In a major speech last week, Paul Ryan claimed that, under President Obama’s proposed budget, high earners would have their federal tax rate raised to 45 percent — in addition to taxes that they would have to pay at the state and local levels. Glenn Kessler, the Washington Post’s “fact checker,” has examined Ryan’s claim using his Pinocchio scale (up to four Pinocchios for a whopper lie) and has awarded it “the prized Geppetto checkmark,” reserved for statements that reflect “the truth, the whole truth, and nothing but the truth.”
“Ryan’s speech to the Economic Club of Chicago on Monday caught our attention with its figure of a top marginal tax rate of almost 45 percent [Ryan’s specific claim is 44.8 percent]. Generally, the media’s coverage of the president’s 2012 budget has focused on Obama’s desire to return the top tax rate to 39.6 percent, the same as it was before the Bush-era tax cuts.
“The top rate is currently 35 percent. So when President Obama said in his speech on fiscal policy last month that the wealthy (those making above $390,050 a year) would “pay a little more,” we thought he meant an extra 4.6 percent. But Ryan is suggesting the increase is much more than that.
Kessler says that Ryan is right, adding:
“Why are marginal rates important? In theory, if the rate gets too high, it reduces the incentive to earn another dollar….At 45 percent, that means nearly half of each additional dollar a high earner makes would go to taxes.
“Put another way, Ryan shows that Obama’s budget would effectively boost the marginal rate for high earners by a hidden 7.5 percentage points, or an increase of 20 percent. For every $100,000 of additional income, about $45,000 would go to federal taxes. (State and local taxes would eat up more….)”
Kessler concludes: “Paul Ryan’s attention-getting figure adds up and appears credible, so Ryan earns the rare Geppetto Checkmark.”
It is worth noting that, even with such significant tax increases, Obama’s budget would result in a whopping 86 percent more deficit spending over ten years than Ryan’s budget. In 2021, the last year of the 10-year budgetary window, Obama’s budget would result in three times as much deficit spending as Ryan’s budget — which points us to the sort of future we would have along Obama’s trajectory. Who would we tax then?