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A Project of The Annenberg Public Policy Center

Sunday Replay

The first set of Sunday shows since the midterm elections featured a number of Republicans talking about how they’ll exercise their increased power. We’d just like to set the facts straight — on the budget, the health care law, taxes and other subjects. Democrats, too, weren’t immune from making a misleading statement or two.

Taxes and Revenues: Up and Up  

GOP Rep. Mike Pence of Indiana made a wildly false supply-side tax claim on ABC’s "This Week" — and repeated it even when disputed by Ronald Reagan’s former budget director, David Stockman:

Pence: David [Stockman] believes that every tax increase equals a revenue increase, but that’s not true. Anybody who is familiar with the historical data from the IRS knows that raising income tax rates will likely actually reduce federal revenues. … So if we raise taxes, the American people are very likely going to — the top 1 percent are going to send less money to Washington, D.C., and that will never get us out of this …

Stockman: I just have to respectfully disagree. … [I]t’s just common sense fact that, when you raise the rates, you get more revenue.

Pence: Raising income tax rates on the top 1 percent will not increase revenues to the federal treasury.

Pence is simply wrong here, as shown by what followed Bill Clinton’s 1993 tax increase, which fell almost entirely on the top 1 percent or 2 percent of earners. In fact, the result was a steady rise in federal revenues that ended only in 2001, the year that the first round of President Bush’s tax cuts took effect. 

The truth of Stockman’s "common sense fact" is illustrated by this graphic, which is derived from the historical budget data tables published by the Congressional Budget Office.

Not-So-Small Business Bluffing

On "Face the Nation," Senate Minority Leader Mitch McConnell equated letting the Bush tax cuts expire for upper-income earners with raising "taxes on small businesses." But that’s misleading. McConnell said:

McConnell: This so-called upper-income thing diverts people away from the following fact. If you do that, you raise taxes on seven hundred and fifty thousand of our most productive small businesses, which represents fifty percent of small business income and twenty-five percent of the work force, at a time when job creation is just bumping along.

The truth is that we don’t know how many "small businesses" would be affected by allowing the Bush tax cuts to expire for individuals making $200,000 a year and couples earning $250,000. But we can say that about 750,000 to 775,000 of those upper-income filers will report positive business income on their individual tax returns. That’s about 3 percent of the taxpayers who report positive business income, and these numbers come from the Tax Policy Center and the Joint Committee on Taxation.

McConnell says those high earners make 50 percent of "small-business income," but that’s not the case. The Tax Policy Center says they earn almost 44 percent of all business income, and the JCT puts the figure at 50 percent — but neither organization says these are all "small businesses." On the contrary, the TPC says most of them — 500,000 filers — average more than $700,000 of net positive business income. And the JCT says this business income includes that of filers who report more than $50 million. The figures also include those who are reporting rental real estate income, consulting business done on the side, and royalties.

We asked McConnell’s office where the senator gets the statistic that 25 percent of the workforce is employed by those reporting business income in the top two brackets. We haven’t heard back yet.

Unhealthy Misleading

McConnell also claimed, wrongly, that the "vast majority of Americans feel very, very uncomfortable" with the new health care law. According to Pollster.com’s weighted average of polls, 49.4 percent of those surveyed oppose the law while 42.1 percent favor it. The Real Clear Politics average produced a slightly larger split with 51.3 percent opposing the law and 40.1 percent favoring it. But 49 percent isn’t a majority at all, and 51 percent barely is, though certainly isn’t "vast."

McConnell also continued to incorrectly cast the health care law as a government takeover, saying:

McConnell: [W]e’re willing to look at all of the various pieces of this as they become effective and how we might impact trying to carry out our commitment to the American people to keep this awful twenty-seven-hundred page monstrosity that took over one-sixth of our economy from going into effect.

According to the Centers for Medicare & Medicaid Services, health care spending in the U.S. was projected to be 17.3 percent of GDP (gross domestic product) in 2009, or one-sixth of the economy. But as we’ve said many times before, the law doesn’t re-make the health care system into one that’s run by the government. Yes, the law does expand the Medicaid insurance program, and it does increase government regulation in some cases. But it builds on our current system of private insurance and would actually create more business for private companies by mandating that individuals buy coverage and providing subsidies for that purpose.

Domestic Spending Is Up, But How Much?

Two Republicans on two different talk shows made the claim that discretionary domestic spending is up 84 percent since President Barack Obama took office. But that’s an inflated figure. The nonpartisan Congressional Budget Office has produced reports that show the figure is actually 28 percent.

Here’s what the politicians said:

Rep. Mike Pence on ABC’s "This Week": The president yesterday called for a spending freeze. Well, we — we think we ought to go back to pre-stimulus, pre-bailout levels and freeze there — there’s been an 84 percent increase in domestic spending since this administration took office. We’ve got to roll back there.

Rep. Paul Ryan on "Fox News Sunday": This category of spending [non-defense, discretionary] — the base spending went up 24 percent in the last two years. When we add stimulus, it went up 84 percent. We have had spending on a gusher.

The 84 percent figure is a product of the Republican staff of the House Budget Committee. The GOP report says it represents "non-defense discretionary spending" for fiscal years 2008, 2009 and 2010. But the report is flawed.

The GOP report estimated the "discretionary stimulus spending" for fiscal year 2010 to be $259 billion. But in a February 2009 report, the CBO put that figure at $110.7 billion. The one-year figure used by the Republican staff is actually close to what CBO said the cost would be for an entire decade of stimulus spending: $308 billion spread over 10 years. (The total cost of the stimulus measure was higher, but much of it came in tax cuts, not discretionary spending.)

