Fact Checking The Sunday Shows - June 12, 2011
Sunday saw multiple GOPers blaming President Obama for job losses that are rightly blamed on President Bush's recession and pretending that Obama policies haven't started to turn the job market around. Republicans have never stopped misleading people about the impact of the Recovery Act, but ignoring two million new private-sector jobs since February 2010 is shameless. Presidential hopeful Tim Pawlenty, RNC Chairman Reince Priebus and Sen. Richard Shelby (R-AL) each offered one jobs lie or another. Pawlenty claimed that tax cuts pay for themselves (they don't), that President Obama is "out of ideas" on economic and entitlement issues (false), that we "have to" cut Social Security (nope), that the Affordable Care Act cut $500 billion from Medicare (wrong again), and that he didn't really leave a $6 billion deficit behind at the end of his term as Governor of Minnesota (nice try). Meanwhile, Rep. Paul Ryan (R-WI) falsely claimed on CBS that the GOP Medicare plan doesn't affect current seniors, Sen. Kelly Ayotte (R-NH) told CNN that ending oil subsidies will increase gas prices, and Rep. Charlie Bass (R-NH) told CNN that the debt ceiling deadline isn't real because "the global economy will understand" if we default.
CLAIM: Tim Pawlenty Implied That President Obama's Policies Have Increased Government Employment At The Expense Of Private-Sector Job Growth
TIM PAWLENTY: Chris, [my economic plan] would unleash economic growth and job growth in this country. It would get back to the premise that we're gonna grow the private economy not the government economy, and it shows leadership. [...] This plan, by the way, is one that gets back to the notion that we need to have a pro-growth economy focused on private-sector job growth. [Fox News Sunday, 6/12/11]
CLAIM: Sen. Shelby Claimed That "We've Grown The Government, But We Haven't Grown The Economy"
SEN. RICHARD SHELBY: We've got to grow this economy. The market grows the economy. Government, we've grown the government, but we haven't grown the economy. [This Week, 6/12/11]
CLAIM: Reince Priebus Blamed President Obama For 2.5 Million Job Losses From The Recession That Began In 2007
REINCE PRIEBUS: We have lost two and a half million jobs since Barack Obama's been president. [Meet the Press, 6/12/11]
FACT: The Economy Shed Millions Of Jobs During The Bush Recession Until President Obama's Policies Began To Turn Things Around
The Economy Shed Almost 8 Million Jobs Under Republican Policies Before The Recovery Act Could Affect The Economy. According to economist Robert J. Shapiro:
From December 2007 to July 2009 - the last year of the Bush second term and the first six months of the Obama presidency, before his policies could affect the economy - private sector employment crashed from 115,574,000 jobs to 107,778,000 jobs. Employment continued to fall, however, for the next six months, reaching a low of 107,107,000 jobs in December of 2009. So, out of 8,467,000 private sector jobs lost in this dismal cycle, 7,796,000 of those jobs or 92 percent were lost on the Republicans' watch or under the sway of their policies. Some 671,000 additional jobs were lost as the stimulus and other moves by the administration kicked in, but 630,000 jobs then came back in the following six months. The tally, to date: Mr. Obama can be held accountable for the net loss of 41,000 jobs (671,000 - 630,000), while the Republicans should be held responsible for the net losses of 7,796,000 jobs. [Sonecon.com, 8/10/10, emphasis added]
Based on Shapiro's research, the Washington Post's Ezra Klein created the following chart showing net job losses before and after the Recovery Act was enacted:
[Washington Post, 8/12/10]
PolitiFact: "True" That "Most Job Losses" Happened Before Obama Policies Took Effect. According to PolitiFact.com's analysis of President Obama's statement that "most of the jobs that we lost were lost before the economic policies we put in place had any effect": "Looking at BLS data on seasonally adjusted non-farm employment from December 2007, when the recession officially began, to January 2009, the month before the stimulus was enacted (a 25-month period), the jobs number declined by 4.4 million. ... When [Obama] refers to his economic policies, we presume he is referring to his main economic stimulus, the American Recovery and Reinvestment Act. It passed in February 2009, but it took several months before the impact of its spending was felt in the economy. Job loss didn't stop, but Obama is right that it slowed down. In the 19 months from February 2009 through September 2010, the month of the most recent preliminary data, the overall job decline in the private and public sectors was 2.6 million. And the number of jobs lost per month has declined from around 700,000 a month at the beginning of the administration to months in which there were small net gains. ... 'I watched the president on Stewart's show last night, and I thought his basic point about the timing of the employment losses was correct and ought to be noncontroversial,' Gary Burtless, a labor markets expert at the centrist-to-liberal Brookings Institution said in an e-mail." [PolitiFact.com, 10/27/10, emphasis added]
FACT: While The Private Sector Grows, Government Employers Continue To Lay Off Thousands Every Month
Since Summer 2009, The Private Sector Has Added Jobs While The Public Sector Has Shrunk. Political Correction prepared a chart based on Bureau of Labor Statistics data showing cumulative job gains and losses in the public and private sectors since summer 2009 (click to enlarge):
Since July 2009, The Private Sector Has Gained Over 1.2 MILLION Net Jobs. According to Bureau of Labor Statistics data, there were 107,649,000 private-sector jobs in July 2009. As of May 2011, the most recent report available, the data show that total is up to 108,916,000 — a net gain of 1,267,000 jobs in the private sector. [BLS.gov, accessed 6/12/11]
Since July 2009, The Public Sector Has Lost 417,000 Net Jobs. According to Bureau of Labor Statistics data, there were 22,544,000 jobs in the government sector in July 2009. As of May 2011, the most recent report available, the data show 22,127,000 government jobs — a net loss of 417,000. [BLS.gov, accessed 6/12/11]
BLS: The Private Sector Added 2.1 Million Jobs From February 2010 To April 2011. According to the Bureau of Labor Statistics: "Total nonfarm payroll employment increased by 244,000 in April, and the private sector added 268,000 jobs. Employment rose in a number of service-providing industries, manufacturing, and mining. Since a recent low in February 2010, total payroll employment has grown by 1.8 million. Private sector employment has increased by 2.1 million over the same period." [BLS.gov, 5/6/11]
There Have Been 15 Consecutive Months Of Private-Sector Job Growth. Below is a graph prepared by the Office of the Democratic Leader showing monthly private-sector job gains and losses:
[Office of the Democratic Leader, 6/3/11, via Flickr]
Fox News Sunday
CLAIM: Tim Pawlenty Claimed His Plan To Cut Taxes Would Not Worsen The Deficit Thanks To Economic "Growth Because Of This Plan"
CHRIS WALLACE (host): The nonpartisan Tax Policy Center says if we followed your plan that it would result in $11.6 trillion in less revenue for the country over the next ten years. Your own campaign says it would mean $2 trillion less in revenue. Question: Doesn't your plan blow a hole in the national deficit?
