Did you know that the mortgage interest deduction was a major contributor to families' distressed circumstances leading to the housing bubble? Or that George W. Bush's (really modest) tax cuts in 2001 and 2003, not the Internet bubble of the late-1990s led the nation from fiscal surplus to deficits?
The reason you don't "know" these things is that they're not true. But the Associated Press's Tom Raum thinks they are, and said so as if they are indisputable facts in an AP analysis piece (or at least I hope it was meant to be that) yesterday. In over 850 words, he also failed to note, while barely acknowleding their existence, that Republicans in the House already acquiesced to $620 billion in tax increases in return for a "whopping" $15 billion in spending cuts during the fiscal cliff deal at the end of last year. Excerpts from Raum's risible writeup follow the jump.
Of course, Raum's selective memory will make the Obama administration's position look like the reasonable one to many readers:
Consequence to cuts no one thought would happen
... Republicans, influenced by tea party and other conservative factions, insisted on just spending cuts to narrow the deficit. Tax increases were out.
Obama and the Democratic-run Senate didn't budge from a mix of cuts and increased tax revenues.
"Arbitrary" and "stupid" Obama called the auto-pilot cuts, known as sequester.
But history shows a long trail of unintended consequences from government actions - or inaction:
-President Franklin D. Roosevelt, after a solid re-election victory in 1936, believed that the Great Depression was winding down. Unemployment was declining and economic activity was coming back.
Roosevelt and Congress believed it was time to cut free-flowing government spending and raise taxes. The Federal Reserve tightened its financial reins. But the fragile economy couldn't withstand the blows. The Depression roared back, lasting until the 1940s when U.S. involvement in World War II finally revived the economy.
-President Ronald Reagan's ambitious 1986 overhaul of the tax code simplified taxes and closed many loopholes, including repealing the popular tax deduction for credit-card interest. Then people started borrowing heavily against fast-rising equity in their homes; that interest still was deductible.
But the practice eventually helped put millions of homeowners under water on their mortgages when the housing bubble burst, contributing to the 2007-2009 recession.
Raum goes on to distort the most previous decade, particularly blaming Bush 43's tax cuts for deficits when the fact is that federal receipts grew by 44% in the four years after they were enacted.
Raum got the mid-1930s only half-right. Tax increases hurt the economy, but spending cuts of $300 million on a budget of $13 billion (i.e., about 2.3%) certainly didn't. Far more problematic than both were the Roosevelt administration's micromanagment of the economy and his uncertainty-creating moves, one of which included an attempt to pack the Supreme Court which had been routinely swatting down his unconstitutional agency creations.
As to Raum's hysterical claim about the mortgage interest deduction, the fact is that the 1980s Reagan-era tax cuts cut the value of the mortgage interest deduction for the vast majority of Americans to a tax-reducing impact of either 15% or 28% from much higher previous percentages. Additionally, the fact that non-mortgage interest was no longer deductible did almost nothing to slow down the growth of credit card and installment loan debt during the decades which followed.
No Tom. What caused the housing bubble can almost entirely tied to the government's virtually mandating the creation of the subprime mortgage market, forcing lenders to have an arbitrary percentage of those loans fit into that category, and systematic deception of the securities markets and ratings agencies by frauds by design Fannie Mae and Freddie Mac for 15 years.
As to the current situation with tax, Raum quoted Bruce Barlett thusly: "I think people didn't realize how wedded Republicans are to not raising taxes." I suspect that Bartlett was only referring to the sequestration discussions. But Raum made it look as if the Republicans conceded almost nothing during the fiscal cliff deal, when they reallt, as noted earlier, gave in to over $600 billion in tax increases during the next decade.
Cross-posted at BizzyBlog.com.