The Associated Press attempted to “fact check” President Obama's call for the reform of the tax code, especially as it relates to the so-called Buffett Rule. The White House describes the rule as the principle that “people making more than $1 million a year should not pay a smaller share of their income in taxes than middle-class families pay.”
Unfortunately, the claim AP is purporting to debunk isn't a claim that Obama is actually making.
The original version of the AP article begins:
President Barack Obama makes it sound as if there are millionaires all over America paying taxes at lower rates than their secretaries.
“Middle-class families shouldn't pay higher taxes than millionaires and billionaires,” Obama said Monday. “That's pretty straightforward. It's hard to argue against that.”
The data tell a different story. On average, the wealthiest people in America pay a lot more taxes than the middle class or the poor, according to private and government data. They pay at a higher rate, and as a group, they contribute a much larger share of the overall taxes collected by the federal government.
While the article claims “Obama makes it sound as if there are millionaires all over America paying taxes at a lower rate than their secretaries,” the speech that the AP cites makes no such claim and makes clear that Obama is calling for the Buffett Rule to be followed as part of a larger overhaul of the tax code.
From the president's remarks of September 19, with emphasis added:
So I am ready, I am eager, to work with Democrats and Republicans to reform the tax code to make it simpler, make it fairer, and make America more competitive. But any reform plan will have to raise revenue to help close our deficit. That has to be part of the formula. And any reform should follow another simple principle: Middle-class families shouldn't pay higher taxes than millionaires and billionaires. That's pretty straightforward. It's hard to argue against that. Warren Buffett's secretary shouldn't pay a higher tax rate than Warren Buffett. There is no justification for it.
It is wrong that in the United States of America, a teacher or a nurse or a construction worker who earns $50,000 should pay higher tax rates than somebody pulling in $50 million. Anybody who says we can't change the tax code to correct that, anyone who has signed some pledge to protect every single tax loophole so long as they live, they should be called out. They should have to defend that unfairness -- explain why somebody who's making $50 million a year in the financial markets should be paying 15 percent on their taxes, when a teacher making $50,000 a year is paying more than that -- paying a higher rate. They ought to have to answer for it. And if they're pledged to keep that kind of unfairness in place, they should remember, the last time I checked the only pledge that really matters is the pledge we take to uphold the Constitution.
At no point does Obama suggest that all or even most million-dollar earners pay lower rates than their secretaries. Indeed, AP acknowledges there are million-dollar earners who fall into this category:
There may be individual millionaires who pay taxes at rates lower than middle-income workers. In 2009, 1,470 households filed tax returns with incomes above $1 million yet paid no federal income tax, according to the Internal Revenue Service. That, however, was less than 1 percent of the nearly 237,000 returns with incomes above $1 million.
In addition to million-dollar earners who don't pay any federal income taxes at all are those who pay taxes at a very low rate. According to IRS data on the 400 taxpayers with the highest adjusted gross income in 2008 (an elite group, even among millionaires), 131 paid less than 15 percent in federal income taxes, and another 112 paid between 15 percent and 20 percent.
Furthermore, the Buffett Rule itself doesn't necessitate an increase in tax rates for high earners. In fact, according to the “Principles for Tax Reform” in Obama's deficit-reduction proposal, it would be part of changes that result in the opposite -- a lowering of rates and consolidation of brackets. From the proposal:
1. Lower tax rates. The tax system should be simplified and work for all Americans with lower individual and corporate tax rates and fewer brackets.
2. Cut Inefficient and Unfair Tax Breaks. Cut tax breaks that are inefficient, unfair, or both so that the American people and businesses spend less time and less money each year filing taxes and cannot avoid their responsibility by gaming the system.
5. Observe the Buffett Rule. No household making over $1 million annually should pay a smaller share of its income in taxes than middle-class families pay. As Warren Buffett has pointed out, his effective tax rate is lower than his secretary's. No household making over $1 million annually should pay a smaller share of its income in taxes than middle-class families pay. This rule will be achieved as part of an overall reform that increases the progressivity of the tax code.
Obama isn't saying that everyone making over $1 million currently pays less than the middle class and so needs a tax increase. He's saying that the tax code should be reformed in a way that ensures that, across the board, the wealthy aren't taxed at a lower rate -- which some million-dollar earners are.
Beyond that, the administration's tax proposals clearly state that the Buffett Rule isn't something that is going to be “impose[d],” as the AP claimed: "[Obama] proposed that Congress overhaul the tax code and impose what he called the 'Buffett rule,' named for billionaire investor Warren Buffett." The plan takes an approach to tax reform that will “move the tax system closer to observing the Buffet Rule.” A full reading of the president's plan makes clear that his proposals do this primarily by closing loopholes, limiting tax deductions for the top brackets, and letting the Bush tax cuts expire.
Since publishing the fact check this morning, the AP has subjected it to heavy revisions. However, posts reporting the story at National Review Online, the Weekly Standard, and Hot Air all quote from the original version of the story, ensuring it will live on in conservative mythology.