TIM PAWLENTY: Chris, it does not. First of all, those numbers, whether you use the liberal think tank numbers that you've cited or our own numbers, assume static scoring. And first of all if you look at just the tax cut part of it there may be a small impact negatively on the deficit but that assumes no growth, assumes static scoring, which, there will be growth because of this plan. But it forgets the other half of the plan. We're not proposing to cut taxes and raise spending as has happened in the past. We're proposing to cut taxes and dramatically cut spending as well.
FACT: Tax Cuts Do Not Pay For Themselves — Especially Since Taxes Are Historically Low Already
Top Tax Brackets Over Time:
Federal Tax Burden On Typical Family Of Four Is At Lowest Level Since 1955. As reported by the Orange County Register: "While Republican lawmakers appear unified against tax increases and many Tea Party activists want existing rates rolled back, statistics consistently show that federal taxes are at a historic low. For the past two years, a family of four earning the median income has paid less in federal income taxes than at any time since at least 1955, according to the Tax Policy Center. All federal, state and local taxes combined are a lower percentage of per-capita income than at any time since the 1960s, according to the Tax Foundation. The highest income-tax bracket is its lowest since 1992. At 35 percent, it's well below the 50 percent mark of much of the 1980s and the 70 percent bracket of the 1970s." [Orange County Register, 4/17/11, emphasis added]
Federal Tax Rate As Compared To GDP Is At Lowest Level In Over 60 Years. According to former President Reagan adviser and economist Bruce Bartlett: "Historically, the term "tax rate" has meant the average or effective tax rate - that is, taxes as a share of income. The broadest measure of the tax rate is total federal revenues divided by the gross domestic product. By this measure, federal taxes are at their lowest level in more than 60 years. The Congressional Budget Office estimated that federal taxes would consume just 14.8 percent of G.D.P. this year. The last year in which revenues were lower was 1950, according to the Office of Management and Budget. The postwar annual average is about 18.5 percent of G.D.P. Revenues averaged 18.2 percent of G.D.P. during Ronald Reagan's administration; the lowest percentage during that administration was 17.3 percent of G.D.P. in 1984. In short, by the broadest measure of the tax rate, the current level is unusually low and has been for some time. Revenues were 14.9 percent of G.D.P. in both 2009 and 2010." [Bruce Bartlett column, New York Times, 5/31/11, emphasis added]
The 400 Richest Americans Paid Average Federal Income Tax Rate Of 18.11 Percent In 2008. According to former President Reagan adviser and economist Bruce Bartlett: "The many adjustments to income permitted by the tax code, plus alternative tax rates on the largest sources of income of the wealthy, explain why the average federal income tax rate on the 400 richest people in America was 18.11 percent in 2008, according to the Internal Revenue Service, down from 26.38 percent when these data were first calculated in 1992. Among the top 400, 7.5 percent had an average tax rate of less than 10 percent, 25 percent paid between 10 and 15 percent, and 28 percent paid between 15 and 20 percent. The truth of the matter is that federal taxes in the United States are very low. There is no reason to believe that reducing them further will do anything to raise growth or reduce unemployment." [Bruce Bartlett column, New York Times, 5/31/11, emphasis added]
FactCheck.org: "Highly Misleading" To Say Tax Cuts Increase Revenues. According to FactCheck.org: "Republican presidential candidate Sen. John McCain has said that the major tax cuts passed in 2001 and 2003 have 'increased revenues.' He also said that tax cuts in general increase revenues. That's highly misleading. In fact, the last half-dozen years have shown us that we can't have both lower taxes and fatter government coffers. The Congressional Budget Office, the Treasury Department, the Joint Committee on Taxation, the White House's Council of Economic Advisers and a former Bush administration economist all say that tax cuts lead to revenues that are lower than they otherwise would have been - even if they spur some economic growth. And federal revenues actually declined at the beginning of this decade before rebounding." [FactCheck.org, 6/11/07]
- Nonpartisan Joint Committee On Taxation: Bush Tax Cuts Reduced Revenues By Hundreds Of Billions Of Dollars. According to FactCheck.org: "The Joint Committee on Taxation estimated that the 2001 tax legislation (the Economic Growth and Tax Relief Reconciliation Act) would cause government revenues to be 107.7 billion less than they would have been in the absence of the legislation in 2004, 107.4 billion less in 2005 and 135.2 billion less in 2006. The committee's estimates for the effect of the Jobs and Growth Tax Relief Reconciliation Act of 2003 were that it would reduce otherwise projected revenues by 148.7 billion in 2004, 82.2 billion in 2005 and 20.7 billion in 2006. The JCT makes its comparisons against the Congressional Budget Office's receipts baselines." [FactCheck.org, 6/11/07]
Time: "If There's One Thing That Economists Agree On, It's That These Claims Are False." According to Time: "If there's one thing that Republican politicians agree on, it's that slashing taxes brings the government more money. ... If there's one thing that economists agree on, it's that these claims are false. We're not talking just ivory-tower lefties. Virtually every economics Ph.D. who has worked in a prominent role in the Bush Administration acknowledges that the tax cuts enacted during the past six years have not paid for themselves--and were never intended to. Harvard professor Greg Mankiw, chairman of Bush's Council of Economic Advisers from 2003 to 2005, even devotes a section of his best-selling economics textbook to debunking the claim that tax cuts increase revenues." [Time, 12/6/07, emphasis added]
2006: Bush's Chief Economic Adviser Conceded Tax Cuts Do Not Pay For Themselves. In testimony to the Senate Budget Committee, Council of Economic Advisers Chairman Edward Lazear testified: "Will the tax cuts pay for themselves? As a general rule, we do not think tax cuts pay for themselves. Certainly, the data presented above do not support this claim." [Senate Budget Committee Hearing, 9/28/06, via WhiteHouse.Archive.gov]
AEI Economist: "There's No Evidence" That Bush Tax Cuts "Come Anywhere Close" To Paying For Themselves. In 2006, the Washington Post asked former Bush economist and American Enterprise Institute (AEI) Resident Scholar Alan Viard if the Bush tax cuts paid for themselves: "Economists said Bush was claiming credit where little is due. The economy has grown and tax receipts have risen at historic rates over the past two years, but the Bush tax cuts played a small role in that process, they said, and cost the Treasury more in lost taxes than it gained from the resulting economic stimulus. 'Federal revenue is lower today than it would have been without the tax cuts. There's really no dispute among economists about that,' said Alan D. Viard, a former Bush White House economist now at the nonpartisan American Enterprise Institute. 'It's logically possible' that a tax cut could spur sufficient economic growth to pay for itself, Viard said. 'But there's no evidence that these tax cuts would come anywhere close to that.'" [Washington Post, 10/17/06, emphasis added]
Wall Street Journal: Bush Tax Cuts Return Less Than 10 Percent Of Their Cost In Added Tax Revenue From Economic Growth. In a 2006 editorial, the Wall Street Journal wrote: "The congressional Joint Committee on Taxation, using conventional analyses, says making the president's tax cuts permanent would reduce federal revenues in 2016 by $314 billion. That is more than 10 times what the Treasury analysis suggests tax cuts would generate by prompting more hours of work, more savings and investment and more efficient use of resources." [Wall Street Journal, 7/11/06]
Harvard Economist: Chief Republican Arguments For Cutting Taxes Are "Both Wrong." In a paper titled "Snake-Oil Tax Cuts," Harvard professor Jeffery Frankel wrote:
For years, the Republican approach to economic policy has pretty much boiled down to this message: The right response to all problems is cutting taxes. To bolster this message, they rely heavily on two arguments. On the one hand, they say, cutting taxes will increase tax revenues by generating economic growth, thus raising tax revenue and building a surplus. (This is known as the Laffer Hypthesis). On the other hand, Republicans claim, tax cuts are good because they create deficits and force the government to shrink itself. (A colloquial term for this is Starve the Beast).
