FactCheck: Biden’s economic spin
In a speech on inflation and the economy, President Joe Biden made some misleading claims and used political spin to criticize Republicans and promote his policies.
Biden spoke on May 10.
Biden cited two reasons for high inflation: the COVID-19 pandemic and Russian President Vladimir Putin. When asked about whether he bore any responsibility for inflation, Biden said, “I think our policies help, not hurt,” adding that “it’s not because of spending.”
But that’s a matter of debate. Some economists have said that the American Rescue Plan’s federal stimulus money, which, in turn, boosted consumer spending, has contributed to higher inflation. The White House cites other economists who have said the ARP had a small and temporary effect.
“There are two leading causes of inflation we’re seeing today,” Biden said. “The first cause of inflation is a once-in-a-century pandemic. Not only did it shut down our global economy, it threw the supply chain and demand completely out of whack, especially in countries where more effective recovery responses weren’t available, especially in those sectors that rely on semiconductors. …And this year we have a second cause — a second cause: Mr. Putin’s war in Ukraine.” Biden said the latter had caused gas and food prices to rise.
Inflation is up 8.3% year-over-year as of April, a small drop from the 8.5% 12-month rise in March, which the Bureau of Labor Statistics said was the largest increase since December 1981.
The pandemic created supply-and-demand issues, as Biden said. “The identifiable factors behind goods inflation—a surge in consumer demand and lagging supply—are primarily pandemic-related,”Wendy Edelberg, director of The Hamilton Project at the Brookings Institution, said in a November post on Brookings’ website.
As the Associated Press explained in a Jan. 12 article, widespread economic shutdowns early in the pandemic in 2020 led to job losses, a plunge in consumer demand and a drop in business investments. “But instead of sinking into a prolonged downturn, the economy staged an unexpectedly rousing recovery, fueled by vast infusions of government aid and emergency intervention by the Fed, which slashed interest rates, among other things. By spring this year, the rollout of vaccines had emboldened consumers to return to restaurants, bars, shops and airports,” the AP said.
But businesses didn’t have enough supply or workers to meet that spiking demand. And in order to attract workers, wages increased, another reason consumers are facing higher prices for the goods businesses produce, NBC News explained in an April report on inflation.
Higher gas prices are also rooted in that pandemic-prompted supply-demand issue. As we’ve written before, oil supply dropped early in the pandemic, but it has now struggled to keep up with surging demand. Biden also has a point that Russia’s invasion of Ukraine has affected gas prices. The Energy Information Administration said in its May 10 Short-Term Energy Outlook: “The possibility of oil supply disruptions resulting from Russia’s full-scale invasion of Ukraine and associated sanctions on Russia continue to contribute to the Brent crude oil price remaining above $100/b. This uncertainty is occurring amid low inventory levels globally.”
The United Nations also has said 25 million tons of grain are stuck in Ukraine because of the conflict — another influence on higher food prices. Jason Furman, an economist at Harvard and a top economic adviser during the Obama administration, told the Harvard Gazette in March: “The Russian invasion of Ukraine is certain to drive inflation higher.”
Biden dismissed the idea that federal economic stimulus measures have contributed to inflation, responding to a reporter’s question after his speech: “The vast majority of the — of the — of the economists think that this is going to be a real tough problem to solve. But it’s not because of spending. We brought down the deficit.”
Some economists, however, have said the $1.9 trillion pandemic relief legislation, called the American Rescue Plan and enacted in March 2021, was too large and has pushed up inflation. Larry Summers, who was treasury secretary under President Bill Clinton and a top economic adviser to President Barack Obama, wrote in a Feb. 4, 2021, op-ed in the Washington Post: “[T]here is a chance that macroeconomic stimulus on a scale closer to World War II levels than normal recession levels will set off inflationary pressures of a kind we have not seen in a generation, with consequences for the value of the dollar and financial stability.”
Other economists have since agreed that the relief, which included $1,400 checks to most Americans, has been a factor. That stimulus came after two other pandemic relief laws passed under then-President Donald Trump.
“In retrospect, it was more than what was needed,” Ellen Gaske, an economist at PGIM Fixed Income, told the Associated Press. “It was not just the size of the (relief) packages, but those direct cash payments to households added purchasing power very directly. And when you pushed that up against the supply disruptions because of COVID, the pressure valve was higher inflation.’’
Adam Posen, president of the Peterson Institute for International Economics, also told the New York Times that the amount of government spending in the first six months of 2021 made a difference. “If there had not been the bottlenecks and labor market shortages, it might not have mattered as much. But it did,” he said.
