As negotiations over the default crisis continue, over the past two days Fox & Friends has hosted a parade of GOP representatives and officials to advance their talking points about the issue, particularly their claim that the U.S. has a "spending problem," not a "revenue problem." However, numerous economic experts have said that decreased revenue is a major cause of the deficit.
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Fox & Friends Hosts Only Republicans To Discuss Default Crisis
Fox & Friends Hosts RNC Chair Priebus To Claim U.S. Has A "Spending Problem," Not A "Revenue Problem." On the July 6 edition of Fox News' Fox & Friends, the co-hosts interviewed RNC Chairman Reince Priebus about the launch of the RNC's "new media campaign about the economy," as co-host Steve Doocy said. From the broadcast:
GRETCHEN CARLSON (co-host): So what was the messaging in -- in the spokesperson, the president's spokesperson [White House Press Secretary Jay Carney], saying that we all need to share the sacrifice?
PRIEBUS: Right, well, doesn't take a rocket science to figure -- scientist to figure that one out. I mean, they want to raise taxes, and, you know, at the end of the day, they don't want to make the hard choices, which are finding a way to shrink government, cut spending, do the things that American families across the country are doing. This is a president who delivered the biggest and largest structural deficit in the history of our country, when he delivered a budget which, by the way, not a single even Democrat voted for back in March or April. This is a president that just doesn't get it. And so, you know, what we're trying to do today is launch a new television ad campaign, and you can see it at GOP.com, highlighting that we're going to go over a fiscal cliff in this country. We've got a train that is off the rails, and financially, America is heading for some really tough times. And this president needs to engage his counterparts in the Congress and Speaker Boehner and Mitch McConnell, and start figuring out a way to get our spending under control, and that's what this is about.
PRIEBUS: Well, I think what the president's angling for is higher taxes, and he's going to do whatever -- he's going to try to do whatever he can to increase taxes. You know, they keep talking about loopholes and revenue. The fact is, we have over 3 and a half trillion dollars in revenue coming into Washington, DC every year. We've got more than enough money. Our problem is is everybody understands this, and it's sort of an overused phrase, but it's the truth. It's not a -- it's not a revenue problem that we have. It's a spending problem that we have in this country, and that's what we're trying to highlight on GOP.com today.
During the segment, parts of the RNC ad that Priebus referenced were shown on screen:
[Fox News, Fox & Friends, 7/6/11]
Carlson Interviews Majority Leader Cantor To Advance Claim That "Spending" Is The Problem. On the July 7 edition of Fox & Friends, Carlson interviewed House Majority Leader Eric Cantor (R-VA) about the upcoming talks between Congressional leaders and President Obama concerning the default crisis. At one point, she said: "[A]fter the midterm elections, one of the things that that election said to the American people and to members of Congress was, we put you there because we actually agree with what you just said -- no new taxes. So does that put you in a bind, then, if you even just move a little bit?" From the broadcast:
CARLSON: So are you going to walk out of this talk again? Because about a couple of weeks ago, you said, I'm not sitting here anymore.
CANTOR: Well, a couple weeks ago, you know, I walked out the talks that were being hosted by Vice President Biden on one simple issue and that was the disagreement over whether we should raise taxes right now. I believe that it is wrong to raise taxes on small business people and families, especially in this economy. And we've got a spending problem in Washington, and we've got to get that straight. And that's what I believe the goal should be in today's meeting as well.
CARLSON: But Congressman, you know that the president has been warning everyone to leave their talking points at the door and not bring them inside. And then just yesterday, he said this.
OBAMA: The debt ceiling should not be something that is used as a gun against the heads of the American people to extract tax breaks for corporate jet owners, for oil and gas companies that are making billions of dollars because the price of gasoline has gone up so high.
CARLSON: Now since last week in that press conference, we know that those are the president's talking points, about taxes for millionaires and billionaires. I want to get your take this morning, Congressman, because, have you wavered? Are you now going to give the president what he wants and give him those taxes?
CANTOR: Listen, you know, the president talks about these corporate jet owners, and that is a priority for him. Let's put into perspective what we're talking about. We've identified over $2 trillion in cuts that I believe both sides can wrap their arms around. And it is those and that amount that I think is relevant. When you're talking about the jet owners, it's $3 billion versus over $2 trillion. So I said to the president yesterday, first of all, insinuating that that's what's holding the deal up is not the case. So if it's such a priority for the president to go after corporate jet owners -- you know, if he wants to talk about loopholes, we -- we don't like loopholes and preferences. It's not good for overall economic growth. We want to bring down rates and reform the system. But if he wants to plug that loophole, we got to see offsetting tax cuts somewhere else, because the priority is jobs.
