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AFL-CIO

Myths and Facts

Taxes

MYTHS FACTS
The “fiscal cliff” legislation raised taxes on the wealthy by $617 billion.  The “fiscal cliff” legislation cut taxes by $3.9 trillion compared with letting all the Bush tax cuts expire, but increased tax revenue by $617 billion compared with extending all the Bush tax cuts.
Wall Street and the wealthiest 2% of Americans already made their contribution to “shared sacrifice.” Even after the “fiscal cliff” deal, Warren Buffett and Mitt Romney still will pay a lower effective tax rate than many working families. And Wall Street still has not given up a single tax loophole or contributed a single dime to deficit reduction.
Efforts to reduce the deficit so far have focused on raising taxes. Since 2011, discretionary spending has been cut by $1.5 trillion and tax revenues have increased by only $617 billion.
A “territorial” tax system is necessary to ensure U.S. competitiveness. A “territorial tax system” would eliminate U.S. taxes on overseas corporate profits, which would increase the tax incentive to export good jobs overseas. We need to eliminate all tax incentives for offshoring jobs, not increase them.
U.S. corporations have not recovered fully from the recession, and closing corporate tax loopholes could set back their recovery. After-tax corporate profits are more than twice as high (as a share of the economy) as their peak under President Reagan. Corporate profits have increased 171% under President Obama, more than under any other president since the government started keeping records in 1947.

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Debt Ceiling

MYTH FACT
Raising the borrowing authority of the U.S. government (the “debt ceiling”) allows Congress to spend more money. Raising the debt ceiling allows the government to pay for obligations Congress already has incurred.
Failure to raise the debt ceiling would cause Congress to live within its means. Failure to raise the debt ceiling would cause the United States to default on its obligations, damage the full faith and credit of the nation, increase future interest rates and lead to a recession.
Refusing to raise the debt ceiling is a legitimate way to force Congress to reduce the deficit. Threatening to cause a U.S. government default and tank the economy to get your way is reckless and irresponsible.
By agreeing to suspend the debt ceiling temporarily, Republicans have abandoned their strategy of hostage taking. Republicans in Congress still are holding the economy hostage,and their ransom demands have not changed. They still are demanding benefit cuts to Social Security, Medicare and Medicaid. They still are demanding deep budget cuts that would jeopardize the economic recovery and increase unemployment. Now they are threatening to shut down the government in March to get their way, and they still may threaten to cause a U.S. government default in four months.
For every $1 increase in the debt ceiling, there must be a $1 reduction in government spending (the so-called “Boehner Rule”). Applying the “Boehner Rule” would turn recessions into depressions and eventually lead to dismantling the U.S.government. Congress ignored the “Boehner Rule” when it suspended the debt ceiling for four months.

Outfit yourself with facts to bust their myths.  Download the Debt Ceiling Myths and Facts sheet .

Medicare

MYTH FACT
Medicare is wasteful and inefficient. Medicare has lower costs than private insurance and has done a better job of controlling health care cost growth for the last 40 years. Medicare has pioneered reforms to reduce inefficiency, waste and fraud. Administrative costs for traditional Medicare are far lower than for private plans—one-fifth as much as private Medicare Advantage plans.
Medicare spending is going to bankrupt the country. We have a health care cost problem, not a Medicare problem. Medicare actually has lower costs than private insurance and has done a better job of controlling health care cost growth for the past 40 years. Shifting costs to workers and retirees is no solution. The key to controlling health care costs is to get providers (pharmaceutical companies, hospitals and physicians) to deliver care cost-effectively.
There is no way to stabilize the national debt without cutting Medicare benefits or shifting costs to individuals. There are many ways to reduce the deficit and make our health care system more cost-effective without shifting costs to individuals or cutting their benefits.  We should start by (1) allowing Medicare to negotiate lower drug prices with drug companies; (2) creating a robust public option that offers lower premiums to the non-Medicare population and partners with Medicare to implement cost-saving reforms; (3) requiring Medicare to “bundle” payments to hospitals for post-acute care so Medicare will pay for results rather than the volume of services provided; (4) ending pay-for-delay agreements between brand-name and generic drug manufacturers; and (5) expanding Medicare competitive bidding to all durable medical equipment and supplies throughout the country.
The problem with Medicare is that patients do not have enough “skin in the game” and do not pay enough out of pocket. Medicare beneficiaries have plenty of skin in the game. They spend 15% of their income on health care, on average, and they spent more than $38,600 out of pocket during their past five years of life. Premiums and cost-sharing for Medicare Part B and Part D account for one-fourth of the average Social Security benefit and will eventually account for more than one-third.
Congress is not considering changes to Medicare that would harm beneficiaries. Congress is considering proposals to shift costs to individuals, which would cut their benefits and threaten their health and retirement security. Such proposals include increasing Medicare cost-sharing by increasing deductibles or co-pays, raising the Medicare eligibility age, increasing Medicare premiums, making “higher income people pay more” by increasing Medicare cost-sharing or premiums and turning Medicare into a voucher system.
Medicare is going bankrupt. Medicare is not going bankrupt. The Hospital Insurance fund can pay 100% of hospital care costs until 2024 and 87% after that. The other parts of Medicare coverage are funded on an ongoing basis by premium and tax revenues.

