Thursday, November 8, 2007

Fact Check: Ron Paul

In the November 8, 2007 Washington Post article "Ron Paul Faces $1.1 Trillion Budget Shortfall," Michael Dobbs checks the facts on some of Ron Paul's campaign claims and finds distortions.
"You don't have to get rid of all of the government. If you got rid of the income tax, you would still have enough revenues which were about equivalent to what we had in the year 2000."
--Ron Paul, Jay Leno TV show, October 31, 2007.

"I realize that Ron Paul doesn't lie enough to make for entertaining reading on this site, but at least put his name on the Candidates' list."
--Aaron Hanson, Ron Paul supporter from Minneapolis, message to the Fact Checker, November 7, 2007

Ok Paulites, we hear you. Your man has not been getting enough MSM attention. A candidate needs at least three Pinocchios from the Fact Checker to be taken seriously in the 2008 campaign. Now that Paul has raised more money on-line in a single day than any other candidate in the current election cycle, he deserves a good, hard look from the fact-checking fraternity. So what have we got?

The Facts

It took us about five minutes to find a questionable statement from the good doctor. We began with last week's Leno interview, which can be found on You Tube here. Expounding on his proposal for abolishing the income tax, Paul claims this would still leave the U.S. Treasury with roughly the revenues it had in 2000, in the final year of the Clinton administration. A post on the Paul campaign website explains that individual income taxes account for "approximately one third of federal revenue."

Unfortunately for the tax slashers, the one-time Libertarian candidate for president is wrong on both counts. According to the Congressional Budget Office, individual income taxes represent between 45 and 49 percent of federal tax revenues, depending on the year. For financial year 2007, total receipts from individual income tax were in the region of $1.1 trillion dollars. If you eliminated all that revenue, the federal budget would shrink to the size it was around 1995.

Take a look at the following chart, compiled from figures supplied by the U.S. Treasury and the Congressional Budget Office. You can find the latest budget figures for 2007 here, and the historical tables here. Imagine the revenue crunch that would result if the orange line federal income tax expenditures were eliminated, in accordance with the Paul plan.

Could America exist without an income tax? Here is Ron Paul's answer:

"The idea seems radical, yet in truth America did just fine without a federal income tax for the first 126 years of her history. Prior to 1913, the government operated with revenues raised through tariffs, excise taxes, and property taxes, without ever touching a worker's paycheck...Does anyone seriously believe we could not find ways to cut spending back to 2000 levels? Perhaps the idea of an America without an income tax is not so radical after all."

The $1.1 trillion in receipts from individual income tax represents the entire discretionary spending of the federal government, according to Roberton Williams, a budget analyst at the Urban Institute. That does not include social security and Medicare spending, which is mandatory, but it does include the entire defense budget, federal education spending, agriculture subsidies, and so on.

"It's a non-starter politically," said Williams. "I don't think it has a snowball's chance in our climate, much less a warmer climate."

In attempt to figure out where the $1.1 trillion in annual savings is going to come from in a Paul administration, I talked yesterday afternoon to the candidate's policy director, Joseph Becker. He pointed out that Paul has promised to bring troops home from Iraq and Afghanistan, eliminate the foreign AID bill, eliminate agriculture subsidies, and get rid of the U.S. Education Department. A President Paul would, however, leave a residual miitary in place, to defend the homeland.

The Pinocchio Test

Do Ron Paul's figures add up, or is this a prime example of voodoo economics? Let us know what you think.

The candidate appears to be off by at least four-five years on the shrinkage that would be caused to the federal budget if income taxes were eliminated. Paul has not explained how he is going to plug the $1.1 trillion annual shortfall. Becker has promised to supply us with a pie chart, detailing precisely what parts of the federal government will be eliminated under a Paul administration, together with the savings gained. We will post the pie chart when it arrives.

As a courtesy to a newcomer to this column, we are giving the Paul campaign a short grace period to show us their calculations. This gives us an opportunity to unveil our snappy new VERDICT PENDING icon.

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