With the debt limit deadline approaching and deficit-reduction talks underway, right-wing media are parroting the old GOP talking point that the nation's deficit is a “spending problem, not a revenue problem.” But numerous economic experts have said that decreased revenue is a major cause of the deficit.
GOP Talking Point: “Washington Has A Spending Problem, Not A Revenue Problem”
Boehner: “Washington Has A Spending Problem, Not A Revenue Problem.” In his comments following President Obama's April 13 speech on deficit reduction, House Speaker John Boehner stated:
You are also aware I have been pushing the president for months to engage in this discussion about our long-term fiscal mess. I'm glad that he's finally decided to engage in it. But there's been a lot of discussion about the need to raise taxes. And I'll just say this: we can't tax the very people that we expect to reinvest in our economy and to create jobs. Washington has a spending problem, not a revenue problem. [Speaker.gov, accessed 7/15/11]
Fox And Other Conservative Outlets Revive GOP Talking Point
Big Government: “The Current Mess We're In Has Nothing To Do With Revenue And Everything To Do With Overspending.” From a July 14 post on Andrew Breitbart's Big Government website:
Obama's proposed tax increases would be devastating to the oil and natural gas industry which is responsible for over 9 million jobs in America. These two job killing tax increases alone would cost the U.S. $341 billion in economic output, 155,000 jobs and $68 billion in wages. After one takes a step back from Obama's political rhetoric to actually look at the numbers, it is clear that Obama's proposals are more about continuing his war on oil companies than reducing the debt.
In this instance, the tax policies Obama singles out as “loopholes” or “tax expenditures” are anything but; the government doesn't spend a single penny helping oil companies produce oil. Under the 2004 Sec. 199 law, every domestic manufacturer is eligible to deduct 9 percent of their income -- that is, every domestic manufacturer except oil and natural gas companies. Singling out oil companies, a Democrat controlled Congress limited the amount of income this industry can deduct to 6 percent.
Another one of Obama's proposed tax increases is to amend the foreign tax credit for dual capacity taxpayers, in this case oil companies. Doing so would raise minimal amounts of revenue but force oil companies to pay higher tax rates than their international competitors by double taxing earnings. With deals like this, no wonder Republicans categorically reject tax hikes.
Since coming into office, Obama has increased federal spending by nearly a trillion dollars. The current mess we're in has nothing to do with revenue and everything to do with overspending.
Republicans are using this debt ceiling to force the issue and demand spending cuts.
Obama is using it to raise taxes. [Big Government, 7/14/11]
Hannity's Great American Panel Discusses Our Nation's “Spending Problem.” From the July 13 edition of Fox News' Hannity:
HANNITY: All right, so President cry baby and I say because he's nearly been president for three years. Mr. President, put your pants on stop blaming people for everything.
He takes no responsibility. Storms out of this meeting tonight Eric Cantor saying, shoved back, I'll see you tomorrow, walks out. He says, Eric, don't you call my bluff. He said warning Cantor that he's going to take, quote, “his case to the American people.” No other president, not Ronald Reagan, would put up with the treatment that poor president crybaby was getting from the House majority leader. What is this?
KIRSTEN HAGLUND, MISS AMERICA 2008: I think it is ridiculous. I'm actually proud of the Republican leadership that is taking ownership of the fact this is why they got elected to stand up to the president in these hard times. Say we are not going to raise revenue. We don't have a revenue problem. We have a spending problem and Obama doesn't want to take it.
HANNITY: Did you raise taxes as a Democrat?
RICHARD CODEY, FORMER NEW JERSEY GOVERNOR: No, I didn't. But they do have a spending problem and a revenue problem. If you don't have enough revenue to meet your obligations and you default, we have a huge problem.
These people have to get in the room, stay in the room until they come up with a reasonable compromise. I think Boehner and McConnell are that reasonable and I think they can do it.
The Republican Party is so split. They have the core constituency of business who is saying you can't default. Then you have the radical right saying let it default, we don't care, blow it up.
HANNITY: The radical left spent us into oblivion. Barack Obama nearly $5 trillion in debt, $1.65 trillion this year, Pelosi $5 trillion as speaker of the House. [Fox News, Hannity, 7/13/11, via Nexis]
Neal Boortz: “Look, This Is A Spending Problem. It Is Not A Revenue Problem.” During an appearance on Fox Business' Cavuto, syndicated radio host Neal Boortz stated: “Look, this is a spending problem. It is not a revenue problem.” From the July 13 edition of Fox Business' Cavuto:
BOORTZ: Look, this is a spending problem. It is not a revenue problem. Barack Obama has amassed more debt since he's been in office than all of the 43 presidents who came before him. And this whole thing about tax increases on the wealthy, Barack Obama has tipped his hand on this many times. He tipped his hand to “Joe the Plumber” . He tipped his hand to Charlie Gibson. It's not about raising revenue. It's about fairness.
