Obama's Claims about making the Wealthy Pay their "fair share" get fact checked

From the White House Transcript from 9/15/2011:

“Any reform should follow another simple principle: Middle-class families shouldn’t pay higher taxes than millionaires and billionaires. That’s pretty straightforward. It’s hard to argue against that. Warren Buffett’s secretary shouldn’t pay a higher tax rate than Warren Buffett. There is no justification for it. It is wrong that in the United States of America, a teacher or a nurse or a construction worker who earns $50,000 should pay higher tax rates than somebody pulling in $50 million.”

--President Obama, September 19, 2011

Despite being corrected over and over again about his claim (see below), Obama doubles down about his claim (complete transcript is available here).

Would you rather that the oil companies get to keep their tax loopholes?

AUDIENCE: No!

THE PRESIDENT: Or would you rather make sure that we’re hiring thousands of construction workers to rebuild America? (Applause.) Would you rather keep in place special tax breaks for millionaires and billionaires?

AUDIENCE: No!

THE PRESIDENT: Or would you say, let’s get teachers back in the classroom so our children can learn? (Applause.)
. . . [Republicans] said 'well, this is class warfare.' You know what? If asking a billionaire to pay their fair of taxes. To pay the same tax rate as a plumber or a teacher is class warfare, then you know what? I, I, I, I, I'm, I'm a warrior for the middle class. I'm happy to fight for the middle class.

--President Obama, September 22, 2011

From the Associated Press:

"Warren Buffett's secretary shouldn't pay a higher tax rate than Warren Buffett. There is no justification for it," Obama said as he announced his deficit-reduction plan this week. "It is wrong that in the United States of America, a teacher or a nurse or a construction worker who earns $50,000 should pay higher tax rates than somebody pulling in $50 million."
On average, the wealthiest people in America pay a lot more taxes than the middle class or the poor, according to private and government data. They pay at a higher rate, and as a group, they contribute a much larger share of the overall taxes collected by the federal government.
The 10 percent of households with the highest incomes pay more than half of all federal taxes. They pay more than 70 percent of federal income taxes, according to the Congressional Budget Office. . . .
"Middle-class families shouldn't pay higher taxes than millionaires and billionaires," Obama said. "That's pretty straightforward. It's hard to argue against that."
There may be individual millionaires who pay taxes at rates lower than middle-income workers. In 2009, 1,470 households filed tax returns with incomes above $1 million yet paid no federal income tax, according to the Internal Revenue Service. But that's less than 1 percent of the nearly 237,000 returns with incomes above $1 million.
This year, households making more than $1 million will pay an average of 29.1 percent of their income in federal taxes, including income taxes, payroll taxes and other taxes, according to the Tax Policy Center, a Washington think tank.
Households making between $50,000 and $75,000 will pay an average of 15 percent of their income in federal taxes.
Lower-income households will pay less. For example, households making between $40,000 and $50,000 will pay an average of 12.5 percent of their income in federal taxes. Households making between $20,000 and $30,000 will pay 5.7 percent.
The latest IRS figures are a few years older — and limited to federal income taxes — but show much the same thing. In 2009, taxpayers who made $1 million or more paid on average 24.4 percent of their income in federal income taxes, according to the IRS. . . .

From the Washington Post Fact Checker:

. . . The Congressional Budget Office also has released reports looking at taxation across income classes.

In 2006, the most recent data available, the top 1 percent of taxpayers (about 1 million households), with a minimum income of $332,000, paid nearly 40 percent of all federal income taxes collected. The average income tax rate was 19 percent for this group, compared to an average rate of 14 percent for the top one-fifth of households (minimum income of $71,000).

However, these numbers do not include payroll taxes. Social Security tax is no longer collected once a person makes more than $106,800, so the share of such taxes declines quickly for wealthier groups.

Thus, the top one percent pay an effective rate of 1.6 percent on social insurance taxes, compared to an effective rate of about 9 percent for most other income groups. (The data are further distorted by the fact that some wealthy individuals, such as lawyers, are paid through corporate structures, so their taxes are listed as corporate income taxes.)

