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by Robert B. Reich

  4. We’d have a stronger economy if we had fewer regulations. Untrue. As I said before, corporations exist for one reason only—to make a profit and thereby increase the value of their shares, not to protect the public. Yet public health and safety, fairness to small investors, and a sustainable environment are all public goods. Without them, we’d be the poorer for it. Regulations make sense where the benefits to the public exceed the costs, and regulations should be designed to maximize those benefits and minimize those costs. Period.

  5. The economy would improve if we cut the budget deficit right now. Baloney. As long as many Americans are still out of work, the first priority must be jobs and growth. Government spending counteracts the shortfall in private spending. Until employment and growth are restored to normal levels, budget cuts only increase unemployment and reduce tax revenues. We should start cutting the federal budget only when the economy is back on track, when unemployment drops to around 5 percent and growth is back to 3 percent.

  Don’t get me wrong. The national debt is a problem, but the ratio of debt owed by the government to the economy’s total output of goods and services in 2012 wasn’t nearly as high as it was after World War II—when it reached 120 percent. If we move more quickly toward a full recovery, the debt-to-GDP ratio will fall, as it did in the 1950s. Revenues will flow into the Treasury, and much of the current “budget crisis” will evaporate. Growth and jobs are the key. When more people are working, more companies are profiting, the economy is expanding, revenues pour into national treasuries, and the debt declines relative to the economy.

  When the economy grows more slowly or contracts, the opposite occurs. Economies can fall into vicious cycles of slower growth and lower tax revenues. If governments then cut public spending, the vicious cycle can become an austerity death trap. The debt-to-GDP ratio worsens because the economy shrinks even faster. Much of Europe fell into that trap in 2012. Output shrank after Britain and the euro zone adopted austerity measures and slashed public budgets in an attempt to gain control over public debts. If regressives have their way, America will join Europe.

  It comes down to a question of timing. If government slices spending too early, when unemployment is high and growth is slowing, the debt situation worsens. That’s because public spending is a critical component of total demand. If demand is already lagging, spending cuts further slow the economy—and thereby increase the size of the government debt relative to the size of the overall economy. We’d end up with the worst of both worlds—a growing ratio of debt to the gross domestic product, coupled with high unemployment and a public that’s furious about losing safety nets when they’re most needed. The proper sequence is for government to keep spending until jobs and growth are restored, and only then to take out the budget ax.

  The Fed can’t possibly generate a buoyant recovery on its own. Without an expansionary fiscal policy, the Fed’s low interest rates have little effect. Companies won’t borrow in order to expand and hire more workers unless they’re confident they will have customers for what they produce. And consumers won’t borrow money to spend on goods and services unless they’re confident they’ll have jobs.

  The 2011 downgrade of America’s debt by Standard & Poor’s (S&P) is irrelevant. S&P downgraded the debt because Congress and the president didn’t reach a long-term debt agreement to S&P’s liking. Pardon me for asking, but who gave S&P the authority to tell America how much debt it has to shed, and how? If we pay our bills, we’re a good credit risk. If we don’t, or aren’t likely to, we’re a bad credit risk. And because most of our bills are denominated in dollars, which we print, it’s highly likely we can pay. When, how, and by how much we bring down the long-term debt—or, more accurately, the ratio of debt to GDP—is none of S&P’s business. S&P’s intrusion into American politics is also ironic because much of our current debt is directly or indirectly due to S&P’s failure (along with the failures of the two other major credit-rating agencies, Fitch and Moody’s) to do its job before the financial meltdown. Until the eve of the collapse, S&P gave triple-A ratings to some of the Street’s riskiest packages of mortgage-backed securities and collateralized debt obligations. Had S&P fulfilled its responsibility and warned investors of how much risk Wall Street was taking on, the housing and debt bubbles wouldn’t have become so large, and their bursts wouldn’t have brought down much of the economy. You and I and other taxpayers wouldn’t have had to bail out Wall Street; millions of Americans would have spent the subsequent years working instead of collecting unemployment insurance; the government wouldn’t have had to inject the economy with a massive stimulus to save millions of other jobs; and far more tax revenue would have been pouring into the Treasury from individuals and businesses.

  One final point you should know about the federal budget: the mammoth deficits that will be racked up beyond 2020 are due almost entirely to rapidly rising health-care costs along with seventy-seven million baby boomers whose bodies will slowly be deteriorating. At the rate health-care costs are already rising, they’ll also drive average American families into ruin. Which raises the next regressive falsehood…

  6. Medicare and Medicaid have to be scaled back. Untrue. The reason their costs are rising so fast is that the nation’s overall health-care costs are rising so fast. A related lie: The way to slow the growth of Medicare is to give seniors vouchers that can be cashed in for private insurance. That’s the regressives’ plan that most House Republicans voted for in 2012—and it’s dead wrong. Any budget savings would come directly out of the pockets of seniors, as the vouchers fall further and further behind the rising costs of health care. The inevitable result would be that more and more seniors would be priced out of the market for health care as the underlying costs of health care continue to soar. A far better way to slow medical costs is to use Medicare and Medicaid’s bargaining power over drug companies and hospitals to get lower prices and to move from a fee-for-service system to a fee-for-healthy-outcomes system. And because Medicare has far lower administrative costs than private health insurers, we should make Medicare available to everyone. I’ll get to this in more detail a bit later.