The arguments are not only mutually exclusive - the weight of the economic evidence also shows that they're both wrong. The habit of Republican policymakers to invoke each of them at different points in time (or before different audiences) is politically convenient but logically dishonest. It smacks of a particularly desperate defense attorney arguing both that "my client didn't have a gun" (Laffer) and "he shot in self-defense" (Starve the Beast).
Neither proposition accurately describes US economic history, nor provides a sound basis for future economic policy. That is, choosing either proposition would harm the long-term health of the US economy. ["Snake-Oil Tax Cuts," 9/8/08, via Harvard.edu, emphasis added]
Ezra Klein: 'In The Real World, Tax Cuts And Spending Increases Have The Exact Same Effect On The Budget Deficit.' According to the Washington Post's Ezra Klein: "What's remarkable about Kyl's position here is that it appears to be philosophical. 'You should never have to offset cost of a deliberate decision to reduce tax rates on Americans,' he said. Never! This is much crazier than anything you hear from Democrats. Imagine if some Democrat -- and a member of the Senate Democratic leadership, no less -- said that as a matter of principle, spending should never be offset. He'd be laughed out of the room. Back in the real world, tax cuts and spending increases have the exact same affect [sic] on the budget deficit." [Washington Post, 7/12/10]
CLAIM: Tim Pawlenty Claimed President Obama Does Not Have An Economic Plan And Has Nothing To Say About Entitlement Programs
TIM PAWLENTY: And by the way, I actually have a plan. Barack Obama doesn't have an economic plan, he just has a campaign plan. You can't find him on what he has to say about Social Security or Medicare or Medicaid. He has run out of ideas, and the ideas he does have on growing the economy are bad.
FACT: President Obama Has Offered A Plan To Cut Spending And Invest In Economic Growth
President Obama Announced Plan To Reduce Debt By $4 Trillion Over 12 Years Compared To Current Forecasts. As reported by the Washington Post: "President Obama entered the debate about the national debt on Wednesday after months on the sidelines, offering a plan to trim borrowing by $4 trillion over the next 12 years by combining deep cuts in military and domestic spending with higher taxes on the wealthy. In a stinging rebuke to Republican budget-cutters, Obama acknowledged that the debt must be tackled faster than he has previously proposed, but he rejected GOP calls to make fundamental changes to Medicare and Medicaid and to scale back his initiative to expand health-care coverage to the uninsured." [Washington Post, 4/13/11]
- President's Plan Includes "Debt Fail-Safe Trigger" To Ensure Debt Reduction At Promised Levels. As reported by the Washington Post: "In fact, the president offered his own alternative Wednesday: a 'debt fail-safe trigger' that would cut spending across the board if lawmakers did not approve policies that would set the debt on a downward path by 2014. The trigger should spare Social Security, Medicare and programs for the poor, Obama said, and should raise taxes by cutting dozens of tax breaks that benefit people and corporations." [Washington Post,4/13/11]
President Obama: We Will Cut Spending, But Continue To Invest In Education, Infrastructure And Research To Support Economic Growth. From President Obama's speech at George Washington University on April 13:
So today, I'm proposing a more balanced approach to achieve $4 trillion in deficit reduction over 12 years. It's an approach that borrows from the recommendations of the bipartisan Fiscal Commission that I appointed last year, and it builds on the roughly $1 trillion in deficit reduction I already proposed in my 2012 budget. It's an approach that puts every kind of spending on the table -- but one that protects the middle class, our promise to seniors, and our investments in the future.
The first step in our approach is to keep annual domestic spending low by building on the savings that both parties agreed to last week. That step alone will save us about $750 billion over 12 years. We will make the tough cuts necessary to achieve these savings, including in programs that I care deeply about, but I will not sacrifice the core investments that we need to grow and create jobs. We will invest in medical research. We will invest in clean energy technology. We will invest in new roads and airports and broadband access. We will invest in education. We will invest in job training. We will do what we need to do to compete, and we will win the future. [President Obama Remarks, 4/13/11, emphasis added]
FACT: President Obama's Plan For Medicare Aims To Reduce Spending By Making The Program More Efficient
In Debt-Reduction Speech, Pres. Obama Called For Reforms That Cut Medicare And Medicaid Spending By Building On Reforms From Health Care Law. From President Obama's speech at George Washington University on April 13:
The third step in our approach is to further reduce health care spending in our budget. Now, here, the difference with the House Republican plan could not be clearer. Their plan essentially lowers the government's health care bills by asking seniors and poor families to pay them instead. Our approach lowers the government's health care bills by reducing the cost of health care itself.
