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Sorting out the truth on the economy

Closer to 40 percent than 50 percent

The statement

Between 40 and 50 percent of tax filers do not owe any income tax.

John McCain, Oct. 12 in a TV interview

The ruling

McCain's statement came when he was asked about Barack Obama's claim that 95 percent of Americans will not see their taxes go up under Obama's proposals. It's phrased a little awkwardly, but the context of the conversation makes it clear that McCain's talking about the number of tax filers who don't owe any income tax thanks to credits and deductions. Common credits include the earned income tax credit for low-wage workers, the child tax credit, education credits, and credits for child care expenses. Common deductions include medical and dental expenses, mortgage interest, charitable contributions, educational expenses and business expenses. Many credits are refundable, which means the government sends a check if the taxes owed are less than zero. Deductions generally reduce taxes owed to zero, with no check sent if the tax bill is less than zero. We consulted the nonpartisan experts at the Tax Policy Center. They said that the percent of taxpayers with zero or negative individual income tax liability will be 38 percent in 2009. That's pretty close to 40 percent, the low end of the range McCain said. If McCain had said it was 40 percent, we would have ruled his statement True, because he would only be two points off. But he also said it could be around 50 percent, and that seems like he's pushing the envelope. We rate his claim Mostly True.

Income inequality is on the rise

The statement

The United States is "seeing greater income inequality now than any time since the 1920s."

Barack Obama, April 16 in a Democratic debate in Philadelphia

The ruling

In a debate against Sen. Hillary Rodham Clinton earlier this year, Obama made a case that working families need more help because they're facing harder economic times. Obama is making a broad point here, but several sources support him. The U.S. Census compiles data on income distribution on a year-to-year basis. Since 1967, it's clear that the top 5 percent of all households are capturing a growing share of the nation's aggregate income. From 1917 to 1998, the income share of the top 10 percent dropped and then began rising again, following a U-shaped curve, according to a historical analysis of U.S. tax returns by economists Thomas Piketty and Emmanuel Saez published in 2003 in the Quarterly Journal of Economics. Piketty and Saez found that economic inequality grew further by 2005. That year, the top 1 percent of Americans — people with incomes of more than $348,000 — received their largest share of national income since 1928. Critics may argue whether this change in income distribution is significant or not, or what its underlying causes are. Earlier in this campaign, Clinton argued that President Bush was to blame, a statement we found only Half True. But the numbers show that income inequality is at a record high since the 1920s, so we find Obama's statement to be True.

There's plenty of bipartisan blame

The statement

"The Democrats in the Senate and some members of Congress defended what Fannie and Freddie were doing. They resisted any change."

John McCain, Oct. 7 in a debate in Nashville, Tenn. The ruling

In the back-and-forth blame game going on over the financial crisis, McCain pointed the finger at Democrats and Obama for failing to support a plan to exert regulatory control over Fannie Mae and Freddie Mac. He's talking about the Federal Housing Enterprise Regulatory Reform Act initiated by Republican Sen. Chuck Hagel in 2005. In 2006, McCain signed on to the Republican-led attempt at regulatory overhaul of the mortgage-financing firms, which both went through multibillion-dollar accounting scandals earlier in the decade. While McCain is quick to blame Democrats for opposing the legislation — they did — the Republicans controlled Congress at the time, and there was a Republican in the White House. Yet the bill languished in the Senate, and it wasn't until earlier this year that Congress and the Bush administration completed a regulatory overhaul. McCain rightly notes that the 2005-06 efforts to regulate Fannie and Freddie were Republican-led, and opposed by the Democrats, but McCain's current attempts to depict those efforts as an early warning that could have lessened the current credit crisis don't wash. Even if the 2006 effort to strengthen oversight had succeeded, it's debatable whether it would have averted the subprime crisis. We rate his statement Half True.

Former adviser supported deregulation

The statement

McCain economic adviser Phil Gramm is "the architect of some of the deregulation in Washington that helped cause the mess on Wall Street."

Barack Obama, Sept. 17 in Elko, Nev.

The ruling

We should stipulate from the start that Phil Gramm might view the title "architect of deregulation" as a compliment, though he might prefer the title "architect of regulatory efficiency." As a U.S. senator, Gramm promoted two bills that curtailed regulation: The Gramm-Leach-Bliley Act of 1999 and the Commodity Futures Modernization Act of 2000. Gramm had a prominent role as sponsor and co-sponsor of these bills, respectively. But these bills had other supporters, and President Bill Clinton signed both into law. It's also worth noting that the Bush administration and the Federal Reserve have frowned on increased regulation in the years since those laws were passed. So don't give Gramm all the credit. Did deregulation "help cause" the disaster on Wall Street? The carnage is still being autopsied, but most Wall Street watchers agree that light regulation allowed irresponsible lending and mortgage fraud to go unchecked. The Commodity Futures Modernization Act in particular has been singled out for spurring the growth of poorly understood, unregulated securities such as credit default swaps, which have been getting a good portion of the blame. Finally, Gramm is no longer a chief adviser to the McCain campaign. He resigned in July. So there's some truth here, but it also seems like Obama is exaggerating to make a point. We rate it Half True.

Highlights of their positions and plans

John McCain

• Supported the Bush administration's $700-billion plan to buy troubled securities.

• Advocates reduction of corporate taxes to spur economic growth.

• Proposes new $300-billion plan for the government to buy subprime mortgages and convert them to fixed-rate mortgages.

• Proposes a suspension on rules that say people age 70½ must begin cashing in retirement accounts, so they may avoid locking in recent losses.

• Wants to eliminate taxes on unemployment benefits.

• Will guarantee all savings, beyond normal limits, for six months.

• Cut the capital gains tax by half, to 7.5 percent, for two years.

barack obama

• Supported the Bush administration's $700-billion plan to buy troubled securities.

• Offers a $500 tax credit to workers; will raise taxes on singles who make $200,000 or more.

• Favors a temporary $3,000 tax credit to businesses for each new job created.

Will temporarily allow people to withdraw up to 15 percent of their retirement money, to a maximum of $10,000, without penalty. (Normal taxes apply.)

• Favors mandatory 90-day freeze on some foreclosures.

• Wants the federal government to lend money to states and local governments in need of credit.

Sorting out the truth on the economy 10/25/08 [Last modified: Monday, October 27, 2008 10:24am]

    

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