  7. Our safety nets are overly generous. To repeat: In Mitt Romney’s standard stump speech during the 2012 campaign, he charged President Obama with creating a nation of dependents: “Over the past three years Barack Obama has been replacing our merit-based society with an entitlement society.” During the Republican primary, Rick Santorum said, “There’s a push to get more and more people dependent.” Newt Gingrich called Obama “the best food-stamp president in American history.”

  What was their evidence? They pointed to federal budget data showing that direct payments to individuals shot up by almost $600 billion, a 32 percent increase, from the start of 2009 to 2012. They also referred to census data showing that by 2012, 49 percent of Americans lived in homes where at least one person was collecting a federal benefit—Social Security, food stamps, unemployment insurance, workers’ compensation, or subsidized housing. That was up from 44 percent in 2008. And they trumpeted Social Security Administration figures showing that the number of people on Social Security disability jumped 10 percent during Obama’s first two years in office. From this evidence they argued our economic problems stem from this sharp rise in “dependency.” Get rid of these benefits and people will work harder.

  But again they have cause and effect backward. The reason for the rise in food stamps, unemployment insurance, and other safety net programs was that Americans got clobbered in 2008 with the worst economic catastrophe since the Great Depression. They and their families needed whatever helping hands they could get.

  If anything, America’s safety nets have been too small and shot through with holes. That’s why the number and percentage of Americans in poverty increased dramatically between 2009 and 2012. This is the real scandal. For example, at the height of the recession only 40 percent of the unemployed qualified for unemployment benefits because they weren’t working full-time or long eno
ugh on a single job before they were let go. The unemployment system doesn’t take account of the fact that a large portion of the workforce typically works part-time on several jobs and moves from job to job. By 2012, although much of the nation was still suffering the aftereffects of recession, only a small portion of the poor qualified for welfare. This was because the 1996 legislation that formally ended the old Aid to Families with Dependent Children program provided just five years of aid in a person’s lifetime. Given the prolonged recession, by 2012 many poor Americans had reached their lifetime limit.

  Republicans also promised to repeal President Obama’s health-care law, which covers thirty million more Americans than were covered before. That law still left more than twenty million without health insurance. They and any others who would lose medical coverage if the new law were repealed will get emergency care when they’re in dire straits in any event—hospitals won’t refuse them—but we all end up paying indirectly.

  Regressives pretend they’re about opportunity. But in reality, as I’ve said before, they’re promoting social Darwinism.

  8. Social Security is a Ponzi scheme. Don’t believe it. In a former life I was a trustee of the Social Security trust fund, and I know how the Social Security actuaries make their projections. Social Security is solvent for the next twenty-five years, until 2037. It could be solvent for the next century if we raised the ceiling on income subject to the Social Security payroll tax. As I write, that ceiling is $110,100.

  Until 2010, Social Security took in more payroll taxes than it paid out in benefits. It lent the surpluses to the rest of the government. Now that Social Security has started to pay out more than it takes in, the trust fund, by law, is entitled to collect what the rest of the government owes it. This will keep it fully solvent for those twenty-five years. The only reason there will be a problem after that point concerns a mistake made in 1983, when Alan Greenspan’s National Commission on Social Security Reform was supposed to have fixed the system for good. Congress accepted the Greenspan Commission’s recommendations to gradually increase payroll taxes and raise the retirement age (early boomers like me can start collecting full benefits at age sixty-six; late boomers born after 1960 will have to wait until they’re sixty-seven). But the Greenspan Commission failed to take account of widening inequality. In fairness, inequality was just beginning to widen at that point, so the error was understandable.

  Bear with me for a moment, because it’s important you understand what happened then. The Social Security payroll tax applies only to earnings up to a certain ceiling, which rises annually according to a formula roughly matching inflation. In 1983, the ceiling was set so the Social Security payroll tax would apply to 90 percent of all wages covered by Social Security, and that 90 percent figure was built into the Greenspan Commission’s fixes. Today, though, the Social Security payroll tax affects only about 84 percent of total income. It went from 90 percent to 84 percent because a larger and larger portion of total income has gone to the top.

  So the logical response to Social Security’s long-term problem is to raise the ceiling on income subject to the Social Security tax, rather than to reduce benefits or raise the age of eligibility.

  9. It’s unfair that middle- and lower-income Americans have been paying a smaller share of federal income taxes and some pay no income tax at all. There’s nothing unfair about it. Fairness requires that people who make more money pay a higher portion of their incomes in taxes than people with less money. That’s called a progressive tax system, and it’s been a foundation stone of America’s tax code. Because the share of total income going to the top 1 percent has doubled since the late 1970s, we’d expect their share of total taxes to have doubled as well, and the share paid by middle- and lower-income Americans to have dropped. In fact, the top 1 percent’s share of total taxes has not kept pace with their increasing share of total income. If the tax system were totally fair, their share of tax revenues would be more, and everyone else’s share would be less.