Already, the reforms we passed in the health care law will reduce our deficit by $1 trillion. My approach would build on these reforms. We will reduce wasteful subsidies and erroneous payments. We will cut spending on prescription drugs by using Medicare's purchasing power to drive greater efficiency and speed generic brands of medicine onto the market. We will work with governors of both parties to demand more efficiency and accountability from Medicaid.
We will change the way we pay for health care -- not by the procedure or the number of days spent in a hospital, but with new incentives for doctors and hospitals to prevent injuries and improve results. And we will slow the growth of Medicare costs by strengthening an independent commission of doctors, nurses, medical experts and consumers who will look at all the evidence and recommend the best ways to reduce unnecessary spending while protecting access to the services that seniors need.
Now, we believe the reforms we've proposed to strengthen Medicare and Medicaid will enable us to keep these commitments to our citizens while saving us $500 billion by 2023, and an additional $1 trillion in the decade after that. But if we're wrong, and Medicare costs rise faster than we expect, then this approach will give the independent commission the authority to make additional savings by further improving Medicare. [President Obama Remarks, 4/13/11, emphasis added]
Brookings Senior Fellow: President's Plan "Better Than Either The Status Quo Or Ryancare." From Brookings Institution Senior Fellow in Economic Studies Isabel V. Sawhill: "The important point is that we need to improve the efficiency of the system. Almost everyone agrees that we are getting poor value for our health dollar. Medicare's open-ended fee-for-service system does not solve the problem; it exacerbates it. Premium support is one way to put a lid on unsustainable growth rates. The President's proposal is another way to accomplish the same objective. He would not only limit the growth of Medicare but give greater authority to an independent board to change the way in which the delivery system is organized and health care costs are reimbursed. His plan is far from perfect but, in my view, better than either the status quo or Ryancare." [Brookings Institution, 5/31/11]
House Democratic Leader Nancy Pelosi: "We Have A Plan. It's Called Medicare." As reported by Greg Sargent of the Washington Post: "'It is a flag we've planted that we will protect and defend. We have a plan. It's called Medicare.' That's from Nancy Pelosi, who called me from Wisconsin, where she's holding events today defending Medicare in Paul Ryan's back yard. [...] Asked to clarify what she meant, and to detail what sort of changes she'd be open to, Pelosi insisted that any claims she could support cuts in the program are wrong. 'No benefits cuts,' she said flatly. Pelosi added that Dems have already put on the table the type of reform they should continue advocating for: The Affordable Care Act. 'We gave the blueprint for how we strengthen Medicare in the Affordable Care Act,' Pelosi said, a plan which is still 'ripening' and 'which does not reduce benefits. It lowers costs to taxpayers, the deficit, and beneficiaries.' She said the only type of Medicare cuts she's open to are extracting savings via bureaucratic and pharmecutical reforms that don't touch benefits." [Washington Post, 5/19/11, emphasis added, italics original]
FACT: Democrats Have Put Forward Multiple Plans For Reducing The Debt, Including One That Balances The Budget 10 Years Sooner Than The House GOP Plan
The House Voted On Five Budget Resolutions, Three From Democrats, In April. As reported by the Christian Science Monitor:
On Friday, the House voted on five budget plans for fiscal year 2012, each with dramatically different strategies to resolve the nation's fiscal woes. Here are details of those five plans:
- The GOP leadership plan, developed by House Budget Committee chair Paul Ryan (R) of Wisconsin, lowered both individual and corporate tax rates and capped government spending as a percentage of gross domestic product. It also significantly overhauled Medicare and Medicaid, shifting costs to individuals and the states. It passed with no Democrat votes, 235 to 193.
- Democrats on the House budget panel, led by Rep. Chris Van Hollen of Maryland, aimed to bring the budget back toward "primary balance" by fiscal year 2018 by freezing nondefense spending for five years, ending tax breaks to oil and gas industries, and not renewing the Bush-era tax cuts. It failed 166 to 259, with no Republican votes.
- GOP conservatives proposed even deeper cuts in entitlement programs: They'd increase the retirement age for Social Security to 70 and raise the eligibility age for Medicare to 67. It failed 119 to 120, with no Democratic votes. (In a last-minute maneuver, all but 16 Democrats voted "present" - a move that could have allowed the measure to defeat the more moderate Ryan proposal.)
- The Congressional Black Caucus aimed to cut deficits by nearly $3.96 trillion over 10 years, mainly by increasing revenue - ending, specifically, the Bush-era tax cuts on the wealthy. It failed 103 to 303. Seventy-five Democrats voted with all Republicans in opposition.
- The Congressional Progressive Caucus outlined the reduction of deficits by $5.7 trillion over the next 10 years, mostly by increasing taxes by some $4 trillion and cutting defense spending by $2.3 trillion. The measure failed 77 to 347, with 108 Democrats joining all Republicans in opposition. [Christian Science Monitor, 4/18/11, emphasis added]
EPI: Congressional Progressive Caucus's "People's Budget" Ends Federal Deficits By 2021. According to the Economic Policy Institute: "[T]he People's Budget would reduce primary spending by $868.9 billion, increase general revenue by $2.8 trillion, and increase payroll tax receipts by $1.2 trillion over a decade relative to the adjusted CBO baseline. [...] In total, the People's Budget would reduce deficits by $5.6 trillion over 2012-21 relative to the adjusted CBO baseline. The People's Budget is projected to turn from budget deficit to budget surplus in 2021, with a surplus of $30.7 billion ... in that year." [EPI.org, 4/13/11, emphasis added]
- The Economist: Overlooked CPC Resolution Would Balance Budget A Decade Sooner Than Republican Plan. From The Economist:
Well, here's a test case. Mr Miller's column notes that "the Congressional Progressive Caucus plan wins the fiscal responsibility derby thus far; it reaches balance by 2021 largely through assorted tax hikes and defense cuts." Which is pretty interesting. Have you ever heard of the Congressional Progressive Caucus budget plan? Neither had I. The caucus's co-chairs, Raul Grijalva of Arizona and Keith Ellison of Minnesota, released it on April 6th. The budget savings come from defence cuts, including immediately withdrawing from Afghanistan and Iraq, which saves $1.6 trillion over the CBO baseline from 2012-2021. The tax hikes include restoring the estate tax, ending the Bush tax cuts, and adding new tax brackets for the extremely rich, running from 45% on income over a million a year to 49% on income over a billion a year.
