In an effort to discredit President Obama's plan to increase taxes on the wealthy, conservative media outlets have pushed a number of myths to suggest that a large number of Americans will be negatively affected. In reality, only a small percentage of taxpayers would be affected by Obama's proposals.
In an attempt to protect wealthy Americans from increased taxation, Fox erroneously reported the estate tax will affect a large number of small farms and businesses. In reality, President Obama's plan to increase the estate tax would only marginally increase the number of small farms and businesses subject to taxation, and those affected would experience low effective tax rates.
On Fox & Friends, reporter William La Jeunesse ran a segment highlighting California rancher Kevin Kester and his take on potential increases in the estate tax. Throughout the segment, La Jeunesse continually, and erroneously, referred to the estate tax as the "death tax," accompanied by the following chyron:
From the November 16 edition of Fox & Friends:
Of course, the entire purpose of the segment is to create the appearance that the estate tax, which is intended to be a tax on the very wealthy, falls on a large number of small farms and businesses. However, this is simply not the case.
The report highlights that President Obama plans to alter current estate tax policy, lowering the maximum exemption from $5 million to $3.5 million and imposing a 45 percent rate on estate values exceeding that amount. This proposal is simply a reversion to 2009 estate tax exemptions and rates.
According to an analysis by the Center on Budget and Policy Priorities using Tax Policy Center data, "only 40 small business and farm estates nationwide will owe any estate tax in 2012." CBPP previously estimated the change in the number of small farm and business estates affected by a reversion to 2009 policy:
Despite rhetoric from estate-tax opponents portraying small businesses and farms as being severely burdened by the estate tax, only 60 small farm and business estates in the entire country would owe any estate tax next year under the 2009 rules, TPC estimates. [Center on Budget and Policy Priorities, 7/24/2012, emphasis original]
In short, only 20 new small farm and business estates would be affected by President Obama's proposal. The same report notes the effective tax rate is far lower than the headline 45 percent rate due to "special provisions targeted to farm and business estates." Taking such provisions into account yields an estimated effective tax rate of 11.6 percent, which is lower than the current capital gains rate.
Attempting to characterize taxes on the wealthy as affecting a large number of Americans is not new for Fox, which has taken particular care to push those misleading claims in light of current federal budget negotiations.
Fox News botched its explanation of the so-called "fiscal cliff" to shield high-income earners from an increase in tax cuts and falsely claimed that preventing a tax increase on 98 percent of taxpayers would not contribute to alleviating the problem. In reality, extending tax cuts to the majority of Americans would help reduce consumer uncertainty, which would contribute to short-term economic growth.
Appearing on Fox & Friends, Fox personality Eric Bolling explained that if the so-called fiscal cliff is not averted, "514 billion dollars of new taxes will hit America on January 1, 2013." Hosts Brian Kilmeade and Steve Doocy then claimed that President Obama's plan to raise taxes on the highest 2 percent of income earners would fall short of solving "half the fiscal cliff," as Obama had suggested in his November 14 press conference. From Fox & Friends:
In the segment, Doocy claims and Bolling agrees that since raising taxes on the highest income earners would only raise $80 billion dollars in revenue, it would fail to solve "half the fiscal cliff."
But their argument, which matches a figure of revenue against a figure of tax increases, is deeply flawed. The $514 billion figure Bolling cites is an estimate of the increased tax burden -- not a revenue shortfall -- scheduled to take effect in 2013. In fact, the rise in taxes would undoubtedly increase revenue. Instead, he falsely suggests the $514 billion would increase the deficit and is inadequately covered for by the $80 billion in revenue from raising taxes on the wealthy. Claiming that $80 billion in additional revenue falls short of solving "half" of the $514 billion in tax increases is misguided, as both measures move in the same direction of increasing revenue.
Furthermore, Doocy's claim that Obama falsely said raising taxes would solve "half the fiscal cliff" from a revenue standpoint misrepresents Obama's actual comments. From his November 14 press conference:
OBAMA: And so the most important step we can take right now, and, I think, the foundation for a deal that helps the economy, creates jobs, gives consumers certainty, which means gives businesses confidence that they're going to have consumers during the holiday season, is if we right away say 98 percent of Americans are not going to see their taxes go up; 97 percent of small businesses are not going to see their taxes go up.
If we get that in place, we are actually removing half of the fiscal cliff. Half of the danger to our economy is removed by that single step.
Obama is referring specifically to the policy uncertainty caused by the so-called fiscal cliff, not the impact on federal revenue. Indeed, uncertainty is a real concern and creates a damaging economic effect, with consumer uncertainty perhaps having the greatest impact. According to David Brodwin of the American Sustainable Business Council:
Finally, uncertainty does matter--a lot--when it comes to consumer spending, even though it has nothing to do with whether small businesses hire. If a consumer is worried about layoffs at their work place, they cut back on their spending. If a consumer has inadequate insurance, they cut back on their spending. If a consumer is worried about how they'll afford college, they cut back on their spending.
