. If you called up Obama's top economic advisers Jason Furman and Austan Goolsbee on November 5 (after the election) and asked them who pays taxes, both of them would tell you that people pay all taxes, and that a company merely acts as a means of collecting for the government the taxes imposed on owners of capital and in some cases, the company's workers. (In fact, if we truly taxed Haig-Simons income as a pure income tax would call for, it could be possible for no tax to be levied on a corporation, assuming retained earnings were taxed.)
Sen. Obama made a similar gaffe here:
Because after eight years of failed policies, he and I both agree that what we're going to have to do is to re-prioritize, make sure that we're investing in the American people, give tax cuts not to the wealthiest corporations, but give them to small businesses and give them to individuals who are struggling right now, make sure that we finally get serious about energy independence, something that has been languishing in Washington for 30 years, and make sure that our kids get a great education and can afford to go to college.
The fact of the matter is that there is no wealthy corporation. The stockholders of a corporation that holds in its business operation a lot of money (retained earnings) and assets may be wealthy, but the corporation itself is not wealthy. It just makes no sense. It's just populist rhetoric that merely sounds good.
On the issue of whose tax plan would provide more relief to middle-income taxpayers, Barack Obama once again brought out this line:
And 95 percent of working families, 95 percent of you out there, will get a tax cut. In fact, independent studies have looked at our respective plans and have concluded that I provide three times the amount of tax relief to middle-class families than Sen. McCain does.
The "95 percent" figure is correct. Even though many conservatives have argued that you can't cut taxes for people who pay no income taxes, most of those who are receiving refundable tax credits on the income tax side are still net taxpayers given that they do pay payroll taxes, corporate income taxA corporate income tax (CIT) is levied by federal and state governments on business profits. Many companies are not subject to the CIT because they are taxed as pass-through businesses, with income reportable under the individual income tax. , excise taxes, etc. (And even that assumes the fact that a person is a net taxpayer even matters, versus the net fiscal incidence of the person, and once we go down that road, at least we are actually getting somewhere on the core questions of public finance and the role of government in distributional outcomes.)
The independent study that Sen. Obama is referring to comes from the Tax Policy Center, which does indeed verify this fact for middle-income tax units when you exclude the effects of the two candidates' health care plans. What Sen. Obama doesn't tell us is that Sen. McCain's health care tax plan (which he criticizes on many occasions, and in his ubiquitous TV ads) would actually provide more savings to middle-income tax units (as a group) than Sen. Obama's health care plan. And when you include the effects of these health care plans, the "three-times as much tax relief" claim no longer holds. When TPC ran the tax plans, they analyzed the health care plans separately from the other parts of the candidates' tax plans.
Speaking of Sen. McCain's health care plan, Sen. Obama once again made this invalid comparison:
By the way, the average policy costs about $12,000. So if you've got $5,000 and it's going to cost you $12,000, that's a loss for you.
Sen. Obama's saying outright that Sen. McCain's plan is a loss for you is nonsense.
The $12,000 cost and $5,000 credit are not comparable unless one assumes two facts for McCain's health care tax plan: (1) the worker will be dropped by his employer, and (2) the worker's wages will not increase to offset the lost health care. For most workers, this isn't going to happen. If somebody is receiving $12,000 in health insurance that is now taxed as ordinary income (and there is no dropping of coverage), a $5,000 credit is going to more than offset the additional tax a person must pay on his/her employer-provided health insurance. Eventually, since the credit is indexed for inflationInflation is when the general price of goods and services increases across the economy, reducing the purchasing power of a currency and the value of certain assets. The same paycheck covers less goods, services, and bills. It is sometimes referred to as a “hidden tax,” as it leaves taxpayers less well-off due to higher costs and “bracket creep,” while increasing the government’s spending power. and not health-care costs, the credit's value would diminish. But over the next ten years, the Tax Policy Center has estimated that McCain's health care tax plan is a $1.3 trillion tax cut for American taxpayers, and they have shown that the average middle-income tax unit would be better off under McCain's health care tax plan than Obama's in that time period. Now it is true that the average doesn't hold for everyone in the middle, and some will gain a lot in the middle and some could lose a lot in the middle (such as those whose coverage is dropped), but the reality is that the health care tax plan is the most progressive part of Sen. McCain's plan. It would make the federal income tax more progressive.
Finally, on the issue of small businesses, Sen. Obama said this in defense of his tax plan's impact on small businesses:
The last point I'll make about small businesses. Not only do 98 percent of small businesses make less than $250,000, but I also want to give them additional tax breaks, because they are the drivers of the economy. They produce the most jobs.
That "98 percent" figure is technically correct under certain assumptions, but it's basically irrelevant given the latter point he wanted to make. Under Sen. Obama's metric where the mere number of tax returns affected by his tax plan is what matters (2 percent), a small business that earned $100 in business income and had only one employee would have the same "drive" of the economy as a small business that earned $500,000 in net income and had 50 employees. Obviously, that's ridiculous, but it fits with the theme of this campaign: if it sounds good, say it, even if it's misleading (or not true).
Summary
Is it November 5th yet?
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