4 Liberal Myths that Distort the Deficit Debate
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The Fiscal Times
August 10, 2011

How can the United States be so divided when everyone is working from the same numbers? It’s a fair question, especially since most of today’s raucous national debate is about budgets and deficits – not about war, or corruption, for instance, which would not be so easily quantifiable.  Of course, not everyone interprets numbers in the same way; “How to Lie with Statistics” is not just a book title.

The U.S. will never solve its debt and deficit problems unless we face reality.  Some of the most popular (and most questionable) talking points used by Democrats will have to go – as will countervailing arguments from Republicans. Here’s a reasoned take on a few of the most frequently garbled arguments making headlines these days.

Myth: The Left proclaims that President Obama “inherited” the deficit crisis, and that it stemmed from the Bush tax cuts, two wars and the passage of the Medicare drug program. George W. Bush did indeed stomp out the budget surplus he inherited from President Clinton. However, it was mainly the economic downturn in 2008 that led to our escalating deficits. 

Reality: During most of Bush’s tenure, our deficits were under 3.5 percent of GDP -- a level well within the country’s means and not so far off the historical average since 1960 of 2.3 percent.  The trend worsened as President Obama took office. Fiscal 2009 (for which Bush reasonably takes the blame) recorded a deficit of $1.4 trillion, or 10 percent of GDP, as outlays spiked to ward off the recession and receipts tumbled. However, Republicans note that it is the ongoing increase in spending since then, and projected in the years ahead, that has resulted in our recent debt downgrade.

In the FY 2011 budget, spending is projected to rise every year of the next ten.   Americans might have pictured the giant $800 billion stimulus program as a “pig in a python” that would cause spending to balloon and then recede; unfortunately, we will see no such thing.  President Obama has allowed considerable growth in the federal full time and contractor workforce to an all-time high, and expanded numerous programs.

Longer term, entitlement outlays threaten our outlook. Standard & Poor’s noted last fall that unless the government initiates reforms, Social Security and Medicare will literally eat us alive. By 2035, age-related pensions, Social Security, Medicare and other payments will account for 16.3 percent of GDP, up from 10.8 percent in 2010. If no actions are taken, debt will climb to 229 percent of GDP by 2035, and our debt will have been downgraded to “speculative grade.” A sobering outlook, to be sure.

Myth: Another favorite liberal narrative is that corporations don’t pay taxes. This notion emerges from a couple of studies that have been widely misconstrued. Specifically, one 2008 GAO study reported that 55 percent of U.S. companies paid no federal income tax “during at least one year in a seven-year period it studied.” That factoid has quickly morphed into “more than half of all corporations pay no taxes.”

Reality: Another more revealing study indicates that corporate taxes have been declining as a percent of GDP, even as corporate profits have actually risen. This is a worrisome trend. Taxes collected from corporations accounted for less than 11 percent of federal revenues in the last decade, down from nearly 30 percent in the 1950s. The majority of lost corporate revenues stems from myriad tax breaks offered by the government.  Many of these allowances are out of date and should be reconsidered as part of comprehensive tax reform. Large tax breaks for prosperous corporate farms, ethanol producers and oil producers may not make sense. 

Myth: One of the most controversial talking points has to do with our progressive tax code. When President Obama talks about the wealthy in the country “paying their fair share,”  he has never said what “fair” looks like, but resorts instead to the suggestion that the wealthy should pay “a little more.”

Reality: Forty-seven percent of all Americans pay no federal income taxes. In 2008 the top 10 percent of earners accounted for 70 percent of all federal income tax revenue, which would appear fairly progressive.

Myth: Many on the left have argued that we should not cut government spending, suggesting that every dollar goes to programs essential to the survival of the United States. A recent New York Times editorial that said meeting the demand for an additional $1.2 trillion in spending cuts over the next ten years will require “crippling basic functions.”  

Reality:  Does anyone really believe that our $4 trillion annual budget does not include $100 billion of projects and programs that can be eliminated? It is an absurd notion, contradicted by no less an authority than the Office of Management and Budget. In a 345-page report published in March, analysts identified duplicative programs that Senator Tom Coburn estimates could save $100 billion annually. Included in the list were 56 programs dedicated to financial literacy and 47 offering job training. An effort to reduce these wasteful undertakings would cheer Americans greatly. 

We are in trouble, and it is time for both the left and right to discard the tired poll-tested canards that now pass as “truth” and face facts. We have work to do.

After more than two decades on Wall Street as a top-ranked research analyst, Liz Peek became a columnist and political analyst. Aside from The Fiscal Times, she writes for FoxNews.com, The New York Sun and Women on the Web.