Maya MacGuineas: Debunking Budget Myths Before They Become Part of 2016 Campaign
Maya MacGuineas, president of the Committee for a Responsible Federal Budget, wrote a commentary that appeared in the Wall Street Journal Washington Wire. It is reposted here.
Politicians tend to want to give easy answers and painless solutions to budget problems, which means that budget myths abound.
These are some of the myths we are likely to hear in Thursday’s debates:
Tax cuts pay for themselves. Like the claim that eating chocolate or cheeseburgers will help you lose weight, it’s appealing to think this–but it’s just not true. Well-targeted tax cuts can indeed help the economy grow, but studies have found that tax cuts tend to generate enough revenue to cover roughly none to only about a third of the revenue lost, making the deficit worse, not better.
Any tax increase will damage the economy. Many tax cuts do harm growth, but the debt reduction that comes from increasing government revenues would help the economy expand, possibly outweighing any negative effects. And beyond that, there are plenty of distortive tax breaks we could get rid of–the health-care exclusion, for instance–that would further help, not harm, the economy. Congress’s Joint Committee on Taxation has found that some forms of revenue-positive tax reform would be more pro-growth than some that are revenue-neutral.
Social Security and Medicare are earned benefits and thus should not be touched. While one might expect to hear this more at a Democratic candidate debate, some Republicans have been arguing this. The fact is, most beneficiaries get more out of these programs than they paid into them, as CBO’s most recent long-term budget outlook showed: on average 10% more from Social Security and 250% more out of Medicare. That goes well beyond any reasonable definition of “earned.”
We will hear a lot about repealing Obamacare in the coming campaign cycle, so it’s worth noting: Full repeal of the Affordable Care Act would increase the debt. Congressional Budget Office estimates published in June showed that repeal could cost $100 billion to $350 billion over the next decade. There are many ways to change the law that would save considerable money, but identifying those measures will require more than a simple promise to repeal Obamacare.
Finally, there will be a lot of talk in Cleveland about growing our way out of problems. This myth is complicated because growth clearly improves our country’s economic and fiscal situation. That said, growth doesn’t have as great an effect as one might expect because a number of programs, such as Social Security, are indexed to economic growth. So when the economy grows, spending does too. Furthermore, the level of growth necessary to get control of the debt would be unprecedented. Just to put the federal debt on a downward path to get back to historical averages in 25 years would require productivity gains three times as large as what CBO is currently projecting. Yes, we need to find as many ways as possible to fuel growth, but doing so shouldn’t distract from identifying specific policy measures to get taxes and spending aligned.
So listen closely to the GOP debates tonight. Perhaps we will hear some truths as well as the all-too-common myths.
"My Views" are works published by members of the Committee for a Responsible Federal Budget, but they do not necessarily reflect the views of all members of the committee.