The Times, in its Jan. 22 story, also quoted Furman as saying the U.S. “has had much more inflation than almost any other advanced economy in the world,” and the difference was because “the United States’ stimulus is in a category of its own.”
On the other side of the debate is Moody’s Analytics. The White House pointed us to Moody’s February report that said the ARP only temporarily contributed to inflation and was necessary to stave off other economic ill effects. “The ARP has contributed to the acceleration in inflation by supporting increased consumer demand, but this occurred almost entirely in the first half of 2021 when higher inflation was not considered a problem,” the report said, adding that inflation was “even viewed positively” then “as many businesses were simply re-establishing the prices they had previously cut” during economic shutdowns.
Without the ARP, Moody’s model estimated unemployment would have been higher. “The ARP is responsible for adding well over 4 million more jobs in 2021, and the economy is currently on track to recovering all the jobs lost in the pandemic by the second quarter of this year. If there had been no ARP, it would have taken another year for the economy to recover all of these jobs.”
The unemployment rate is currently 3.6%, just a shade below the pre-pandemic low of 3.5% in February 2020.
Moody’s argued: “Inflation only became uncomfortably high when the Delta wave of the pandemic hit in late summer last year,” causing more supply and labor market issues.
The White House also pointed to an October report by economists with the Federal Reserve Bank of San Francisco that estimated the ARP would bump up inflation but said the impact would be “minor,” causing “only a temporary increase in core personal consumption expenditures (PCE) inflation of about 0.3 percentage point per year through 2022.”
Biden cited a reduction in the deficit under his administration. The nonpartisan Congressional Budget Office said the $360 billion deficit for the first seven months of fiscal year 2022 is about $1.5 trillion lower than the deficit for the same period in 2021. But as we’ll explain below, that’s mostly because of expiring pandemic spending.
Republicans and taxes
In his speech, Biden contrasted his economic vision with “the ultra-MAGA agenda” proposed by Sen. Rick Scott, who is chairman of the National Republican Senatorial Committee.
Biden seized on Scott’s 11-point plan for how Senate Republicans would govern if they win the majority in 2022 to claim that Republicans will raise taxes.
Scott’s plan says: “All Americans should pay some income tax to have skin in the game, even if a small amount. Currently over half of Americans pay no income tax.” Biden said Scott’s tax proposal would raise taxes on 75 million families, and “[t]he average tax increase would be about $1,500 per family.”
The White House cited a report from the Tax Policy Center, which Howard Gleckman, a senior fellow in the Urban-Brookings Tax Policy Center, told us “made assumptions about what a plan roughly like his [Scott’s] idea might look like.” The TPC modeled a plan that assumed every household would have to pay at least $100 in federal income tax ($200 for couples).
A spokesman for Scott said those assumptions about Scott’s plan are wrong, though the limitations Scott now applies to his proposal don’t match the words in his plan.
“To start, we did not analyze Scott’s idea because it was not really a plan,”Gleckman told us via email. “It was just one sentence that left out many important specifics. We don’t know how much minimum tax he’d have everyone pay, and we don’t know exactly who would be taxed and who would be exempt. Since he made the proposal, he has described many variations, though he has not yet changed his written proposal.”
But even using TPC’s assumptions, Biden didn’t get it exactly right. According to the TPC analysis, the average tax hike for all Americans would be $630. The average tax hike just for those who would be subject to the minimum tax (those who would otherwise pay less than $100 in income taxes) would be $1,480.
So how is it that people subject to a minimum $100 federal income tax would see their tax burden increase by so much more?
“It is because many low- and moderate-income households currently benefit from refundable tax credits such as the [child tax credit and the earned income tax credit],” Gleckman said. “They not only pay no income tax, they effectively get a payment from the IRS. So their income tax liability might be a negative number. Someone getting a refundable credit of, say, $1000 would owe $1100 more under Scott’s plan that they do today. They’d lose the $1000 credit plus they would owe $100. Another way to think about it: Scott would repeal all these refundable tax credits and then impose some minimum amount of tax on top of that.”
A spokesman for Scott said the assumptions made by the Tax Policy Center, and Biden, are wrong.
“Senator Scott has not called for a minimum tax, or any tax increases of any kind,” McKinley Lewis, communications director for Scott, told us via email.
