By Glenn Kessler
"The tax cuts I'm proposing we get rid of are tax breaks for millionaires and billionaires, tax breaks for oil companies and hedge fund managers and corporate jet owners."
— President Obama, June 29, 2011
The president, clearly intending to increase pressure on the GOP, lambasted Republicans for, in his words, refusing to get rid of "tax breaks for millionaires and billionaires" before cutting aid to the less well-off. He also addressed questions on Libya.
Let's parse some of his answers and explain what he means — and how factual he was.
"The tax cuts I'm proposing we get rid of are tax breaks for millionaires and billionaires, tax breaks for oil companies and hedge fund managers and corporate jet owner. . . . Before we ask our seniors to pay more for health care, before we cut our children's education, before we sacrifice our commitment to the research and innovation that will help create more jobs in the economy, I think it's only fair to ask an oil company or a corporate jet owner that has done so well to give up that tax break that no other business enjoys."
The White House and Congress have been looking for ways to cut the deficit over 10 years by $2 trillion to $4 trillion. Republicans want to cut spending, while Democrats have sought ways to increase revenues — a nonstarter for most Republicans.
While there have been reports the administration is seeking $400 billion in additional revenue, that's apparently not a real number. At this point, the White House might accept just about anything that demonstrates what the president calls a "balanced solution."
In a bit of class jujitsu, the president six times mentioned eliminating a tax loophole for corporate jets, frequently pitting it against student loans or food safety. It's a potent image, but in the context of a $4 trillion goal, it is essentially meaningless. The item is so small the White House could not even provide an estimate of the revenue that would be raised, but other estimates suggest it would amount to $3 billion over 10 years.
Meanwhile, student financial assistance, just for 2011, is about $42 billion. So the corporate jet loophole — which involves the fact that such assets can be depreciated over five years, rather than the seven for commercial jets — just is not going to raise a lot of money. It certainly wouldn't save many student loans.
Going after hedge fund managers might raise about $15 billion over 10 years, but in a different life The Fact Checker covered Wall Street and is pretty certain those financial wizards would figure out a way to avoid this tax shift. John Carney of CNBC actually outlined how that would work.
Eliminating oil and gas preferences would raise $44 billion over 10 years, according to administration figures (table S-8), so that begins to look like real money. But the real dollars are in what the president calls "tax breaks for millionaires and billionaires" — eliminating the ability of people making more than $250,000 to itemize their deductions. That proposal would raise $290 billion over 10 years.
Wait a minute, the president said he would target "millionaires and billionaires" and yet the fine print of his proposal would affect couples making more than $250,000 (and individuals making more than $200,000)? That's right.
"If you are a wealthy CEO or a hedge fund manager in America right now, your taxes are lower than they have ever been. They're lower than they've been since the 1950s."
This statistic comes from the 2010 Economic Report of the President (page 154), and it's basically right. The top tax rates have declined significantly over the past half-century. However, the Congressional Budget Office has also looked at the data and concluded that while average tax rates now are relatively low, they were somewhat lower in 1986.
"Moammar Gaddafi, who prior to Osama bin Laden was responsible for more American deaths than just about anybody on the planet, was threatening to massacre his people. . . . As a consequence, a guy who was a state sponsor of terrorist operations against the United States of America is pinned down, and the noose is tightening around him."
Yes, Gaddafi is a bad guy, but Obama conveniently ignores the fact that until the uprising, the administration was rushing to do business with him. Secretary of State Hillary Rodham Clinton met with one of Gaddafi's sons, Mutassim Gaddafi, in 2009, declaring, "I'm very much looking forward to building on this relationship."
It is especially strange for Obama to rhetorically place Libya back on the list of the state sponsors of terrorism when, in fact, it was removed four years ago — after Gaddafi gave up his illicit weapons programs, renounced terrorism and paid billions of dollars to settle claims with terror victims.
"What I have done — and this is unprecedented, by the way; no administration has done this before — is I've said to each agency, Don't just look at current regulations or don't just look at future regulations, regulations that we're proposing. Let's go backwards and look at regulations that are already on the books and, if they don't make sense, let's get rid of them."
Watch out when someone says "unprecedented." It's almost never true.
That's the case here. Obama clearly has forgotten Al Gore's "reinventing initiative," which supposedly resulted in the elimination of 16,000 pages of federal regulations. (Frankly, we were always suspicious of that claim.) Other presidents, such as George H.W. Bush, also pledged to cut down on red tape. It's a hardy perennial.
The president should be careful about veering into Michele Bachmann-like hyperbole.
"So are we really going to start paying interest to Chinese who hold Treasurys and we're not going to pay folks their Social Security checks?"
There's an interesting theoretical question here. Because Social Security holds $2.7 trillion in Treasury securities, does it have a claim on getting paid even though the nation has hit the debt limit? Administration officials say the answer is complex, but as a practical matter, the answer is no. That's because the nation would have no cash with which to pay its bills — Social Security or otherwise.
There is a difference between a government shutdown and hitting the debt ceiling. In a government shutdown, Congress has not appropriated funds for many services, except that Social Security has permanent appropriation, so even during a shutdown, payments would be made. In the case of the debt ceiling, however, Congress has appropriated the funds but Treasury has lost the ability to borrow the money to pay for services that have been contracted.
The Pinocchio Test
We realize the symbolic value of things like corporate jets, particularly when Republicans appear to be refusing to accept even a single dollar of additional revenue, but Obama is misleading when he suggests that closing this loophole would make much of a dent in the federal budget. He also should made clear that he would like to raise taxes on people making more than $250,000, rather than just "millionaires and billionaires."
The president's claim of an "unprecedented" effort to trim federal regulations is laughable. And it would be nice to hear Obama acknowledge for once that, until a few months ago, his administration was eager to do business with Gaddafi.