Fact Checking The Sunday Shows - July 31, 2011
Sunday's political talk shows focused exclusively on a possible debt ceiling increase deal being negotiated between the White House and congressional Republicans. Senate Minority Leader Mitch McConnell (R-KY), who appeared on two separate shows, repeated the false claim that the federal government does not have a revenue problem. In fact, revenues are at an all-time low. McConnell also made the misleading charge that corporate tax rates are among the highest in the world. On both State of the Union and Face the Nation, McConnell proposed adding a balanced budget amendment to the Constitution, a provision that was included in a package passed by House Republicans last week. Rep. Kevin McCarthy (R-CA), the third-highest ranking Republican in the House, also defended the balanced budget amendment on Fox News Sunday, arguing that if a similar effort during the 1990s had been successful, the country would not be having a debt problem. McCarthy pointed to the fact that almost all states have an amendment or statute that requires them to balance their budgets. He failed to mention, however, that many states have been able to balance their budgets or deal with other shortfalls due to assistance from the federal government. Most importantly, a balanced budget amendment such as the one proposed by Republicans will make the task of balancing the budget more difficult by limiting the ability of legislators to increase revenue in the event of shortfalls.
State of the Union
SEN. MITCH MCCONNELL: Now I think I can pretty confidently say that this debt ceiling increase will avoid default, which is important for everyone in America to know. We're not going to have a default for the first time in our two hundred and thirty-five year history. We're not going to have job-killing tax increases in it. We're gonna deal with the problem the American people sent us here to deal with, which is that the government has been spending too much. We don't think we have this problem because we've been taxing too little. We been spending too much.
FACT: Revenues Are At A 60-Year Low Due To Recession And The Bush Tax Cuts
Revenues At A 60-Year Low. According to the Washington Times:
Revenues plunged from their peak of $2.57 trillion in 2007 to reach $2.1 trillion, or 14.8 percent of economic output in 2009 - the lowest level since the 1950s - and taxes remain that low today, according to the Congressional Budget Office (CBO).
While that may seem like good news to millions of people filing their federal taxes, that level of revenues is far below the 18 percent historical average and is not sufficient to support a federal government that is waging two wars and has become the primary source of income for a growing population of retirees, economists say.
The collapse in federal revenues has driven the total weight of taxes on the economy to the lowest levels since the 1960s, even when myriad state and local taxes are added in, according to the Organization for Economic Cooperation and Development (OECD). [Washington Times, 4/17/11]
Revenues Are At Their Lowest Level Since 1950. According to the Washington Post:
Sure enough, the historical White House budget tables show that receipts (ie, taxes) in 2011 are estimated to be just 14.4 percent of GDP - the lowest level since 1950. But outlays (ie, spending) in 2011 are estimated to be 25.3 percent of GDP - the highest level since World War II. That yawning gap is the key reason why the deficit is so large-and why Republican claims that there is "no revenue problem" are worthy of a couple of Pinocchios.
The recession, of course, is a major reason why revenue has fallen so much - and why spending has soared. Obama came into office claiming he would roll back President George W. Bush's taxes for the top 2 percent of wage-earners, which would have helped with some of the revenue gap, but then he cut a deal last year with Republicans that extended the cuts for two years. [Washington Post, 4/14/11]
TPM: As A Percentage Of GDP, Revenue Has Fallen Over The Last Decade. From Talking Points Memo:
We took the numbers and put them in a slightly different context, so you can see by what percentage spending and revenues have risen and fallen on a population adjusted basis over the last decade. Makes it pretty clear what is and is not the culprit of deficits and our supposedly out-of-control spending.
