Fox News hosted Americans for Tax Reform president Grover Norquist to advance a number of misleading and false claims aimed at undermining President Obama's tax plan. In reality, Obama's proposal includes significant spending cuts, raising taxes on the wealthiest households will not hurt the economy, and Americans support raising taxes on high-income earners.
CLAIM: Obama Is Only Proposing Tax Increases
Norquist: Obama's “Budget Is Nothing Except Tax Increases. The President's Negotiating Position Is Nothing Except Tax Increases.” On the November 26 edition of Fox News' Your World with Neil Cavuto, Norquist claimed Obama was only interested in tax increases, saying, “The president's budget is nothing except tax increases, the president's negotiating position is nothing except tax increases.” Host Neil Cavuto did not challenge Norquist's claim. [Fox News, Your World with Neil Cavuto, 11/26/12]
FACT: Obama's Deficit Plan Includes Significant Spending Cuts
CNN: Obama Seeking “A Balanced” Deficit Reduction Package That Is Heavily Weighted Toward Spending Cuts. Obama has expressed a desire to extend tax cuts for individuals with incomes below $250,000, but has said he would veto any bill that extends tax cuts for those making above that level. According to CNN, Obama's policy director, James Kvaal, said the president is seeking “a balanced plan that cuts the deficit by $4 trillion with $2.50 worth of spending cuts for every dollar in revenue.” [CNN, 11/9/12]
CBPP: $2 Trillion Of Deficit Reduction Is Enough To Stabilize The Debt Over The Next Decade. Center on Budget and Policy Priorities' Richard Kogan wrote that the $4 trillion figure for deficit reduction proposals “has assumed something of a life of its own,” and that “there is no single magic number” for deficit reduction. He added that “there can be risks in policymakers setting their sights too high. If the political obstacles facing a much larger deficit-reduction package are too great, then insistence on a package that goes well beyond [$2 trillion in deficit reduction] could lead either to failure” or “to a package that provides false security because it is dominated by budget gimmicks that don't actually reduce our long-term deficits but merely appear to do so.” [Center on Budget and Policy Priorities, 11/1/12]
Progressive Caucus Budget Includes More Revenue Proposals Without Cuts To Medicare Or Social Security Benefits. The Congressional Progressive Caucus released a budget for Fiscal Year 2013 that achieves $6.8 trillion in deficit reduction in a way that “makes no cuts to Medicare, Medicaid, and Social Security benefits.” The budget includes a variety of tax increases for high earners, including raising taxes on capital gains and dividends, eliminates fossil fuel subsidies, and invests trillions of dollars in jobs and infrastructure. [Congressional Progressive Caucus, accessed 11/15/12]
Senate Democrats Propose One Dollar Of Spending Cuts For Every Dollar Of Revenue; Obama Proposes $2.50 In Cuts For Every Dollar Of Revenue. Obama campaign advisor James Kvaal told CNN that the president wanted “a balanced plan that cuts the deficit by $4 trillion with $2.50 worth of spending cuts for every dollar in revenue.” Senate Democrats, on the other hand, are circulating a letter which says that “the president should insist on $1 in revenue for each $1 in spending cuts.” [CNN, 11/9/12; Politico, 11/14/12]
CLAIM: Increasing Tax Rates Hurts The Economy
Norquist: One Way To “Damage The Economy” Is To “Increase Marginal Tax Rates.” On Your World, Norquist claimed “there are two ways that you can damage the economy: one is to increase marginal tax rates.” Cavuto did not challenge Norquist's claim. [Fox News, Your World with Neil Cavuto, 11/26/12]
FACT: Increasing Taxes On High-Income Earners Doesn't Hurt Economy, Reduces Deficit
Congressional Budget Office: Allowing Tax Cuts For Wealthy To Expire Would Increase GDP By 1.3 Percent. In a November 2012 report, the non-partisan Congressional Budget Office (CBO) said that President Obama's proposal to allow the expiration of the Bush tax rates for higher wage earners while maintaining lower rates for those making $200,000 per year and less would increase GDP by 1.3 percent. From CBO:
The budgetary cost of extending the expiring tax provisions would be lower if certain provisions were allowed to expire that otherwise would apply to some high-income households. According to JCT and CBO's estimates, if the AMT was indexed for inflation beginning in 2012 and all of the other expiring tax provisions were extended except for the specific provisions affecting high-income taxpayers (and the payroll tax cut), revenues would be lower and outlays for refundable credits would be higher than $288 billion in fiscal year 2013 and by $382 billion in fiscal year 2014, compared with CBO's baseline projections.