Lewis pointed to an April 11 Daily Caller op-ed in which Scott said his plan does not propose raising income taxes on working-class Americans and retirees on Social Security. “If someone is working and paying into the system, whether through income tax, payroll tax, state and local taxes – this plan would have no effect on them,” Lewis said.
Scott in Daily Caller op-ed, April 11: Let’s be clear about what I am proposing, and what I’m not. Retirees have already paid plenty into the system. And working-class Americans are already paying into the system, whether through income tax, payroll tax, state and local taxes. You know them. They’re the people who set their alarm clocks and get up and get moving and provide for their families and make this country work! Whether they receive a tax refund or have to chip in a little more each April, they are taxpayers. My proposal wouldn’t change anything for them, but we should find ways to reduce their tax burden.
As we wrote in a previous story, nowhere in Scott’s plan does it say he was referring to only able-bodied, nonretirees who receive government benefits but don’t work and don’t pay federal income taxes or payroll taxes. Rather, the plan still says as of May 11 that “all Americans” should have to pay “income tax,” while saying that “over half of Americans” currently do not.
As we noted in our Feb. 24 story, the limitations Scott now puts on those subject to some income tax do not apply to “[o]ver half of Americans” — the language used in Scott’s plan. TPC estimated that 19.3% — or 34.4 million — of all tax units would owe neither federal income nor payroll taxes in 2021. And the ultimate percentage is even smaller than that, as the estimate includes more people, such as elderly and disabled Americans, whom Scott now says his proposal would not include.
We should also note, as we have previously, that while Biden refers to Scott’s plan as “their plan,” as if it is the Republican Party platform, there’s reason to believe it may not have widespread support in the party.
At a press conference on March 1, Senate Minority Leader Mitch McConnell said in reference to Scott’s plan, “If we’re fortunate enough to have the majority next year, I’ll be the Majority Leader. I’ll decide in consultation with my members what to put on the floor. And let me tell you what would not be a part of our agenda. We will not have as part of our agenda a bill that raises taxes on half of the American people and sunsets Social Security and Medicare within five years. That will not be part of a Republican Senate majority agenda.”
Biden compared the amount of oil produced in his first year in office with the amount produced in the same time period under former President Donald Trump.
“Here at home, U.S. oil and gas production is approaching record levels. In fact, we produced more oil domestically in my first year in office than my predecessor did in his first year,” Biden said.
The U.S. produced about 4.1 billion barrels of crude oil in the first 12 months of Biden’s presidency (ending in January 2022). That was about 18.6% more than the 3.45 billion barrels of crude oil produced in Trump’s first 12 months (ending in January 2018).
Before Biden took office, however, annual crude oil production had increased nearly 28% in Trump’s four years as president.
When compared with production in more recent years, Biden’s first year total was almost 8.8% lower than the nearly 4.5 billion barrels produced in 2019, and about 0.9% less than the 4.13 billion barrels produced in 2020, during the first year of the COVID-19 pandemic.
In its Short-Term Energy Outlook for May, the U.S. Energy Information Administration projected that crude oil production will average 11.9 million barrels per day in 2022, which would be the highest average except for the 12.3 million barrels produced each day in 2019.
More deficit spin
Biden again misleadingly took credit for cutting federal deficits by historic amounts, even though most of the reduction in deficits has been the result of expiring emergency pandemic spending. And while the deficit fell between fiscal years 2020 and 2021, it would have fallen by a substantially larger amount if not for additional pandemic and infrastructure spending signed into law by Biden.
Biden: Under my plan, we’re on track to cut the federal deficit by $1.5 trillion. Let me say it again: $1.5 trillion by the end of this fiscal year. The biggest one-year decline in all of history for America. And that’s in addition to last year we cut the budget $350 billion — the deficit, not the budget. The deficit: $350 billion.
As we wrote recently in our story “Biden’s Deficit Spin,” in February 2021, shortly after Biden took office and before any of Biden’s fiscal policies were enacted, the nonpartisan Congressional Budget Office projected a federal budget deficit of about $2.3 trillion in 2021, $874 billion less than the shortfall recorded in 2020. It projected deficits to fall again to $1.1 trillion in FY 2022 — meaning another $1.2 trillion reduction in the deficit from 2021. Combined, the deficits in FY 2021 and FY 2022 were expected to total $3.3 trillion. Those projections assumed no new changes in federal law.
