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Vice Presidential Debate: True/False Quiz on Taxes and Entitlements
Posted By Curtis Dubay On October 12, 2012 @ 2:52 pm In Entitlements, Taxes & Spending | No Comments
Taxes and entitlements were two important domestic policy topics discussed during the debate between Vice President Joe Biden and Representative Paul Ryan. Among the many claims made were some that were true and some that were false.
Can you guess which ones are true or false?
Medicare and Social Security are going broke.
Martha Raddatz: “Both Medicare and Social Security are going broke and taking a larger share of the budget in the process.”
True. Rewind to the first presidential debate, where President Obama stated: “Social Security is structurally sound. It’s going to have to be tweaked, [but] the basic structure is sound.” This time the moderator left little wiggle room to repeat such a misleading claim, and viewers saw a much better debate on how to reform these programs. Social Security is running permanent and growing deficits , and a 25 percent benefit cut is set to hit in 21 years. Medicare’s trust fund is projected to be bankrupt by 2024 , and the program promised $37 trillion worth of benefits that aren’t funded. For more insights into claims made about Medicare, see Heritage’s True/False Quiz on Medicare .
Romney’s tax plan would cut deductions for the middle class.
Biden: “[T]he only way you can find $5 trillion in loopholes is cut the mortgage deduction for middle-class people, cut the health care deduction, middle-class people, take away their ability to get a tax break to send their kids to college.”
False. Vice President Biden is citing a debunked and factually inaccurate report from the Tax Policy Center (TPC). Heritage and others have shown the flaws in the TPC report. Governor Romney’s tax plan would not reduce the tax burden of the rich or increase it for the middle class.  It would make improvements to the tax code that would boost economic growth and do so in a revenue- and distributionally neutral manner.
Romney’s tax plan would cut taxes by $5 trillion.
Biden: “[T]hey’ve got another tax cut coming that’s $5 trillion that all of the studies point out.”
False. Vice President Biden is quoting a skewed report  from TPC that many studies have shown to be factually incorrect. On top of that, Biden is logically inconsistent. How can it be a $5 trillion tax cut but raise taxes on the middle class? The fact is that even TPC doesn’t claim that the Romney tax plan is a $5 trillion tax cut. In fact, they use the term “revenue neutral” in the title of their erroneous report. Romney’s plan broadens the tax base by eliminating deductions, credits, exemptions, and exclusions to fully replace the revenue reduction from lower rates and other pro-growth tax policy enhancements.
Raising taxes on small businesses would cost 710,000 jobs.
Ryan: “Two-thirds of our jobs come from small businesses.… It’s expected to cost us 710,000 jobs.”
True. The businesses that would pay the higher tax rates proposed by President Obama earn almost all the income earned by small businesses  that employ workers. According to President Obama’s own Treasury Department, these job creators earn 91 percent of the income earned by flow-through employer-businesses. These are the biggest, most successful small businesses. They employ more than half the private workforce, according to an Ernst and Young study . Raising their taxes would destroy more than 700,000 jobs.
The tax rate on small businesses would rise to nearly 45 percent under President Obama’s proposal.
Ryan: “President Obama thinks that the government ought to be able to take as much as 44.8 percent of a small business’s income.”
True. President Obama’s plan raises the top marginal tax rate to 39.6 percent.  Obamacare raises the Medicare portion of the payroll tax to 3.8 from 2.9 percent. Combined, that leaves the top rate under Obama’s plan at 43.4. However, President Obama also wants to reinstate a cap on the itemized deductions of higher income earners and institute an even tighter cap on top of that. Those caps would push the top marginal rate to even higher levels.
About 120,000 high-income families would get an additional $500 billion tax cut over 10 years.
Biden: “120,000 families by continuing that tax cut will get an additional $500 billion in tax relief in the next 10 years.”
False. This is not a tax cut. It is the absence of a tax hike . Not raising taxes on high earners, who actually happen to be job creators, is not the same as cutting their taxes. President Obama and Vice President Biden have a troubling habit of arguing their case in this way. It is troubling because to take that stand is to presuppose that the money we all earn is actually the government’s in the first place. Hopefully they don’t really believe that to be the case.
The capital gains tax rate  is a loophole.
Biden: “The loophole—the biggest loophole they take advantage of is the carried interest loophole and—and capital gains loophole.”
False. The capital gains rate is not a loophole. It is a reduction of the tax bias against investment. It is important to remember that most capital gains in the U.S. are first taxed at the highest-in-the-world corporate income tax rate of 35 percent. The capital gains rate paid by individuals is a second layer of tax, which means that the true rate paid by those earning capital gains is almost 45 percent. Heritage’s New Flat Tax  explains the proper treatment of the capital gains tax.
Article printed from The Foundry: Conservative Policy News Blog from The Heritage Foundation: http://blog.heritage.org
URL to article: http://blog.heritage.org/2012/10/12/vice-presidential-debate-truefalse-quiz-on-taxes-and-entitlements/
URLs in this post:
 Image: http://blog.heritage.org/wp-content/uploads/VPDebate5.jpg
 permanent and growing deficits: http://blog.heritage.org/2012/10/03/social-security-runs-permanent-deficits-benefit-cuts-loom/
 Medicare’s trust fund is projected to be bankrupt by 2024: http://www.heritage.org/research/reports/2012/06/cbo-long-term-budget-outlook-on-the-nations-fiscal-future
 Heritage’s True/False Quiz on Medicare: http://blog.heritage.org/2012/10/12/vice-presidential-debate-truefalse-quiz-on-medicare/
 would not reduce the tax burden of the rich or increase it for the middle class.: http://www.heritage.org/research/reports/2012/10/presidential-candidates-tax-reform-proposals-obama-vs-romney
 a skewed report: http://www.heritage.org/research/reports/2012/09/tax-policy-centers-skewed-analysis-of-governor-romneys-tax-plan
 earn almost all the income earned by small businesses: http://www.heritage.org/research/reports/2012/07/obama-s-taxmageddon-tax-increase-would-hurt-job-creation
 Ernst and Young study: http://blog.heritage.org/2012/07/18/ernst-and-young-obamas-tax-increase-would-kill-710000-jobs/
 raises the top marginal tax rate to 39.6 percent.: http://www.heritage.org/research/reports/2012/04/taxmageddon-massive-tax-increase-coming-in-2013
 It is the absence of a tax hike: http://www.heritage.org/research/reports/2012/07/congress-should-not-pay-for-stopping-taxmageddon-tax-increase
 capital gains tax rate: http://www.heritage.org/issues/taxes/capital-gains-tax
 Heritage’s New Flat Tax: http://www.heritage.org/research/reports/2011/12/the-new-flat-tax-easy-as-one-two-three
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