CBO estimates that such changes would increase real GDP by 1.3 percent (by 0.3 percent to 2.3 percent under CBO's full range of assumptions), and increase full-time-equivalent employment by 1.6 million (with a range from 0.5 million to 2.8 million) in the fourth quarter of 2013. [Congressional Budget Office, November 2012]
CBPP: Tax Increases On High-Income Taxpayers “Would Not Hinder -- And Could Even Bolster -- Economic Growth.” According to the Center on Budget and Policy Priorities' Off the Charts blog, tax increases on high-income taxpayers “can reduce the deficit or fund investments that support growth” and “would not hinder -- and could even bolster -- economic growth”:
This blog series and our new report have shown that tax increases on high-income people of the magnitude under consideration would not change their behavior in ways that would hurt economic growth. Moreover, the revenues from tax increases can reduce the deficit or fund investments that support growth.
Put simply, tax increases on high-income taxpayers of the sort under consideration would not hinder -- and could even bolster -- economic growth. With this in mind, policymakers should aim for a balanced deficit reduction package that shares the load through a mix of tax increases and spending cuts. [Off the Charts, Center on Budget and Policy Priorities, 5/2/12]
Wash. Post: Expiration Of Upper-Income Tax Cuts “Would Do Little Harm” To Economy. The Washington Post's Wonkblog, citing a recent CBO report, explained that the expiration of the Bush-era tax cuts for the wealthy “would do little harm” and would generate "$42 billion in 2013." The graph below accompanied the post:
[Wonkblog, The Washington Post, 11/8/12]
CLAIM: Raising Taxes Would Result In Loss Of 700,000 Jobs
Norquist: “NFIB, The Small Business Group, Said [Raising Taxes] Would Kill Seven Hundred Thousand Jobs.” On Your World, Norquist, referring to an Ernst & Young study commissioned by the National Federation of Independent Business (NFIB) and other industry groups, said that the “NFIB, the small business group, said [raising taxes] would kill seven hundred thousand jobs.” Cavuto did not challenge Norquist's claim. [Fox News, Your World with Neil Cavuto, 11/26/12]
FACT: 700,000 Jobs Claim Based On Report That “Never Examined” Obama's Full Proposals
Ernst & Young: “Higher Marginal Tax Rates Result In A Smaller Economy, Fewer Jobs, Less Investment, And Lower Wages.” The study produced by the accounting firm Ernst & Young claimed to examine Obama's proposed higher marginal tax rates, and found that those rates “have significant adverse economic effects in the long-run”:
This report finds that these higher marginal tax rates result in a smaller economy, fewer jobs, less investment, and lower wages. Specifically, this report finds that the higher tax rates will have significant adverse economic effects in the long-run: lowering output, employment, investment, the capital stock, and real after-tax wages when the resulting revenue is used to finance additional government spending. [Ernst & Young, July 2012]
Wash. Post: Job Loss Claim Based On Ernst & Young Study Is “Simply Absurd.” Washington Post fact checker Glenn Kessler reviewed a claim made by Republican congressmen that tax increases proposed by Obama would “destroy nearly 700,000 jobs,” based on the analysis by Ernst & Young. Kessler gave the claim three Pinocchio's, calling it “simply absurd,” and explained the flaws with the Ernst & Young study, including that “the study never examined what Obama claims he will do with the revenue”:
First, the study was underwritten by the White House's opponents. Second, the study never examined what Obama claims he will do with the revenue -- dedicate it to deficit reduction. And finally, the figure is so “long term” -- more than 10 years away -- that it is absurd to suggest those jobs would be lost in the near term. [The Fact Checker, The Washington Post, 11/9/12]
National Economic Council's Jason Furman: Conclusions Of Ernst & Young Are "Dramatically Out-Of-Line With Estimates By Other Analysts." Jason Furman, the Principal Deputy Director of the National Economic Council, wrote that the Ernst & Young study “fallaciously assumes that the tax cuts are used to finance additional spending, ignoring the benefits of what the President actually proposed,” and is “dramatically out-of-line with estimates by other analysts”:
The study fallaciously assumes that the tax cuts are used to finance additional spending, ignoring the benefits of what the President actually proposed which was to use the revenue as part of a balanced plan to reduce the deficit and stabilize the debt.