All this time we've been worried about the wrong kind of uncertainty. We can forget about the uncertainty created by a small bump in the top-bracket tax rates. We need to address the demand-destroying uncertainty that still afflicts far too many ordinary Americans. Once we fix that, demand will return and jobs will follow. [U.S. News, 11/5/2012]
Since current law will impose both spending cuts and tax increases, agreeing to extend tax cuts on the majority of Americans would go a long way in removing the consumer side of the tax uncertainty "half" of the fiscal cliff.
Removing this uncertainty would restore confidence among consumers and allow them to have sound expectations regarding their taxes. Robertson Williams, a senior fellow at the Tax Policy Center, warned consumers that, without knowing what tax bills to expect in the coming year, they should not "spend every penny in [their paychecks] this side of New Years," which could negatively affect economic growth in the short-term.
Fox News is obscuring the national debate over how to balance the deficit while pushing myths that falsely discredit the Obama administration's record. Contrary to the Fox mythology, a downgrade of U.S. debt is not imminent, many economists believe the previous downgrade was due to Republican obstructionism, and raising taxes on the wealthiest households will not hurt employment.
Conservative media outlets have falsely suggested that President Obama's tax plan will negatively affect a broad range of taxpayers, while ignoring Obama's own statements that clearly indicate otherwise. In reality, only a small portion of earners would be affected by his proposed tax increases.
Fox Business host Gerri Willis reacted to President Obama's November 9 remarks on the economy by claiming that he plans to raise taxes on "lots and lots" of middle-income people. From Fox Business' Markets Now:
The speculation that Obama's tax plans will affect a large proportion of earners was also put forth in a National Review Online article, claiming that he "seemed especially intractable on tax hikes for the 'wealthy,' a rather broadly defined term."
However, Obama's statements do not suggest that a large number of earners would be affected by his tax plan. Here's what Obama actually said in his November 9 speech about asking the wealthiest Americans to pay slightly higher taxes on some of their income:
OBAMA: I am not going to ask students and seniors and middle class families to pay down the entire deficit, while people like me making over $250,000 aren't asked to pay a dime more in taxes.
According to most recent Census data, median household income in the U.S. is $50,054, well below the $250,000 threshold suggested by Obama, and only 2 percent of households earn more than $250,000 a year, leaving the vast majority of Americans unaffected by the proposed tax increases. Furthermore, Obama's tax aspirations have a negligible effect on the economy. According to a recent Congressional Budget Office report, allowing upper-income tax cuts to expire would have a modest effect on growth.
Fox Business' Lou Dobbs cited declining GDP growth from 2010 to 2011 to claim the economy is not getting better, failing to mention that the decline coincided with a steep drop-off in federal stimulus spending.
During a discussion on Friday's GDP report on America Live, host Megyn Kelly explained that while the 2 percent rise in GDP was due to increased federal spending, it is an improvement from previous quarters' figures. Dobbs disagreed, pointing to GDP growth rate decline from 2010 to 2011 to illustrate that the economy is not improving.
While Dobbs is correct that GDP growth did decline in 2011, he fails to recognize that this trend coincided with a slowdown in stimulus spending. Previous Media Matters research shows that the increase in GDP after the recession was a partly attributable to federal stimulus, and that the "fiscal drag" experienced in 2011 was due to a phasing out of stimulus spending. In an August 2011 report, the Congressional Budget Office estimated that 85 percent of stimulus funds had been spent by June 2011. In the same report, the CBO noted that the stimulus directly increased GDP growth by between 0.8 and 2.5 percent. Many economists predicted that the phasing out of stimulus funds would lead to a decline in economic growth. Paul Krugman claimed "when the spending begins to tail off, the effect on growth turns negative," and analysts at Deutsche Bank predicted "the real effect of lost stimulus will start to hit" in the first quarter of 2011.
Fox News' Eric Bolling compared two completely different measures of employment to revive the right-wing myth that the Labor Department is distorting economic data to help re-elect President Obama.
Bolling sought to demonstrate that the unemployment rate has not fallen to 7.8 percent, as reported by the Labor Department this month, by arguing that the number of jobs created in September was not enough to keep up with the number of previously unemployed people that are no longer unemployed. He went on to suggest that the lower unemployment rate is evidence of a conspiracy and urged Congress to investigate.
Bolling's math doesn't add up: his numbers come from two different surveys that measure different aspects of labor market conditions, two surveys that are conducted in different ways, which often leads to large gaps between the two findings.
In multiple segments on Fox News, reporter William La Jeunesse wrongly suggested that top earners in California would face an effective tax rate of 52 percent if plans by Governor Jerry Brown and President Barack Obama were implemented. Fox's calculation is based on a simple addition of top tax rates, which ignores key details of U.S. and California tax codes to provide an inflated rate.