CANTOR: It's about getting people back to work, and we're not for raising taxes, period.
CARLSON: So let me -- well let me -- let me go down this list then. So you -- would you be willing to give the corporate jet owners, would you be willing to get rid of that tax break? What about the oil and gas companies?
CANTOR: Well, you know, again, I haven't really seen exactly what the president's talking about, but at the end of the day, his talking points is going after the billionaires, millionaires and what have you. Again, if you look at what he's talking about, it is the same argument that we had last November when we had the election, and that is that he and his party want to raise taxes on small business people in this country right now, and that's something that doesn't make sense when we're trying to get people back to work.
CARLSON: Yeah -- I think Republicans probably feel like they're in a bit of a bind, though, right? Because after the midterm elections, one of the things that that election said to the American people and to members of Congress was, we put you in there because we actually agree with what you just said -- no new taxes. So does that put you in a bind, then, if you even just move a little bit?
CANTOR: No, what it is, Gretchen, it's very, I believe a very sensible position right now. We're not for any net new revenues right now. What we want to focus on is getting people back to work, growing this economy. That's how you increase revenues in this country, is you grow and grow the economy.
CANTOR: And right now, we've got a situation in Washington where taxpayer dollars are not being spent efficiently. I think most people get that.
CANTOR: And why would we want to throw good money after bad while you have to first fix the system? And that's what I'm trying to do. [Fox News, Fox & Friends, 7/7/11]
Fox & Friends Hosts GOP Rep. Ryan To Claim "Spending Is The Problem." Later during the July 7 broadcast, Carlson and guest host Eric Bolling interviewed Rep. Paul Ryan (R-WI), who is chairman of the House Budget Committee. Bolling asked Ryan if the default crisis meetings scheduled for today are "all depending on you guys, the right, the GOP, moving on your platform of no more taxes?" From the broadcast:
CARLSON: Will it be a deal or no deal? President Obama and top U.S. lawmakers from both parties meeting at the White House later today to see if they can actually reach an agreement on the debt ceiling.
BOLLING: But earlier this week, the White House Press Secretary Jay Carney sounded like he already knew what the American people wanted.
CARNEY: Americans are not like, I demand this, you know, you, I draw the red line here, and I draw this in the sand. They just want us to get something done that's sensible, that spreads the sacrifice and spreads the prosperity.
BOLLING: So is a deal that spreads the prosperity one that can help fix the economy? Let's ask Wisconsin Congressman Paul Ryan, chairman of the House Budget Committee. Boy, I would love to be a fly on the wall of those meetings today, sir. What do you think is going to come out of this? Is this -- is it all depending on you guys, the right, the GOP, moving on your platform of no more taxes?
RYAN: First of all, I still think we've got a ways to go here. I don't think you're going to see some big bargain hatched today. First of all, spending is the problem. We have yet to nail down all the kinds of spending cuts we're talking about. And I think the second part of the story that is just not getting covered these days is that there's already huge tax increases scheduled to occur in current law. In 2013, a massive wave of tax increases, because of the president's health care law, because of the lame duck tax bill he signed, are scheduled to hit small businesses and families in 2013, and that's putting a chilling effect on job growth and economic growth today. So you already have tax increases coming. Let's not forget that fact. And so what we're simply saying is, we got to cut spending. And for every dollar of debt limit increase the president wants, we need to cut more than a dollar's worth of spending. We put out our budget to do that. Tomorrow marks the 800th day since the Senate bothered to try to even pass a budget. So we have no budget process here, and the reason, you know, you're having all this coverage here is because the only game left in town to cut spending and get this deficit under control is the debt limit.
CARLSON: Exactly. Congressman, many people know that you're good at math because you put together the whole GOP budget plan. But people may not know that you might be good at a duel. Yesterday you tweeted that you want to have a duel, actually, with the president. Here's what you tweeted.