Even setting aside the fact that the study ignores the effects of the President's tax proposals on short-term growth and long-term deficit reduction, the conclusions are still dramatically out-of-line with estimates by other analysts, including not only the Congressional Budget Office but also the Bush Administration Treasury Department. [The White House Blog, WhiteHouse.gov, 7/17/12]
Citizens For Tax Justice: Ernst & Young Study Is “Highly Suspect.” Citizens for Tax Justice, a research and advocacy organization focusing on tax policy, concluded that the study by Ernst & Young was “highly suspect” because “it makes methodological assumptions that are out of line with other independent studies”:
A new study by Ernst and Young is grabbing headlines by purporting to show that President Obama's plan to end most of the Bush tax cuts for the richest 2% of Americans would cause job losses over the long term. This study is highly suspect however because it makes methodological assumptions that are out of line with other independent studies, which actually show that the expiration of the Bush tax cuts would lead to increased economic growth over the long term.
As the White House explains, the study assumes an entirely unrealistic drop in the labor supply by medium and high income earners due to higher tax rates. Their expected labor supply response is nearly 10 times higher than the non-partisan Congressional Budget Office (CBO) assumes when it makes similar estimates on labor supply effects.
In addition, the Ernst and Young study makes the bizarre assumption that all of the additional tax revenue will be used for additional spending, rather than for deficit reduction. While it does not explain any reason for this assumption, the effect of it is to eliminate the possibility that the additional revenue will increase private investment by reducing the deficit's “crowding out” effect. [Citizens for Tax Justice, 7/19/12]
Media Matters: Report Was Prepared On Behalf Of Partisan, Conservative-Leaning Industry Organizations. A Media Matters investigation of Ernst & Young found that the report was prepared on behalf of partisan, conservative-leaning industry organizations that have “opposed Obama administration policies, including the Independent Community Bankers of America, the National Federation of Independent Business, and the United States Chamber of Commerce.” [Media Matters, 7/18/12]
CLAIM: Americans Don't Support Increasing Taxes
Norquist: “The American People Don't Want Their Taxes Raised.” On Your World, Norquist said that “the American people don't want their taxes raised; they've elected a Republican Congress opposed to raising taxes.” Cavuto did not challenge Norquist's claim. [Fox News, Your World with Neil Cavuto, 11/26/12]
FACT: Polls Show Americans Support Raising Taxes On Wealthy
Pew Research Center: Two-Thirds Of Americans Support Raising Taxes On Incomes Over $250,000. An October 2012 Pew Research Center survey found that two-thirds of Americans support increasing taxes on Americans making more than $250,000:
Public concern over the debt and deficit, already extensive, is only likely to increase as the so-called “fiscal cliff” approaches at the end of the year. Yet among a dozen specific options for reducing the debt and deficit, only two win majority approval from the public -- raising taxes on annual incomes over $250,000 (64% approve) and limiting corporate tax deductions (58%).
A new national survey by the Pew Research Center for the People & the Press, conducted Oct. 4-7, among 1,511 adults, including 1,201 registered voters, finds that cuts in education spending are particularly unpopular. Fully 75% disapprove of reducing federal education funding and 61% oppose cuts in funding for student loans. [Pew Research Center, 10/12/12]
2012 Election Exit Polls: 6 In 10 Voters Favor Increasing Taxes. National exit polling from the 2012 election also shows public support for raising taxes. From Politico:
Six in 10 voters nationwide say they think taxes should be increased, a welcome statistic for President Barack Obama and a sign that the president's attacks on Mitt Romney's proposed tax cuts for the wealthy may have been effective.
Almost half of voters said taxes should be boosted on Americans making more than $250,000 per year, and one in seven voters said taxes should be increased on all Americans.
Only about a third of voters said taxes should not be increased at all, the exit polls showed. [Politico, 11/6/12]