On America's Newsroom, La Jeunesse claimed that if both tax plans were approved, "California's wealthy would pay 52 cents of every dollar earned in income taxes." From America's Newsroom:
Later, on Happening Now, La Jeunesse repeated the figure:
While both President Obama and Governor Brown have proposed increasing the rate on top income earners to 36.9 and 13.3 percent, respectively, Fox's claim that their plans would lead to an effective 52 percent tax on the highest income earners is misleading. It appears that the figure is calculated by simply adding state and federal tax rates. However, this method ignores two key points -- state income tax is deductible from federal taxable income, and both California and federal tax rates are progressive, applying different rates to different income brackets.
To illustrate the extent to which Fox exaggerates these numbers, Media Matters did some calculations of its own. Using progressive tax rates currently in place in California and the federal government, along with the proposed changes made by Brown and Obama, Media Matters constructed a simple effective tax rate for a California resident earning $2 million in income.
Based on the California tax rates, we estimate that under Jerry Brown's proposed tax plan, a $2 million earner would pay approximately $242,856 in state taxes. This amount is deducted from taxable federal income, bringing it down to $1,757,144. Under President Obama's tax plan, total federal taxes would amount to approximately $652,803 for a total state and federal tax bill of $895,659.
Based on these calculations, the effective tax rate for a person who earns $2 million in California is about 44.8 percent, well below Fox's inaccurate figure of 52 percent. The above calculation, of course, is not entirely representative of the tax burden felt by a high income earner, as it does not account for other factors such as local taxes and itemized deductions that could increase or decrease the effective tax rate. However, preliminary analysis suggests that Fox's incorrectly calculated and consistently reported 52 percent is an overestimate.
Fox Business anchor Melissa Francis suggested that the United States should eliminate the corporate tax because "companies don't pay taxes, their customers do" -- a statement of considerable debate among economists -- while overlooking potential revenue losses and negative economic effects if the tax were abolished.
In the Bulls & Bears segment, Francis claims that the burden of taxes levied on corporations is ultimately shifted to consumers. While economists have long realized that tax incidence can fall to other parties as Francis described, they are unable to agree who truly bears the burden for corporate taxes. From a New York Times article explaining the corporate tax debate:
Economists are divided on the issue. Some (including Gregory Mankiw) are persuaded that the corporate income tax ultimately falls mainly on labor, rather than on the presumably wealthier owners of capital. One can actually make a case for cutting the tax in the name of a more progressive income-tax structure, which should appeal to voters and politicians left of center.
Other economists, including the authors of the surveys cited above (Jane Gravelle, Jennifer Gravelle and Thomas Hungerford), are persuaded by the available empirical evidence on the five factors I note that the burden of the corporate tax ultimately rests mainly on the owners of capital. That also appears to be the operative assumption of the Congressional Budget Office, the Treasury and other agencies when they analyze the distributional impact of various forms of taxation. (The New York Times, 7/23/10)
While Francis never acknowledges this reality, more important is the fact that she completely overlooks the potential revenue loss from abolishing corporate taxes, claiming "the government doesn't need any more of your money." According to analysis from the Center on Budget and Policy Priorities, the corporate income tax is the third largest single tax contributor to the federal budget:
(Center on Budget and Policy Priorities, 8/20/12)
Abolishing the corporate income tax, a small percentage compared to revenue raised by income and payroll taxes, would still result in a substantial loss (about $184 billion in 2011 according to the graph above). Francis never addressed how to account for this lost revenue, which could negatively affect economic growth. The Financial Times further elaborates on potential revenue losses and negative economic effects:
But lowering the corporate tax rate is expensive - each percentage point reduction would cut revenues by about $120bn over 10 years. Scaling back the three largest corporate tax expenditures to pay for a cut could increase the cost of capital, thereby reducing investment and growth. (Financial Times, 9/17/12)
The share of federal revenues accounted for by the corporate tax has been on a consistent decline since the 1950s, made up for by increases in payroll tax revenues:
(Center on Budget and Policy Priorities, 8/20/12)
While increasing payroll taxes may help offset corporate tax revenues, the net effect on the economy could be largely negative. As previous Media Matters research points out, many economists believe that low payroll taxes will lead to jobs and economic growth.
Instead, many economists who are in favor of abolishing corporate taxes on efficiency grounds recommend abolishing preferential taxation of capital gains in order to make up for revenue shortfalls. However, given the right-wing media's unabashed defense of low capital gains tax rates, it is unlikely that would enter the discussion.
The right-wing media has claimed President Obama has no plan for the economy if re-elected. In fact, Obama has proposed numerous economic policies, including legislation that economists agree would lower unemployment and grow the economy.