Former vice president Joe Biden has sought to avoid the trap of being called a tax-raiser by pledging that he will not raise taxes on anyone making less than $400,000 a year. Every substantive analysis of his plan shows that virtually all the revenue he seeks to raise would be gathered from the very wealthy or from corporations, with about half of the money coming from the top 0.1 percent and more than three-quarters from the top 1 percent of households.
So how does the Trump campaign come up with its numbers? With some really fishy math. We will examine these two statements separately.
“Biden’s plan is a 14 percent tax hike on middle-class families.”
The ad provides as a source for this statement “MarketWatch, 3/4/20.” A Trump campaign aide explained that this referred to an article that examined data from the Internal Revenue Service and concluded that because of the 2017 tax law signed by President Trump, the tax liability for workers making $40,000 to $50,000 a year decreased 14.5 percent in tax filings through November 2019.
But wait, didn’t we just say that Biden said he would not raise taxes on people making less than $400,000 a year?
The Trump aide explained that Sen. Kamala D. Harris, Biden’s running mate, in her debate with Vice President Pence, said: “On Day One, Joe Biden will repeal that tax bill, he’ll get rid of it.” So the aide said it was fair game to assume that every tax break in the 2017 law would be eliminated.
We have found this is a typical tactic of the Trump campaign. Officials grab on to a partial statement or minor flub and assert that reveals an actual policy position — even if it is the opposite of what is well-documented in campaign policy papers and speeches. This tactic, frankly, is Bush League behavior beneath the dignity of a presidential campaign. (Indeed, the Trump campaign was quick to complain when Biden started arguing that President Trump wanted to permanently eliminate the Social Security payroll tax. But in that case, Trump appeared to promise that a number of times before he was finally corrected by the White House. So it was not a one-off misstatement.)
During the debate, Pence tried to make this claim in real time, asserting: “You just heard Senator Harris tell you, on Day One, Joe Biden’s going to raise your taxes.” But Harris immediately objected: “That’s not what I said.” She then added: “I think this is supposed to be a debate based on fact and truth, and the truth and the fact is: Joe Biden has been very clear, he will not raise taxes on anybody who makes less than $400,000 a year.”
In other words, the campaign even ignores Harris’s corrective statement just minutes later in the debate to assert a patently false claim.
“Eighty-two percent of Americans would pay more.”
This claim offers the citation of “Penn Wharton 3/10/20.” This refers to the Penn Wharton Budget Model, which released an estimate on March 10 of the Biden plan’s effect on taxes.
“We project that 54 percent of the updated Biden tax plan falls on the top 0.1 percent of the income distribution, corresponding to an average tax increase of more than $1.3 million per taxpayer and an 18 percent reduction in their after-tax income,” the analysis said. “The top 1 percent of the income distribution pays about 80 percent of the tax change.”
So if the top 1 percent is paying 80 percent of the tax increase, how does the Trump campaign argue that taxes will increase for 82 percent of Americans? It’s because of a technicality in how these models are constructed — and it’s totally misleading in this context.
Biden has proposed raising the top corporate tax rate from 21 percent to 28 percent, arguing that Trump cut it too far. (It had been 35 percent.) Penn Wharton, along with other tax models, follows the lead of the Joint Committee on Taxation, the Congressional Budget Office and the Treasury Department and assumes corporations adjust to a higher tax by reducing investment returns or cutting workers’ wages.
Those theoretical reductions are then reflected in the after-tax income distribution tables, even if none of those lower-wage workers are directly affected by the corporate tax. The estimates are relatively small — for instance, a $180 average annual increase for taxpayers with income between $40,000 and $75,000 per year.
The Penn Wharton model has a handy feature that allows you to see the effect of the Biden tax plan without the corporate tax increase. When you click that option, the average tax change suddenly drops to zero for the bottom 90 percent of households. Even households between 90 percent and 95 percent would face an average tax increase of only $5. Nearly 97 percent of the tax increase would be paid by the top 1 percent.
The effect of corporate tax increases (or reductions) on after-tax income has long been the subject of debate among economists. It’s worth noting that when Trump cut the corporate income tax rate, the calculations worked in his favor because the models assumed that corporations would raise workers’ wages and thus after-tax income — something that does not yet appear to have happened. By reversing some of Trump’s tax cut for corporations, Biden gets dinged by the same tax models.
Economic advisers to the Biden campaign have argued that the models often do not take into account the effect of a variety of tax credits Biden has proposed — or spending programs aimed at the bottom half of the income spectrum — which might mitigate the theoretical impact of the corporate tax increase. Among other items, Biden proposes expanding the Earned Income Tax Credit (EITC), the Child and Dependent Care Credit and the Premium Tax Credit (PTC). He also would introduce a $15,000 refundable credit for first-time home buyers and a refundable rent credit.
Penn Wharton on Sept. 25 released an updated analysis of the Biden plan that incorporated the effect of many of the candidate’s proposed tax credits.
This analysis shows that, including the tax credits, taxes would be reduced for all taxpayers in the bottom 90 percent — even if the theoretical effect of the corporate tax cut was included. If the corporate tax cut is removed, then taxes go down for the bottom 95 percent, ranging from an average decrease of $180 in the bottom 20 percent of households to an average decrease of $1,100 in the 90th to 95th percentiles.
In other words, even if one accepted the need for including the effect of the corporate income tax, the updated Penn Wharton analysis shows that the “82 percent would pay more” argument is turned on its head because of Biden’s proposed tax credits. Instead, 90 percent would pay less. Naturally, the Trump ad ignores the fact that Penn Wharton has released a more comprehensive analysis.
The Pinocchio Test
Both of the claims in this TV ad are patently false. The first is based on an absurd reading of a comment made in the vice-presidential debate, ignoring Biden’s actual policies. The second stems from an early analysis of the Biden plans and largely depends on a technicality. An updated analysis from Penn Wharton shows that, when including Biden’s proposed tax credits, taxes would be reduced for taxpayers in the bottom 90 percent. So, the reality is the opposite of what the Trump campaign claims.
The Trump campaign earns Four Pinocchios.
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