Also, the GOP staffers are counting budget authority as "spending," which is incorrect. Budget authority is not spending. It’s the amount that Congress has authorized to be spent, and often the actual spending stretches over more than one year. It is more accurate to use actual outlays, which represent dollars spent. Also, the CBO says (page 21) budget authority includes "spending from the Highway Trust Fund and the Airport and Airway Trust Fund … and is not considered discretionary."

Finally, the GOP staffers used old CBO budget authority data from when the spending bills were passed, rather than the CBO’s updated spending data. 

A more current and accurate measure of non-defense discretionary spending can be found in two recent CBO reports: The Budget and Economic Outlook issued in January 2010 and The Budget and Economic Outlook: An Update issued in August 2010.

In the January 2010 report, the CBO (on table 3-8) reports that total non-defense discretionary outlays were $522 billion in 2008 (actual), $581 billion in 2009 (actual) and $682 billion in 2010 (estimated). That’s an increase of 31 percent, from $522 billion to $682 billion. The 2009 and 2010 figures include stimulus funds.

The August update (table 1-5) revised the 2010 non-defense discretionary figure downward to $666 billion, meaning the increase from 2008 to 2010 is now at 28 percent. The fiscal year closed on Sept. 30, so the 2010 figure issued in August should be close to the actual amount.

A Stretch on States and Medicaid

Appearing on CNN’s "State of the Union with Candy Crowley," Texas Republican Gov. Rick Perry claimed the new health care law is going to send his state to the poorhouse:

Perry: [W]hat’s not penetrated really through to the public yet, is the cost of this.

The state of Texas, $27 billion more, over and above what we’re already paying over the next 10 years, $2.7 billion every year. This is the type of money that will bankrupt states.

That’s untrue, according to a study done in May for the Kaiser Commission on Medicaid and the Uninsured. The new law expands Medicaid to cover more people – everyone earning up to 133 percent of the federal poverty line. Since the costs of Medicaid are shared between the states and the federal government, there will be some increase in state payments. How large that is depends on the state.

For Texas, where eligibility for Medicaid has been more narrowly defined than in some states, the law will have a big impact. For example, among uninsured adults who fall below 133 percent of the poverty line, there will be nearly 74 percent fewer who are uninsured, according to the study (see page 11). To cover that, from 2014, when the law fully kicks in, through 2019, Texas is predicted to spend $4.5 billion on the Medicaid program.

But that’s just a 5.1 percent increase over what the state would spend if the health law had never been passed. Most of the cost of the new enrollees – 100 percent in the first three years, phasing out to 90 percent by 2020 – will be picked up by the federal government. Federal Medicaid spending in Texas will go up almost 46 percent. One of the study’s authors told the Washington Post that some states’ predictions that the new law would create budgetary devastation were "absurd."

Perry’s figure comes from an estimate done by the Texas Health and Human Services Department. Earlier this year it predicted that state Medicaid costs would increase by about $24.3 billion over the next 10 years because of the law; in late March, the department upped its estimate to $27 billion. That estimate was criticized for several reasons. For instance, it included the cost of paying for the health care of children who are already eligible for Medicaid but are not signed up, and disregarded the fact that Texas will have to spend substantially less reimbursing hospitals for emergency room costs for the uninsured. Presented with the latter point at a hearing, the department’s chief responded, "Very valid point. … In some of the programs, there are substantial savings."

Bank Bonus Bump

On ABC’s “This Week,” David Stockman, a former budget director in the Reagan administration, misrepresented a recent Wall Street Journal compensation survey in arguing against extending the Bush tax cuts for the top 2 percent of taxpayers.

Stockman: Two years after the crisis on Wall Street, it has been announced that bonuses this year will be $144 billion, the highest in history.

It’s not true that bonuses this year will be $144 billion. In an Oct. 11 article, the Wall Street Journal reported that total compensation — salaries and benefits — will be $144 billion at "about three dozen of the top publicly held securities and investment-services firms." The story says:

Wall Street Journal, Oct. 11: Compensation on Wall Street is on pace to break a record high for a second consecutive year, as more than three dozen top banks and securities firms will pay $144 billion in salary and benefits.

The record for Wall Street bonuses was set four years ago, according to the Wall Street Journal. Citing a report by the New York state comptroller, the Journal reported on Feb. 23 that Wall Street bonuses were $20.3 billion in 2009 — far from the 2006 record of $34.3 billion.

Fraudulent Medicare Claims?

Also on "Face the Nation," Democratic Rep. James Clyburn of South Carolina falsely claimed that the cuts in Medicare spending enacted by the health care law were all about rooting out fraud. That’s not where the bulk of the savings comes from.

Clyburn: Because what we did in this plan was to really expand, extend the life of Medicare by squeezing out of it all of the fraud that was taking place in Medicare. We read the headlines every day about how much fraud is taking place in Medicare. So you took that money out of it. You extended the life of Medicare. It got rip– represented to the– to seniors that we were cutting Medicare. We were not cutting their services. We were cutting in those areas where there was so much fraud in existence.  

The Congressional Budget Office estimated (see Table 2) that 73 percent of the total $455 billion in Medicare savings over 10 years would come from two provisions: reductions in the scheduled increases in Medicare payments to hospitals and other providers, and a change in payments to Medicare Advantage plans to bring them in line with traditional fee-for-service Medicare. 

— Brooks Jackson, Lori Robertson, D’Angelo Gore, Eugene Kiely, Viveca Novak and Michael Morse