Mr Ryan's plan adds (by its own claims) $6 trillion to the national debt over the next decade, but promises to balance the budget by sometime in the 2030s by cutting programmes for the poor and the elderly. The Progressive Caucus's plan would (by its own claims) balance the budget by 2021 by cutting defence spending and raising taxes, mainly on rich people. Mr Ryan has been fulsomely praised for his courage. The Progressive Caucus has not. [The Economist, 4/22/11, emphasis added, parentheses original]
CLAIM: Tim Pawlenty Claimed We "Have To" Cut Social Security Benefits By Raising The Retirement Age, Means-Testing Benefits
TIM PAWLENTY: So for the next generation coming up, not the people on the program, not the people near retirement, we're gonna have to gradually raise the retirement age for people entering the workforce, the next generation, over time. We'll give 'em fair warning, but that'll help Social Security. We're also gonna have to means-test part of Social Security, Chris, so if you're wealthy you're not gonna get under my plan the Cost-Of-Living adjustment in the future, but if you're middle-income or lower-middle-income, you will.
FACT: We Can Balance The Social Security Books Just By Asking High Earners To Pay Social Security Taxes On More Of Their Income
Currently, Social Security Payroll Taxes Are Capped So That High Earners Only Pay Payroll Tax On First $107,000 Of Pay. From the National Academy of Social Insurance: "Benefits are financed by mandatory contributions paid by workers and matched by their employers, by income taxes paid on Social Security benefits, and by interest on Social Security reserves. The contribution rate for both workers and employers is 6.2 percent of earnings up to a cap ($106,800 in 2009)." [NASI.org, October 2009]
Current Payroll Tax Cap Is Significantly Lower As A Percentage Of Total Earnings Than Its Traditional Level. From the National Academy of Social Insurance: "In 2009, only earnings up to $106,800 are taxed and counted toward workers' future Social Security benefits. About 6 percent of all workers earn more than the cap. The cap is indexed to keep pace with the growth in average earnings of all workers. In the past, Congress set the level of the cap to cover 90 percent of the aggregate wages of all workers. Today, it covers only about 83 percent of such earnings. The decline occurred because those at the top of the economic ladder (who make more than the cap) have enjoyed more rapid growth in earnings than those who make less than the cap." [NASI.org, October 2009, internal citations removed for clarity, emphasis added]
Removing The Payroll Tax Cap Would Eliminate Funding Shortfall Over 75-Year Period. From the National Academy of Social Insurance:
Option #8a: Eliminate the Cap - Do Not Count the Additional Earnings toward Benefits. If all earned income above $106,800 a year were subject to Social Security contributions, but those earnings did not count toward benefits, Social Security would be solvent throughout the long-range projection period. Making this change in 2010 would be more than enough to eliminate the 75-year deficit. With this change, workers who earn far more than the tax cap would pay considerably more in taxes. For example, a person making $400,000 per year would pay $18,178 per year more and his or her employer would pay a matching amount, for a total increase of $36,356. The worker's maximum benefit would be no higher than under current law. Ever since Social Security began, all wages that are taxed have counted toward benefits. This proposal would break that traditional link.
Option #8b: Eliminate the Cap - Count the Earnings toward Benefits. If all wages above $106,800 in 2009 were taxed and counted toward benefits, the change would almost make Social Security solvent through the long-range period, eliminating about 95 percent of the 75-year shortfall. While high earners and their employers would pay considerably more, these top earners would also receive much higher benefits. [NASI.org, October 2009, emphasis original]
CLAIM: Tim Pawlenty Claimed The Affordable Care Act "Cuts Medicare To The Tune Of About $500 Billion"
TIM PAWLENTY: Well keep in mind, President Obama's plan in Obamacare already cuts Medicare to the tune of about $500 billion, and has some government board decide what part of Medicare is gonna get whacked. So he's already got scheduled under Obamacare $500 billion of Medicare cuts.
FACT: Affordable Care Act's Medicare Savings Come From Eliminating Wasteful Overpayments To Medicare Advantage
FactCheck.org: Cost Saving Provisions "Not A Slashing Of The Current Medicare Budget Or Benefits." According to FactCheck.org: "Whatever you want to call them, it's a $500 billion reduction in the growth of future spending over 10 years, not a slashing of the current Medicare budget or benefits. It's true that those who get their coverage through Medicare Advantage's private plans (about 22 percent of Medicare enrollees) would see fewer add-on benefits; the bill aims to reduce the heftier payments made by the government to Medicare Advantage plans, compared with regular fee-for-service Medicare. The Democrats' bill also boosts certain benefits: It makes preventive care free and closes the 'doughnut hole,' a current gap in prescription drug coverage for seniors." [FactCheck.org, 3/19/10]
New England Journal Of Medicine: The Affordable Care Act Phases Out "Substantial Overpayments" To Medicare Advantage Plans. From the New England Journal of Medicine:
A phased elimination of the substantial overpayments to Medicare Advantage plans, which now enroll nearly 25% of Medicare beneficiaries, will produce an estimated $132 billion in savings over 10 years. [...]
The ACA also produces nearly $200 billion in savings by assuming that providers can improve their productivity as firms in other industries have done. On the basis of this presumed improvement, the law reduces Medicare's annual "market basket" updates for most types of providers - a provision that has generated controversy. [New England Journal of Medicine, 7/8/10]
Health Care Reform "Will Keep Paying Medical Bills For Seniors." According to PolitiFact.com: "The government-run Medicare program will keep paying medical bills for seniors, but it will begin implementing cost controls on health care providers, mostly through penalties and incentives. The legislation would reduce payments for hospital-acquired infections or preventable hospital admissions. For Medicare Advantage, the federal government intends to reduce extra payments, taking away subsidies to private insurance companies. Insurers will likely cut benefits in order to not lose profits. The bill does not address the 'doctor's fix,' an expected proposal that Congress usually passes to prevent doctors' Medicare payments from severe cuts." [PolitiFact.com, 3/18/10, emphasis in original]
FACT: Affordable Care Act's Medicare Savings And They Extend The Life Of The Program By 8 Years
Medicare Trustees Report Shows Affordable Care Act Extends The Life Of Medicare. According to the Huffington Post:
The Medicare trust fund will last eight years longer than it would have without the passage of last year's health care law, the program's trustees announced Friday in a report.
The nonpartisan lead actuary for Medicare, Rick Foster, estimated that without the health care overhaul, the program's trust fund would have run dry by 2016. With the law in effect, Foster projected, the trust fund will last through 2024. [...]
