American Future Fund's Tax Attack Not Based In Fact

October 15, 2010 9:25 am ET

The American Future Fund has released a new attack on Rep. Bruce Braley (D-IA), using a vote to adjourn the House to suggest that he isn't "fighting for lower taxes" for Iowa's families. Not only does AFF's misleading ad falsely claim that the "biggest tax hike in American history is looming," it suggests that the economic fate of middle class families and small businesses is on the line. In fact, it is the fate of the Bush-era tax cuts for the wealthy that is uncertain. Congressional Democrats agree that tax cuts for the middle class should be extended, and plan to vote on such an extension after the midterm election.

American Future Fund: "Adjourn"

Bruce Braley says he supports tax cuts for Iowa families. But with the biggest tax hike in American history looming, Braley was the deciding vote to adjourn the House. Instead of fighting for lower taxes, Braley went home. Tax hikes will cost middle class Iowa families $1,600 each, and new taxes will cripple Iowa's small businesses. Tell Braley: Don't vote to raise taxes on Iowa families. American Future Fund is responsible for the content of this advertising.

Allowing The Bush Tax Cuts To Expire Would Not Be "Biggest Tax Hike In American History"...

PolitiFact: Neither The Expiration Of All The Bush Tax Cuts Nor Those For High Earners Would "The Largest" Tax Hike In History. According to the non-partisan PolitiFact.com, in an analysis of similar claims made by Sarah Palin on Fox News Sunday:

We ran the number with some help from tax experts and found that if only the tax cuts for high earners expire, the resulting tax increases would not be the largest in history. Tax increases for high earners would be roughly 0.4 percent of GDP in the first year they take effect. That's significantly less than a 1982 tax increase signed into law by President Ronald Reagan. The tax increase resulting from the Tax Equity and Fiscal Responsibility Act of 1982 came to 1.23 percent of GDP when the tax changes were fully implemented, four years after the law's passage.

If you let all the Bush tax cuts expire, the tax increase would come to just above 2.2 percent of GDP. Clearly, that would be larger than the Reagan tax hike of 1982. But it would be smaller than one of the tax increases passed during World War II -- the Revenue Act of 1942, which is estimated at 5.04 percent of GDP." [PolitiFact.com, 8/1/10, emphasis added]

...And Congressional Democrats Plan To Extend Tax Cuts To 97% Of Americans

PolitiFact: Dems Consistently Say Only Tax Cuts For Wealthiest Will Be Allowed To Expire. According to the non-partisan PolitiFact.com, in their analysis of an allegation from Rep. Mike Pence that Democrats want all tax brackets to rise:

Do Democrats want every tax bracket to rise, as Pence suggests? In a word, no.

For many months, Democratic officials have consistently said that they intend to let only the tax cuts for the wealthiest individuals lapse. The cutoff they usually suggest is $200,000 for individuals and $250,000 for married couples filing jointly. President Obama campaigned on just such a plan, and we've logged those promises into our Obameter campaign promises database.

[...]

Pence is right that every tax bracket will go up if the law is not extended. Still, we think the claim that Democrats don't want to extend the law is inaccurate. While the legislative drafting is still in process, the Democratic majority in Congress has made clear that it plans to extend tax cuts for all but the top couple percentage points of the income distribution. So it's highly misleading for him to say that Democrats actually want to see all the bill's cuts expire. Indeed, Pence's comment verges on a scare tactic.

[PolitiFact.com, 7/22/10, emphasis original]

Reuters: "Two To Three Percent Of Americans" Are Affected By Democrats' Proposals. According to Reuters: "Lawmakers are mulling the renewal of tax cuts enacted in 2001 and 2003 under former president George W. Bush that expire at the end of this year. President Barack Obama and his Democratic allies in Congress want to extend the lower rates for individuals earning less than $200,000 or couples making less than $250,000. About two to three percent of Americans fit into the upper income categories." [Reuters7/21/10]