[Talking Points Memo, 7/4/11]
Krugman: "Revenue Has Plunged." According to Paul Krugman's New York Times blog:
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. [New York Times, 10/17/10]
FACT: Bush Tax Cuts Have Contributed To The Decline Of Revenue And Increase In Deficits And Debt
The Bush Tax Cuts Are The Primary Driver Of Federal Budget Deficits Over The Next Decade. Below is a chart from CBPP showing the deficit impacts of war spending, financial recovery spending, the recession itself, and the Bush tax cuts:
Present "Huge Deficits" Partly Due To Bush Tax Cuts. As the Center for Budget and Policy Priorities explains: "If not for the Bush tax cuts, the deficit-financed wars in Iraq and Afghanistan, and the effects of the worst recession since the Great Depression (including the cost of policymakers' actions to combat it), we would not be facing these huge deficits in the near term." [CBPP.org, 5/10/11]
The Center for Budget and Policy Priorities prepared the following graphic showing that the Bush tax cuts and wars in Iraq and Afghanistan will account for nearly half of public debt by 2019:
Face The Nation
CLAIM: Minority Leader Mitch McConnell Said The U.S. Corporate Tax Rate Is "About To Be The Highest In The World"
SEN. MITCH MCCONNELL: The whole idea behind tax reform is to lower the rates and remove a lot of the preferences. And I think there's a pretty strong bipartisan feeling that that would be a very good thing for the country. It would be good for economic growth. The president himself has talked about our corporate tax rate is now about to be the highest in the world. It makes us uncompetitive. We've got a jobs problem in this country. We need to have a competitive country and tax reform would be a big part of that.
FACT: Effective Corporate Tax Rate Lower Than Germany, Canada, And Japan
Effective Tax Rates Are Lower Than Statutory Rates. In its 2009 report on global taxation, the World Bank wrote: "The key point to recognise is that it is not simply the statutory rate of corporate income tax that is important here, but also the effective tax rate for current corporate income tax, taking into account all the additions and deductions to profit before tax that tax rules may require." ["Paying Taxes 2009: The Global Picture," World Bank, 11/10/08]
American Companies Pay Lower Effective Tax Rate Than German, Canadian, Chinese, Italian, And Other Companies. In its 2009 report on global taxation, the World Bank wrote:
As noted in Chapter 1, reducing the statutory rate of corporate income tax has been the most popular government tax reform in the period. However in most of the economies, the case study company does not pay corporate income tax at the statutory rate on its profit before tax, since the tax rules require adjustments to be made to this in order to calculate taxable profits. A common example is to substitute tax depreciation for commercial amortisation of assets.
The effective rate of current corporate income tax can be defined as the actual rate of corporate income tax paid as a percentage of profit before tax. Figure 2.7 compares this effective rate with the statutory rate of corporate income tax for the G8 and BRIC (Brazil, Russia, India and China) economies, and shows that the two are often not the same. ["Paying Taxes 2009: The Global Picture," World Bank, 11/10/08, in-text citation removed for clarity]
CBPP: U.S. Corporations Pay Lower Taxes Than Average For Developed Economies. According to the Center for Budget and Policy Priorities: "The U.S. corporate tax burden is smaller than average for developed countries. Corporations in 19 of the member states of the Organization for Economic Co-operation and Development paid 16.1 percent of their profits in taxes between 2000 and 2005, on average, while corporations in the United States paid 13.4 percent." [CBPP.org, 10/27/08, in-text citation removed for clarity]
2009: General Electric Earned A $1.1 Billion Tax CREDIT Despite $10.3 BILLION In Pre-Tax Income. According to Forbes: "As you work on your taxes this month, here's something to raise your hackles: Some of the world's biggest, most profitable corporations enjoy a far lower tax rate than you do--that is, if they pay taxes at all. The most egregious example is General Electric. Last year the conglomerate generated $10.3 billion in pretax income, but ended up owing nothing to Uncle Sam. In fact, it recorded a tax benefit of $1.1 billion. Avoiding taxes is nothing new for General Electric. In 2008 its effective tax rate was 5.3%; in 2007 it was 15%. The marginal U.S. corporate rate is 35%." [Forbes, 4/1/10, emphasis added]
CLAIM: Minority Leader Mitch McConnell Claimed Balanced Budget Amendment Is Needed To Get Financial House In Order