RYAN: I'm doing actually a Facebook town hall tonight. You can go to my website, ProsperityPAC.com. I'm doing a Facebook town hall tonight to answer these questions that have not yet been answered. Look, I think the nation deserves a real honest debate about its future, about what are we going to do to grow the economy, pay off our debt, cut spending, and get this deficit off our backs and grow the economy? You just don't grow the economy by taxing people, let alone by taxing successful small businesses, which is most of our jobs come from. Unfortunately, that's the kind of stuff that's being talked about. Look, we are all in favor of tax reform, meaning, getting rid of tax loopholes to lower everybody's tax rates, to have a fair tax system, a flatter tax system, and one that creates job growth. But we're not interested in just raising taxes for the sake of raising taxes, and more importantly, raising them on successful small businesses which is where most of our jobs come from. [Fox News, Fox & Friends, 7/7/11]
But Numerous Economic Experts Say We Have A Revenue Problem
Krugman: "Government Spending Has Continued To Rise More Or Less On Its Pre-Crisis Trend" While "Revenue Has Plunged." In an October 17, 2010, New York Times blog post, Nobel Prize-winning economist Paul Krugman wrote:
For all those commenters saying that we must have had a surge in government spending -- I mean, look at the deficit! -- a simple picture:
Government spending has continued to rise more or less on its pre-crisis trend. Revenue has plunged, because the economy is deeply depressed. [NewYorkTimes.com, 10/17/10]
Krugman: Since 2007, "Revenue Plunged, Leading To Big Deficits." In an October 18, 2010, New York Times blog post, Krugman wrote:
During the pre-crisis period, spending grew slightly faster than GDP -- that's Medicare plus the Bush wars -- while revenue grew more slowly, presumably reflecting tax cuts.
What happened after the crisis? Spending continued to grow at roughly the same rate -- a bulge in safety net programs, offset by budget-slashing at the state and local level. GDP stalled -- which is why the ratio of spending to GDP rose. And revenue plunged, leading to big deficits.
But I'm sure that the usual suspects will find ways to keep believing that it's all about runaway spending.
Krugman also included this chart:
Former Reagan OMB Official: "I Think The Biggest Problem Is Revenues." In an interview with Talking Points Memo, David Stockman, a former Office of Management and Budget director under President Reagan, responded to Rep. Paul Ryan's (R-WI) budget plan and stated: "I think the biggest problem is revenues. It is simply unrealistic to say that raising revenue isn't part of the solution." From Talking Points Memo:
While the government teetered on the brink of a shutdown last week over short term funding, economists across the ideological spectrum weighed in on the GOP's long-term plan with negative reviews. The biggest shock came from high-profile economists with GOP leanings, who also criticized it on the merits.
"It doesn't address in any serious or courageous way the issue of the near and medium-term deficit," David Stockman told me in a Thursday phone interview. "I think the biggest problem is revenues. It is simply unrealistic to say that raising revenue isn't part of the solution. It's a measure of how far off the deep end Republicans have gone with this religious catechism about taxes."
Stockman, who directed Ronald Reagan's Office of Management and Budget, approves of Ryan's entitlement proposals, but breaks faith over taxes and the GOP's unwillingness to slash defense spending. [Talking Points Memo, 4/11/11]
David Cay Johnston: "There Is A Simple, Factual Way To Describe What Is Happening To Our Government: We Have A Revenue Problem." In a March 4 Nieman Watchdog column, Pulitzer Prize winner and economics author David Cay Johnston wrote: "There is a simple, factual way to describe what is happening to our government: We have a revenue problem." From Johnston's column:
Right after the midterm elections, when false claims that lower tax rates increased revenues helped win votes, Fox News captured the lockstep approach perfectly in a piece on its website about how Republican leaders were "on message."
Notice these almost identical quotes from the Sunday morning talk shows five days after the midterms:
We don't have a revenue problem. We have a spending problem.
-- Senate Minority Leader Mitch McConnell, R-Ky.
Washington does not have a revenue problem. It's got a spending problem.
-- House Majority Leader Eric Cantor, R-Va.
We do not have a revenue problem. We have a spending problem.
-- House Budget Committee Chair Paul Ryan, R-Wis.
I think it's not a revenue problem; it's a spending problem.
-- Sen. Rand Paul, R-Ky.
As framed, these advertising lines are matters of opinion, but how many Americans recognize them for what they are -- opinions, not facts?
When members of Congress will fight to protect a $53 billion mistake that benefits one industry, giving away our commonwealth for free, it is not just unconscionable. It is part of a pattern of wrecking our government and our economy for short-term political gain. And in this one, the oil companies won the day in the House.