Health and Human Services Secretary Kathleen Sebelius highlighted the boost reform gave to Medicare. "Over the next 75 years, Medicare's Hospital Insurance costs are projected to be about 25 percent lower due to the new law," she said in a statement. "And without the historic deficit reduction in the Affordable Care Act, Medicare would have gone bankrupt in 2016 -- only five years from now." [Huffington Post, 5/13/11]
Foster: Affordable Care Act Extends The Life Of Medicare By Eight Years. In an interview with Slate's David Weigel, Richard Foster, the chief actuary of the Centers for Medicare & Medicaid, said: "Under current law...including the Affordable Care Act, we're estimating that the trust fund would be exhausted in 2024. In the absence of the savings under the Affordable Care Act, a corresponding date of exhaustion would be 2016. So the Affordable Care Act, in the new projection, postpones the exhaustion by eight years. That's down from 12 years in last year's projection." [Slate, 5/16/11]
CHRIS WALLACE (host): You say that you balanced the budget without raising taxes, but this week we checked with the head of the Minnesota Taxpayers Association who said that you left your successor with a $5 billion deficit.
TIM PAWLENTY: Well, Chris, that's simply not true. I was governor for eight years in Minnesota. It's not accurate to say that at any time during I was governor [sic] or even now in Minnesota that there was a budget deficit, in this regard: the budget has to be balanced under the Minnesota Constitution every two years. Every two years I was there it was balanced. And the last budget for which I was governor ends this summer, it's not even over yet, it ends this July first, and it's gonna end with a multi-hundred-million-dollar surplus, it's gonna end in the black. Now what people are referring to in Minnesota is the bureaucracy projects, then, a budget for the next two years based on hypothetical spending increases. And they're proposing 20+ increases in state spending in the upcoming two-year period. I would never have allowed that as governor of Minnesota.
FACT: Pawlenty Achieved Temporary Surplus With Federal Stimulus Money
Federal Stimulus Money Allowed For Slight Surplus In 2009. As MinnPost.com reported: "A revised budget forecast released this morning shows that the deficit has grown from $4.8 billion to about $6.3 billion. But because of federal stimulus money, directed mostly to Medical Assistance, the projected budget deficit is forecast to be $4.57 billion for the 2010-11 biennium. The one bit of good news is that thanks to stimulus money, there will be a slight - $200 million - surplus at the end of 2009, meaning there should be no need for another round of unallotments for the current biennium." [MinnPost.com, 3/3/09, emphasis added]
Pawlenty's "Temporary Fix" For A Balanced Budget "Relied Heavily On One-Time Federal Stimulus Money." According to Minnesota Public Radio:
When Republican Gov. Tim Pawlenty and the DFL-controlled Legislature balanced the budget last spring, they relied heavily on one-time federal stimulus money and delayed payments to school districts.
That temporary fix continues to hold and even resulted in a $399 million surplus on the current bottom line, meaning Minnesota will not have to borrow money in the short term to pay its bills.
But the financial picture beginning in fiscal 2012 looks grim for Pawlenty's successor and the new GOP legislative majority. Steve Sviggum, the newly installed commissioner of Minnesota Management and Budget, described its as "unfinished business." [Minnesota Public Radio, 12/2/10, emphasis added]
Fox: Pawlenty's "Faux-Surplus" Deceiving Because Of Delayed Payments. According to local Fox 21 news:
Minnesota faces a nearly $7 billion deficit about starting July 2011, according to state projections. Local lawmakers say more than half of that shortfall comes from delayed payments to K-12 school.
Gov. Tim Pawlenty ended his term as governor with a $400 million surplus. But, that amount is deceiving because going into next year the state owes $4 billion in payments to schools, lawmakers said.
Local legislatures say they blame "band-aid" fixes to big problems for the sky-rocketing budget. But, now the problems are too big to ignore. [...]
Pawlently's faux-surplus will be directly applied to the 2011-2012 deficit. So, legislators will focus on a number around $6.2 billion. [Fox21Online.com, 12/2/10, emphasis added]
Face the Nation
REP. PAUL RYAN: We don't want changes for current seniors, because we should keep our promises for them.
FACT: For Current Seniors, Republican Plan Would Reopen Medicare "Donut Hole"
"Path To Prosperity" Reopens Medicare "Doughnut Hole," Forcing Millions Of Seniors To Pay Higher Drug Costs "Immediately." From the National Journal: "[T]he GOP is doubling down on the idea that today's seniors won't be affected. That's partly true. Ryan's plan to convert Medicare into a limited insurance subsidy, the most controversial aspect of the budget, wouldn't take effect until 2022.But the proposal would also repeal last year's health care law, which means reopening a coverage gap in Medicare's prescription-drug benefit that the statute closed. The gap, commonly called the "doughnut hole," requires seniors to pay 100 percent of any prescription costs after the annual total reaches $2,840 and until it hits $4,550. Those who spend more or less have at least three-quarters of the costs covered. Under the 2010 health law, Medicare will pay 7 percent of the cost of generic drugs and 50 percent on name-brand pharmaceuticals; by 2020, the doughnut hole will be closed. If Congress were to pass Ryan's plan and repeal the law, as House Republicans want, the 3 million to 4 million seniors left in the doughnut hole each year would immediately face significant out-of-pocket costs." [National Journal, 6/3/11, emphasis added]
FACT: GOP Plan Would Also Encourage Healthy Seniors To Leave Medicare, Weakening The Program For The Most Vulnerable
Once Republican Voucher Program Begins In 2022, Healthy Seniors Still On "Traditional" Medicare Would Have Incentive To Leave — Endangering The Program For Less-Healthy Beneficiaries. From the National Journal: "The policies in the House GOP budget, if enacted, would begin affecting millions of seniors almost immediately by increasing their costs for prescription drugs and probably long-term care. Further, Medicare costs could rise over time if healthier seniors choose to abandon the traditional benefit program. [...] The plan to grandfather traditional Medicare for those older than 55 could also have negative consequences for current seniors: In 2022, when the limited-subsidy program would be introduced, seniors who qualified for traditional Medicare would be allowed to switch to the new program. If healthier or younger beneficiaries make the change to lower their out-of-pocket costs, those still participating in Medicare would be part of an insurance pool that is less healthy and more expensive. To cover those higher per-person costs, Medicare might well be forced to either raise premiums or limit reimbursements to health care providers-which could prompt many to stop taking Medicare patients." [National Journal, 6/3/11]
Centrist Think Tank: Despite Republican Claims, "Current Beneficiaries Are Not Protected In The Ryan Budget." According to a report from Third Way by David B. Kendall, Senior Fellow for Health and Fiscal Policy and Ryan McConaghy, Director of the Economic Program:
Despite promises to the contrary, current beneficiaries are not protected in the Ryan budget. Under the Republican proposal, traditional Medicare would quickly become second-class medicine. It would "wither on the vine," as then-House Speaker Newt Gingrich described a similar GOP effort in 1995.
