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Kerry's Tax Ad: Literally Accurate, But Misleading

His ad says "the middle class is paying a bigger share of America's tax burden." True. But it's a smaller burden all around. And the richest still pay the most.

October 13, 2004

Modified: November 8, 2004

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Summary

 

A Kerry ad that claims to tell "the truth on taxes" falls short of doing so. It says that "after nearly four years under George Bush, the middle class is paying a bigger share of American's tax burden and the wealthiest are paying less."

That's true as far as it goes. However, the total federal tax burden on all income groups has been reduced, just more for some than for others. It's true that the top 20% of income earners now pay a smaller share of the reduced tax burden, but so do the bottom 40% of earners.

Those in the middle 20% now pay an average of 14.5% of their income for all federal taxes, a reduction 1.9 percentage points as a result of the Bush cuts. That middle group pays 10.5% of the reduced overall federal tax burden. That share has gone up as the Kerry ad says -- by 2/10ths of one percentage point.

Analysis

 

This ad is a good example of how facts that are literally true can be used selectively to create a misleading picture.

 Kerry Ad

"The Truth on Taxes"

John Kerry : Here's the truth on taxes. After nearly four years under George Bush, the middle class is paying the bigger share of America's tax burden and the wealthiest are paying less. It's wrong, we need to cut taxes on the middle class, not raise them. We also need to get heathcare costs under control and lower the nation's deficit. I don't believe the wealthy need another tax cut. I believe ordinary Americans need someone who will fight for them.

The ad says the "middle class" (which isn't defined) is paying "a bigger share of America's tax burden." Since nearly all Americans think of themselves as "middle class," that could easily be translated by most viewers as a statement that their tax burden has increased, when in fact it has decreased for all income groups.

The ad is careful to say the share of the burden has increased, and not the burden itself. But those who don't listen carefully could easily miss that.

The Burden:
Decreased for All Groups

Kerry's ad relies on figures released by the Congressional Budget Office in August. The CBO calculated the effect of all federal taxes, including the Social Security and Medicare payroll taxes as well as such things as federal gasoline and tobacco taxes. Even so, the CBO figures show the tax burden has decreased -- on average -- at all income levels from the lowest to the highest.

Bush Tax Cuts:
The Burden Decreased for All Groups
(More for some than others)

Total Effective Federal Tax Rate

2004 Rates

Change Due to Bush Cuts

Lowest 20%

5.2%

-1.5%

Second 20%

11.1%

-2.1%

Middle 20%

14.6%

-1.9%

Fourth 20%

18.5%

-2.1%

Top 20%

23.8%

-3.9%

  Top 5%

25.6%

-5.2%

  Top 1%

26.7%

-6.8%

Share of Federal Tax Burden

 

Lowest 20%

1.1%

-0.1%

Second 20%

5.2%

-0.2%

Middle 20%

10.5%

+0.2%

Fourth 20%

19.5%

+0.7%

Top 20%

63.5%

-0.6%

  Top 5%

35.9%

-1.5%

  Top 1%

20.1%

-1.8%

Source: Congressional Budget Office, "Effective Federal Tax Rates Under Current Law , 2001 to 2014," Tables 2, 4.

We have boiled down the CBO figures to show what has happened for this year as a result of the Bush cuts, and excluding the effects of rising incomes, which affect average tax rates and share of burden even when the law doesn't change.

The CBO splits the population into five basic "quintiles," each representing one-fifth, or 20%, of the total population. The top 1% and 5% are broken out of the top quintile for further study, since the most affluent figure so largely in the tax debate.

What these CBO numbers show quite clearly is that the total federal tax burden has decreased for all income groups, though it went down more for the most affluent than it did for others.

Share of Tax Burden:
Still Bigger for the Most Affluent

The  share of the reduced overall burden has indeed gone down (again, on average) for the most affluent groups, mainly as a result of cutting the top rates and reducing taxes on income from dividends and capital gains.

Furthermore, the middle 20% pays a bit higher share, and the next-highest 20% saw their share of the total burden to up by seven-tenths of one percent. So the Kerry ad's claim is technically accurate if the "middle class" is defined as the 40% of the population making up the middle and fourth income quintiles.

It is also true, however, that the share of total federal taxes paid by the least affluent Americans -- those in the bottom 40% of earners -- has also decreased a bit. Kerry doesn't mention that, even though many of those persons also consider themselves "middle class."

And the overall system remains progressive, with upper-income groups paying significantly both higher rates and a higher share of the overall burden than lower-income groups.

For example:

  • The middle 20% of the population now pays 14.6% of their income for all federal taxes. That's a reduction of 1.9 percentage points as a result of the Bush cuts. And that group now pays 10.5% of all federal taxes, an increase of 0.2 percentage points.
  • The top 1% of the population pays a much higher rate -- 26.7% of their income goes to pay federal taxes, on average. That's 6.8 percentage points less than they would have paid under the tax rules in effect when Bush took office, so Kerry's ad is quite right to say "the wealthiest are paying less." And their share of the total tax burden did also drop by 1.8 percentage points. But this most affluent one percent still pays more than 20% of all federal taxes.
  • The lowest-earning 20% of the population now pays only 5.2% of their average incomes in federal taxes, down 1.5 percentage points due to the Bush cuts. This bottom group pays only 1.1% of all federal taxes, and their share of the burden dropped by 0.1 percentage point.

Whether the rich should pay higher rates or a bigger share than they do now is, of course, a matter of opinion. And the choice between the candidates is clear on that point: Kerry states he would reverse Bush's tax cuts for those making over $200,000 per year and grant some additional, targeted cuts to those in middle-income groups, while Bush would make his cuts permanent rather than allow many of them to expire as scheduled under current law.

But the fact is, all income groups are paying a lowered tax burden this year under the Bush cuts, the "middle class" included.

Sources

 

Ed Harris, David Weiner, and Roberton Williams, "Effective Federal Tax Rates Under Current Law, 2001 to 2014," Tables 2 & 4, Congressional Budget Office, Aug 2004.