Fox News is obscuring the national debate over how to balance the deficit while pushing myths that falsely discredit the Obama administration's record. Contrary to the Fox mythology, a downgrade of U.S. debt is not imminent, many economists believe the previous downgrade was due to Republican obstructionism, and raising taxes on the wealthiest households will not hurt employment.
CLAIM: U.S. Debt Will Be Downgraded If A Budget Deal Is Not Reached
Stuart Varney: If Budget Deal Fails, U.S. Credit Will Be Downgraded. During the November 13 edition of Fox News' America's Newsroom, Fox Business host Stuart Varney claimed that Moody's rating of U.S. debt will be downgraded if a budget deal is not reached by 2013:
VARNEY: Look, you've got to get a deal on this fiscal cliff, and it can't be just any old deal, it's got to be a real deal that offers a real chance, a real certainty, that our debt will come under control in the future. They want a fiscal cliff deal, if you don't get it, and it's got to be a real deal, then we will be downgraded, not just continuing under negative watch as they say. But no, we will be downgraded. We will lose our triple A rating which we have at the moment according to Moody's. [Fox News, America's Newsroom, 11/13/12]
FACT: Moody's Is Not Set To Downgrade If Budget Negotiations Fail
Moody's Would Maintain AAA Credit Rating Even If Negotiations Failed. Reuters reported that if Congress cannot reach an agreement on the debt, Moody's will not necessarily downgrade U.S. debt:
If an agreement in Congress cannot be reached before year-end, the automatic spending cuts would go into effect, but not necessarily lead to a downgrade, said Moody's, highlighting that the immediate fiscal shock would improve government finances in the short-term, but are likely to result in recession and higher unemployment.
Still, the ratings agency maintains that even if the government cannot agree and the economy goes over the cliff "we would maintain our Aaa rating with a negative outlook and await evidence that the economy could rebound from the shock before considering a return to a stable outlook." [Reuters, 11/7/12]
Moody's: U.S. Rating Will Be Downgraded Only If Debt Reduction Is Not Addressed. Moody's stated that a downgrade would only take effect "if negotiations fail to produce policies that lead to debt stabilization and ultimately reduction." The agency further commented that a downward trend in debt to GDP ratio would affirm the U.S.' current triple A rating. [Reuters, 11/7/12]
CLAIM: Obama Administration Responsible For 2011 Credit Downgrade
Martha MacCallum Suggested Obama Administration Was Responsible For The Downgrade Of U.S. Debt. During the November 13 edition of America's Newsroom, host Martha MacCallum suggested the Obama administration was to blame for downgrade of U.S. debt in 2011 by Standard & Poor's:
MacCALLUM: This administration was the first to preside over a downgrade of U.S. debt. We hope this isn't something we are going to get used to. [Fox News, America's Newsroom, 11/13/12]
FACT: Economists Agree That S&P Downgrade Was Due To GOP Obstruction
Chambers: Downgrade Due To Debate Over Debt Ceiling. In an August 5, 2011, Wall Street Journal article discussing Standard & Poor's decision to downgrade U.S. government debt, John Chambers, the chairman of S&P's sovereign ratings committee cited political debate as a reason for their decision to downgrade, claiming the "conclusion was pretty much motivated by all of the debate about the raising of the debt ceiling ... It involved a level of brinkmanship greater than what we had expected earlier in the year." [The Wall Street Journal, 8/5/11]
Paul Krugman: Republicans Threatened To "Disrupt The Essential Business Of Government." In explaining the downgrade, New York Times columnist Paul Krugman wrote that Republicans used the debt ceiling as a bargaining chip for policy concessions, which raised economic uncertainty:
The facts of the crisis over the debt ceiling aren't complicated. Republicans have, in effect, taken America hostage, threatening to undermine the economy and disrupt the essential business of government unless they get policy concessions they would never have been able to enact through legislation. And Democrats -- who would have been justified in rejecting this extortion altogether -- have, in fact, gone a long way toward meeting those Republican demands. [The New York Times, 7/28/2011]
Jeff Madrick: "S&P Downgrade Brought On By Republican Obstructionism." In a post for the Roosevelt Institute where he is a senior fellow, former New York Times economics columnist Jeff Madrick wrote that the S&P downgrade was due to Republican obstructionism:
For all of S&P's handwringing about the nation's debt problems, Congressional recalcitrance was the driving issue. So when the press says neither the Democrats nor the Republicans can escape blame, it is in truth nonsense. The showdown caused the downgrade, not the nation's financial liabilities, and Republicans deliberately caused it in pursuit of their own political and ideological goals. [The Roosevelt Institute, 8/8/2011]
Standard & Poor's: Debt Burden Likely To Grow Due To Republican Intransigence. In its report explaining the downgrade of U.S. credit, Standard and Poor's singled out Republicans for their unwillingness to compromise on tax cuts. From the report:
Even assuming that at least $2.1 trillion of the spending reductions the act envisages are implemented, we maintain our view that the U.S. net general government debt burden (all levels of government combined, excluding liquid financial assets) will likely continue to grow. Under our revised base case fiscal scenario -- which we consider to be consistent with a 'AA+' long-term rating and a negative outlook -- we now project that net general government debt would rise from an estimated 74% of GDP by the end of 2011 to 79% in 2015 and 85% by 2021.
