Top Five Tax and Spending Lies from the State of the Union


Posted by Ryan Ellis, Mattie Duppler, Chris Prandoni on Wednesday, February 13th, 2013, 11:06 AM PERMALINK


Obama Claim #1:  “[The American people] know that broad-based economic growth requires a balanced approach to deficit reduction, with spending cuts and revenue, and with everybody doing their fair share.”

Reality:  According to the Congressional Budget Office (CBO), tax revenues to the federal government will double over the next decade, from $2.5 trillion in 2012 to $5 trillion in 2023.  Tax revenues will settle in at 19 percent of economic output, a full percentage point higher than the historical average.  That means that tax revenues every year will be running $150 billion to $200 billion higher than what we’ve come to experience as the norm since the Second World War. 

American taxpayers are already doing their part, Mr. President.  It’s time for Washington to go on a spending diet.

Obama Claim #2:  “We should do what leaders in both parties have already suggested, and save hundreds of billions of dollars by getting rid of tax loopholes and deductions for the well-off and well-connected.”

Reality:  Most so-called “tax expenditures” are actually common, everyday tax benefits enjoyed by the middle class.  As for denying these tax preferences to high-income households, that was already done as part of the fiscal cliff deal.  Besides, the tax code is already very steeply-progressive, and is only getting more so.  Washington’s giant debt and deficit problems are caused by overspending, not undertaxing.

Obama Claim #3:  “The American people deserve a tax code that…ensures billionaires with high-powered accountants can’t pay a lower rate than their hard-working secretaries.”

Reality:  This is a straw man argument and is intellectually-dishonest.  CBO has already shown that billionaires pay taxes at a far greater rate than a middle class family.

A typical middle income family faces an average federal tax rate (total federal taxes divided by income) of 11 percent.  The top one percent of families face an average tax rate of 29 percent.  That’s nearly three times as high. 

The middle quintile of taxpayers finance less than 10 percent of all federal taxes paid.  The top one percenters finance over 22 percent of all federal taxes.  This is more than twice as much as the middle quintile.

Whether it’s expressed as percent of income paid in taxes or as percent of all taxes paid to the government, it’s clear that progressivity is not one of the problems in our tax code.  Tax reform is not about punishing households (many of whom are small businesses paying taxes using individual rates), but about creating a pro-growth tax system that creates jobs and wealth for all Americans.

Obama Claim #4:  “Over the last few years, both parties have worked together to reduce the deficit by more than $2.5 trillion...Democrats, Republicans, business leaders, and economists have already said that these cuts, known here in Washington as ‘the sequester,’ are a really bad idea.”

Reality:  The President is claiming credit for the sequester savings while at the same time demanding the cuts be avoided. The $2.5 trillion in savings the President claims to have “worked together” with Congress to achieve are derived partially from spending caps in the Budget Control Act, and partially from $1.2 trillion in automatic spending cuts scheduled to take place over the next ten years. President Obama can’t avert those cuts while counting the savings as a successful token of bipartisan deficit reduction. Not mentioned in the speech? This “really bad idea” was Obama’s idea.

Obama Claim #5:  “So tonight, I propose we use some of our oil and gas revenues to fund an Energy Security Trust that will drive new research and technology to shift our cars and trucks off oil for good.”

Reality:  President Obama is triple-counting these tax hikes. Elsewhere in the speech he suggests that the tax increases on oil and natural gas companies should be used to reduce the deficit, pay for the sequester, and now to create a new “Energy Security Trust.” Raising taxes on oil and natural gas companies gives the government about $5 billion dollars in additional revenue annually, which is enough to avert about six percent of the sequester, reduce the deficit by 0.5 percent, or create a new “Energy Security Trust” but not do all three. And the repercussions of these tax hikes would be substantial, killing 48,000 jobs and reducing our domestic production by 700,000 barrels of oil. 

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