SEN. MITCH MCCONNELL: We hope [a balanced budget amendment] would pass. I mean, it's the best kind of long-term straitjacket. Our government has certainly demonstrated in the last few decades that it's not very good as controlling its appetite for spending. And the balanced budget amendment would be a good kind of long-term mechanism to put this kind of financial straitjacket on our country that desperately needs it. [Face the Nation, 7/31/11]
SEN. MITCH MCCONNELL: We're going to be voting on the balanced budget amendment in the Senate because that's an important restraint, long-term, on the government of the United States, which it certainly demonstrated in the last decade that it can't get its financial house in order unassisted. [State of the Union, 7/31/11]
Fact: A Balanced Budget Amendment Would Make It More Difficult To Balance Budget
House Version Of Balanced Budget Amendment Requires Two-Thirds Majorities In House And Senate To Raise Taxes. Section 4 of H.J.Res. 2 reads: "Section 4. No bill to increase Federal taxes shall become law unless approved by two-thirds of the duly chosen and sworn Members of each House of Congress by a rollcall vote." [H.J. Res. 2, 1/5/11]
In 1995, A Balanced Budget Proposal Was Introduced With A Similar Requirement. Section 2 of H.J. Res. 1 reads: "SECTION 2. No bill to increase tax revenue shall become law unless approved by a three-fifths majority of the whole number of each House of Congress." [H.J.Res. 1, 1/18/95]
Several States Have Enacted Supermajority Requirements For Tax Increases. As the Cato Institute explained in a 1996 report: "Requiring a three-fifths or two-thirds majority in both the House and the Senate to pass a tax increase would allow Congress to pass tax hikes in cases of national emergency but would make it very difficult for Uncle Sam to continue the annual ritual of peacetime tax hikes. Several states, including Arizona, California, and Oklahoma, have enacted such measures; they have stopped tax increases dead in their tracks. As one Arizona taxpayer advocate of the supermajority requirement recently told me, 'Now the legislature doesn't even bother to propose new taxes.'" [Cato Institute, July-August 1996]
Arizona, California, and Oklahoma Are Facing Huge Budget Crises
Arizona: "At the start of this fiscal year, on July 1, 2010, Arizona was looking at a deficit of about $3.4 billion. The cyclical deficit was around $1.2 billion and the structural deficit was $2.1 billion. As a percentage of the budget, Arizona has a 33 percent deficit with 12 percent of that cyclical and 21 percent of it structural." [Inside Tuscon Business, 1/21/11, emphasis added]
California: "California's nonpartisan legislative analyst says the state's budget deficit has grown to $25.4 billion and is now more than a fifth of the general fund." [Huffington Post, 11/10/10, emphasis added]
Oklahoma: "Only a few months removed from being declared 'recession-proof' by the national press, Oklahoma faces the largest state budget deficit in the nation, according to a report by the National Conference of State Legislatures....Through the first five months of the current fiscal year, Oklahoma's general revenue fund receipts are 28.5 percent below the same period a year ago and 24.3 percent below projections - a shortfall of $577.5 million." [Tulsa World, 12/20/09, emphasis added]
Supermajority Vote To Increase Taxes Makes It Harder To Balance Budget. In an op-ed in US News and World Report, former Rep. Boehner staffer Scott Galupo wrote: "The amendment's additional requirement of a supermajority vote - two-thirds of both the House and Senate - to increase taxes gives the game away: If you're serious about balancing the budget, why would you make it much harder for Congress to balance the budget?" [US News and World Report, 8/10/10, emphasis added]
- Without Higher Taxes, "We Would Have To Eliminate Every Discretionary Spending Program" To Balance The Budget. According to an op-ed by Bruce Bartlett in the Fiscal Times: "It's doubtful that BBA supporters really understand the composition of federal spending. In fiscal year 2009, we would have had to abolish every discretionary spending program, including national defense, to balance the budget and that still wouldn't have been enough without higher revenues. We would have had to cut more than $300 billion out of Medicare and Social Security as well." [Fiscal Times, 8/27/10, emphasis added]
Fox News Sunday
REP. KEVIN MCCARTHY: I believe in this country. I believe this country is worth fighting for. And if sixteen years ago, if we had that one more vote, we wouldn't be in this problem today. So yeah, we're looking at how to solve the problem right now but also looking for the future to our children. We realize that the best days are still ahead of us and that 49 states have a balanced budget or a statute to it. And this country should have it as well.
