Concept_Buttons_2016

Fiscal FactCheck: The First Republican Debate

Aug 7, 2015 | Budgets & Projections

This blog is the first in a “Fiscal FactCheck” designed to examine the accuracy of budget-related statements made during the 2016 presidential campaign.

At last night’s Republican presidential debate in Cleveland, a number of claims were made related to the budget and fiscal policy. While only a few were related to the 16 Budget Myths to Watch Out For in the 2016 Presidential Campaign that we released yesterday with Fix the Debt, many others touched on important fiscal policy topics. Below contains our analysis of these new claims.

1. Reagan expanded Medicaid "three or four times"

Gov. John Kasich (R-OH) defended his decision to accept the Medicaid expansion in his home state of Ohio in part by saying that “President Reagan expanded Medicaid three or four times.”

This statement is true. President Reagan signed legislation expanding Medicaid on several occasions. From 1982 to 1988, Reagan signed legislation mandating coverage for children and pregnant women receiving cash assistance, mandating emergency treatment of illegal immigrants who would otherwise be eligible for Medicaid, and expanding the low-income populations that states could choose to cover, among other expansions. For more information, see a brief history of Medicaid from the Kaiser Family Foundation.

2. Medicare was robbed $700 billion to pay for Obamacare

When talking about his plans for Social Security and Medicare, Gov. Mike Huckabee (R-AR) stated that Congress should not be “talking about getting rid of Social Security and Medicare that was robbed $700 billion dollars to pay for Obamacare.”

This claim is similar to one that Mitt Romney made in the 2012 election about Medicare. The Affordable Care Act (ACA) enacted savings estimated at that time of $716 billion to the Medicare program over ten years (now estimated at $800 billion), which was used to pay for some of the cost of the new law under pay-as-you-go budget scoring conventions. However, there was no reduction in the amount of money going towards paying for Medicare; rather, the law reduced the amount that Medicare spends. In fact, Medicare payroll tax revenues increased, increasing the amount that could be spent. Partially as a result these changes, the Medicare Trust Fund is expected to be solvent through 2030, 13 years longer than projected before the 2010 law was passed.

3. Entitlement spending constitutes 71 percent of the budget

Gov. Chris Christie (R-NJ) claimed that "71% of federal spending right now is on entitlements, and debt service, 71%." This claim is basically true. According to the Congressional Budget Office (CBO), mandatory and interest spending will constitute 68 percent of total spending in 2015. Those categories will reach 71 percent in 2017, the year the next President will take office.

4. John Kasich helped balance the federal budget as Budget Chairman

During the debate, Gov. Kasich pointed to his record as a past House Budget Committee Chairman and his ability to balance the federal budget in that time, stating that “I balanced the federal budget. It hasn’t been done since.”

Kasich was Chairman of the House Budget Committee from 1995 to 2001, and credit aside, he is correct that the federal budget balanced for four years during that time. The federal government achieved surpluses from FY 1998-2001, spanning a period from October 1, 1997 to September 30, 2001. The budget went back into deficit in FY 2002 and has not been in balance since then.

He later went on to say that the federal government balanced the budget with strong economic growth and tax cuts. It is true that the country experienced strong growth during that period, with real growth exceeding 4 percent each year from 1997 to 2000. Lawmakers also did cut taxes in 1997, but only after enacting tax increases in 1990 and 1993 that were larger than the 1997 tax cuts. The combination of growth and revenue increases led to revenue peaking at 20 percent of Gross Domestic Product (GDP) in 2000, the highest it has been since 1965.

5. The FairTax could get rid of the IRS

When discussing how he would reduce the size of government, Gov. Huckabee stated that he’s “still the one who says that we can get rid of the Internal Revenue Service (IRS) if we would pass the FairTax, which is a tax on consumption rather than a tax on people’s income.”

While the tax system could be restructured to eliminate the IRS, there would still need to be some mechanism in place to administer tax collection. In the case of the FairTax, the duties of the IRS are shifted to state tax agencies or to the Social Security Administration (SSA), which would need to perform similar roles.

The FairTax proposes to abolish the IRS by mandating that state agencies collect taxes in the form of a flat 23 percent consumption tax, and send the revenues to the U.S. Treasury. The plan also includes a “prebate” check sent each month to individuals and families a check each month for an amount that equals one-twelfth of the federal poverty line, administered by the Social Security Administration.

While the IRS could be abolished, many of its functions – tax administration, enforcement, and sending rebate checks – would be shifted to state agencies and SSA, including to some states that do not currently collect sales tax. FairTax calculates that this would impose a cost of $9.66 billion on states while saving the federal government $9.38 billion in IRS funding - a net cost of $280 million.

6. Sustained 4 percent annual real growth is achievable

In response to a question about his plan for 4 percent economic growth, former Gov. Jeb Bush said, “We’ve done it 27 times since World War II. I think we need to lift our spirits and have high, lofty expectations for this great country of ours. The new normal of two percent that the left is saying you can’t do anything about is so dangerous for our country.”

He is correct that the U.S. has had annual growth of 4 percent 27 times since World War II, most recently in 2000. It is certainly possible to achieve 4 percent growth in a single year, but judging by the quote, he indicates that he would aim to achieve 4 percent growth on a sustained basis. The longest stretch of 4 percent growth in the post-WWII era was in the 1960s, when growth reached 4 percent for five years in a row and six out of seven years. As we noted in our 16 Myths document, the last time the U.S. had 4 percent growth on average for 25 years was 1940-1964. And in the modern context with an aging population and a large percentage of women now already in the labor force, pursuing a number of pro-growth policies mentioned would only achieve about 3 percent real growth at best over the long run. Therefore, it would be very difficult to achieve sustained 4 percent annual real GDP growth.

7. The military has been cut 25 percent

Gov. Huckabee said, “We’ve reduced the military by 25 percent under President Obama.” There are a lot of ways to interpret this statement, both in what measure experienced this cut and the timeframe we look at. If we look at spending on the Department of Defense, it has declined by 10 percent in nominal dollars and by 16 percent in inflation-adjusted dollars between 2009 and 2015, according to the Office of Management and Budget. The numbers are closer to what Gov. Huckabee claims if we compare 2015 spending to its peak (2010 and 2011 in inflation-adjusted and nominal dollars, respectively). In that case, spending has declined by 16 percent in nominal dollars and 21 percent in inflation-adjusted dollars. This decline follows a decade of spending increases associated with the wars in Afghanistan and Iraq, when spending increased by 134 percent in nominal dollars and 86 percent in inflation-adjusted dollars.

If we look at end strength, how many people are in the Armed Forces at the end of the year, the decline is much smaller than one-quarter. Active-duty end strength has declined by about 7 percent from its recent peak, and the end strength of the Reserve and National Guard has declined by about 3 percent.

In short, Huckabee’s claim is a slight overstatement with regards to spending and a clear overstatement with regards to personnel.

8. We're borrowing a million dollars a minute

In talking about foreign aid in the context of his proposed budgets, Sen. Rand Paul (R-KY) said that the federal government is “borrowing a million dollars a minute.” This claim is correct based on the current projection for debt in FY 2015. CBO projects that debt will increase by $586 billion during this fiscal year, or about $1.1 million per minute.

*****

As the election season continues, we’ll continue fact checking fiscal statements by the candidates on our Fiscal FactChecker page. If you feel we left a particular claim out that should be addressed, contact us and we will do our best to run the claim through our Fiscal FactChecker.