Summary
In touting Republican tax bills, President Donald Trump made several claims that don’t add up.
- The nation’s real gross domestic product grew 4.6 percent and 5.2 percent in the third and fourth quarters of 2014, respectively. But Trump falsely said that the 3.3 percent growth in the third quarter this year was “the largest increase in many years.”
- Trump again wrongly claimed that the tax bills would be the “biggest tax cut in the history of our country.” There have been larger cuts, both as a percentage of gross domestic product and in inflation-adjusted dollars.
- The president repeated a dubious claim that “middle-class families” would see their wages go up “around $4,000.” His economic advisers say that could happen after eight years if the economy grows at high annual rates. But congressional economic experts don’t expect that to happen.
- Trump misleadingly said that U.S. corporate taxes “are 60 percent higher” than the average in the developed world. The statutory rate is that much higher than the OECD average, but the effective rate that corporations actually pay is in line with the world average.
- The wars in Afghanistan, Iraq and Syria have cost $1.52 trillion, says the Defense Department. But Trump inflated the figure to “almost $7 trillion.”
- The president’s proposed fiscal 2018 budget cuts domestic spending, and yet he claimed, “We’re going to start spending here.”
- The nation’s job growth of 2 million between October 2016 and October 2017 was less than the growth in each of the previous five years. Yet Trump claimed that the gain since his election was “a lot better … than anybody ever even thought possible.”
- Trump said that farmers could have gone to jail under the Obama administration if they “touch” a “little puddle” on their land. He was referring to a 2015 environmental rule, but that rule explicitly excludes puddles from regulation.
Analysis
In a speech in St. Charles, Missouri, on Nov. 29, Trump praised congressional GOP efforts to overhaul the nation’s individual and corporate income taxes. As the president said, the House has passed its tax bill, and the president is hoping for a “successful vote in the Senate this week.”
But there were some factual inaccuracies in the president’s remarks, including several false talking points we’ve debunked before.
Real GDP Growth
Trump once again distorted the recent history of U.S. economic growth.
Trump: But by the way the Commerce Department announced this morning that our GDP — that’s the big one — in the third quarter grew even faster than they reported previously. They made a mistake. They were too low. They had it at 3 percent. By the way, 3 percent — did you ever think you would hear that in less than a year? And now it comes in at 3.3 percent which is the largest increase in many years.
He’s right that the real gross domestic product was revised upward to 3.3 percent for the third quarter of 2017. (It wasn’t “a mistake.” It merely reflects more and better data.)
But it isn’t “the largest increase in many years.” It was larger than that in the third and fourth quarters of 2014, when real GDP increased 4.6 percent and 5.2 percent, respectively. It’s also not unheard of for the U.S. economy to grow quarterly at 3 percent or more, as Trump said. It happened eight times under President Obama, as we wrote when Trump made a similar claim in August.
Still Not the Largest Tax Cut
The estimated cost of the Republican tax plans would not be the “biggest tax cut in the history of our country — bigger than Reagan,” as Trump claimed once again. There have been larger cuts as a percentage of gross domestic product and in inflation-adjusted dollars.
When we previously wrote about this on Nov. 3, the nonpartisan Joint Committee on Taxation estimated that the House version of the Tax Cuts and Jobs Act would cost $1.49 trillion over 10 years. Over the first four years, the average annual cost would be $185 billion. That’s about 0.9 percent or 1 percent of gross domestic product, depending on what that ends up being in 2018.
That would make the House bill the eighth largest cut since 1918, according to the Committee for a Responsible Federal Budget’s analysis of Treasury Department data. The 1981 tax cut enacted at the beginning of the Reagan administration cost 2.9 percent of GDP over four years. That makes it the largest, CRFB says.
In inflation-adjusted dollars, the House GOP plan is also less than three other tax plans. The American Taxpayer Relief Act of 2012 cost an average of $320.6 billion over four years, and tax reductions in 2010 ($210 billion) and 1981 ($208 billion) were also more expensive.
That’s why Trump was also wrong when he said “for years they have not been able to get tax cuts, many, many years since Reagan.” Since 1997, there have been several major bills cutting taxes that have been signed into law, according a 2013 Treasury Department report. Two of them, as we just said, produced larger cuts than those proposed by Trump and congressional Republicans.
More recently, the JCT estimated that an amended version of the House bill would cost $1.44 trillion, and the Senate version, at $1.41 trillion, would cost even less. That means those bills wouldn’t qualify as the biggest tax cut, either.
