"In exchange, we were able to get this payroll tax that put $1,000 -- tax cut that put $1,000 in the pockets of every American, which would help economic growth and jobs."
"The payroll tax cut that we passed in December put an extra thousand dollars in the pockets of every family in America."
— President Obama, July 6, 2011, in the “Twitter Town Hall”
We were off Wednesday so we are a day late looking at the president’s “Twitter Town Hall.” The quotes above jumped out at us because the president had some difficulty remembering his talking point, since he frames the impact of this year’s payroll tax cut three different ways.
Take your pick: The tax cut gave $1,000 to “almost every single American.” Or it “put $1,000 in the pockets of every American.” Or it “put an extra thousand dollars in the pockets of every family in America.”
The president hit the trifecta. None of those assertions is correct.
The president also brought up “millionaires and billionaires” again, as he did in his news conference, when he asserted: “If all we do is just go back to the pre-Bush tax cut rates for the top income brackets, for millionaires and billionaires, that would raise hundreds of billions of dollars. And if you combine it with the cuts we’ve already proposed, we could solve our deficit and our debt problems.”
We think it is a stretch to claim that the president $4 trillion-”framework” would “solve our deficit and our debt problems,” but assuming there are none of the usual budget gimmicks it certainly would be an improvement over his initial budget.
But the reference to “millionaires” also allows us to address the many reader questions we have received since we reviewed the president’s news conference last week and criticized him for not making clear that he would raise taxes on couples making an adjusted gross income of more than $250,000 a year (singles would face the higher taxes at $200,000 AGI.)
A number of readers asserted we had made a mistake because, they said, most people making more than $200,000 or $250,000 have a net worth of more than $1 million, thus making them “millionaires.” This is an interesting question and worthy of further discussion.
The December agreement between the White House and congressional Republicans cut the Social Security payroll tax from 6.2 percent to 4.2 percent. In other words, for every dollar a person earns, they would keep two cents that ordinarily go to pay for Social Security. (No tax is paid on any income over $106,800.)
Those pennies add up, but the president erred when he said $1,000 went to “every American,” “almost very single American” or “every family.” Only individuals or couples making more than $50,000 would get $1,000 or more.
A Treasury Department news release earlier this year said that the average payroll tax cut per worker would be $695. The news release also said that “some 159 million working Americans” would get some payroll tax relief. Given that the U.S. population is about 311 million, the president appears to have nearly doubled the number of people affected when he claimed “$1,000 in the pockets of every American.”
A White House official said that the tax cut averages $930 — almost $1,000! — for 80 percent of the families getting a payroll tax cut, but concedes that “the actual amount, though, varies by household — depending on their earned income.” (You can figure out exactly your tax cut this year by going to the White House tax cut calculator.)
In other words, the president never got his facts straight on this issue.
Finally, to answer readers’ question about the phrase “millionaire.” This was a small part of the column — he earned an average of two Pinocchios mainly for other reasons — but we wrote: “He also should have made clear that he would like to raise taxes on people making more than $250,000, rather than just ‘millionaires and billionaires.’”
Scores of readers wrote to protest, saying that most people making more than $250,000 have a net worth of more than $1 million, thus making them “millionaires.”
First of all, we checked with the White House and they did not claim he meant only people with a net worth of more than $1 million.
“On the itemized deductions proposal in our budget, the vast majority of the revenue — 70 percent — would come from people making over $1 million,” an official said. “It would also affect those making between 250K and 1 million per year. There’s no secret in that — we’ve been clear it’s the proposal in our budget.”
(For people who want to know about this proposal, including the fact that it might reduce tax benefit for itemized expenses to as low as 21 percent for some tax payers, there is an extensive analysis, starting on page 528, by the nonpartisan Joint Committee on Taxation.)
Second, though we did not come across firm data, we do not think it is correct to assume that most people making more than $200,000 or $250,000 are de facto millionaires. We looked up the Internal Revenue Service data; the most recent is for tax year 2008. The IRS breaks the data at the $200,000 mark, not $250,000.
Then, we looked at the estimate of the number of U.S. millionaires in 2008 calculated by Merrill Lynch Wealth Management and Capgemini for their annual World Wealth report. This survey calculates a high net worth individual as having having investable assets of $1 million or more, excluding primary residence, collectibles, consumables, and consumer durables.
We realize there are various measures of net worth. But excluding a primary residence and so-called “life style” assets makes sense if you want to eliminate so-called “paper millionaires” who can barely pay their credit card bills, car payments and mortgage loans.
We found that 4.38 million taxpayers reported adjusted gross income of more than $200,000, while there were 2.46 million people who met the Merrill Lynch-Capgemini definition of a millionaire. That’s a gap of almost 2 million, meaning almost half the people who make more than $200,000 do not have a net worth of more than $1 million.
The Pinocchio Test
We are always try to look at a person’s remarks in context. In this case, the president had three chances to get his talking point right regarding the payroll tax cut. He never came close.
We want to thank the readers who prodded us to look more deeply in to the question of millionaires. But we continue to believe it is misleading when the president refers to “millionaires” without making clear he would like to raises taxes on people making as little as $200,000 a year.
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