President Obama's FY2011 Budget Calls For Extending Bush Tax Cuts For Families Making Less Than $250,000 Per Year. As Market Watch reported in February: "Facing a gaping deficit but aiming to spur job creation at the same time, President Barack Obama's fiscal year 2011 budget would hit top earners, oil companies and others while giving tax breaks to small businesses to help them hire new workers... Obama wants tax breaks proposed by President George W. Bush to expire this year. His budget would eliminate tax breaks on those making more than $250,000 a year, a move almost certain to be opposed by Republicans and perhaps some Democrats as the economy crawls out of the recession. 'We extend middle-class tax cuts in this budget,' Obama said Monday at the White House, but 'we will not continue costly tax cuts for oil companies, investment fund managers, and those making over $250,000 a year. We just can't afford it.'" [Market Watch2/1/10]

Speaker Pelosi: High-End Tax Cuts Should End. According to The Hill: "House Speaker Nancy Pelosi (D-Calif.) on Thursday rejected extending tax cuts for the wealthiest tax bracket that are set to expire at the end of the year. Pelosi took off the table a short-term extension of those cuts floated by some lawmakers in her own party. 'No,' the speaker said at her weekly press conference when asked if the cuts for the highest bracket should be extended. 'Our position has been that we support middle-class tax cuts... I believe the high-end tax cuts did not create any jobs, increased the deficit and should be repealed,' she said." [The Hill7/22/10, emphasis added]

Treasury Secretary Geithner: We Will Extend Middle- And Lower-Income Provisions Of Bush Tax Cuts. According to the Wall Street Journal: "The Obama administration will allow tax cuts for the wealthiest Americans to expire on schedule, Treasury Secretary Timothy Geithner said Thursday, setting up a clash with Republicans and a small but vocal group of Democrats who want to delay the looming tax increases. Mr. Geithner said the White House would allow taxes on top earners to increase in 2011 as part of an effort to bring down the U.S. budget deficit. He said the White House plans to extend expiring tax cuts for middle- and lower-income Americans, and expects to undertake a broader revision of the tax code next year. 'We believe it is appropriate to let those tax cuts that go to the most fortunate expire,' Mr. Geithner said at a breakfast with reporters." [Wall Street Journal7/23/10, emphasis added]

New York Times: Obama Plan Leaves Much Of The Bush Tax Cuts In Place. The New York Times prepared an infographic showing where President Obama seeks to change Bush-era tax law, and where he intends to leave it unchanged:

taxcuts

[New York Times7/25/10]

Action On Tax Cuts Was Delayed, Not Cancelled

House Will Resume Session On November 15. According to records of House proceedings, at 1:04 AM on September 29, 2010, "[t]he House adjourned pursuant to H. Con. Res. 321. The next meeting is scheduled for 2:00 p.m. on November 15, 2010." [Clerk.House.gov, accessed 10/7/10]

Axelrod: Democrats Determined To Act On Tax Cuts Before January Expiration. From the Washington Post:

The White House and congressional Democrats conceded Sunday that they will probably wait until after the Nov. 2 elections to vote on a plan to prevent tax rates from rising next year for the vast majority of Americans.

"I doubt that we will" stage a vote before adjourning next week, House Majority Leader Steny H. Hoyer (D-Md.) said. Speaking on the Sunday talk shows, he and White House senior adviser David Axelrod added that Democrats are nonetheless determined to act before the tax cuts expire in January. [Washington Post, 9/26/10]

Washington Post: "Both Parties Expect The Tax Cuts Will Be Extended." From the Washington Post:

Republicans would not compromise on any of the issues over the past two weeks and attacked Democrats for ending the session without voting on the tax cuts. House Republicans even tried to block the formal resolution that allows the chamber to adjourn, leading to an unusual 210-209 vote in which 39 Democrats joined nearly all the Republicans in opposition.

Tax rates will increase next year if Congress does not address the issue, although both parties expect the tax cuts to be extended when members return after the elections. [Washington Post, ­­ 9/30/10]

Any Of The 210 Votes To Adjourn Could Be Considered The "Deciding Vote"

210 Members Of Congress Voted To Adjourn. Braley was one of 210 members of Congress who voted "yea" on the September 29 Adjournment Resolution. [H. Con. Res. 321, Vote #546, 9/29/10]

AFF's Source For "Middle-Class Iowa Families" Tax Hike Claim Confirms Middle Class Families Pay Lower Taxes Under Democrats' Plan

AFF's Braley ad cites an August 1, 2010 report from the Tax Foundation.

