Barack Obama recently claimed that construction workers are "paying a higher tax rate than somebody pulling in $50 million a year." He was speaking at a DNC event on Sep. 26 in West Hollywood, CA - and made similar statements in several other recent speeches (see 'More Info').

To find out if this claim is true, we invited the Truthsquad community to fact-check the president's statement as part of this month's pilot. Between September 28th and October 12th, 2011, 43 different members participated in this truthsquad. Together, we reviewed dozens of factual documents from multiple, credible sources reporting on this topic (see links to the right).

The factual evidence we found suggests that the answer varies greatly depending on the individuals involved, and whether or not they pay taxes on wages or on investment income, or both. In a number of cases we reviewed, construction workers earning $50,000 per year pay lower effective tax rates than people making $50 million a year -- but we also found a number of cases when middle-class workers in the same bracket pay higher taxes than these multi-millionaires. This was a difficult claim to fact-check because the U.S. tax code is extremely complicated, with a variety of different rates, and some key data are still missing (e.g.: nobody seems to know the exact percentage of millionaires who pay a lower effective tax rate than middle-class families).

On the whole, we could only find partial support for President Obama's generalization that it’s common for a construction worker to pay a higher effective tax rate than someone earning $50 million a year. The facts suggest a much more nuanced answer, as people who make most of their money in wages pay taxes at a higher rate, while those who get most of their income from investments pay at lower rates -- but we don't know in what proportions.

Based on these results, we find this claim HALF TRUE.

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Barack Obama recently claimed that construction workers are "paying a higher tax rate than somebody pulling in $50 million a year." He was speaking at a DNC event on Sep. 26 in West Hollywood, CA - and made similar statements in several other recent speeches (see 'More Info').

To find out if this claim is true, we invited the Truthsquad community to fact-check the president's statement as part of this month's pilot. Between September 28th and October 12th, 2011, 43 different members participated in this truthsquad. Together, we reviewed dozens of factual documents from multiple, credible sources reporting on this topic (see links to the right).

The factual evidence we found suggests that the answer varies greatly depending on the individuals involved, and whether or not they pay taxes on wages or on investment income, or both. In a number of cases we reviewed, construction workers earning $50,000 per year pay lower effective tax rates than people making $50 million a year -- but we also found a number of cases when middle-class workers in the same bracket pay higher taxes than these multi-millionaires. This was a difficult claim to fact-check because the U.S. tax code is extremely complicated, with a variety of different rates, and some key data are still missing (e.g.: nobody seems to know the exact percentage of millionaires who pay a lower effective tax rate than middle-class families).

On the whole, we could only find partial support for President Obama's generalization that it’s common for a construction worker to pay a higher effective tax rate than someone earning $50 million a year. The facts suggest a much more nuanced answer, as people who make most of their money in wages pay taxes at a higher rate, while those who get most of their income from investments pay at lower rates -- but we don't know in what proportions.

Based on these results, we find this claim HALF TRUE.


THE FACTS
Here are some of the key facts which led us to reach this finding:

1) The average federal income tax rate of construction workers appears to be lower than for multi-millionaires who pay income on their wages, due to the U.S. progressive tax system. For example, middle-class workers earning $50,000 to $75,000 paid an effective federal income tax rate of 7 percent to 8 percent in 2008, while taxpayers earning at least $10 million in adjusted gross income paid an income tax rate ranging from 18 to 28 percent, according to a chart from the Internal Revenue Service, cited by PolitiFact.

2) The average payroll tax rates paid by middle-class workers appear to be higher than for multi-millionaires who do not pay Social Security or Medicare taxes above a certain income threshold. For example, a typical middle-class family earning about $50,000 per year would pay an extra 15 percentage points, while a high-income taxpayer would pay less than 2 additional percentage points, according to the Urban Institute-Brookings Institute Tax Policy Center, also cited by PolitiFact.

3) The average combined income and payroll tax rates are sometimes higher for middle-class workers than for millionaires, and sometimes lower. Adding up the percentages above would bring the total combined tax rate between 22 to 23 percent for a $50,000-a-year construction worker, versus 20 to 30 percent for a person earning $50 million per year, according to PolitiFact. In a separate estimate, the Tax Policy Center suggests that this year, households earning between $50,000 and $75,000 will pay an average of 15 percent of their income in federal taxes, including income taxes, payroll taxes and other taxes -- while households making more than $1 million will pay an average of 29.1 percent of their income in federal taxes, as reported by the Associated Press.

4) Some wealthy individuals do not pay income and/or payroll taxes at all, and only pay capital gains on their investments, which are taxed at a lower rate than wages. The top tax rate for dividends and capital gains is 15 percent, while the top marginal tax rate for wages is 35 percent (for taxable income above $379,150), according to the Associated Press. However, that 15 percent tax rate on investments is generally the same, whether you are a rich, poor or middle-class taxpayer.

5) We simply don't know how many millionaires pay a lower tax rate than middle-class families. There may be individual millionaires who pay taxes at rates lower than middle-income workers, but we couldn't find any conclusive data to estimate that percentage. 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, cited by the Associated Press. But that's less than 1 percent of the nearly 237,000 returns with incomes above $1 million. Even Treasury Secretary Timothy Geithner was unable to estimate the number of millionaires who pay taxes at a lower rate than middle-income families, when pressed at a White House briefing in September 2011. So this lack of reliable data on this key point makes it difficult to support the president's claim with verifiable evidence.

