Claim Vs. Fact 2003

The Center for American Progress has put up its counter-report to the White House's "2003: A Year of Accomplishment for the American People" report. While not all of their counter-claims are backed up by totally reputable sources (for instance, I tend not to take network tv news as fact without corroboration, be it CBS, ABC, Fox, or whoever), there are plenty of other sources and counter-arguments to cast an unflattering light on some of the administration's claims.

I found the report interesting, and would like to share it with you guys. Here is "Claim Vs. Fact: 2003: A Year of Distortion for the American People".

In case you're wondering about who the Center for American Progress claims themselves to be, here is their statement about their organization:

The Center for American Progress is a nonpartisan research and educational institute dedicated to promoting a strong, just and free America that ensures opportunity for all Americans. We believe that Americans are bound together by a common commitment to these values and we aspire to ensure that our national policies reflect these values. Our policy and communications efforts are organized around four major objectives:

• developing a long term vision of a progressive America,
• providing a forum to generate new progressive ideas and policy proposals,
• responding effectively and rapidly to conservative proposals and rhetoric with a thoughtful critique and clear alternatives, and
• communicating progressive messages to the American public.

We work to find progressive and pragmatic solutions to significant domestic and international problems and develop policy proposals that foster a government that is "of all the people, by all the people, and for all the people." We believe in honoring work, building strong communities, fostering effective government and encouraging free and fair markets.

Every day we challenge conservative thinking that undermines the bedrock American values of liberty, community and shared responsibility.

The Center for American Progress advances policies that help create sustained economic growth and new opportunities for all Americans. We support fiscal discipline, shared prosperity, and investments in people through education, health care and workforce training.

The Center for American Progress promotes the cause of liberty. We press for a government that protects our civil rights, safeguards our neighborhoods and lands, and provides equal justice under the law.

In a world of unprecedented threats, the Center for American Progress encourages policies that protect the American people and further our national interests. We promote the need for a strong, smart military and believe that America must safeguard its homeland, fight terrorism and take on threats that know no borders. And we believe that America's interests are advanced when we strengthen alliances and work with multilateral institutions that support the rule of law.

As progressives we stand for policies that unleash the potential of all our people. We are dedicated to promoting concrete ideas that can help create an America that is powerful, just, safe and free.

I pretty much have no comment on any of the stuff about the Medicare bill. I think it is one of the worst pieces of legislation to have been passed in quite a while. And given my opinion of the crap Congress generally passes, that is pretty bad.

Their section on the economy is pretty one-sided and misleading. Bush''s economic policies have done a great job in minimizing what could have been a very bad recession. Yes, employment hasn''t increased to the same amount as the peak employment during the super-heated 90''s. Instead it is sitting around 5.9%, which is about 9/10ths of a percent more than what is considered to be the norm for the American economy. This doesn''t take into account the 400k-500k new self-employed and small business estimated to have begun in 2003. Given how bad previous recessions have been, there is solid economic proof that Bush''s tax cuts and aggressive monetary policy have done a great job in righting the economy quickly.

Because of the way the linked article is written, it doesn''t point out that unemployment has dropped for the last several months. It also fails to point out that there have been over a million new jobs added to the economy from Oct 2002 to Oct 2003, according to the Bureau of Labor Statistics. So yes, there are, net, fewer employed people now than 5 years ago. But 5 years ago we were in a super-heated economy and job market.

They then make reference to an increase in the need for emergency food this year. They quote the UK Guardian, but the actual source is the same Mayor''s report that they source next. If you read the Mayor''s report, there is evidence that their claims are wildly exaggerated.

The claims made by the Mayor''s report are contradicted by several, more reliabe surveys. The Mayor''s report:

-Reflects an implausible rate of growth. The mayors have reported that food bank/soup kitchen use has increased at an average rate of 17 percent per annum for the past decade and a half. The number of persons receiving emergency food aid appears nearly to double every four years or so. According to the mayors'' data, the number of persons receiving emergency food aid is 12 times higher today than in 1986. This seems implausible. The U.S. Department of Agriculture (USDA) reports that, at present, between 18 million and 24 million persons receive emergency food aid each year. If the mayors'' data were accurate and representative of the nation, it would mean that fewer than 2 million persons received food aid in 1986 (one-twelfth of the present number).
-Is contradicted by U.S. Census Bureau surveys. Census data show no increase in the use of food pantries and soup kitchens in either central cities or the nation as a whole between 1995 and 2001. By contrast, the mayors'' reports claim an increase in use of 150 percent during the same period.
-Is contradicted by Second Harvest reports. The mayors'' data are contradicted by detailed surveys conducted by Second Harvest, the major supplier to food banks. Second Harvest reports that emergency food use increased by 9 percent between 1997 and 2001. The mayors'' reports claim that emergency food use increased by nearly 100 percent during the same period.

Now, this does bring up the question of whether there is an actual hunger problem in the US. The best answer to that question is provided by the Household Food Security Survey, conducted by the U.S. Department of Agriculture each year since 1995. The USDA defines hunger not as the use of food pantries, but as physical discomfort caused by actual food shortages due to a lack of funds to obtain food. The USDA makes clear that hunger is not the same as malnutrition and that most hunger experienced in the United States is short-term.