The traditional Medicare plan, which covers three-fourths of today's beneficiaries, relies on its huge size to keep costs down. Doctors and hospitals are not required to participate in it, but they have little choice if they wish to treat any seniors, who are the nation's biggest health care consumers.
Fewer doctors would participate in the traditional Medicare plan if there were an alternative. The traditional plan pays physicians about 20% less than private health insurance plans. Today, that is essentially a discount for the large volume of Medicare patients. Under the Ryan budget, it would become a reason for doctors to leave the traditional plan.
By 2030, only 55% of Medicare beneficiaries would still be eligible for traditional Medicare according CBO. Actual enrollment would be less than half of Medicare beneficiaries because many seniors would continue to enroll in private health care coverage under Medicare Advantage. By 2040, traditional Medicare would have only about 20% of Medicare beneficiaries. [ThirdWay.org, 4/14/11, internal citations removed for clarity, emphasis added]
FACT: GOP Plan's Cuts To Medicaid Would Affect Seniors Immediately
9 Million Seniors Receive Medicaid As Well As Medicare. From the National Journal: "Some 9 million seniors qualify for both Medicare and Medicaid benefits, and about two-thirds of all nursing-home residents are covered by Medicaid." [National Journal, 6/3/11]
GOP Budget Cuts $744 Billion From Medicaid Over The Next Decade. From the National Journal: "Perhaps more jolting, the Republican budget would cut spending on Medicaid-health care for the poor-much of which goes to long-term care for the elderly. [...] The GOP budget proposes cutting some $744 billion from Medicaid over 10 years by turning the system into block grants that limit federal contributions and give states more choice in structuring benefits. No one knows exactly which Medicaid services states would choose to cut back, but senior citizens account for a disproportionate share of Medicaid outlays and would almost certainly bear some of the burden." [National Journal, 6/3/11, emphasis added]
State of the Union
CLAIM: Rep. Bass Implied That A Short-Term Default Wouldn't Be A Big Deal Because "The Global Economy Will Understand"
REP. CHARLIE BASS: There's a difference between strategic or technical default, and default where you really don't have the economy to support the spending. We are not at that point yet. We could be. We could be like some European nations. But I think the global economy will understand that the United States has the ability to meet its obligations, but it's not going to be able to do it over the long term if we can't control the growth of government.
FACT: "The Global Economy" Is Begging Washington To Raise The Debt Ceiling So The U.S. Can Keep Paying Its Bills
"Dire Warnings From Business Leaders" Of A "Market Sell-Off" If Congress Fails To Raise Debt Ceiling. From U.S. News & World Report: "Public efforts by both House Speaker John Boehner and President Obama to convince skeptical new Republican House members to add $2 trillion to the nation's burdensome $14 trillion debt ceiling are being reinforced by dire warnings from business leaders that failing to OK the increase will lead to inflation, an immediate doubling of interest rates and a killer Wall Street crash. 'If they don't increase the debt, there will be a huge impact on the economy,' a Wall Street executive told Whispers on background. 'Interest rates would spike. S&P and Moody's would downgrade U.S. debt, raising the price of borrowing, there would be a market sell-off, it would be a disaster.'" [U.S. News & World Report, 5/10/11, emphasis added]
In Letter To Congress, 62 Business Groups Including National Association Of Manufacturers Said Debt Ceiling Increase "Critical To Ensuring Global Investors' Confidence." As reported by the Wall Street Journal: "Sixty-two business groups, including the American Gas Association, the Telecommunications Industry Association, and the National Association of Manufacturers, urged congressional leaders on Wednesday to raise the federal debt ceiling amid fears that political brinkmanship could lead to another financial crisis. 'Raising the statutory debt limit is critical to ensuring global investors' confidence in the creditworthiness of the United States,' the groups wrote to Speaker of the House John Boehner (R., Ohio), House Minority Leader Nancy Pelosi (D., Calif.), Senate Majority Leader Harry Reid (D., Nev.) and Senate Minority Leader Mitch McConnell (R., Ky.). 'With economic growth slowly picking up we cannot afford to jeopardize that growth with the massive spike in borrowing costs that would result if we defaulted on our obligations. It is critically important that the United States stands fully behind its legal obligations.'" [Wall Street Journal,5/11/11, emphasis added]
Wall Street: Failure To Raise Debt Ceiling Could Cause 10 Percent Drop In Stock Market — Worse Than Crash In 2008. As reported by U.S. News & World Report:
Among the specifics the sources say they are telling the new members:
-- Inflation could jump, though they aren't giving any percentage growth.
-- Interest rates could double if U.S. debt is downgraded. House loans, for example, that are now below 5 percent, could surge to 9-10 percent, killing any chance of fixing the housing slump or cutting the unemployment rate, now at 9 percent.
-- The stock market could suffer a 10 percent drop, far more significant than the 778 point thrashing Wall Street took when the House rejected the government's $700 billion bank bailout plan in September 2008.
"That market sell-off will look small compared to what we'll see," said a Wall Street executive. [U.S. News & World Report, 5/10/11, emphasis added]
Coming To Brink Of Default By Delaying Debt Ceiling Increase Will Damage Market Confidence In U.S. Debt As Solid Investment. The Washington Post's Ezra Klein explains:
Throughout the financial crisis, America's great advantage was its status as the single safest investment in the world. That makes it easier for us to borrow money to ease a downturn. It makes it easier for our central bank to buy bonds to keep interest rates low. It gives us tools and flexibility that, say, Greece simply doesn't have. But all of that is based on the market's perception that our debt is, indeed, a safe investment, that we will pay it back, that we won't inflate our way out of the fiscal holes we dig, that our political system will make tough decisions when necessary.
Confidence, once lost, is hard to regain. "It's like a cat who jumps on a hot stove," says Bill Gross, co-founder of Pimco. "Burn it once, and it doesn't jump back on there." [...]