Tax Foundation Report: Under Democrats' Proposal Middle-Class Families Would Pay Lower Taxes In 2011. According to an analysis by the Tax Foundation, cited in American Freedom Fund's ad: "The two tables below show how the 'average middle-income family' for each state (Table 1) and congressional district (Table 2) would be affected by expiration of the Bush-era tax cuts in 2011. Congressional districts are organized by the alphabetic order of states and then the congressional district's number. Note that in this report, we do not present the results under the proposed policies of President Obama, although in most circumstances, the 'average middle-income' family would not see much difference between the president's proposal and the scenario of Bush-era tax cuts extended. Technically, most families falling in the middle of the income distribution would see lower tax bills under the proposed policies in the president's budget when compared to a mere extension of the Bush-era tax cuts for 2011 due to his proposed one-year extension of the Making Work Pay tax credit, which was labeled in the president's budget as a 'temporary economic recovery' measure." [The Tax Foundation, 8/1/10, emphasis added]

Just 3 Percent Of Small Business Owners Would Be Affected By Expiration Of Bush Tax Cuts

Non-Partisan Joint Committee On Taxation Report Actually Says That 50% Of Total Business Income — Not "Small Business Income" — Will Be Taxed At Higher Rates. According to the non-partisan Joint Committee on Taxation report on President Obama's proposals: "The staff of the Joint Committee on Taxation estimates that in 2011 just under 750,000 taxpayers with net positive business income (three percent of all taxpayers with net positive business income) will have marginal rates of 36 or 39.6 percent under the President's proposal and that 50 percent of the approximately $1 trillion of aggregate net positive business income will be reported on returns that have a marginal rate of 36 or 39.6 percent. These figures for net positive business income do not imply that all of the income is from entities that might be considered 'small.' For example, in 2005, 12,862 S corporations and 6,658 partnerships had receipts of more than $50 million." [Joint Committee on Taxation report, 7/12/10, emphasis added]

PolitiFact: "Only 3 Percent" Of Taxpayers With Business Income Would Be Affected By The Democratic Proposal.  According to the nonpartisan PolitiFact.com:

What impact would raising taxes on the top two income brackets have on small businesses? According to the Joint Committee on Taxation, the same source that Neugebauer cited in his blog post, "In 2011 just under 750,000 taxpayers with net positive business income...will have marginal rates of 36 or 39.6 percent under the president's proposal." That translates into only 3 percent of all taxpayers with positive business income. Yes, you read that right. Only 3 percent of all taxpayers who reported having positive business income will see their taxes go up under the proposed Democratic initiative.

We also consulted experts at the Tax Policy Center, a joint project from the liberal-to-centrist-leaning Brookings Institute and the liberal Urban Institute. James Nunns, a researcher at the Urban Institute, directed us to the center's July 2010 analysis of the distribution of business income by statutory marginal rate for the year 2011. The report assumes that Congress goes through with its plan to only increase taxes on individuals making over $200,000 and couples with over $250,000 in income. It turns out, 774,000 tax filers in the top two brackets --the only ones that will see a tax increase -- will have positive business income. Divide that by the roughly 36 million tax filers who report business income (positive or negative), and you get 2.1 percent. In other words, still assuming that having any amount of income from a small business means that you are actually a business owner (big assumption), only about 2.1 percent of businesses will face the prospect of higher taxes based on the Democratic proposal. [PolitiFact.com, 8/4/10, emphasis added]

PolitiFact: 2/3 Of Tax Filers In Top Two Brackets Report Business Income As Less Than 50% Of Their Income. According to the non-partisan PolitiFact.com:

It's impossible to know how many of these high earners are what most people think of as small business owners. One indication, however, might be if these wealthy taxpayers reported that most of their income was from this business-type income. The nonpartisan Tax Policy Center analyzed IRS data in March 2009, looking to see how many wealthy tax filers could say that half of their income or more came from business income. The center found that, among the wealthiest filers -- the top 1 percent -- only 25 percent earned more than half their income from business-type income. The percentages for non-wage income were even smaller among taxpayers earning less. (Editor's note: After we initially published this item, the Tax Policy Center released a new analysis looking at business income by tax bracket. They found that in the top bracket, only 32.5 percent earned more than half their income that way.) [PolitiFact.com, 7/25/10, emphasis added, parentheses original]

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