6) Wealthy people pay more income taxes as a whole than middle-class taxpayers. In 2007, the top 10 percent of tax payers paid 72 percent of all federal income taxes owed, according to the Congressional Budget Office. That top 10 percent accounts for 42 percent of all income earned, including people earning adjusted income of $102,900 or higher, who paid an average tax rate of 26 percent.


FINDINGS FROM TRUSTED SOURCES
Besides our own community's findings, several trusted fact-checking organizations such as PolitiFact, FactCheck, the Washington Post and the Associated Press came to similar conclusions, after extensive research by their experienced journalists.

PolitiFact found this claim Half True: "We found that a typical taxpayer with $50,000 in income pays 22 to 23 percent in income and payroll taxes, while the comparable rates for very, very wealthy taxpayers are in the 20 to 30 percent range. The data isn’t specific enough for us to be able to say if a majority of $50 million earners pay tax rates at the low or high end of that 20 to 30 percent range. We do think it’s safe to say that some of those very high earners pay a smaller share of their income in taxes than workers who earn $50,000, and some don’t. So, on balance, we rate the statement Half True."

FactCheck.org investigated a related claim that a teacher pays more than Obama himself (who earned millions of dollars per year, on average), and found it false: "Any way we figure it, the $50,000-a-year teacher (or firefighter, or construction worker) paid a lower rate than Obama last year. […] We calculated that Obama’s overall rates — including payroll taxes — would be 31.8 percent in 2008, 32.2 percent in 2009 and 26.5 percent in 2010. For Obama’s $50,000-a-year teacher, the equivalent rate in 2010 would have been 25.3 percent if single and without children, 19.9 percent if married without children, and 14.1 percent if married with two children under age 17."

The Associated Press did not rate this claim but raised questions about its accuracy: "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 Washington Post's Fact-Checker did not rate this claim, but raised questions about its accuracy: " On average, most teachers, nurses, construction workers and the like already pay a lower rate than people making more than $1 million. […] 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, even those who pay no federal income taxes, and the wealthiest pay a larger percentage share of taxes."


COMMUNITY FINDINGS
Community members who participated in this truthsquad provided a range of perspectives, with findings ranging from True to Half-True and False. Here are some of their observations, excerpted from the community answers below.

Patricia L'Herrou rated it HALF TRUE: "The statement seems based upon two given individual examples and therefore cannot be used as a generalization, which more generally would probably be more false than true according to the tax rates for those levels except when capital gains are involved."

Louise Auerhahn rated it TRUE: "The statement is by nature a generalization; it does not claim that *every* construction worker pays a lower aggregate rate than *every* person with income of $50 million."

Carlos R. Candelaria rated it MOSTLY TRUE: "This a complicated question. The tax code is so convoluted that it's hard to do all the research necessary."

Michael Shaver did not rate this claim, but wrote: "I am neutral on whether it's true or false – the right people and circumstances can sway this in either direction."

Christoph Wienands rated it HALF TRUE: "If you're a multi-millionaire, chances are most of your income does not come from salary but from dividends and capital gains. Compared to a construction worker, millionaires and billionaires likely still pay more because depending on the family situation, a construction worker might pay close to zero $ in taxes."

Sarah Mason rated it HALF TRUE: "After reviewing the links provided, it appears, generally speaking, that the tax rate increases the more you earn. … In conclusion, it depends on the individual and the situation. Some individuals earning over $50 million dollars may have a lower tax rate. It depends on the type of income they have accrued that year, the number of deductions they are eligible for, and various other factors. "

Bob Herrschaft rated it MOSTLY TRUE: "Of course, the President’s declaration is a rhetorical generalization, and as with all such generalizations there are exceptions. … The statement may not be 100% true but it comes close, and, after all, it’s good politics."

Walter Frick rated it HALF TRUE: "If the millionaire in question makes most of his or her income via capital gains, then it's going to be true. If their income is via salary, then it would not be."

Jack Dinkmeyer rated it FALSE: "Although Politifact stated the difficulty measuring taxes one-to-one, generally Obama's statement is false."

Albert N. Milliron rated it HALF TRUE: "DC math is amazing. The points seem clear on the surface until you dig a bit."

Ed Fraser rated it FALSE: "There are two facts not in dispute: (1) The progressive INCOME tax system means higher INCOMES pay higher INCOME tax rates. (2) Everybody pays the same capital gains tax rate of 15%. "


CONCLUSIONS
Overall, the factual evidence we found together supports our 'HALF TRUE' rating, whether these findings originated from experienced journalists or citizen reviewers. To learn more, we invite you to read some of the other notes below, as well as the links in the right column of this page.

This concludes our Truthsquad pilot for this month. We would like to thank all of the NewsTrust members who participated in this experiment. We really appreciate all of your great insights and hope you got as much from this experience as we did. The more we dig together, the more we learn as a community.

To learn more about this pilot, check the NewsTrust blog. To learn more Truthsquad, check our project overview.

Fabrice Florin, on behalf of Truthsquad editors