Some facts about the economy the politicians aren't mentioning

Staying Ahead

April 08, 1996|By Jane Bryant Quinn

WASHINGTON -- In political seasons, you can't trust what the politicians tell you about the economy. To put the campaigns in perspective, you'll need to move past ideology and consider the facts. Here are some things that may surprise you:

The federal government is smaller: Since 1970, defense spending has dropped by half, when figured as a percentage of gross domestic product. Spending caps, enacted in 1990 and 1993, have squelched the growth of discretionary programs. The federal payroll peaked in 1990, and since then has tumbled by 8.5 percent -- with the civilian side of the Defense Department absorbing a majority of the cuts.

Offsetting these savings, payments to individuals have been shooting up. That's the real Big Government. It's money collected from working people and paid, in the main, to bondholders, Medicare patients and Social Security beneficiaries. Transfers of cash account for two-thirds of federal outlays. By contrast, the main welfare program, Aid to Families with Dependent Children, came to just 1.1 percent of outlays.

The size of the federal government has held to a steady 21 percent to 23 percent of GDP for many years. But there won't be many more cuts in defense, to offset the rise in payments to individuals. To keep the size of government from shooting up, Medicare, in particular, has to be addressed.

Where is government expanding today? At the state and local level. There, payrolls are up 8 percent since 1990 and 23 percent since 1980. They'll mushroom if federal welfare programs go to the states.

The federal budget would be in surplus if it weren't for that pesky debt: Last year, the government took in $68 billion more than it needed to pay for all its programs -- the largest such surplus in living memory. It is in deficit only because of the enormous interest due on the debt. This has occurred only five other times since 1970. Each time, the country was in a recession or near one (for investors, that's a cautionary note).

Overall, the deficit shrank last year to 2.3 percent of GDP, down from a Reagan-era peak of 6.3 percent. You have to go back to 1979 to find another deficit that low.

When government bashers yell about "bigness," they may mean intrusiveness rather than size: Congress has passed a slew of laws improving our quality of life: clean air and water, food labeling, workplace safety. Some of the enabling regulationss, however, are stupid, rigid and expensive. So what do you intend when you cheer a pol who wants the government off our backs. Fewer health-and-safety laws? Or smarter ways of administering them?

Most Americans are paying less federal income tax than they would have in the past, even though they hate to admit it: The median, two-paycheck family last year ($52,000 in income) paid Uncle Sam 9.5 percent, down from 11.5 percent in 1985, says economist Arthur Hall of the Tax Foundation.

They paid more, however, in payroll tax: 7.3 percent of income, compared with 6.8 percent 10 years ago (and double that, if you count the employer's contribution). State and local taxes ding you, too -- now at 12.5 percent of median income, up from 11.9 percent in 1985.

Compared with other countries, America is lightly taxed. All levels of government collected 31.5 percent of GDP in 1994, compared with 32.3 percent in Japan and 46.5 percent in Germany.

Trade doesn't cost jobs, or add them: Barry Bosworth of the Brookings Institution says it shifts them from lower-wage sectors to higher-wage ones, which is good in the long run. We're importing more T-shirts and exporting more designer clothes.

Most of the workers displaced today are losing out not to cheap foreign labor but to mergers, changing technologies and tough competition from other U.S. firms.

The pace of technological change will boost growth eventually, says Stanford economist Michael Boskin. There's no proof that presidents can effect a quick fix.

The long-run, underlying forces -- which are slowly raising the economy -- will continue to work no matter who gets elected. What presidents and Congresses decide is who benefits from taxes and spending in the meantime.

Write to Jane Bryant Quinn at: Newsweek, 444 Madison Ave., 18th floor, New York, N.Y. 10022.

Pub Date: 4/08/96

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