Compared with previous projections, our revised base case scenario now assumes that the 2001 and 2003 tax cuts, due to expire by the end of 2012, remain in place. We have changed our assumption on this because the majority of Republicans in Congress continue to resist any measure that would raise revenues, a position we believe Congress reinforced by passing the act. [Standard & Poor's, 8/5/11]
For more on Republican obstructionism and the debt ceiling, click here.
CLAIM: Letting High-End Tax Cuts Expire Hurts Employment
Gerri Willis Advanced Claim That Increasing Taxes On The Wealthy Would Negatively Impact Employment. Fox Business host Gerri Willis claimed that major business groups are "all coming out in the last week saying we have to take care of this fiscal cliff and what's more we can't raise taxes on the wealthy because those are the folks who are going to reemploy people and get them back to work." [Fox News, America's Newsroom, 11/13/12]
FACT: Increasing High-End Taxes Doesn't Hurt Economy, Reduces Deficit
CBO: Allowing Tax Cuts For Wealthy To Expire Would Increase GDP By 1.3 Percent, Create 1.6 Million Jobs. In a November 2012 report, the non-partisan Congressional Budget Office said that allowing the expiration of the Bush tax rates for higher wage earners while maintaining lower rates for those making $200,000 a year and less would increase GDP by 1.3 percent and create 1.6 million jobs. From CBO:
The budgetary cost of extending the expiring tax provisions would be lower if certain provisions were allowed to expire that otherwise would apply to some high-income households. According to JCT and CBO's estimates, if the AMT was indexed for inflation beginning in 2012 and all of the other expiring tax provisions were extended except for the specific provisions affecting high-income taxpayers (and the payroll tax cut), revenues would be lower and outlays for refundable credits would be higher than $288 billion in fiscal year 2013 and by $382 billion in fiscal year 2014, compared with CBO's baseline projections.
CBO estimates that such changes would increase real GDP by 1.3 percent (by 0.3 percent to 2.3 percent under CBO's full range of assumptions), and increase full-time-equivalent employment by 1.6 million (with a range from 0.5 million to 2.8 million) in the fourth quarter of 2013. [Congressional Budget Office, November 2012]
CBO: Extending Tax Cuts For Wealthiest Americans Would Cost $350 Billion Over 10 Years. In its November report, the CBO estimated that extending tax cuts for the wealthiest Americans would add $42 billion to the deficit in 2012, $38 billion to the deficit in 2013, and roughly $350 billion over the next decade, while having a negligible effect on the economy. [Congressional Budget Office, November 2012]
Wash. Post: Expiration Of Upper-Income Tax Cuts "Would Do Little Harm" To Economy. The Washington Post's Wonkblog, citing a recent Congressional Budget Office report, explained that the expiration of the Bush-era tax cuts for the wealthy "would do little harm" and would generate "$42 billion in 2013 but hardly hurts GDP at all." The below graph accompanied the post:
[The Washington Post, 11/8/12]
TPC: "Tax Cuts For These High-Earners Will Do Relatively Little To Boost The Economy In The Short Run." In an August 2010 post, Tax Policy Center economist Howard Gleckman explained that "tax cuts for these high-earners will do relatively little to boost the economy in the short run":
The Treasury Department figures that temporarily extending the 2001 and 2003 tax cuts would reduce federal revenues by roughly $200 billion in Fiscal 2011 and $260 billion in 2012. For technical reasons, those numbers may be off a bit, but you get the drift. Of that, about $75 billion would go to top-bracket taxpayers ($35 billion in 2011 and $40 billion in 2012). We know that higher income households are more likely to bank the cash than spend it. As a result, tax cuts for these high-earners will do relatively little to boost the economy in the short run. [Tax Policy Center, 8/31/10]