Fact-Checking the Second Democratic Debate

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Democratic U.S. presidential candidate former Secretary of State Hillary Clinton walks past fellow candidate and Senator Bernie Sanders during a break at the second official 2016 U.S. Democratic presidential candidates debate in Des Moines, Iowa, November 14, 2015.

© Jim Young/REUTERS Democratic U.S. presidential candidate former Secretary of State Hillary Clinton walks past fellow candidate and Senator Bernie Sanders during a break at the second official 2016 U.S. Democratic presidential candidates…Summary

The three Democratic presidential candidates faced off on a Saturday night, and made several inaccurate claims:

Former Maryland Gov. Martin O’Malley said that in President Reagan’s first term, the highest marginal income tax rate was 70 percent. But Reagan signed a bill in his first year dropping that to 50 percent, and it dropped again to 28 percent in his second term.
Vermont Sen. Bernie Sanders said that the U.S. “has more income and wealth inequality than any major country on earth.” But Israel, Brazil and Chile have both greater income and wealth inequality, and more countries beat the U.S. in one of the measures.
Former Secretary of State Hillary Clinton wrongly said that wages “haven’t risen since the turn of the last century.” Real average weekly earnings of rank-and-file workers rose 7.2 percent since 1999.
Sanders repeated his talking point about billionaires paying “an effective tax rate lower than nurses or truck drivers.” That may be the case for some in those professions, once we factor in payroll taxes, but it’s not accurate for all.
When Clinton cited Princeton economist Alan Krueger’s support for her minimum wage proposal, O’Malley called him a Wall Street economist. He’s not.
O’Malley boasted that Maryland was “the only state” to freeze college tuition four years in a row. This year, Maine did so as well.

Analysis

Clinton, Sanders and O’Malley met at Drake University in Iowa for the debate, which was hosted by CBS News, KCCI-TV in Des Moines and the Des Moines Register.

O’Malley on Top Tax Rate Under Reagan

O’Malley said that in President Ronald Reagan’s first term, “the highest marginal [income tax] rate was 70 percent.” That was true only briefly. In Reagan’s first year in office, he signed a bill reducing the top rate to 50 percent. And in his second term, he reduced it again, to 28 percent.

O’Malley cited the top marginal tax rate during the debate to make the point that upper-income taxpayers should be paying more, and historically have.

O’Malley: And may I point out that under Ronald Reagan’s first term, the highest marginal rate was 70 percent. And in talking to a lot of our neighbors who are in that super wealthy, millionaire and billionaire category, a great number of them love their country enough to do more again in order to create more opportunity for America’s middle class.

As a matter of history, the top marginal tax rate of 70 percent was established in 1964, when Congress passed a tax cutbacked by President John F. Kennedy. In the decades before that, the top rate was much higher — hovering around 90 percent.

So 70 percent was the top rate when Reagan took office in January 1981. Eight months after taking office, Reagan signed the Economic Recovery Tax Act of 1981, which cut the highest marginal tax rate to 50 percent.

In his second term, Reagan signed a bill in 1986 that lowered the top marginal income tax rate to 28 percent.

Sanders Off on Inequality and Poverty

Sanders continued to peddle some false claims about U.S. inequality and child poverty:

Sanders: This country today has more income and wealth inequality than any major country on earth. … We have the highest rate of childhood poverty. …

Regarding income inequality, we noted back in May that World Bank statistics list at least 41 countries with greater income inequality than the U.S. — including Israel, Brazil, Mexico, Chile and Argentina.

And as for wealth inequality, the share of wealth held by the top 1 percent in the U.S. puts it in 11th place among 37 nations listed in the 2015 edition of the Global Wealth Databook. The top 1 percent in Russia, Thailand, Indonesia, India, Brazil, Chile, South Africa, China, Czech Republic and Israel each hold a greater share of their nation’s wealth, according to that publication.

Finally, the rate of child poverty is far worse in many other countries, including several with industrialized economies. The campaign told us the senator was referring to a report from the Organisation for Economic Co-operation and Development, but that report ranks the U.S. seventh in “relative childhood poverty” among the 38 countries listed.

Turkey, Israel, Mexico, Greece, Romania and Bulgaria all had higher rates of child poverty than the U.S., in the OECD’s ranking.

It’s also worth noting that “relative poverty” is a measure of household disposable income relative to others in that country.

Clinton Wrong on Wages

Clinton erred when she said real wages haven’t risen in nearly 15 years.

Clinton: [W]ages adjusted for inflation haven’t risen since the turn of the last century.

That’s not true, according to the most recent figures from the Bureau of Labor Statistics. Real average weekly earnings of rank-and-file workers were 7.2 percent higher in September than they were in December 1999.

Furthermore, real weekly wages have jumped 2.3 percent in the most recent 12 months alone.

