Sunday, December 19, 2010

This may engender a small amount of debate.

According to Barack Obama, "The arguments of liberals are more often grounded in reason and fact." But according to Margaret Thatcher, "The facts of life are conservative." Who’s right?

Myth: The deficit was caused by Bush’s tax cuts.
Fact: For over four decades, 1960 through 2000, federal revenues averaged 18.2% of Gross Domestic Product and the trend was virtually flat. The final Bush tax rates became effective in 2003. In 2006 and 2007, well after the new tax rates were in effect, federal revenues were 18.2% and 18.5% of GDP, above historical levels. The federal government collected over half a trillion dollars more in 2007 than it did in 2000.

Myth: Republicans spent like drunken sailors.
Fact: Federal spending from 1960 through 2000 averaged 20.3% of GDP, with a slightly upward trend. The average over all Bush years, 2001 through 2008, was 19.6% of GDP – below the historical average. The 2001-2008 average deficit was also below the 1960-2000 average.

Myth: Republicans exploded the federal debt.
Fact: Per the US Constitution, "all bills for raising revenue shall originate in the House of Representatives." Democrats controlled the House from 1955 through 1994, leaving the federal debt held by the public at 49.2% of GDP. Republicans then controlled the House from 1995 through 2006 and left it at 36.5% of GDP — below the level left by Democrat Congresses.
At the end of Bush’s presidency the debt was 40.2% of GDP. Now, two years post-Bush and four years of a Democrat Congress, the debt is 64% of GDP, the highest it’s been since Harry Truman was paying off World War II.

Myth: The deficit is due to the Iraq War.
Fact: The Congressional Budget Office calculated that the Iraq War cost $709 billion from 2003 through 2010. Total federal deficits over those eight years added up to $4.944 trillion, with the bulk of that ($2.968 trillion) added in just the last two years, after Bush was out of office.
By contrast, federal spending on education over 2003-2010 was $792 billion, and Obama’s stimulus will cost $814 billion. How often do you hear that our deficit problem was caused by education spending?

Myth: The Reagan and Bush tax cuts only benefited the rich.
Fact: According to the CBO, "The lowest three income quintiles have seen declines in their average tax rates since the early 1980s .¤.¤. The average tax rate on the top quintile has fluctuated more, with periods of increases and decreases, and was somewhat lower in 2007 than in 1979."
In fact, the top quintile (top 20% of taxpayers) paid about 25% of its income in federal taxes in 2007, about the same as it did in 1982. By contrast, the middle and bottom quintiles paid less than 15% and 5%, respectively, both lower than at any time since 1979. The bottom two quintiles had negative average income taxes – they received more in tax credits than they paid in income taxes. Per the CBO, "In 2007, about 35 percent of households did not owe any federal income taxes."

Myth: The deficit is due to military spending.
Fact: If federal military spending had been eliminated in its entirety in 2009, the deficit would still have been $776 billion, a historical high. Defense spending is less than one fifth of the federal budget and less than 5% of GDP. When the economy was doing quite well in the 1960s, defense spending was twice as high in those terms. In fact, President Bush presided over smaller defense budgets (as a fraction of GDP) than all presidents from 1941 through 1993.

Myth: "The last eight years," "the last ten years," "the last decade," "the lost decade."
Fact: From 2000 through 2007 real GDP grew 2.4% annually and real disposable personal income grew 2.8% annually. The economy added 5.5 million net new jobs in those years. The unemployment rate stood at 4.4% in May 2007, just before the newly elected, Democrat-controlled Congress raised the minimum wage.
From August 2003 through December 2007, over eight million net new jobs were created.
Fiscal year 2007 was the last one under a federal budget written by a Republican-controlled Congress, and marked the peak in real GDP, jobs, and the stock market. The bad economy of the "last ten years" was all in the last three years – under federal budgets written by a Democrat-controlled Congress.

