10/24/2012 11:34:00 AM Commentary A little fact check on the Great Recession
By U.S. Senator Jon Kyl
Our second president, John Adams, stated that "[f]acts are stubborn things." But during a campaign season, the facts are frequently ignored by candidates engaging in revisionist history - an old trick for those with empty records. For example, consider some recent claims made by President Obama regarding our nation's economic mess.
First, the president blames the "Great Recession" on the Bush tax cuts, deficits, and deregulation - but the facts don't back it up. As James Pethokoukis of the American Enterprise Institute asks, if the tax cuts of 2001 and 2003 caused the Great Recession, why does President Obama want to keep most of them? And why did he sign a two-year extension of them? Good questions.
The president also suggests that the huge deficits accumulated under his watch are a result of that tax relief. But according to the non-partisan Congressional Budget Office, those tax cuts were responsible for just 16 percent of the swing from surplus to deficit (with upper-income tax relief making up just 4 percent of that swing).
Over the same time period, new spending and associated interest payments were responsible for nearly half of the deficit swing - 12 times more than the cost of tax relief targeted at American job creators.
And, ironically, as a result of these tax cuts, upper-bracket earners paid an even greater percentage of taxes overall than they had paid before. CBO showed that in 2008 and 2009 the top 20 percent of taxpayers paid 94 percent of income taxes; that number was 81 percent before the 2001 relief was enacted.
As Pethokoukis notes, "The most recent Obama budget, according to CBO, would add $6.4 trillion more to the federal budget deficit over the next decade, leaving debt as a share of the economy stuck at around 76 percent of GDP versus 37 percent pre-recession."
The president's lack of leadership on budget issues is exacerbated by the fact that he has pushed through big-ticket spending items, notably a failed stimulus plan and ObamaCare.
Next, numerous studies make clear that there is no evidence to suggest that rule changes or deregulation during the Bush Administration contributed to the financial crisis.
So, what did cause the recession?
Well, government housing policy was the driving force, and Fannie Mae and Freddie Mac - government-sponsored agencies - implemented much of that policy. Republicans in Congress tried to reform Fannie and Freddie, but these efforts were opposed by many key Democrats, including then-Senator Barack Obama.
The second claim employed by the president is that his political rivals have no new or big ideas for economic recovery. While some may not be new, most are certainly "big." Governor Romney and Congressman Ryan base their recovery plans on the free-enterprise system, rather than the government playing a larger role in the economy.
Capitalism and free markets have lifted the standard of living for more people around the world than any government program. Planned economies compare poorly to the free enterprise of America. As Margaret Thatcher famously observed: "The problem with socialism is that, eventually, you run out of other people's money."
Freedom, opportunity, and earned success are the touchstones of the American way of life. And, yes, we Americans did build our own success. To the extent government provided infrastructure along the way, it was funded by the taxes Americans paid on what they earned because of their success. And, yes, this is in contrast to the notion that our success comes from the collective state, so the bigger the government the better.