Tax Cut Impact on Wages
Trump once again claimed that “middle-class families … will see their incomes go up by an average of around $4,000.” The $4,000 figure comes from two reports by the White House Council of Economic Advisers. But, as we have written twice before, don’t take the money to the bank.
In the first report, the CEA cited a number of economic research papers that “suggest” the proposed rate cut would increase average household income from $4,000 to $9,000. But Mihir A. Desai, a professor of finance at Harvard, the author of one of the economic research papers cited in that report, told the New York Times that the actual income gain would be $800.
In its second report, the CEA said the $4,000 pay raise would happen after eight years — if corporations increase capital investment and the nation’s real gross domestic product grows at a robust rate of between 3 percent and 5 percent annually. Real GDP hasn’t increased annually by 3 percent since 2005 and by 5 percent since 1984, according to the Bureau of Economic Analysis, and nonpartisan congressional economic experts say such high rates of growth aren’t likely over the next 10 years.
In January, the Congressional Budget Office estimated that “real output will expand at an average rate of 1.9 percent per year” from 2017 to 2027. Using that as a baseline, the Joint Committee on Taxation estimated in a Nov. 30 report that the Senate tax plan would increase real GDP by only 0.8 percent on average from 2017 to 2027 — meaning the annual rate of growth would remain below 3 percent.
Misleading on Corporate Taxes
Trump demonstrated exactly why we have been warning that his regular talking point that the U.S. has one of the highest statutory corporate tax rates in the world — 60 percent higher than other developed countries — can be misleading. It’s because it might leave the mistaken impression that U.S. companies pay 60 percent higher taxes than businesses in other countries. They don’t.
“Today, America has one of the least competitive [corporate] tax rates on planet Earth — 60 percent, think of that, 60 percent higher than the average in the developed world,” Trump said. “So our taxes are 60 percent higher.”
The first part of that claim is accurate, so long as it is placed in context. The U.S. has the highest top statutory corporate tax rate — 35 percent, and 39 percent when state taxes are included — among developed countries. That’s 60 percent higher than the average statutory rate among 35 countries, according to the Organisation for Economic Co-operation and Development.
But as we have explained before, that doesn’t mean U.S. companies pay more in taxes than in other countries. The average effective tax rate — what corporations actually pay when tax credits and exemptions are factored in — is more in line with the world average. The average effective corporate tax rate in 2008 was 27.1 percent, close to the GDP weighted average among other OECD countries, 27.7 percent, according to a 2014 Congressional Research Service report.
A Congressional Budget Office report in March found that the U.S. ranked third among G20 countries when using an “average corporate tax rate” measure, which is “the total amount of corporate taxes that a company pays as a share of its income.” And under an “effective marginal corporate tax rate,” defined as “a measure of a corporation’s tax burden on returns from a marginal investment,” the U.S. was fourth.
According to the OECD, the revenue from taxes from income, profit and capital gains of U.S. corporations in 2016 was 2.2. percent of GDP. That’s lower than the average among OECD countries.
And that’s why it’s wrong to make the leap, as Trump did, that because the U.S. statutory rate is 60 percent higher than our competitors, “our taxes are 60 percent higher.”
Cost of Wars
Trump overstated the amount the U.S. has already spent on the Middle East wars and how much money he will spend on domestic issues.
The president said the U.S. has spent “almost $7 trillion in the Middle East over the last 16 years,” claiming with that money “we could have rebuilt our country four times over.” But the Department of Defense says the cost “for the wars in Afghanistan, Iraq and Syria” through fiscal year 2018 was an estimated $1.52 trillion.
During the campaign, Trump used a $6 trillion estimate, citing a Reuters article about a report on war costs written by Boston University Political Science Professor Neta C. Crawford for the Watson Institute for International Studies at Brown University. But that estimate included money spent in the United States in response to the 9/11 terrorist attacks, not just money spent on the military in the Middle East, and it included future costs, not money that already had been spent.
In an update published earlier this month, Crawford said U.S. military spending in the Middle East “and the additional spending on Homeland Security, and the Departments of Defense and Veterans Affairs since the 9/11 attacks,” has cost $4.3 trillion in current dollars through fiscal year 2017, which ended Sept. 30, and will cost more than $5.6 trillion through the year 2056.
In lamenting the cost of the Middle East wars, Trump added, “We’re going to start spending here.”