Myth: Bush deregulated banks, causing the financial crisis.
Fact: President Bush did not deregulate banks, or much of anything else. He increased staffing and spending on economic regulation more than President Clinton did. The number of pages in the Federal Register averaged more in Bush’s first term than at any prior time in US history. He signed the Sarbanes-Oxley Act of 2002, the most sweeping regulation of business since the New Deal.
The New York Times, no cheerleader for President Bush, said in 2003, "The Bush administration is rightly pushing for the Treasury Department to regulate the two giants [Freddie Mac and Fannie Mae], along with the network of federal home loan banks." It was Barney Frank and other Democrats who helped kill such regulation. Frank said, "These two entities, Fannie Mae and Freddie Mac, are not facing any kind of financial crisis."
Not a Myth: The above facts are matters of historical record. The sources of many myths are computer models rather than results from the real world. Remember the economic model that said the unemployment rate would not go above 8% if Obama’s stimulus was passed? The stimulus was passed, yet the unemployment rate went above 10% and has been above 9% for the last 19 months.
The models that say extending today’s tax rates would add to the deficit assume that tax rates have no effect on taxpayer behavior. That is an assumption virtually all economists, and most non-economists, know is false. Yet Congress requires the CBO to base its predictions on that bogus assumption.
The reality is that government spending is the problem. It is absurdly above historical levels right now and is unsustainable. It is driven by payments for individuals (64% of 2010 federal outlays) and entitlements, especially health care spending. ObamaCare did not bend the health-care cost curve down, either; it bent it up.

We have to go with Margaret Thatcher on this one.

1 comment:

Baxter said...

This cut n' paste post is a classic example of "Figures don't lie but liars figure." Comparing the 40 years prior to Bush's 8 is not helpful unless the goal is obfuscation.

FACT: Clinton handed GWB a tax structure that was bringing in 20.6% of GDP, significantly above Bush's HIGH POINT of 18.5%. In fact, immediately after the Bush tax cuts, he was bringing in only 16% of GDP - the lowest rate since Eisenhower years.

FACT: Bush did not bring in the same revenue he inherited until his fifth year in office. The government collected $515B more SEVEN years after 2000? BFD - that is 25% over 7 years.

Don't blame 911 - it's impact was measured by GDP growth and it did not provide the excuse that Republicans are so fond of using.

FACT: While Bush brought in $515B more after 7 years, he spent $996B more. Thats right: +55% spending per annum. Do the math, my Republican friends.

FACT: Obama reduced the deficit from FY2009 to FY2010. Thats right, Obama brought down the deficit just as Clinton did. Unfortunately, the Clinton surplus left town when he did.

Another contextual lie often heard on Fox News these days is how the House originates taxes and spending. That is technically true, however, none of these tax or spending bills make it into law without the assent of the Senate and the President. All of the Bush fiscal policies remained in place through his second term. Democrats could pass nothing without his approval.

To blame Obama for inheriting a huge deficit is fundamentally dishonest. You can't hand a president and Congress a collapsing economy, with declining receipts and elevated spending and expect them to cure the problem quickly. We've made great progress in two years, but such an implosion cannot be overcome in a few short years.

Obviously, the Iraq War contributed to the exploding deficit. So did spending on education. Obama's stimulus saved us a great deal of money in the long run, as the status quo would have meant a far greater fiscal gap. Collapsing economies tend to expand deficits ever further.

Again, Hoven is using the wrong metric in an attempt to mislead. Individuals within the top quintile are paying far less of their income in taxes than they did thirty years ago. As a group they are paying roughly the same portion of federal taxes yet their incomes have increased far more than the lower 80%. In fact, the top 10% of Americans now hold 80% of the wealth, while the rest of us scramble for the remaining 20%.

Our military spending obviously contributes to the deficit. We are spending nearly as much as the rest of the world combined. We are being bled to death by this spending just as Rome was bled.

Please note that when Hoven cites his data about the"the lost decade" or the "last eight years" he stops at 2007. Why is that? Bush served until January 20, 2009 and approved any spending during that period. Not one Democratic tax bill was passed under Bush. Meaningful changes were not possible until Bush was gone. Hoven wants to talk about the party and ignore the hangover.

Bush did not deregulate the banks. His administration went to sleep on the job, which is the way of the anti-regulation GOP. It was nothing new.

Blaming back-bencher Barney Frank for Fannie/Freddie is utterly without foundation. The party in control of the House - GOP at the time - controls the body. The mortgage entity was very popular on a bipartisan basis. The Republican House and Senate never brought Fannie/Freddie reform to a vote. There was never a Filibuster. To suggest the Democrats prevented GOP reform attempts is dishonest or ignorant.

Much like the rest of Hoven's piece.