When you add up all of the various taxes, and look at the effective tax rates, it is clear the tax system is already pretty progressive. Everyone pays some tax, . . . . Here’s the effective tax rate for all of the groups, according to the CBO:

Lowest quintile(23.4 million taxpayers), zero to $18,900: 4.3 percent

Second lowest quintile(22.4 million), $18,900-$32,100: 10.2 percent

Middle quintile(22.9 million), $32,100-$47,400: 14.2 percent

Fourth quintile(23 million), $47,400-$71,200: 17.6 percent

Highest quintile(23.6 million), above $71,200: 25.8 percent

Top 10 percent (12 million), minimum income of $98,100: 27.5 percent

Top 5 percent (5.9 million), minimum income of $134,400: 29 percent

Top 1 percent (1.1 million), minimum income of $332,300: 31.2 percent

. . .

Maybe it’s not a good thing to make policy by anecdote.

It may well be the case that Buffett pays a lower average rate than his secretary. (Buffett, in his article, never says that; that’s the president’s characterization.) Buffett wrote that although he paid an average of 17.4 percent on his income, other people in his office had tax burdens that “ranged from 33 percent to 41 percent and averaged 36 percent.”

Those numbers actually seem rather high when you look at the tax data. As shown, on average, people at lower income brackets have much lower effective rates. (At least one tax expert, in fact, thinks Buffett confused marginal rates with average rates.) Buffett’s effective rate, in fact, is actually virtually identical to the rate paid by the top 400 taxpayers.

Perhaps people in Buffett’s office make enough money that they are hit with the alternative minimum tax, which really bites taxpayers making between $150,000 and $400,000. But that’s certainly not a category that includes, as Obama put it, “a teacher or a nurse or a construction worker who earns $50,000.”

More broadly, there are certainly some people making millions of dollars in the securities markets who are only paying 15 percent on their capital gains taxes, compared to the lowest tax bracket of 10 percent (which is applied on the first $8,000 of income). Add in payroll taxes, and there could be some instances where the effective tax rate of a middle-income person is less than the stock trader — but it does not appear that would be a common situation.

. . . we were struck by the fact that at a White House briefing, administration officials resolutely refused to explain how the Buffett Rule would be put into effect. “Now, there are lots of different ways to achieve that principle,” Treasury Secretary Timothy Geithner said. “How you do it depends on what you do to the broader tax system as a whole. … We’re going to fight to make sure that's part of what Congress considers and ultimately delivers.” . . .

Buffett really wants to clearly increase capital gains and dividend taxes. From Warren Buffett's original op-ed in the New York Times:

Some of us are investment managers who earn billions from our daily labors but are allowed to classify our income as “carried interest,” thereby getting a bargain 15 percent tax rate. Others own stock index futures for 10 minutes and have 60 percent of their gain taxed at 15 percent, as if they’d been long-term investors.

These and other blessings are showered upon us by legislators in Washington who feel compelled to protect us, much as if we were spotted owls or some other endangered species. It’s nice to have friends in high places.

Last year my federal tax bill — the income tax I paid, as well as payroll taxes paid by me and on my behalf — was $6,938,744. That sounds like a lot of money. But what I paid was only 17.4 percent of my taxable income — and that’s actually a lower percentage than was paid by any of the other 20 people in our office. Their tax burdens ranged from 33 percent to 41 percent and averaged 36 percent. . . .

I have worked with investors for 60 years and I have yet to see anyone — not even when capital gains rates were 39.9 percent in 1976-77 — shy away from a sensible investment because of the tax rate on the potential gain. . . . I would note that a net of nearly 40 million jobs were added between 1980 and 2000. You know what’s happened since then: lower tax rates and far lower job creation. . . .

But for those making more than $1 million — there were 236,883 such households in 2009 — I would raise rates immediately on taxable income in excess of $1 million, including, of course, dividends and capital gains. . . .