  Besides, the income tax is only one of the taxes Americans pay. Middle- and lower-income Americans are now paying a significantly larger share of their incomes than are wealthy Americans in payroll taxes (Social Security and Medicare), state and local sales taxes, user fees, and property taxes. Data from the Institute on Taxation and Economic Policy show that the poorest fifth of households paid 12.3 percent of their incomes in state and local taxes in 2010. When all federal, state, and local taxes are taken into account, the bottom fifth paid a stunning 16.3 percent of their incomes in taxes, on average, a larger percentage than Mitt Romney paid in federal taxes on his $21 million of income that year.

  10. A flat tax would be fairer. Don’t believe it. All flat-tax proposals benefit the rich more than the poor for one simple reason: today’s tax code is still at least moderately progressive. The rich usually pay a higher percentage of their incomes in income taxes than do the poor. A flat tax would eliminate that slight progressivity.

  Flat taxers pretend a flat tax is good public policy, for two reasons. First, they say, it would simplify paying taxes. Baloney. Flat-tax proposals don’t eliminate all deductions. In every plan I’ve seen, people with families will still be able to deduct their dependents, while single people will pay a higher rate, businesses will deduct their expenses, and in most plans people with homes will still be able to deduct interest on their mortgages. All this means most taxpayers would still have lots of paperwork.

  Second, proponents of a flat tax say it’s fairer than the current system because a flat tax “treats everyone the same.” The truth is that in the current tax code, everyone whose income reaches the same bracket is treated the same as everyone else whose income reaches that bracket (apart from various deductions, exemptions, and credits, of course). For example, no one pays any income taxes on the first $20,000 or so of his income. People in higher brackets pay a higher rate only on the portion of their income that hits that bracket—not on their entire incomes. Regressive Republicans have tried to sow confusion about this. They want Americans to believe, for example, that if the Bush tax cuts ended, small-business owners with incomes of $251,000 a year would have to pay 39 percent of their entire incomes in taxes rather than 35 percent. Wrong. They’d only have to pay the 39 percent rate on $1,000—the portion of their incomes over $250,000.

  Get it? We already have a flat tax—flat within each bracket. The real problem is the top brackets are set too low relative to where the money is. The topmost bracket starts at $388,350 on income earned in 2012. People with incomes higher than that pay 35 percent—again, only on that portion of their incomes exceeding $388,350. This means a doctor who’s making, say, $390,000 a year pays the same income tax rate as a plutocrat pulling in $2 billion or $20 billion. Regressives are pushing the flat tax as a smoke screen. They’d rather not have anyone talk about the unfairness and fiscal absurdity of the current system.

  These ten whoppers have been repeated so often by regressives and their media outlets that many Americans have started to believe them. But every one of them is a lie. Yet regressives won’t debate their lies because they know they can’t win if they do. That’s why they typically use ad hominem accusation in place of argument. In April 2012, Representative Alan West, a Florida Republican, asserted there were “78 to 81” Democrats in Congress who are members of the Communist Party. What made West’s charge particularly disturbing was that not a single Republican member of Congress, presidential candidate, or any other Republican leader condemned it. Apparently such extremist rhetoric is now taken for granted. Even I’ve been on the receiving end. Bill O’Reilly, the tumescent personality of Fox News, said on his show, “Robert Reich is a communist who secretly adores Karl Marx.”

  West’s and O’Reilly’s accusations were odd, to say the least. It’s hard to find a communist anywhere these days (for the record, I’m not one). O’Reilly’s charge wasn’t even logical. How could he know if I “secretly” adore Karl Marx, if it’s a secret? (I don’t secretly adore
Karl Marx.) Ordinarily I don’t bother repeating anything Bill O’Reilly says but this particular whopper is significant because it represents what O’Reilly and Fox News, among other megaphones of the regressive right, are doing to the national dialogue—burying it under vitriol. O’Reilly based his claim on an interview I did with Jon Stewart on The Daily Show in which I pointed out that because America’s big corporations are now global we can no longer rely on them to make the investments in human capital or basic research that America needs, so government has to step in. But O’Reilly had no interest in arguing the point. Although I asked repeatedly, he refused to debate me.

  Ad hominem attacks are always the last refuges of those lacking logic or facts. But such attacks are becoming a substitute for real debate in America. It’s not that the nation is more polarized than it’s been in the past. The nation has been through searing conflicts, some within the living memories of most of us. The communist witch hunts of the 1950s were followed by the civil rights movement, the Vietnam War, battles over womens’ reproductive rights and gay marriage. What makes America’s current polarization remarkable isn’t the severity of our disagreements but the regressive right’s unwillingness to seriously debate them.

  So many Americans are angry and frustrated these days—vulnerable to loss of job and health care and home, without a shred of economic security—they’re easy prey for demagogues offering big lies. Yet the only antidote for big lies is big truth—told relentlessly and powerfully. You must be armed with it.