Paul’s Alarm on Bailout Not Shown in Markets: Reality Check
In the heat of the presidential campaign, both sides have made statements that don’t square with reality. Here’s a look at some claims compared with the facts:
Paul’s ‘Downfall’ Prediction
The Claim: Texas Representative Ron Paul told a rally on the eve of the Republican convention that the federal government’s 2008 bailout of banks “eventually is going to bring the downfall of the dollar and the downfall of the economy, which means there will be more excuses for them to crack the whip and crack down on our civil liberties.”
The Facts: Paul’s prediction shows no sign of coming true almost four years after the bailout.
Though the word “eventually” may give him an out, the markets don’t share Paul’s alarm. Since Congress approved the rescue on Oct. 3, 2008, the U.S. dollar has risen 1.26 percent against an index of major currencies. The yield on 10-year U.S. Treasury notes -- the effective interest rate the bond market charges the federal government for long-term borrowing -- has dropped to 1.63 percent from 3.60 percent. Inflation, as measured by the consumer price index over the previous 12 months, has dropped to 1.4 percent from 3.7 percent. The U.S. economy, which was contracting at an 8.9 percent annual rate during the final quarter of 2008, has pulled out of recession and was growing at a 1.5 percent annual rate during this year’s second quarter.
Economists do worry that bailouts create a “moral hazard” that encourages unwise risk-taking because bankers expect to be saved if financial gambles fail. That is different from economic collapse.
Romney’s Tax Returns
The Claim: Democratic National Chairwoman Debbie Wasserman Schultz said, “Mitt Romney is the first major party candidate for president of the United States in modern times not to release at least 12 years of tax returns.”
The Background: The Obama campaign has been making an issue of Romney’s taxes, including one ad that questions whether the Republican is hiding something. Romney’s taxes were 14 percent on his 2010 income of $21.6 million. Obama has made “tax fairness” a major part of his campaign message. Romney released his 2010 return and says he’ll make his 2011 return public when it’s finished. He says he paid at least 13 percent in taxes over the last decade and refuses to divulge more.
The facts: Wasserman Schultz isn’t correct. Presidential candidates have been inconsistent about revealing tax returns. Obama and Joe Biden released 12 years’ worth, including their time as president and vice president. The 12-year precedent was set by Romney’s father, George, as he sought the Republican nomination in 1968, when such disclosures were uncommon.
While Wasserman Schultz doesn’t define “modern times,” Republican nominee John McCain in 2008 disclosed only two years of returns. In 2000, George W. Bush released nine years’ worth. When Obama ran in 2008, he released seven years’ worth.
Corporate Tax Rates
The Claim: The Republican Party platform says, “American businesses now face the world’s highest corporate tax rate.”
The Background: Republicans seek lower taxes on businesses.
The Facts: The platform is partly right. U.S. corporations face the highest statutory tax rate of any industrialized nation, 35 percent, rising to 39.2 percent including state and local taxes. That isn’t the whole story, however. The average effective corporate tax burden is lower because of breaks in the tax code, which vary considerably by industry, depending on how generous Congress has been over the years.
A 2011 PricewaterhouseCoopers study for the Business Roundtable ranked the average effective tax rate on U.S. corporations sixth out of 59 countries, lower than Japan, Morocco, Italy, Indonesia, and Germany. A U.S. Treasury analysis covering the same year found an average effective rate including state and local taxes of 35.7 percent, higher than the average burden of 32.6 percent faced by businesses in the other six major industrialized nations.
To contact the editor responsible for this story: Steven Komarow at email@example.com