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Social Security

MYTH FACT
Social Security will cause a debt crisis. Social Security provides a guaranteed income to more than 56 million workers and their families who have lost income due to retirement, disability or death. Social Security never has added a penny to the deficit and should not be part of any deficit reduction negotiations. By law, Social Security can only pay out in benefits as much as it collects in taxes and income from U.S. Treasury bonds.
Social Security is going bankrupt. Social Security is not going broke. It will always be able to collect payroll tax revenue to fund benefits.  According to its Trustees, Social Security can pay 100% of promised benefits until 2033. Without any changes at all, Social Security can pay three-fourths of promised benefits indefinitely after that.
The labor movement opposes any “fixes” to Social Security’s finances. The labor movement supports “scrapping the cap” so that all earnings are subject to the Social Security payroll tax. Currently only the first $113,700 of a person’s income is taxed. High earners should contribute the same percentage of their income to Social Security as everyone else.
Making adjustments to Social Security benefits for younger workers is a reasonable way to strengthen Social Security for future generations. Social Security benefits are already too low and must not be cut. The average Social Security benefit is only $15,139 per year and too few of today’s young workers will have traditional pensions or significant retirement savings. Benefit cuts include raising the retirement age, changing the COLA formula and cutting benefits more for middle- and higher-income retirees.
Raising the retirement age is not a benefit cut. Raising the retirement age is a cut in benefits for all affected retirees, regardless of the age at which they retire. Increasing the retirement age from 67 to 69 amounts to a 13% cut in benefits. Even if the increase is phased in, some workers now in their 40s would see a cut of about 10% under one Senate proposal. In addition, raising the early retirement age is a hardship for people who cannot work longer. . 
The “chained CPI” COLA formula simply makes Social Security COLAs more accurate and is not a benefit cut. The “chained CPI” COLA formula would cut benefits for current and future beneficiaries by 3% over 10 years and by more over time. It would make the COLA less—not more—accurate. A more accurate formula would increase COLAs to take into account the higher health care expenses paid by retirees and people with disabilities.

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Medicaid

MYTH FACT
Medicaid is wasteful and inefficient. Medicaid is far more efficient than private insurance. Medicaid costs 20% less than private insurance for adults and 27% less for children, and its costs per person have grown more slowly than private insurance in recent years. This is a remarkable achievement, given that Medicaid serves a high-need, high-cost population.
Overall Medicaid spending is out of control. The Affordable Care Act (ACA) does increase Medicaid spending because it provides federal funding for expanding Medicaid eligibility. This is a good thing. States that reject this federa lfunding will unnecessarily increase the number of people without insurance.
We can cut federal payments to the states for Medicaid without cutting benefits. Medicaid costs per person already are far lower than private insurance and states already have cut benefits and provider payments in recent years to close budget shortfalls. Reducing federal payments to the states will leave states with little choice but to reduce benefits and access to needed care. It also might lead to reduced eligibility, higher co-pays and higher deductibles.
Medicaid is only important for poor people. Most coverage for long-term care comes from Medicaid, and Medicaid’s long-term care benefits protect the middle class. Many people run out of money and need Medicaid when they have to pay for nursing home care or home-based and community-based services toward the end of their lives or when they experience a serious disability. Also, children account for half of all Medicaid enrollees, and Medicaid covers one in three children and more than 40% of all births.
Reducing benefits will not cause real hardship. Because Medicaid costs for children and nondisabled adults already are very low, states likely will make up for any reduction in federal payments by cutting benefits or reducing access to care for their higher-cost, most valuable beneficiaries, who are low-income seniors and people with disabilities.

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Sequestration

MYTH FACT
The across-the-board budget cuts scheduled for March 2013 were demanded by Democrats. These across-the-board cuts are the result of an earlier episode of Republican hostage taking—when Republicans in Congress threatened to cause a U.S. government default in July 2011.
$1.2 trillion in across-the-board budget cuts must be replaced by deficit reduction of an equal amount. Congress and the president can replace these across-the-board budget cuts with anything they want—or with nothing at all. There is no legal or economic requirement to replace “sequestration”with anything at all.
We must achieve $1.2 trillion in deficit reduction over the next 10 years in order to stabilize the national debt. There is no need to stabilize the debt over the next 10 years, or to meet any other arbitrary deficit reduction target. Stabilizing the debt may be an appropriate goal once we reach full employment,but we have a long way to go before we reach full employment.The most urgent economic challenge facing America is the jobs crisis, not the deficit or the national debt. Besides, the debt already has been stabilized until 2019, and the debt projected for the year 2022 already has fallen by $3.2 trillion in the past two years
$1.2 trillion in across-the-board budget cuts must be replaced by spending cuts, not by tax revenue. This is the Republican position, but it is not the president’s position. President Obama has said there must be as much tax revenue as spending cuts in any deal to cancel “sequestration.” After all, discretionary spending already has been cut by $1.5 trillion since 2011, while tax revenues have increased by only $617 billion.
Republicans can get their way simply by refusing to agree to any new tax revenue. Democrats will have no choice but to agree to Republican terms. If Republicans rule out any tax revenue from Wall Street or the wealthiest 2%, “sequestration” simply can be postponed or canceled altogether. Because Medicaid costs for children and nondisabled adults already are very low, states likely will make up for any reduction in federal payments by cutting benefits or reducing access to care for their higher-cost, most valuable beneficiaries, who are low-income seniors and people with disabilities.

Outfit yourself with facts to bust their myths.  Download the Sequestration Myths and Facts sheet .

Key Dates

  • Budget Conference Committee deadline to reach agreement on budget deal
  • Bill to fund federal government expires
  • Next round of sequestration cuts to be ordered for 2014
  • Debt limit extension ends
  • Debt limit to be reached

How Did We Get Here?

Congressional Republicans held the economy hostage in the summer of 2011 with a manufactured crisis. They threatened to tank the U.S. economy and allow America to default on its obligations—and they're doing it again.

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