Washington, DC — Senate Democratic Leader Harry Reid today issued the following statement on President Bush’s tax plan to put multi-millionaires ahead of middle-class families.
A fact check on President Bush’s tax plan follows below.
“Earlier this week, Republicans offered a pittance of a rebate to gas consumers and the American people saw the plan as the gimmick it was. The Bush Republican tax plan is just like the Bush Republican gas rebate plan. Bush’s tax plan offers next to nothing to average Americans while giving away the store to multi-millionaires. The tax reconciliation bill giveaway on capital gains and dividends will do much more for ExxonMobil board members than it will do for ExxonMobil customers. America can certainly do better than that.”
FACT CHECK: President Bush’s Misguided Tax Cut Plan
FICTION: Bush Suggests that His Capital Gains and Dividend Tax Cuts Benefit Average Americans. “If the people have their way who want this tax relief to expire, the American people will be hit with $2.4 Trillion in higher taxes over the next decade. That’s 2.4 Trillion that would be taken out of the pockets of firms . . . taken out of the pockets of those who are raising their children.” [5/3/06]
– FACT: Those Making Less than $50,000 Received Less than $10 in Tax Relief from Capital Gains and Dividends Tax Cuts. The tax cuts for capital gains and dividends that Bush Republicans are working to extend today benefit multi-millionaires and not middle-class tax payers. “The size of the Bush income tax cuts enacted in 2001 through 2003 for those with adjusted gross incomes greater than $10 million a year increased from a 2003 average of $521,905 to $1,019,369 — a 95 percent increase. In contrast, the 71 percent of tax filers with AGI less than $50,000 saved an average of only $10 each from the capital gains and dividend tax cuts.” [Citizens for Tax Justice, 4/5/06]
FICTION: Bush Says a Time of High Gas Prices is the Time to Extend His Capital Gains and Dividend Tax Cuts. “At a time of high gasoline prices — I know energy prices is on your mind like a lot of other folks — at a time when there’s growing competition in the world, the last thing the American people need is a tax hike. And so my message to the congress is this: in order to keep this economy strong, be congress needs to make the tax relief permanent.” [5/3/06]
– FACT: Last Year, Senator Olympia Snowe Said Skyrocketing Gas Prices Were Among Reasons to Refuse to Extend a Capital-Gains and Dividend Tax Cut, More than Half of Which Would Go to Households with Annual Incomes of More than $ 1 Million. “With three consecutive hurricanes and skyrocketing energy prices, the fiscal environment is quite different, and we have to think about what is doable.” [Time, 11/25/05]
FICTION: Bush Claims His Tax Cuts Will Address Soaring Gas Prices. “At a time of high gasoline prices — I know energy prices is on your mind like a lot of other folks — at a time when there’s growing competition in the world, the last thing the American people need is a tax hike. And so my message to the congress is this: in order to keep this economy strong, be congress needs to make the tax relief permanent.” [5/3/06]
– FACT: The Extension of the Lower Tax Rates on Capital Gains and Dividends Will Not Take Effect until 2009. This plan will do nothing to provide relief from today’s high gas prices.
– FACT: Republicans Protecting Billions in Giveaways to Big Oil. While fighting for extending tax breaks for capital gains and dividends, Bush Republicans also protected billions in tax giveaways to Big Oil the Senate had rejected. Under present law, US companies can claim a foreign tax credit for taxes paid to another country and not royalties and similar payments related to an economic benefit. The provision denies foreign tax credits for payments to a foreign country if the foreign country does not have a generally applicable income tax. Under current law, businesses are generally permitted to use a last-in, first-out (LIFO) method to account for their inventories. This allows companies to create a tax advantage during times of rising prices. This proposal limits the tax benefits of this LIFO method of accounting for integrated oil companies with gross receipts in excess of $1 billion. [HR 4297, 2/2/06]
FICTION: Bush Claims His Tax Cuts Will Benefit Small Business Owners. “The house and the Senate are close to completing a bill that would extend the tax cuts on dividends and capital gains for two more years, to 2010. The bill would also extend incentive for small businesses to purchase equipment. All the provisions have been successful over the past few years. By improving access to capital, the tax cuts on capital gains have led to more investment, more growth and more job creation.” [5/3/06]
– FACT: Bush Tax Cuts Benefit the Rich–Not Most Small Business Owners. “…[T]he bulk of the tax cuts are going to households with high incomes and that most households with small-business income are not in this high-income group.” (Center on Budget and Policy Priorities, Administration Tax-Cut Rhetoric and Small Businesses, September 28, 2004).
FICTION: Bush Says Cutting Tax Rates on Individuals Cuts Taxes on Small Businesses. “See, most small businesses are subchapter s corporations or limited partnerships and, therefore, the business pays tax at an individual income tax rate. So by cutting individual income tax rates across the board, we cut taxes on small businesses.” [5/3/06]
– FACT: Only 4% of Taxpayers in the Top Income Bracket are Owners of Small Businesses; Bush’s Definition of “Small Business Owner” is Overly Broad. The IRS estimates that less than 4% of the taxpayers in the top income bracket are small business owners (The Wall Street Journal, “Undoing Tax Cuts Would Barely Affect U.S. Small Businesses,” April 1, 2004). Bush’s definition of “small business owner” is so broad that even he qualifies as one, based on his 2002 tax return (The Washington Post, “Bush Assertion on Tax Cuts Is at Odds With IRS Data,” February 24, 2004).
FICTION: Bush Claims His Dividend Tax Cuts Encourage Effective Investment. “There is an effect throughout the economy when government provides incentives for people to invest.” [5/3/06]
– FACT: Tax Cuts on Dividends Do Not Encourage Effective Reinvestment. Far from encouraging effective reform, it appears these cuts have induced behavior that benefits executives. One academic recently found that one-half of the rise in the proportion of firms that increased or initiated dividends can be traced to whether the executives hold stock versus stock options. He reported, “Specifically, we find that the division of an executive’s holdings between stock and stock options has a substantial impact on the likelihood a firm either increased or initiated dividends in response to the reduction in the tax-cost of paying dividends.” [Brown, Jeffrey R., Liang, Nellie and Weisbenner, Scott J., AFA 2006 Boston Meetings Paper, “Executive Financial Incentives and Payout Policy: Firm Responses to the 2003 Dividend Tax Cut,” 12/04]
FICTION: Bush Says Uncertainty Over the Extension of His Tax Cuts Harms the Economy. “The prospect of higher taxes, the notion that there’s uncertainty in the tax code makes it difficult for small business owners and company executives to plan. How can you plan if you’re uncertain about what the future’s going to be when it comes to the tax code.” [5/3/06]
– FACT: Not True. Economists at the Federal Reserve considered whether the temporary nature of the tax cuts might be one reason they have not had much impact on stock market value, but found that companies with no dividends performed better than high-dividend companies during the period immediately following the announcement of the tax cuts and their passage. [Gravelle, Jane G., Congressional Research Service, “Dividend Tax Relief: Effects on Economic Recovery, Long-Term Growth, and the Stock Market,” 2/14/05.]