According to the USDA, on a typical day, less than one American in 200 will experience hunger due to a lack of money to buy food. The hunger rate rises somewhat when examined over a longer time period; according to the USDA, some 6.9 million Americans (2.4 percent of the population) were hungry at least once during 2002. Nearly all hunger is short-term and episodic rather than continuous.

Some 92 percent of those who experienced hunger in 2002 were adults, and only 8 percent were children. Overall, some 567,000 children (or 0.8 percent of all children) were hungry at some point in 2002. In a typical month, roughly one child in 400 skipped one or more meals because the family lacked funds to buy food. This is nowhere near as severe a problem as either the mayor''s report or the linked article make it out to be.

On the matter of deficits, they miss the point. Short term deficit spending is not an issue for an economy as robust as the US.

Regarding the American deficit, from the Economist:

The medium-term picture is a different matter. Budget rules require Congress''s number-crunchers to project the impact of tax and spending decisions over the next ten years. The cut-off is arbitrary, and leads to much accounting chicanery. But it shows, if you look carefully, what a mess America''s finances are in.

The official figures are still relatively rosy. Back in January 2001, the Congressional Budget Office (CBO), Congress''s impartial number-cruncher, was projecting a cumulative budget surplus of $5.6 trillion. This figure was always mythical, largely because it assumed that much of the tax take of the bubble years would be permanent. But it captured Washington''s imagination and led Alan Greenspan, chairman of the Federal Reserve, to fret publicly that the government, once it had paid off all its debt, would then have to invest in private shares. That fretting, in turn, paved the way for Mr Bush''s first tax cut.

In its most recent projections, calculated in August 2003, the CBO expects a deficit of $1.4 trillion over the next decade, a huge shift from its estimates of three years ago. But, taken at face value, the fiscal outlook is still relatively benign. Deficits peak next year at 4.3% of GDP and fall gradually thereafter. By 2012 the budget is back in balance. America''s debt/GDP ratio, currently at 37%, peaks at 40% in 2005 but is back down to 30% by 2013, far below the levels of many other rich countries.

Yet these official projections, and similar ones by the White House, bear no resemblance to reality. The CBO is forced by law to make extremely implausible assumptions both about taxes and spending. The White House does so because it suits Mr Bush''s political purposes. No fiscal expert believes either of them.

To be more realistic, the budget forecasts need adjusting in four main areas:

Extending the tax cuts. To stay within Congress''s budget rules, the Bush tax cuts expire at various points over the next decade. But no one believes they will die. For now, the best political bet is that Mr Bush''s tax cuts are all extended"”worsening the ten-year fiscal outlook by $1.9 trillion if interest costs are counted (see chart 2).

Reforming the Alternative Minimum Tax (AMT). In an attempt to stop rich taxpayers avoiding tax by over-using deductions, Congress introduced the AMT in 1969. It has a lower rate but allows virtually no deductions. If your tax bill is higher using the AMT formula, that is what you must pay. Traditionally, few taxpayers have been affected by it: 2.5m in 2002. However, the combination of Mr Bush''s tax cuts (which reduce taxes under the traditional system) and the fact that the AMT is not indexed to inflation means that it will affect far more people in future: 33m in 2010 and 42m in 2014. Politically, that will be explosive. But simply indexing AMT thresholds to inflation adds $690 billion to the ten-year deficit.

Making spending more realistic. Budget rules require Congress''s official number-crunchers to assume that discretionary spending grows only by the rate of inflation, projected to be an average of 2.7% a year. In fact, the average annual rise in discretionary spending over the past five years has been 7.7%. And according to a CBO analysis, the Bush defence plans imply a 20% real increase in military spending by 2020.

But what is a more realistic figure? The coalition of economic think-tanks last month reckoned that, at a minimum, the ten-year figure for discretionary spending needed to be $600 billion higher. If you take the official figures but assume spending rises in line with nominal GDP growth rather than just inflation, then the deficit rises by $1.6 trillion, once interest costs are included. If the spending patterns of the past five years are continued, the deficit soars by a whopping $3.3 trillion.

Expanding Medicare. Since it is not (yet) law, the official forecasts do not include the cost of a Medicare prescription-drug benefit. Officially, this will cost $400 billion over the next decade, though most health experts reckon that rising medical costs mean it will be much more.

Add these factors together, and America''s budget outlook is far worse than the official forecasts suggest. Among Washington''s independent budget experts, the consensus is that the official figures understate the cumulative deficit by about $5 trillion. Rather than a budget that returns to surplus by 2012, America is more likely to see deficits that average 3% of GDP over the next decade.

All these projections assume a healthy average rate of real GDP growth, at 3% a year. Faster growth would improve the outlook, but would not eliminate the spectre of deficits. Contrary to the Bush team''s rhetoric, America does not have a small, temporary fiscal problem. It has a large and growing one.