There is a simple, factual way to describe what is happening to our government: We have a revenue problem. [Nieman Watchdog, 3/4/11]
Harvard Business Review Group Director: "[T]he Giant Deficit Is Mainly The Result Of The Collapse In Tax Receipts Brought On By The Recession." In an October 2010 post on his Reuters blog, Justin Fox, editorial director of the Harvard Business Review Group, analyzed the deficit and concluded that it was "mainly the result of the collapse in tax receipts brought on by the recession":
The Treasury Department reported on Oct. 15 that the deficit in fiscal 2010, which ended Sept. 30, was $1.294 trillion. That's less than FY 2009's $1.416 trillion, but it's still really really big. Why is it so big, though? Is it because of all that stimulus and bailout spending? Or is something else going on?
To find out, I created a fantasy world. I figured out how fast federal spending and revenue grew over the last business cycle, from 2000 through 2007, and calculated where we'd be today if those growth rates had continued through 2010. I was originally motivated to do this for a commentary that's supposed to air tomorrow night on Nightly Business Report. But I'm thinking there's not a huge overlap between Felix Salmon readers and Nightly Business Report viewers, so I'll go ahead and share what I learned.
In my no-financial-crisis, no-bailout, no-recession, no-stimulus scenario, spending kept growing at 6.22% a year, and revenue kept growing at 3.45%. You can see from the difference between the two numbers that this was an unsustainable path. But it clearly could have been sustained for a few more years.
Where would it have left us in fiscal 2010? With $2.843 trillion in federal revenue and $3.270 trillion in spending, leaving a deficit of $427 billion. The actual revenue and spending totals for 2010 were $2.162 trillion and $3.456 trillion. So spending was $186 billion higher than if we'd stuck to the trend, and revenue was $681 billion lower. In other words, the giant deficit is mainly the result of the collapse in tax receipts brought on by the recession, not the increase in spending. Nice to know, huh? [blogs.reuters.com,10/25/10, emphasis added]
Lawrence Haas: "Sorry, The Federal Deficit Isn't A Spending Problem." In a February 3 Fiscal Times column headlined, "Sorry, the Federal Deficit Isn't a Spending Problem," Fiscal Times contributor Lawrence Haas wrote: "What's driving our future budget deficits is not spending, per se, but two societal realities. First, like most of Europe as well as China and Japan, the United States is growing older as a society. Second, health care costs continue to grow far faster than inflation and even faster than the economy." While Haas noted that the "deficit problem" is not a "revenue problem," he wrote: "[I]f you want to blame our looming deficits on policy changes, you would look not to spending but, rather, taxes -- specifically, to President Bush's huge tax cuts of 2001 and 2003." From Haas' column:
What's driving our future budget deficits is not spending, per se, but two societal realities. First, like most of Europe as well as China and Japan, the United States is growing older as a society. Second, health care costs continue to grow far faster than inflation and even faster than the economy.
To be sure, those realities have major impacts on existing federal programs. The combination of an aging America and soaring health care costs will drive up the costs of Medicare and Medicaid, while an aging America also will swell the budget of Social Security. Nevertheless, the fact that demographic and technological factors expand the costs of key federal programs that, in their basic elements, have been around for decades doesn't merit the conclusion that "spending is out of control."
Frankly, if you want to blame our looming deficits on policy changes, you would look not to spending but, rather, taxes - specifically, to President Bush's huge tax cuts of 2001 and 2003 that Congress recently extended until 2012 and will likely extend either wholly or in large measure again after that.
Simply letting the Bush tax cuts expire would reduce annual deficits to about 3 percent of GDP (which is considered economically sustainable) over the next decade, though they would start rising again later on due to soaring health care costs.
Does that mean "the deficit problem is a revenue problem?" No, it means the deficit is what it always is - a mismatch between revenues and spending. Policymakers can address it by cutting spending, raising revenues, or some combination of the two. What they choose to do is a political matter, nothing more and nothing less. [The Fiscal Times, 2/3/11]
Even Conservative Economists Have Called For Raising Revenue
The Hill: Bush Economic Advisor Mankiw "Knows Both Tax Increases And Spending Cuts Are Required." In a June 28 The Hill op-ed, Mark Mellman, president of The Mellman Group, cited a number of conservative economists and economic advisors who say that some form of revenue increases should be part of a solution to lowering the deficit. From The Hill:
America has both a spending problem and a revenue problem -- too much of the former and too little of the latter. Every serious student of the federal budget, right, left and center, agrees that any realistic solution requires a combination of spending cuts and revenue increases.
Democrats and Republicans on the Simpson-Bowles Commission knew that both revenue increases and spending cuts were necessary to deal effectively with our deficit problem.
