The $32,000 Question

Summary

Analysis

Sen. John McCain’s "economic adviser" Steve Forbes pushed the $32,000 claim July 7 in a conference call with reporters and in news interviews. Here’s what he said in the call:

Forbes: Senator Obama has a series of tax proposals and tax actions that would devastate the American economy. For example, he has voted to increase income taxes on individuals earning as little as $32,000 a year. He doesn’t make much of that on the campaign trail, but he did that in the Senate.

We can certainly see why Obama wouldn’t "make much of this" – especially since it’s not true.

What Obama voted for was a budget resolution that would have allowed most of the provisions of the 2001 and 2003 tax cuts to expire. In particular, the resolution would allow the 25 percent tax bracket to return to its pre-2001 level of 28 percent. That bracket kicks in at $32,550 for an individual or $65,100 for a married couple. (The McCain campaign relies on an AP article which puts the cutoff at $31,850, but that figure is from 2007, not this year.) So the McCain campaign claims that anyone making "as little as $32,000" would be affected by the rate increase.

But as those of you who have filled out a 1040 know, that’s not actually how income taxes work. We don’t pay taxes on our total earnings; we pay them based on our "taxable income." The Urban-Brookings Tax Policy Center’s Eric Toder told FactCheck.org that "people with taxable income of $32,000 would have a total income greater than that." In 2008, anyone filing taxes with single status would be entitled to a standard deduction of $5,450, as well as a personal exemption of $3,500. So to have a taxable income high enough to reach the 25 percent bracket, an individual would need to earn at least $41,500 in total income, while a married couple would need a combined income of at least $83,000.

What Would Barack Do?

Forbes refers to Obama’s March 2008 vote for a non-binding budget resolution that would have set general revenue and spending targets for congressional tax-writing and appropriations committees. The resolution does not contain a specific provision to raise tax rates, but rather assumes that most of the 2001 and 2003 tax cuts expire as scheduled in 2011. It also bears no relation to Obama’s proposed economic plan. In fact, Obama has stated repeatedly that his plan would increase taxes only for those making more than $250,000 per year:

Obama (June 12, 2008): If you are a family making less than $250,000 a year, my plan will not raise your taxes. Period. Not income tax, not payroll tax, not capital gains tax, not any of your taxes. And chances are you will get a tax cut.

The most comprehensive nonpartisan analysis of Obama’s tax proposal available is the Tax Policy Center’s comparison of McCain’s and Obama’s economic plans. That analysis mostly supports Obama’s claim that his plan won’t raise taxes, though it says that families earning between $169,480 and $237,040 would see an average tax increase of $486 under Obama’s plan. All those earning less than $169,480 would see tax cuts. In fact, that hypothetical taxpayer with the $32,000 in taxable income would get a $502 tax cut under Obama’s plan. McCain’s plan, by contrast, would leave that person’s taxes unchanged.

Obama the Flip-Flopper?

Forbes is right that Obama voted for a resolution that would have allowed tax rates to return to their pre-2001 levels. Yet Obama’s own economic plan makes permanent the tax cuts to the four lowest brackets. So why the shift? Obama told reporters on July 7 that "the budget resolutions are not tax votes" and went on to describe the budget process as "screwy." We’ll certainly grant him that last part. As we have described before, budget resolutions basically set targets for appropriations committees to use. They are more like guidelines than actual rules. And, like many budget resolutions, this one passed on a party-line vote, with just one Democrat and two Republicans crossing party lines.

Certainly Obama’s votes indicate a willingness to raise taxes, and Obama has not been shy about saying explicitly that he will raise some taxes. We’ll leave it to you to decide what you think about Obama’s record and his specific proposals. But we do find that the McCain campaign is simply wrong to say Obama supported raising taxes on those making "as little as $32,000 a year." In fact, according to the Tax Policy Center, only the top 10 percent of earners would see increases under Obama’s plan, with most of the burden falling on the top 1 percent.

– by Joe Miller

Update, July 11: The McCain campaign has escalated its use of the false $32,000 claim. The campaign and the RNC have aired a radio ad in Virginia and Ohio in which a teacher repeats the false claim, saying: "Barack Obama promises to cut taxes, but he voted to raise taxes on folks earning as little as $32,000." Also, in a July 11 e-mail to reporters, McCain economic adviser Douglas Holtz-Eakin defended the figure:

Holtz-Eakin: In the past three days, much has been written about Barack Obama’s vote in favor of a budget resolution that raises income tax rates by three percentage points for 25, 28 and 33 percent tax brackets. The lowest of these brackets begins at an income level of $31,850.

What Holtz-Eakin fails to say anywhere in his message, however, is that he is referring to taxable income, and not to total income. As we already noted, an unmarried taxpayer with no dependents would need to have an income of at least $41,500 to reach the 25 percent bracket in 2008. A couple would have to earn at least $83,000. In 2008, the cutoff for the 25 percent bracket was $32,500 (not $31,850 as the McCain campaign continues to claim) in taxable income – or income after deductions and exclusions.

Holtz-Eakin is a former director of the Congressional Budget Office, so we were surprised to see him misstate such a basic figure. But he does. The $31,850 number he cites was for income earned last year, 2007, as the Internal Revenue Service notes on its Web site. The IRS announced last October that the tax brackets for this year would be widened, as they are every year, to adjust for inflation. For 2008, the 25 percent bracket begins at $32,550 of taxable income, as the IRS notes in this procedural manual.

Furthermore, Obama’s vote was on a budget bill for 2009, at which time the bracket will start at an even higher level.

Holtz-Eakin says that Obama’s "words on the campaign trail do not match the actions he has taken. He tells the American people one thing but has a record that is quite different." The McCain campaign is surely entitled to compare Obama’s voting record with his campaign promises. But the fact is, Obama didn’t vote for raising taxes on persons making $32,000. The resolution could not have affected any single person making less than $41,500 in total income, and no married couple making less than $83,000.

We reiterate: McCain’s $32,000 figure is phony.

Sources

Jones, Athena. "Obama Talks Economy, Iraq." 7 July 2008. MSNBC: First Read, 8 July 2008.

Len Burman, et. al. "A Preliminary Analysis of the 2008 Presidential Candidates’ Tax Plans." 20 June 2008. Tax Policy Center, 7 July 2008.

Len Burman, et. al. "Change in Tax Liability Under the Presidential Candidate Tax Plans Fully Phased In, for Representative Nonelderly Single and Head of Household Families, Assuming Current-Law Nonitemizers Do Not Have Mortgages, 2009." 19 June 2008. Tax Policy Center, 7 July 2008.

Neuman, Johanna. "Obama Takes on McCain Over Taxes." 12 June 2008. L.A. Times, 7 July 2008.

Tax Policy Center. "Individual Income Tax Brackets, 1945 – 2008." 4 November 2007. Tax Policy Center, 7 July 2008.

Taylor, Andrew. "Presidential Hopefuls to Vote on Budget." 13 March 2008. Associated Press, 7 July 2008.