Trump’s proposed fiscal year 2018 budget includes $64.6 billion for Overseas Contingency Operations, which is the category for continued military operations in the Middle East. That’s $18.2 billion, or 22 percent, less than fiscal 2017. His budget includes deeper cuts in domestic spending — including cutting nearly a third of the Environmental Protection Agency’s budget and eliminating entire programs, such as the Community Development Block Grant program in the Department of Housing and Urban Development, which received $3 billion last fiscal year.
Empty Job Boast
Trump again took credit for rising employment, noting that 2 million jobs have been added to the economy since his election. “Nobody expected that,” Trump said. That number, he said, is “a lot better, at this point, than anybody ever even thought possible.” Later, he added, “We used to lose millions. Now we’ve created 2 million jobs since I won the election.”
As we have written, Trump inherited an economy that was experiencing steady job growth. It’s true that the economy lost millions of jobs during the Great Recession. But when Trump took office, the economy had gained jobs for 75 straight months – the longest streak on record. That streak has continued under Trump.
We typically measure employment from the president’s inauguration, rather than from the election. Trump chooses to start the clock from his election, arguing that job growth is due in part to consumer confidence buoyed by his victory.
But even using this measuring stick, there’s nothing unusual about the job growth. It’s true that the number of jobs in the U.S. has grown by 2 million in the 12 months since October 2016, the month before Trump was elected. But it grew by 2.4 million in the 12 months prior to that, by 2.8 million the year before that, and by 2.7 million, 2.4 million and 2.1 million in the years before that. In other words, the job growth of 2 million between October 2016 and October 2017 was less than the growth in each of the previous five years.
Prison for Puddles?
Trump took a break from discussing the GOP tax plan to repeat a false conservative talking point about the Clean Water Act. He said that, because of a 2015 redefinition of what waters are regulated under the act, people would go to jail if they “touch” a puddle on their land. But the 2015 rule explicitly excludes puddles from the regulation.
Trump: You know what I’ve done for farmers. Where if you had a little puddle in the middle of your field, you go to jail if you touch it, right? You know what I’m talking about. Not anymore. Not anymore. Not anymore.
Since 1972, the Clean Water Act has made it “unlawful for any person to discharge any pollutant from a point source into navigable waters, unless a permit was obtained.” The EPA defines point source pollution as coming from a specific source, such as a pipe, ditch or river tributary. This is opposed to nonpoint pollution, such as runoff.
In 2015, the EPA and the Army Corps of Engineers redefined which waters can be regulated under the act to reflect new science and court decisions, among other factors. According to the 2015 rule itself, “Fewer waters will be defined as ‘waters of the United States’ under the rule than under the existing regulations.”
The 2015 rule explicitly excluded puddles from regulation under the Clean Water Act.
U.S. Army Corps of Engineers and EPA, June 25, 2015: The final rule adds an exclusion for puddles. The proposed rule did not explicitly exclude puddles because the agencies have never considered puddles to meet the minimum standard for being a “water of the United States,” and it is an inexact term. A puddle is commonly considered a very small, shallow, and highly transitory pool of water that forms on pavement or uplands during or immediately after a rainstorm or similar precipitation event. However, numerous commenters asked that the agencies expressly exclude them in a rule. The final rule does so.
When Sen. Ted Cruz made a similar claim in March 2016, William Rodger, a spokesman for the American Farm Bureau Federation, told PolitiFact that the broad language of the 2015 rule would allow puddles to be classified as vernal pools or wetlands and, thus, still be regulated.
But this rationale wasn’t convincing to the seven environmental experts PolitiFact interviewed in October 2015, when Sen. Marco Rubio made a similar claim. For example, William L. Andreen, an environmental law professor at the University of Alabama said, “There are no cases on point because the agencies have never asserted jurisdiction in such fantastical situations,” adding, “It is an absurd assertion.”
In June, the EPA and the Army Corps proposed to rescind the 2015 rule. This followed a February executive order calling for the EPA and the Army Corps to reevaluate whether the rule keeps the country “free from pollution,” while also “promoting economic growth, minimizing regulatory uncertainty, and showing due regard for the roles of the Congress and the States under the Constitution.”
According to a Nov. 16 EPA press release, the agencies are still reviewing public comments about the proposal to rescind the rule. They’re also “holding listening sessions with stakeholders” with the aim of developing another rule to again redefine “waters of the United States” under the Clean Water Act.
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