Which gets to the essential irony of this whole conversation: By taking the debt ceiling hostage in a bid to address the deficit, Congress could provoke the exact calamity it's seeking to prevent. What we worry about when we worry about the deficit is that the market will lose confidence in our ability to pay back our debts and begin charging more to buy Treasuries. There's no quicker way to undercut the market's confidence in the U.S. government than for it walk up to the abyss of default. [Washington Post, 4/19/11, emphasis added]
Fed Chairman Bernanke: Even Coming Close To Default Could Harm Market Confidence. As reported by Bloomberg: "'Even if the debt is paid, there's the issue of market confidence and how the market would respond to the risk of default or even the default of non-debt obligations,' [Federal Reserve Chairman Ben Bernanke] said. 'The worst outcome would be one in which the financial system would again destabilize,' he said, adding that such an occurrence 'would have extremely dire consequences for the U.S. economy.'" [Bloomberg, 5/12/11]
Treasury Secretary Geithner: Market Confidence That Congress Will Act On Debt Ceiling Well Ahead Of Schedule Is Crucial To The Recovery. As reported by Reuters: "A delay in raising the $14.3 trillion U.S. statutory debt limit could make markets price in risks of a default and undermine economic recovery, Treasury Secretary Timothy Geithner warned lawmakers on Thursday. [...] 'I would caution everybody against taking any risk that Congress does not act to increase the limit in the time frame we need,' Geithner told the Senate Budget Committee. 'We cannot afford to let the markets lose any confidence that ultimately the Congress will act well in advance of any time that we're going to hit the limit, because that would be catastrophic, and cause grave damage to the expansion underway,' he added." [Reuters, 2/17/11, emphasis added]
CLAIM: Sen. Ayotte Claimed That "We Know" Closing Tax Loopholes For Oil Companies Will Increase Pump Prices
SEN. KELLY AYOTTE: On oil and gas, here we are the Democrats brought up oil and gas subsidies at a time when we have skyrocketing gas prices. I think that the timing of this, we should review all subsidies and not single out any one industry, and particularly when we know that that's going to cause an increase gas prices.
FACT: Energy Experts Say Getting Rid Of Oil Subsidies WON'T Cause Jump In Gas Prices
U.C. Berkeley Expert On Energy Markets: "The Incremental Change In Production That Might Result From Changing Oil Subsidies Will Have No Impact On World Oil Prices." As reported by Media Matters:
According to Severin Borenstein, co-director of U.C. Berkeley's Center for the Study of Energy Markets, in an email to Media Matters: "Gasoline prices are a function of world oil prices and refining margins. The oil companies are quick to point out that they are not to blame for oil prices because the price is set in the world market, or which they are a small share. That is all true. But one implication of that is that the incremental change in production that might result from changing oil subsidies will have no impact on world oil prices, and therefore no impact on gasoline prices." [Media Matters, 4/28/11]
Former API Chief Economist: Ending Oil Subsidies Would Have "Very Little" Effect On Gasoline Prices. As reported by Media Matters:
Michael Canes, a distinguished fellow at the Logistics Management Institute and former chief economist of the American Petroleum Institute wrote in an email to Media Matters that ending subsidies to oil companies would have "very little" effect on oil prices. He further said that there could be "Some small effect if at the margin domestic production is adversely affected, but I suspect that effect would be very small indeed. Personally, I'd like to see an end to ALL energy subsidies, but that's another issue entirely." [Media Matters, 4/28/11]
Energy Firm News Director: Ending Subsidies "Won't Change The Price Of Gasoline." As reported by Media Matters:
When asked how the proposed cuts to oil subsidies would affect gasoline prices, John Kingston, Director of News at energy information firm Platts said: "It wouldn't, and I don't view them as subsidies." He added:
The tax breaks on oil are part of the endless discussion about how to tax an economic activity. Do you tax it at 0%? Do you tax it 100%? Or do you tax it in between? You want to tax it at the rate that provides the most money for the government while not inhibiting economic activity.
But that is not a subsidy. My demand for oil isn't going to change one iota because of the changes that are under consideration, and therefore it won't change the price of gasoline.
Oil companies will argue that the changes in the tax rate could change supply. Now you could build some theoretical model that says, if the tax rate is changed, it MIGHT inhibit production, and therefore down the road, supplies would be less than they would be otherwise. Therefore, the price could be higher and my demand might be less. This is not as crazy as it sounds. If the rate on these forms of exploration went to 100%, obviously, no company would produce that oil, the overall market would tighten, and the price could go up. But that's not in question; the administration is not proposing a 100% tax rate. [Media Matters, 4/28/11]
Moody's Economist: Decisions On Production And Development Of Oil Wells "Are More Influenced By Other Factors Such As Oil Prices And Technological Innovation." As reported by Media Matters:
In an email to Media Matters, Moody's economist Chris Lafakis stated that while he hadn't conducted a full analysis of the implications of tax breaks to oil companies and thus couldn't comment on the impact of Obama's proposals, generally speaking, factors other than tax incentives have more of an influence on oil companies' decision to begin exploration or production of a well. According to Lafakis:
Generally speaking however, my sense is that while tax breaks encourage exploration, production and development of oil wells, those decisions are more influenced by other factors such as oil prices and technological innovation. For instance, tax breaks have had little to do with the increase in oil rig drilling since the third quarter of 2009. Instead, oil rig drilling has risen as oil producers have developed methods to extract oil from shale formations in the West North Central census division. [Media Matters, 4/28/11]
CRS: Gasoline Price "Would Not Be Expected To Increase Very Much, If At All" In The Short Run If The Domestic Production Tax Break Were Rescinded. According to a Congressional Research Service report on oil industry subsidies:
As before, eliminating the deduction -- that is to say, raising the corporate tax rate -- would increase total (or average) business costs and therefore reduce profitability among the major oil and gas producers. As long as marginal production costs are unaffected, there would be no price effects in the short run. Similarly, the demand for imports is likely to remain the same in the short-run. Thus, this type of corporate income tax increase would arguably be an administratively simple and economically effective way to capture at least some of the oil industry's windfalls in the short run. However, at a current deduction of 6%, and a marginal corporate tax rate of 35%, only a small portion of the industry's likely windfalls would likely to be captured under this option.
The market price of crude oil and natural gas, or even of refined petroleum products, such as gasoline, would not be expected to increase very much, if at all, by such a change in the short run. In general, also, the income tax increases are not expected to have real output effects in the short run, although they could cause resources to flow to other industries in the long run as long as these other industries are allowed the manufacturing deduction, which is equivalent to a lower marginal tax rate. [Congressional Research Service, "Oil Industry Financial Performance and the Windfall Profits Tax," 9/30/08]