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Edwards Ad Stretches Truth with Claim About Multimillionaires' Taxes

Do they really pay a lower tax rate than teachers or cops? Hardly ever

December 5, 2003

Modified: December 9, 2003

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Summary

 

John Edwards’ latest TV ad leaves the impression that multimillionaires pay lower tax rates than salaried government workers or secretaries. While that can be true sometimes it is not usually the case.  In fact, the most affluent still pay significantly higher rates even after the two Bush tax cuts.

Analysis

 

In an earlier ad Edwards falsely claimed that taxes have been going up for non-millionaires, when in fact they have been going down for virtually everybody who earns enough to pay any income tax at all. So in this ad Edwards continues a pattern of denouncing fictional grievances.

The latest ad, named "pool," began airing in Iowa Dec. 1. It features videotape of a tub-thumping address Edwards delivered in Cedar Rapids more than a month earlier. In this snippet he is shown telling his audience that President Bush “should be made to explain why a multimillionaire sitting beside his swimming pool should be paying a lower tax rate than a teacher, a police officer, than a secretary.”

 Text of Edwards Ad

"Pool"

EDWARDS (Addressing an Oct 7 rally in Des Moines) This president should be made to explain why a multimillionaire sitting beside his swimming pool should be paying a lower tax rate than a teacher, than a police officer, than a secretary.

ANNOUNCER : John Edwards' plan has been called the best platform of all the candidates.

Repeal tax breaks George Bush created for wealthy investors, and target tax cuts to the middle class.

EDWARDS: Helping them buy a house, helping them invest, helping them save. I'm John Edwards, and I approve this message.

Asked to back up that statement, the Edwards campaign cited hypothetical examples of a multimillionaire "executive" who would pay only a 15% capital-gains rate on profits from sale of stock, or idle heirs who “will pay only 15% of their income in taxes” if they don’t work and get all their income from capital gains and certain kinds of dividends. But those are misleading cases. The executive’s overall tax rate would be much higher than 15% due to taxes on salary and other income, for example.

Wealthy taxpayers did get huge benefits from the Bush tax cuts, but on average they still pay far higher rates than middle-income salaried workers. Estimates by the Tax Policy Center , for example, show that the average federal income-tax rate for persons with income of more than $1 million per year will decline to just under 26% by the time the cuts take full effect in 2006. That’s a rate more than two-and-a-half times higher than for the teachers, secretaries and cops whose incomes fall between $40,000 and $50,000 a year, whose average rate will fall to less than 9 percent.

This tables shows the average tax rates paid by households in various income groups, both before Bush took office and after the two Bush tax cuts become fully effective in 2006:

Rich Still Pay Higher Rates

Income
(in thousands)

Average Income Tax Rate
(percent of income)

Pre-Bush

After Bush Cuts

 

 

 

 

 

 

Less than 10

 

-9.9

 

-10.1

 

10-20

 

-2.4

 

-4.4

 

20-30

 

5.5

 

3.4

 

30-40

 

8.7

 

7.0

 

40-50

 

10.2

 

8.7

 

50-75

 

11.5

 

9.9

 

75-100

 

13.8

 

11.9

 

100-200

 

17.2

 

15.7

 

200-500

 

24.0

 

22.3

 

500-1,000

 

29.1

 

25.4

 

More than 1,000

 

30.1

 

25.7

 

 

 

 

 

 

 

Note: Income is "Adjusted Gross Income" as reported to IRS

Note: Negative rates reflect refundable credits for low-income workers

Source: Tax Policy Center table 5.23   23 May 2003

 

 

Sources

 

Table 5.23 "Combined Effect of EGTRRA and Conference Agreement on Jobs and Growth Tax Relief Reconciliation Act of 2003: Distribution of Income by AGI class, 2006" Tax Policy Center (Washington DC) 23 May 2003

Notes: The analysis was prepared as the second Bush tax cut had taken final form in Congress and was nearing passage. The table shows the combined effect of  “EGTRAA” -- which was the first Bush tax cut passed in 2001 and officially the Economic Growth and Tax Relief Reconciliation Act of 2001, and the “Conference Agreement,” the House-Senate compromised that later passed and was signed into law by the President. The tables show the effects on “tax units” (families and singles living independently) at various levels of “AGI,” which refers to "Adjusted Gross Income" as reported by tax filers to the Internal Revenue Service.

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