FACT: Impossible To Say How Many States Have Absolutely Binding Budget Requirements
PolitiFact: Impossible To Say How Many States Have Absolutely Binding Budget Requirements. According to PolitiFact Texas:
The report also shows a tabulation of states' balanced-budget provisions kept by the National Association of State Budget Officers that takes a narrower view of which states require a balanced budget.
According to the NCSL report, the association surveyed balanced-budget requirements in 2008, tallying which states require the governor to submit a balanced budget (43 total) and which require the legislature to pass a balanced budget (40). Thirty-eight states prohibit carrying deficits from one year to the next. We found 41 states have constitutional provisions requiring the governor to submit a balanced budget or the legislature to pass one, and five states that have a statutory requirement.
So that's 46 states, by the National Association of State Budget Officers' count, that have balanced budget requirements as a matter of law. However, as Snell said, "it's almost impossible to say" for how many states the balanced budget mandate is "an absolutely binding requirement."
Where does that leave us?
Only two states - not 49, as Cornyn says - have amended their constitutions to require balanced budgets. Counting amendments plus provisions tucked into original constitutions, however, 45 states have balanced-budget stipulations, according to NCSL's count. NASBO considers 46 states to have constitutional or statutory balanced-budget requirements.
Also, despite the letters of those statutory and constitutional strictures, they aren't universally viewed as mandatory. [PolitiFact, 12/25/10]
FACT: Borrowing By Federal Government Allows States To Balance Their Budgets
In This Recession, The Federal Government Provided Funding To Cover 30-40 Percent Of State Budget Shortfalls. From the Center on Budget and Policy Priorities: "Federal assistance is lessening the extent to which states need to take pro-cyclical actions that further harm the economy. The American Recovery and Reinvestment Act (ARRA), enacted in February 2009, includes substantial assistance for states. The amount in ARRA to help states maintain current activities is about $135 billion to $140 billion over a roughly 2½-year period - or between 30 percent and 40 percent of projected state shortfalls for fiscal years 2009, 2010, and 2011. Most of this money is in the form of increased Medicaid funding and a 'State Fiscal Stabilization Fund.' (There are also other streams of funding in the economic recovery act flowing through states to local governments or individuals, but these will not address state budget shortfalls.) This money has reduced the extent of state spending cuts and state tax and fee increases." [CBPP.org, 6/17/11, emphasis added]
Freedom To Borrow For Federal Government Is Critical Because So Many States Must Balance Budgets. From former White House economist Jared Bernstein:
On TV yesterday, I stressed the point that a rule that locks in federal expenditures at 18% of GDP takes away a key function of the gov't: countercyclical policy where gov't spending offsets the contraction in private sector demand.
But, you say, states must balance their budgets - why can't the feds?
Well, it's precisely because states must balance their budgets that you need a higher level of gov't that is not bound by this restriction. Think of a recession as being in a boat that's taking on a water where only one person - but a person with a very big bucket - can bail, while 50 other people just sit there without any buckets at all, or worse, dump more water into the boat (by enacting procyclical tax increases or service cuts).
A Balanced Budget Amendment takes away the big guy's bucket too. Then the boat sinks. [JaredBernsteinBlog.com, 7/19/11, emphasis added, italics original]