Michele Bachmann's fuzzy tax math at CPAC

By Glenn Kessler

Photo by Mark Wilson/Getty Images

"So let me explain what that level of debt could mean to you personally. According to the National Center of Policy Analysis, in 2009, they said that college-aged students today ... in your peak earning years, you will be looking at paying 37 percent of everything you make to the government just to satisfy Social Security and Medicare, 37 percent. That's more than a third of your income just to pay for that.

"But now, wait. Just realize, that doesn't include what you will owe to the federal government for your federal income tax portion, and that could easily be another 25 percent of your income. And if you can do the math, pull out your calculator, that's 62 percent of your income, just your federal income tax and your Medicare and your Social Security portion of what you make.

"But now, that doesn't include your state income taxes, and that could be another 8 percent for a lot of you. But that doesn't include what you pay in sales taxes. That won't include what you pay in gas taxes or local property taxes or telephone taxes or cell phone taxes. Do you want me to go on? This goes on and on and on all the way to death taxes. They get you coming, they get you going. And if you add all of this up, you college students that are here today, you are looking at 70 to 75 percent of your income taken away by the government in taxes in your peak earning years."
--Rep. Michele Bachmann, Feb. 10, 2011

When Rep. Michele Bachmann (R-Minn.), a potential presidential candidate, addressed the Conservative Political Action Conference on Thursday, she spoke with enthusiasm, and with both humor and conviction. The Fact Checker was pleased to see she had amended her story about how much the national debt has been run up in recent years, making it much more accurate -- at least in terms of the math -- than the statement that helped her earn four Pinocchios a few weeks ago. Maybe it is a coincidence, but we hope we had an impact.

But we were also struck by her scary tale of how the government was going to start demanding payroll and income taxes totaling 75 percent by the middle of the century. Bachmann is a trained tax lawyer who used to represent the Internal Revenue Service in court cases, so she should know what she is talking about.

The Facts

The study that Bachmann cited was written by Pamela Villarreal, a senior policy analyst for the National Center for Policy Analysis in Dallas. The organization is upfront about its conservative political leanings, describing itself as "a public policy research organization that develops and promotes private alternatives to government regulation and control."

Villarreal's study, written in June 2009, is based on data from Social Security and Medicare trustee reports. It attempts to calculate the payroll taxes for Social Security and Medicare in 2054, when "today's college students reach retirement" -- not, as Bachmann put it, when they are in their "peak earning years."

But the first thing that seemed strange about Bachmann's citation is that this is a 2009 report. The trustees, after all, issued new reports in 2010, showing that the long-term financial condition of Medicare programs had greatly improved with the passage of President Obama's health-care law.

Villarreal, in a telephone interview, is open about why she did not update her report: The NCPA did not believe what the Social Security and Medicare trustees wrote about the impact of what she calls "Obamacare." Instead, the group issued a report about the problems with the trustees' assumptions, such as believing that Medicare cuts in the law will actually materialize.

Still, having accepted the trustees' assumptions in 2009, it appears odd to dismiss their work a year later simply because one is ideologically opposed to the health-care law. The trustees' report, after all, is almost entirely based on assumptions -- long-term guesses about what the U.S. economy will be 50 or 75 years from now.

In her report, Villarreal also assumed that Medicare Part B and Part D are funded through payroll taxes, even though they are currently funded through a combination of premiums and government spending. Villarreal said those calculations were done by another NCPA analyst, Andrew J. Rettenmaier. He said it was a "theoretical exercise," which he computed by recalculating data on the programs' estimated share of the gross domestic product at mid-century. He conceded there was little chance the government would begin to fund these programs through payroll tax hikes.

The change from the 2009 reports to the 2010 reports are pretty dramatic. Using NCPA's math, we calculate the "payroll tax burden" would be 29 percent, not 37 percent -- a 22 percent improvement because of the health-care law. If you take away the Part B and Part D numbers, since they are not paid through payroll taxes, the tax burden drops to 21 percent.

There are other problems. Bachmann acts as if this burden is borne entirely by the taxpayer, but it is actually shared equally by employees and employers. That's why the 15.3 percent of current payroll taxes only shows up at 7.65 percent in your paycheck. Economists might argue that employers reduce wages by an amount equal to the payroll tax, but it is is misleading for Bachmann not to acknowledge that. Suddenly, that 21 percent becomes 10.5 percent out of your paycheck.

Bachmann makes another mistake when she says, "That doesn't include what you will owe to the federal government for your federal income tax portion, and that could easily be another 25 percent of your income." There are marginal tax rates as high as 33 percent, but virtually no one pays an average of 25 percent of their income in federal income taxes.

The average tax rate is 12.24 percent, according to the Tax Foundation, which says it seeks to educate people about the tax burden. (The Tax Foundation is known for declaring "Tax Freedom Day.") The bottom 50 percent of taxpayers pay only an average of 2.59 percent. Even the top 1 percent -- people with an annual adjusted gross income of $1.7 million -- pay an average of less than 25 percent.

The same analysis would hold true for state taxes, which Bachmann inflates to 8 percent. The Tax Foundation found that combined state and local tax rates average from 1 percent to 9.44 percent, with most at about 5 to 6 percent -- but no one pays all of their income at that rate. Depending on the state, the average is likely to be a third or one-half of the marginal rate.

The bottom line, when you "get out your calculator" and add all this up: total taxes of about 25 percent, rather than the 75 percent in Bachmann's telling.

We presented this math to Bachmann's spokesman and are still waiting for a response.

The Pinocchio Test

The current and future financial strain on Social Security and Medicare is certainly a serious issue. As the baby boom generation begins to retire, leaving fewer workers to sustain the pay-as-you-go system, the crunch will get even worse.

Once current revenues run dry, the programs hold hundreds of billions of dollars of Treasury securities that must be honored by the Treasury -- and which must be paid for by raising taxes, cutting benefits or issuing more debt.

The gravity of the issue means that politicians should talk responsibly about it, not tell scare stories that have little basis in reality. Someone with a law degree who once specialized in tax law should know better.

Three Pinocchios