It's because I, Barack Obama, think that those people that have that money don't deserve it and I'm going to take it away from them and give it to people who I think do deserve it. That's not the role of government. I - can I refer to my notes, Charles?
CHARLES PAYNE (Fox Business contributor): Absolutely. Please do.
BOORTZ: I got my calculator out today.
BOORTZ: The Brazilian economy growing at five percent. The Chinese economy, I think, is growing at a rate above that. But if we - everybody talks tax increases or spending cuts. How about growing the economy? [Fox Business, Cavuto, 7/13/11, via Nexis]
Hot Air's Ed Morrissey: Revenue Is Not “The Real Problem.” From a July 7 post by Ed Morrissey on the right-wing blog Hot Air headlined, “Do we really have a revenue problem?” :
While revenues have tripled during this period, federal spending has more than quintupled. The economic expansion of the 1990s (including the dot-com bubble) temporarily raised revenue above the spending trendline, but the slope on spending increased in the early 2000s, and practically launched spaceward in 2007 when Democrats took control of Congress. Had spending increased at a rate of inflation from 2001 forward, we would probably not been in deficit at all. Had it stayed at the rate of inflation from 2006 forward, we'd probably be looking at historically average deficits in terms of GDP. But the chart shows very, very clearly that we have a recession problem combined with both a short- and long-term problem with expanding federal budgets -- and the latter is the reason why we have a fiscal crisis, not some presumed revenue starvation.
It's true that most of that spending problem comes from entitlements. That's why Republicans have focused their efforts on that sector of the federal budget, and not on hiking taxes. The GOP wants to attack the recession problem by rolling back the regulatory adventurism of the Obama administration, especially in ObamaCare and at the EPA, in order to stimulate the economy and recover the revenue that we're losing in the recession/stagflation period. Raising taxes will have the opposite effect, and as we have seen any number of times, will not produce the revenues estimated by tax-hike advocates using static tax analysis.
Let's confront the real problem in our fiscal crisis, and not make the recession crisis any worse than it already is. [Hot Air, 7/7/11]
But Numerous Economic Experts Say That 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, 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, 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. [NewYorkTimes.com, 10/18/10]
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 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 25, 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]
Fox Previously Adopted GOP's Talking Point On Deficit
Varney And Doocy Agree That Deficit Is Not A “Revenue And A Tax Problem” But A “Spending Problem.” During a discussion of the deficit on the April 18 edition of Fox News' Fox & Friends, Fox Business host Stuart Varney stated: “I don't think this is a revenue and a tax problem. This is a spending problem.” Co-host Steve Doocy replied, “Absolutely.” From Fox & Friends:
VARNEY: If all you want to do is just raise taxes, not cut spending, all you want to do is raise taxes, then the amount of tax-raising you've got to do is simply phenomenal. And it's not going to happen. This is bad economics. It might make good politics. After all, half of all households pay no federal income tax at all, so you can preach to that choir. You can tell them, you can have everything you ever wanted, and the other half will pay for it. Maybe that's good politics, but it's lousy economics.
DOOCY: But you also have the option, either you can raise taxes on somebody or everybody, or simply cut spending.
DOOCY: On big, important programs.
VARNEY: Of course. Look, that's what's required, isn't it? This is not -- I don't think this is a revenue and a tax problem. This is a spending problem.
VARNEY: We have spent ourselves into a $1.6 trillion deficit this year. We've got to cut that spending to get out of that hole. And we show no signs of doing it. That creates a debt crisis, and we're in it. [Fox News, Fox & Friends, 4/18/11, via Media Matters]
Rove: Obama Is “Wrong That This Is A Revenue Problem. This Is A Spending Problem.” On the April 15 edition of Fox & Friends, Fox News contributor Karl Rove stated that Obama is “wrong that this is a revenue problem. This is a spending problem, and it's his spending.” From Fox & Friends:
BRIAN KILMEADE (co-host): Here's what stunned me, and I think it's essentially for -- he's saying game on.
KILMEADE: Because he said the problem is the rich are not paying enough. Upon further review -- and he brought to your years at the White House, the proof of that. But the stats show that revenues were never higher than they were during those eight years.
ROVE: That's correct. That's right.
KILMEADE: There has to be a reason.
ROVE: And look, here's the other thing. Let's assume -- you're absolutely right. He's wrong that this is a revenue problem. This is a spending problem, and it's his spending. He's increased discretionary domestic spending in two years by 84 percent if you include the stimulus. His budget plan in February has us going -- spending $46 trillion over the next 10 years with $36 trillion in revenue. [Fox News, Fox & Friends, 4/15/11, via Media Matters]
Camerota: “Republicans Say ... We Don't Have A Revenue Problem, We Have A Spending Problem.” On Fox News' America's Newsroom, during an interview with Rep. Robert Andrews (D-NJ), guest co-host Alisyn Camerota stated, “You know, of course, what Republicans say, which is that we don't have a revenue problem, we have a spending problem.” [Fox News, America's Newsroom, 4/15/11, via Media Matters]