Sanders on Truck Drivers’ Tax Rates

Sanders repeated one of his campaign trail talking points: “But we are going to end the absurdity, as Warren Buffet often remind us … that billionaires pay an effective tax rate lower than nurses or truck drivers.” That’s the case for some in those professions — compared with billionaires who earn their money through investments — but it’s not accurate for all. In fact, a truck driver would have to earn more than the median salary to pay a higher effective rate.

We previously ran the calculations for several different hypothetical nurses and truck drivers (and firefighters and police officers, who have also been part of this Sanders claim), comparing total effective tax rates, including payroll taxes, to what an investment fund manager would pay if only paying capital gains tax rates on earnings.

The billionaire fund manager would pay 23.8 percent — the top capital gains rate for income above $413,200 for individuals — and a 3.8 percent Medicare surcharge tax on investment income for those earning more than $200,000. A truck driver earning the median income for the profession ($39,520) wouldn’t pay a higher rate then the fund manager’s 23.8 percent. But if that truck driver earned a higher salary — such as the average pay in Peabody, Massachusetts ($57,250) — and was single with no dependents, he or she would pay an effective tax rate of 26 percent, higher than the fund manager. If that truck driver had one dependent child, however, the rate would drop to 21 percent.

As for nurses, the median salary is much higher — $66,640. A single nurse with no dependents would have a 28 percent effective tax rate with that salary. But once we add a dependent child, or a nonworking spouse, or both, the nurse’s rate sinks below that of the wealthy fund manager.

If the billionaire fund managers’ earnings were taxed at regular income tax rates, he or she would pay a higher rate. Most marginal income tax rates are higher than capital gains rates, with individual income between about $37,000 and $90,000 at the 25 percent rate for 2015. The top income tax rate is 39.6 percent, which starts after income surpasses $413,200.

Krueger Not a Wall Street Economist

O’Malley lumped Princeton economist Alan Krueger in with what he called “economists on Wall Street.” Krueger is not a Wall Street economist.

O’Malley made his remarks when he had a disagreement with Clinton over how much to raise the minimum wage. O’Malley supports raising it to $15 per hour. Clinton has proposed $12 per hour, and she cited Princeton economist Alan Krueger’s support for her proposal and concern for increasing the minimum to $15 per hour.

O’Malley: I think we need to stop taking our advice from economists on Wall Street …

Clinton: He’s not Wall Street.

O’Malley: … And start taking advice …

Clinton: That’s not fair. He’s a progressive economist.

O’Malley is wrong about Krueger’s background. It is entirely in academia and education.

Krueger graduated with a doctorate in economics from Harvard University in 1987. “Since 1987 he has held a joint appointment in the Economics Department and Woodrow Wilson School at Princeton University,” according to his biography on the university website.

Krueger also has held top positions in government, including chairman of the Council of Economic Advisers under President Barack Obama and chief economist at the Department of Labor under President Bill Clinton. His full curriculum vitae can be found here.

O’Malley’s Outdated Tuition Boast

O’Malley claimed that Maryland was the only state that went four consecutive years without an increase in college tuition. That’s no longer the case.

O’Malley: We were the only state to go four years in a row without a penny’s increase to college tuition.

Yes, as governor, O’Malley did sign bills implementing a tuition freeze at public universities in Maryland that lasted from 2007 until 2010. But Maine has now matched what Maryland once achieved.

In March of this year, the University of Maine System Board of Trustees again voted to freeze in-state tuition at its seven member schools. That means the school system has now gone four years without an increase in tuition at its public universities.

— by Brooks Jackson, Robert Farley, Lori Robertson, D’Angelo Gore and Eugene Kiely

Sources

Geewax, Marilyn. “JFK’s Lasting Economic Legacy: Lower Tax Rates.” NPR. 14 Nov 2013.

Tax Foundation. Federal Individual Income Tax Rates History.

The Ronald Reagan Presidential Foundation & Library. The Second American Revolution: Reaganomics.

GovTrack.us. H.R. 3838: Tax Reform Act of 1986.

Credit Suisse Research Institute. “Global Wealth Databook.” Oct 2015.

World Bank. “GINI index (World Bank estimate).” Data accessed 15 Nov 2015.

Organisation for Economic Co-operation and Development. “Chart CO2.2.A. Child income poverty rates, 2012.” Data accessed 15 Nov 2015.

Bureau of Labor Statistics. “Employment, Hours, and Earnings from the Current Employment Statistics survey (National); Average Weekly Earnings of Production and Nonsupervisory Employees, 1982-1984 Dollars.” Data extracted 15 Nov 2015.

Robertson, Lori. “Hedge Fund Managers’ Tax Rates.” FactCheck.org. 8 Sep 2015.

Bureau of Labor Statistics. Occupational Employment and Wages, May 2014. 53-3032 Heavy and Tractor-Trailer Truck Drivers. accessed 15 Nov 2015.