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Sorting out the truth in politics

PolitiFact: Obama payroll tax cut claim is imperfect

The statement

A bipartisan payroll tax cut championed by the White House has meant that "the average family has an extra $1,000 in their pocket" this year.

Barack Obama, Monday, in a Labor Day speech in Detroit

The ruling

During a Labor Day speech in Detroit, President Barack Obama offered a sampling of policy proposals to get the nation's economy moving, including one policy achievement he had already enacted — a one-year, 2 percentage point cut to the payroll tax.

"Last year, we worked together, Republicans and Democrats, to pass a payroll tax cut," Obama told the crowd. "And because of that, this year the average family has an extra $1,000 in their pocket."

Because tax year 2011 is still under way — meaning that Americans' personal financial situations will be subject to countless factors between now and Dec. 31 — it's impossible to know for sure how much of a benefit the average American family will see when they finally file tax forms next spring. Still, we wondered whether Obama's figure is supported by credible estimates. So we took a look.

First, some background about the tax, and the tax cut, that Obama is referring to. The payroll tax refers to federal taxes taken directly from the paychecks of employed Americans. It is primarily used to fund Social Security and Medicare.

The policy Obama signed into law reduced the portion of the payroll tax that funds Social Security by 2 percentage points.

You can do a rough assessment of Obama's claim by using some basic math.

The median household income in 2009 — the most recent year available — was $49,777. Lowering the tax rate by 2 percent reduces the tax burden for the median family by $996, or very close to the $1,000 Obama cited.

But there are at least two reasons why the figure is imperfect.

First, not all income is subject to the payroll tax, including interest income, dividends, capital gains and Social Security benefits. These income streams are taxed in various ways, but not by the payroll tax, and thus they get no benefit from the tax cut.

Second, not all households include people who are working, and who can therefore benefit from a payroll tax cut. The most obvious categories are people who are unemployed or retired.

These are nuances that Obama didn't capture in his Labor Day speech.

We rate his claim Mostly True.

This ruling has been edited for print. Read the full version at PolitiFact.com.

PolitiFact: Obama payroll tax cut claim is imperfect 09/07/11 [Last modified: Wednesday, September 7, 2011 11:18pm]
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