The economic consequences are indisputably negative. Big budget deficits reduce America''s already abysmally low saving rate. As the economy''s slack is worked off, Uncle Sam''s demand for dollars is likely to crowd out private investment and reduce long-term economic growth. Even if the global capital market helps out, America is already enormously reliant on foreigners to fund its spending: the current-account deficit, the measure of annual borrowing from foreigners, is at an historic high of 5.1% of GDP. Big budget deficits will aggravate these external imbalances and so raise the risk of financial volatility, even a dollar crisis. Over the next few years, that is perhaps the biggest risk that Mr Bush''s fiscal policies pose for the world economy.

No Ronald Reagan
Grim as it is, the medium term appears rosy compared with America''s long-term fiscal outlook. The retirement of the baby-boomers, increasing life expectancy and inexorably rising medical costs mean that the cost of funding America''s commitment to its old people will soar over the next few decades.

The numbers are mindboggling. According to Jagadeesh Gokhale and Kent Smetters, in a study for the American Enterprise Institute, the gap between America''s future tax revenues and future spending commitments for Social Security and Medicare is $44 trillion, or four times America''s GDP. Put another way, government spending on entitlements is set to soar from around 7% of GDP today to 11% in 2020 and 15% in 2040 (see chart 3).

This will never happen. America, like all other rich countries, will be forced to cut entitlements and/or raise taxes to deal with its ageing society. In fact, with a younger and more fertile population, America is, even now, in a better position than many others in the rich world. Moreover, this long-term fiscal time-bomb existed long before George Bush became president, though his tax cuts mean that America will have fewer resources to defuse it.

One theory is that this was exactly what the White House intended all along. According to this reasoning, Mr Bush has two basic fiscal goals, both of which mark him out as a radical conservative reformer rather than a reckless spendthrift. The first is to starve government of money to force it to tackle entitlement reform. The second is to reform the tax code in the process, moving gradually away from taxing income towards taxing consumption.

Unfortunately, this attempt to impose logic on the Bush strategy is belied by the administration''s own actions. For all the talk of Social Security reform, the only White House action on entitlements has been to expand them. The contrast with Ronald Reagan is revealing. The Gipper cut discretionary non-defence spending by 13.5% in real terms and made an effort to overhaul entitlements. In 1983 a commission on Social Security reform raised the retirement age as well as payroll taxes.

Look closely, and Mr Bush is also much less of a tax reformer than Mr Reagan was. In 1986, the Gipper presided over the biggest tax reform in modern American history. The tax base was broadened and rates were lowered, but the overall tax burden remained unchanged. Although Team Bush wants a reformed tax code, aimed at consumption rather than income, their strategy of tax reform via tax cuts will not produce a clean reform. Many of the subsidies and loopholes of the current system will remain. The result will be a narrower tax base, full of distortions, which shifts the burden of taxation towards poorer Americans.

The other big difference with the Gipper is that Mr Reagan was not averse to putting up taxes when too much red ink appeared. Taxes were raised several times during his presidency. Congressional rules on deficit reduction were introduced during Mr Reagan''s second term. So far, at least, Team Bush has shown no such flexibility. There is no admission that America faces a fiscal mess, and no shifting from the mantra that all tax increases, at all times, are bad.


Expect no help from the White House

The real reason to fret about America''s fiscal outlook is that this self-delusion shows little sign of changing. The Democratic presidential candidates are just as keen to spill red ink as Mr Bush, though on different priorities. They would roll back some or all of the tax cuts, but then go on to spend much, or all, of the recouped revenues on health care. The real debate in Washington is still about where to direct the red ink, rather than how to reduce it.

At some point, however, both Mr Bush and the rest of Washington will be forced to leave this fiscal Neverland. When will that be? Many look to the late 1980s and early 1990s as a model. Then, years of persistent fiscal deficits persuaded Americans that belt-tightening was necessary. Budget rules were introduced, spending was cut and taxes were raised. It was politically painful (particularly for George Bush senior, who thereby lost the 1992 election). But the tide of red ink was turned.

This time the turnaround will be much tougher. There will be no "peace dividend" from the end of the cold war (indeed, the pressure on military spending may continue to increase). America is unlikely to see another stockmarket bubble, with its surge in tax revenues. As baby-boomers retire, the pressure from entitlement spending will be more acute. Set against this background, the path back to a sustainable fiscal policy will be extremely painful, even without any dramatic fiscal crisis.

I''ve gone on long enough. If anyone is interested (or if I get bored), I''ll show how the rest of the article is similarly flawed.

Merry Christmas everyone.

Good stuff, JMJ.

And yeah, I actually read everything you wrote in your response. Just so you don''t think it was futile.

The only real comment I have is to sy that most of the ""facts"" presented in rebuttal to the administration either are nothing more than ""claims"" themselves, or don''t in any way refute what the administration has said.

Look at the very first one:

WHITE HOUSE CLAIM: ""The historic legislation the President signed will create a modern Medicare system, providing seniors with prescription drug benefits.""

Here is a cherry picked line from a press briefing. It is neither the administration''s entire statements/presentation about the new bill, nor is it anything but a statement of opinion - no numbers or statistics whatsoever. The statement doesn''t even make a claim - other than that seniors will be provided with prescription drug benefits. And none of the ""facts"" presented in rebuttal refute the statement at all.