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More Bogus E-mails About Obama and Taxes

5 min readBy: Gerald Prante

Earlier this year, the 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. Foundation was bombarded with questions about a bogus e-mail that had been floating around (also on message boards, blogs, etc.) comparing taxes under Bush to Clinton. The e-mail had many problems, which we documented here. Since then, we’ve also gotten questions about our corrected figures, claiming they were wrong. They are not, and it largely stems from a misunderstanding of how comparisons must take into account the fact that parameters in the tax code are adjusted 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. each year, even with no direct policy change (i.e. that is the current law baseline).

But that Clinton/Bush tax bogus content is still out there, and it is now being included in an e-mail chain attacking Barack Obama about taxes. (View the content of the e-mail here.) The e-mail makes incorrect claims about Obama’s tax proposals, as described in the table below.

E-mail claim Fact

Obama would tax capital gains on ALL home sales at 28 percent

LIE. Obama’s plan (like McCain’s) does not change much the tax treatment of capital gains on owner-occupied housing (I wish it did), which means most home sales would remain tax exempt. Obama does plan to raise the rates on long-term capital gains that are currently taxed at preferred rates (15 percent), but this would only affect second homes and the small fraction of primary homes whose capital gain exceeded $500,000 (rare).

Obama would raise the tax rate on dividends to 39.6 percent

LIE. Merely repealing the Bush tax cuts (or allowing them to expire) would raise the dividend tax rate to 39.6 percent for those in the top income bracket (about 1 percent of tax returns, though a large share of dividends). However, Obama has indicated that he would apply the same tax rate on dividends as capital gains, which he has indicated would not exceed 28 percent.

Income tax bills for typical families would increase, even double for some

Outright LIE…not even close to the truth. As discussed earlier… Same as here. “Clinton-era” tax law assumed to be the same as Obama. But figures cited are wrong for many reasons.

Inheritance Tax under McCain = 0; Obama restored

LIE. Actually, McCain does not favor permanent repeal of the estate tax. And Obama does not want it fully restored. Obama would impose a 45 percent tax rate with $3.5 million exclusion, which is lower than pre-Bush tax cuts, yet significantly higher than 2010 scheduled law ($0).

Obama would impose new government taxes on homes that are over 2,400 square feet

LIE. This is the most outrageous claim. This appears to stem from Congressman John Dingell’s proposal that would cap the mortgage interest deduction for large houses for environmental purposes. Obama has not favored such a proposal and even if he did, it would not be a new “tax” per se, just a limitation of what I would call an already bad tax provision (MID). Obama does favor a cap-and-trade system (like McCain), which is in implicit tax, but such an implicit tax would hit all homes indirectly based largely upon energy consumption.

Obama would impose new gasoline taxes

Ambiguous…Obama does favor a windfall profits tax on oil companies, which would likely raise the price of gasoline. However, he has not indicated support of raising the federal excise tax on gasoline (currently 18.4 cents).

Obama would impose new taxes on natural resource consumption (energy, natural gas, etc.)

Ambiguous…Obama does not favor any direct tax on these products (except for windfall profits tax on oil companies). However, again, a cap-and-trade system would act as an implicit tax on these oil companies, so this is not too outlandish of a claim (compared to the rest of them). It should be pointed out though that McCain supports practically the same policy.

New taxes on retirement accounts

Basically a lie. Obama has not said anything about a new tax on retirement accounts, unless one wants to argue that indirectly, he would affect the return on retirement accounts through his individual and corporate tax policies and dividend/capital gains policies. In fact, when it comes to direct taxes on retirement, Obama has proposed exempting seniors (those who most likely claim retirement income) who make under $50,000 from an income tax.
(In my personal view, this is his worst proposal — as if this generation of seniors hasn’t gotten enough from government already. Furthermore, there is a fairness question about what to do with those who use Roth accounts and have paid taxes on pension income already.)

New taxes to pay for socialized medicine

Yes and No. Obama does have a universal health care plan that one could label socialist to some extent, although our current system has a large degree of implicit government payments through the exclusion of employer-provided health insurance. However, Obama has not said new taxes would pay specifically for that socialized medicine although he does favor some new taxes (higher income taxes on upper-incomes, higher payroll taxes on upper-income workers and a windfall profits tax). Such a claim is not possible to verify or refute due to the fact that all government money is basically fungible.

This correction of the bogus content is not an endorsement of Obama’s tax plans. In fact, in my opinion, Obama’s tax plan is terrible. Even if you wanted to make the tax code more progressive as Obama’s main goal is, you could do it in a much better way than Obama has done (in a way that actually improves the tax code). Obama’s tax plan is basically to raise taxes on the rich to spend money on the poor, yet call that spending “tax cuts.” (The Republicans had a similar twisted view of “tax cuts” with the child 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. in 1997 and 2001.) As for McCain’s deficit-financed tax plan…we’ll leave that for another day.

*Another Incorrect Assumption About Obama’s Tax Plan*

The Center for Freedom and Prosperity released a video narrated by Cato’s Dan Mitchell on July 23rd on Youtube discussing Obama’s Social Security tax hike. In the video, Mitchell assumes that Obama would impose a full 12.4 percentage point rate increase on high-income workers. However, while Obama may have waffled on this issue a few months ago, details have emerged from the campaign indicating that he would only raise the payroll taxA payroll tax is a tax paid on the wages and salaries of employees to finance social insurance programs like Social Security, Medicare, and unemployment insurance. Payroll taxes are social insurance taxes that comprise 24.8 percent of combined federal, state, and local government revenue, the second largest source of that combined tax revenue. (combined employer/employee) by 4 percentage points, as we blogged on earlier this month. Again, this doesn’t make it a good policy necessarily, but the facts need to be set straight.