N. Gregory Mankiw, the chairman of George Bush's Council of Economic Advisers, knows both tax increases and spending cuts are required. Indeed, Mankiw argues, "The distinction between spending and taxation is often murky and sometimes meaningless." Explaining that giving snipe hunters a tax break for every fake animal they hunt down is no different from setting up a program to pay snipe hunters for each pelt they bring in, Mankiw implicitly criticizes Republicans' unwillingness to end oil-company subsidies and explicitly advocates broadening the tax base and reducing rates to increase revenue. [The Hill, 6/28/11]
Reagan Budget Director Stockman: "It Is Simply Unrealistic To Say That Raising Revenue Isn't Part Of The Solution." From Mellman's June 28 The Hill op-ed:
President Reagan's budget director, David Stockman, knows raising revenue must be an essential component of any fiscal cure. "It is simply unrealistic to say that raising revenue isn't part of the solution. It's a measure of how far off the deep end Republicans have gone with this religious catechism about taxes," says Stockman, one of the biggest budget cutters of all time. [The Hill, 6/28/11]
Stein: "We've Got To Raise Taxes. There Is Just No Way Around It." On the June 25 edition of Fox Business' Cavuto on Business, guest Ben Stein said: "We've got to raise taxes. There is just no way around it. The deficit situation is so serious that while I wish we did not have to raise taxes, we just can't cut spending enough." From Cavuto on Business:
STEIN: Well, as I've been saying now ever since we met, we've got to raise taxes. There is just no way around it. The deficit situation is so serious that while I wish we did not have to raise taxes, we just can't cut spending enough. I wish we could. We can't. We have to raise taxes. Mr. Obama is going to have to do it. I don't know if the Republicans in the House will go along with it. If they don't there will be a genuine crisis, and I'm frankly frightened about it.
I think Republicans have painted themselves, ourselves into a corner here. I don't think it is the sensible, responsible corner to be in. Yes, as [Fox Business correspondent] Charlie [Gasparino] said, cut whatever can be reasonably cut, but don't rule out tax increases. Look, we have had fantastic growth in this country with much higher tax rates than we have now. We can have it again. Please, please, please, let's not get even close to a default. [Fox Business, Cavuto on Business, 6/25/11, via Media Matters]
Former GOP Staffer Bartlett: "There Is No Doubt That Closing Loopholes And Eliminating Many Tax Subsidies Would Have The Same Effect As Cutting Spending." In a June 24 column for The Fiscal Times, Bruce Bartlett, a former staffer for Rep. Ron Paul (R-TX) and a deputy assistant secretary at the Treasury under George H.W. Bush, wrote:
The main sticking point in negotiations between Republicans and Democrats on deficit reduction measures to accompany a rise in the debt limit is whether higher revenues should make any contribution. A key Republican concern is that any tax increase would depress the economy.
Of course, it goes without saying that there will be different economic effects depending on how spending is cut or taxes are raised. But the first-order effect in either case will be to reduce national income and depress growth. In the longer run, some spending cuts could well be expansionary if they altered economic behavior in a positive direction. In general, subsidies are a bad idea because they distort economic decision making and reduce growth below what would occur in a free market environment.
But the same is true for tax subsidies. If someone pays lower taxes because they produce ethanol it is really no different than just getting a government check for doing the same thing. Yet many Republicans oppose abolishing tax-based subsidies because it would be an impermissible and economically depressing "tax increase," while eliminating budget-based subsidies would be a beneficial "spending cut" that would be economically stimulating.
Economists have known for many years that many tax cuts are nothing more than spending by another name. They call such things "tax expenditures" and there are about $1 trillion worth in the tax code. Getting rid of many of them would have exactly the same economic benefits as reducing on-budget subsidies. Nevertheless, Republicans oppose eliminating tax expenditures unless other taxes are cut because any net tax increase would depress growth. The historical evidence, however, does not necessarily support this view.
[I]t is Republican dogma that tax increases are so offensive that they are willing to walk away from trillions of dollars of spending cuts that the Obama administration has agreed to and risk defaulting on the national debt just to prevent so much as $1 of tax increase from being enacted. While obviously any tax increase needs to be carefully considered, there is no doubt that closing loopholes and eliminating many tax subsidies would have the same effect as cutting spending. If Republicans believe that cutting spending is stimulative, they can't logically oppose cuts in spending through the tax code. [The Fiscal Times, 6/24/11, emphasis added]