Our public debates are often distorted by misinformation, this is especially true on economic issues. Here is my list of 11 economic facts most Americans don’t know but should.
1. Pretty much everything we are told about the budget is wrong. Discretionary spending is at historically low levels and falling and the U.S. tax levels are low both historically and compared to other countries. Our current budget deficit is due primarily to the Bush tax cuts, two wars, and the great recession. Our long term debt problems are not as dire as previously predicted and largely due to an aging population and growing health care costs.
2. So, we have to cut Medicare, right? Washington pundits love the idea of cutting Medicare, but Medicare controls costs better than private insurance. So, cutting Medicare will actually increase total health care spending and just shifts spending from government to seniors. And, according to new CBO numbers, raising the Medicare eligibility age won’t even save the government much money while raising total spending and causing great hardship for millions of seniors.
3. So, how do we control health care costs? The inefficient U.S. health care system costs us an extra $1.2 trillion/year, this amount is equal to almost twice the military budget and we waste it every year. We spend ~$8,500 per person compared to the OECD average of $4,500 per person and we have worse outcomes and 47 million uninsured. If we had the same per capita health care costs as France, we would have large budget surpluses. That is why single-payer plans should be a central focus of budget talks.
4. We should at least cut Social Security benefits, right? No, our record income inequality, not demographics, is the real cause of most of the projected Social Security shortfall. The obvious solution is, therefore, to remove the cap on income subject to Social Security taxes, not to cut benefits.
5. But I thought our debt problems were caused by too much spending on poor people? No, the numbers just don’t add up. In fact, we could raise every American out of poverty for just $175 billion/year, about a quarter of the annual military budget.
6. But, why do my taxes seem so high, if our overall tax rates are low? When you look at all taxes combined (federal, local, and state), the rich often pay a lower tax rate than much of the middle class and the 47% of ‘moochers’ actually pay a lot of taxes. The very rich often pay an even lower rate.
7. But a rising tide lifts all boats, right? Only if you are rich enough to own a boat, the rest of us have to swim. The U.S. is no longer one of the richest countries in the world for most of us. The U.S. still has a very high average wealth, but we only rank 27th in median wealth, which is a much better metric for the economic health of the middle class. Australia, which has a minimum wage of over $16/hour has a median wealth almost 5 times higher than the U.S.
8. But...job creators! Wealth inequality is much higher than we think it is and far higher than we think it should be. When asked, Americans think inequality levels should be similar to levels in Sweden.
9. But at least we don't spend money like those socialists in Sweden, right? Actually, the U.S. spends about as much as Scandinavian countries on social services but gets a lot less for our money. Much of our spending is out-of-pocket and more expensive. The U.S. still has one of the stingier social safety nets of advanced countries. So, individual Americans end up bearing more risk and having lower economic security for the same total cost.
10. So, what happened? This record inequality combined with a corrupt campaign finance system, creates a political environment where the policy preferences of the middle class and poor are largely ignored (pdf). The super rich have decidedly different priorities (pdf) than the middle class and much more influence. Until we fix our corrupt system, we aren’t going to make much progress on anything else.
11. In the end, we need to remember that our economy is supposed to make our lives better, not just make our GDP grow faster. Every government decision or non-decision creates winners and losers. But, research shows that countries and states that have more liberal policies are actually happier.