But on March 11, 2021, Biden signed the $1.9 trillion American Rescue Plan into law. The new emergency pandemic relief law included, among other things, increased child care tax credits, extended unemployment payments, small-business support and $1,400 checks to qualifying Americans. As a result, instead of the projected $874 billion drop in deficits between 2020 and 2021, the Congressional Budget Office said FY 2021 ended with a deficit of nearly $2.8 trillion—about $360 billion less than the deficit in 2020.
In an April 8 blog post titled “No, President Biden Has Not Implemented Historic Deficit Reduction,” the Committee for a Responsible Federal Budget wrote (with this emphasis) that “the main source of falling deficits is the expiration of most COVID relief such as enhanced unemployment benefits and recovery rebates. The remaining decrease is largely the result of strong income growth and high inflation.” CRFB also noted that even after this post-pandemic drop, deficits will remain historically high.
“The President’s actions to date have not reduced deficits but instead increased them,” CRFB wrote. “Between the American Rescue Plan, the bipartisan infrastructure law, and various executive orders, we estimate at least $2.5 trillion has been added to deficits through 2031 over the President’s term so far.”
Gleckman, at Urban-Brookings Tax Policy Center, told us: “As a share of GDP, which is really the way to look at this, deficits would decline from 12.4 of GDP in 2021 to 5.8 percent this year to 4.5 percent next year. But most of that action is due to two factors: The booming economy that is likely to increase revenues substantially and a sharp decline in pandemic-related spending/tax cuts.
“I suppose Biden gets some credit for this since he and the [Democrats in Congress] designed the American Rescue Plan to include temporary spending,” Gleckman said. “But it is not as if this year’s budget includes major spending reductions. In fact, many of his proposals would increase spending.”
While taking undue credit for the reduction in the size of annual deficits, Biden also boasted that the Treasury Department will pay down the public debt this quarter. “My Treasury Department is planning to pay down the national debt this quarter, which never happened under my predecessor. Not once. Not once,” Biden said.
He’s right, but paying down the debt in one quarter won’t slow the tide of red ink. In fact, Treasury has also said that it expects to resume borrowing money next quarter.
Here are the facts: The federal debt held by the public is $23.8 trillion, up 10.2% from the $21.6 trillion that Biden inherited when he took office. On May 2, the Treasury Department announced that it will pay down $26 billion of the public debt in the April-June quarter.That’s the first time since the April-June 2016 quarter that the U.S. has repaid its public debt, according to Treasury Department data from the October-December quarter of 2015 to the April-June quarter of 2022.
But in the May 2 announcement, Treasury also said that it expects to borrow $182 billion next quarter (July-September) and that it borrowed $668 billion in the previous quarter (January-March). That means, for the first three quarters of this year, Treasury expects net borrowing to be $824 billion.
And the borrowing will continue.
The president’s proposed fiscal year 2023 budget estimates (see table 7.1) that the public debt will be $27.3 trillion at the end of Biden’s term in 2024. That would be an increase of roughly 26% from when Biden took office and about equal to the size of the nation’s gross domestic product.
Republican Tax Cuts and Jobs Act
In contrasting his policy agenda with the Republicans’, the president criticized then-President Donald Trump’s signature piece of legislation — the Tax Cuts and Jobs Act. He said “the last time they were in power,” referring to Republicans, “their top priority was the reckless $2 trillion tax cut … and not a penny of it was paid for.”
The Tax Cuts and Jobs Act, passed by Congress and signed by Trump on Dec. 22, 2017, lowered many individual tax rates, nearly doubled the standard deduction, eliminated personal exemptions and increased child tax credits, among other changes. It also cut the top corporate tax rate from 35% to 21%.
But it also raised tax revenues in order to offset some costs.
For example, these business tax changes were designed to increase tax revenue over 10 years, according to the bipartisan Joint Committee on Taxation’s Dec. 18, 2017, analysis of the final bill days before it became law:
As for individual taxpayers, the law capped the itemized deduction for state and local taxes at $10,000, and eliminated the deduction for personal and dependent exemptions. The Joint Committee on Taxation estimated that eliminating the personal exemptions alone would raise $1.2 trillion over 10 years.
The net cost of the law, the JCT estimated at the time, was $1.46 trillion. The nonpartisan Congressional Budget Office, in an April 2018 report, estimated the net cost at $1.9 trillion. The White House cited the CBO’s $1.9 trillion cost estimate when we asked about the president’s claim that “not a penny of it was paid for.”
It’s true that the tax cut law wasn’t fully paid for. But the tax law would have been much more costly if there weren’t provisions that increased taxes and offset some costs.