Thursday, August 11, 2011

The truth about ten common Republican myths

You can’t listen to Republican politicians or read the Republican blogs for long without hearing or reading about the ten myths I discuss in this post.  Here are the Republican lies and the truth:

Myth #1: The U.S. has a debt/deficit problem.

The U.S. does not have a problem financing its debt at this time.  Even after the S&P downgrade, the U.S. Treasury can sell its bonds at extremely low rates of interest.  U.S. Treasury bonds are still considered to be the safest investment in the world. 

The U.S. might have a problem financing its debt 10 or 20 years from now if revenues as a % of GDP don’t improve and/or Congress doesn’t make some minor adjustments in taxes, discretionary spending and spending on entitlement programs.  The steps necessary to bring the deficit to a level that the country could manage indefinitely are well known, not drastic, can be phased in over a decade or more, and need not cause significant hardships for the American people.

Myth #2: The U.S. debt/deficit problem is the result of runaway spending, primarily by the Obama administration.  We have a spending problem.

Excluding short-term stimulus spending, the Obama administration discretionary spending is well in line with or less than historical averages over the last 50 years.  Our current deficit is less a result of uncontrolled spending than it is a result of tax cuts that primarily benefited the rich at a time when we were fighting several expensive wars.  Our spending as a percent of GDP is not out of line with that of other developed countries.  However, revenue we collect as a percent of GDP is extraordinarily low historically and compared to that of other developed nations.  We have a revenue problem, not a spending problem.  If we brought revenue as a percent of GDP up to the level of taxation of most developed countries—which we could do by simply raising the top marginal rate paid by the richest Americans and closing tax loopholes exploited by corporations and the rich to avoid paying taxes—we could greatly reduce the long-term deficit and perhaps drive it to historic lows.

Myth #3: Cutting federal spending will generate jobs. 

Cutting federal spending when the economy is weak and unemployment is high will cost jobs because spending cuts will further decrease already weak demand for products and services in the private sector and will result in layoffs of state and local government workers.  During and immediately after a recession when the economy is struggling, federal spending should be increased, not decreased, even if that means the federal government must run large deficits.  Deficit spending is not only the right thing to do, it is the essential thing to do, to help a weak economy recover.

Myth #4: Tax increases kill jobs

Tax increases have a minimum, if any, impact on job creation, particularly if they involve increasing the top marginal rate.  For example, increasing the top marginal rate from 35% to 39% or even 45% would have almost no impact on job creation or loss.  The simple fact is businesses don’t hire or have layoffs because of the top marginal rate their owners pay.  They hire or layoff workers based upon an increase or decrease in demand for goods and services from their customers.  An increase in taxes could only cost jobs if it was targeted at Americans at the low and/or mid-income levels.  In contrast, tax cuts for Americans at low income levels can have a positive impact on jobs because Americans with low incomes are more likely to spend the tax savings immediately for food, housing, clothing, and so on and therefore increase demand.  Rich people and people with upper-middle incomes are less likely to immediately spend any tax savings since they can already cover life essentials without the tax savings.

Myth #5: Republicans are seeking to reduce deficits

Republicans are seeking to deny Obama a second-term.  They believe that Americans are much more likely to blame Obama for high unemployment and a second recession than they are to blame the Republican Party.  Republicans see no political advantage in helping the president to stimulate the economy or create jobs.  If Republicans were seriously concerned with cutting the deficit, they had numerous opportunities over the last year to negotiate deals with the President and Democrats to achieve long-term deficit reduction.  Each time the Republicans realized that they were close to a deal because of the willingness of Democrats and Obama to compromise and accept Republican demands, they walked away from the negotiations usually citing demands from Obama and/or Democrats for tax increases or tax reform as the reason they were withdrawing from negotiations.  In fact, Obama and the Democrats in Congress have demonstrated much more concern for long-term deficit reduction than the Republicans.  Obama and Democrats in Congress have taken positions on issues like entitlement reform that are opposed by the Democratic Party liberal/progressive base.  Additionally, Republicans are well aware that it will be extremely difficult, if not impossible, to significantly reduce the deficit without including some type of revenue enhancement in any workable deficit reduction plan.  The deficit cannot be brought to sustainable levels over the next 10 to 20 years without increasing revenues from their current level.  The deficit problem simply cannot be fixed through spending cuts alone since the level of cuts that would be necessary would cripple the country, not to mention be politically unfeasible since voters would rebel.

Myth #6: The S&P downgraded the country’s credit rating because of the deficit.

The S&P downgrade, which probably wasn’t justified for any reason, occurred because of the Republican-manufactured debt ceiling crisis.  If Republicans had agreed to raise the debt ceiling unconditionally in the spring, S&P would not have taken the action it took.  The downgrade occurred because of the protracted fight over raising the debt ceiling during which the Republicans repeated refused to compromise.  Some Republicans even stated publicly that they did not care if the country defaulted on its obligations.  The gridlock in Congress over raising the debt ceiling undermined the confidence of S&P raters that Congress could address short-term unemployment and long-term deficits in any significant way. 

Myth #7: Unemployment insurance for the long-term unemployed should not be extended since it just encourages recipients not to seek work.

People collecting unemployment insurance are required by law to look for work.  If they fail to look for work and/or lie about looking for work while receiving unemployment compensation, they can be prosecuted for fraud.  The long-term unemployed aren’t unemployed because they aren’t seeking work.  They are unemployed because there are few jobs within a reasonable commuting distance from where they live and they can’t afford to move to where the jobs are and/or they lack the minimum skills necessary to qualify for the jobs that are available.  Lately, the long-term unemployed have encountered an additional obstacle to employment.  Many companies have adopted an implicit or explicit policy not to consider for employment any applicant who is not currently employed.  These companies refuse to even consider an application from a person who is unemployed.

Myth #8:  Businesses aren’t hiring because of high taxes, excessive regulation and/or the deficit.

Businesses aren’t hiring because of a lack of demand for their goods and services and because their CEOs are uncertain about the future state of the U.S. and European economies.  They fear a second recession that might reduce demand even further.  The Republican-induced inability of Congress to reach agreement on legislation to reduce unemployment and stimulate the economy in the short-term and to deal with the long-term deficit has generated this uncertainty.  As I have explained earlier, the legislative gridlock over employment and the deficit has been created by the Republican Party for political reasons.  See my response to Myth #5.

Myth #9: Taxes are too high.

The effective tax rate the average American pays is one of the lowest levels of the past 50 years and is significantly less than the tax rate paid by citizens of other developed countries.  Additionally, the amount of taxes U.S. corporations actually pay is less than or on a par with that paid by corporations in other developed countries.  We are not over-taxed, we are under-taxed.  As I said earlier, we have a revenue problem largely due to tax cuts.  See my response to Myth #2.

Myth #10: The Tea Party is a grassroots movement expressing the frustration of average Americans with big government in general and out-of-control government spending in particular.

The Tea Party was created and is controlled by a few extremely rich individuals.  These individuals used their fortunes and media access (particularly their control over Fox News) to tap the highly generalized sense of anger of a diverse group of Americans in order to elect members of Congress whose votes they could control.  These rich individuals care little about the deficit or even taxes since they know how to take advantage of numerous tax loopholes to avoid paying taxes.  Their primarily goal is elect members of Congress they can instruct to vote to reduce and/or eliminate government regulation these rich individuals see as an impediment to their ability to accumulate even more wealth, power and influence.

Americans who identify with the Tea Party movement have little in common other than blaming government for a range of imagined wrongs.  Only about 20% to 30% of Americans have ever identify with the Tea Party movement and only a small number of these have ever attended a Tea Party rally or worked for a Tea Party candidate.   The number of Americans with a positive view of the Tea Party movement has been declining steadily over the last year.

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