News Release

January 17, 2002

Top Ten Fiscal Myths of Sens. Kennedy and Daschle

WASHINGTON—In an economic address yesterday at the National Press Club, Sen. Edward Kennedy (D-Mass.) called for supplanting the next stage of the $1.35 trillion tax cut, passed last year, with more federal spending on existing and new programs. Sen. Kennedy's speech echoed many of the ideas expressed recently by Senate Majority Leader Tom Daschle (D-S. Dak.). Cato Director of Fiscal Policy Chris Edwards identified 10 enduring myths in both senators' speeches.

1) Myth: Tax cuts cause budget deficits, but more spending doesn't. Reality: Spending is set to soar at least $120 billion in fiscal 2002, much more than the Bush tax cut reduced this year's revenues.

2) Myth: Any unmet "needs" in society demand government action. Kennedy identified a national education system for 2-year-olds as an unmet need. Reality: Government big enough to supply everything you need is big enough to take everything you have.

3) Myth: Politicians should be army generals exhorting the nation with "we should" and "we must" commands. Daschle had 16 "we shoulds." Reality: America is a hugely diverse society of 280 million citizens with different needs, which they won't be able to meet if the federal government keeps expanding.

4) Myth: The government's interests are the same as society's. Daschle says the Bush tax cut "put us in an unnecessary fiscal bind" that will "shortchange critical needs." Reality: The size of the federal budget and the size of private pocketbooks are inversely related. The fiscal bind and critical needs of families and businesses during a recession can be aided with lower taxes.

5) Myth: New spending programs make families better off since money grows on trees. Reality: Research shows that every $1 of new spending costs Americans about $1.40 due to higher compliance costs and inefficiencies of the tax system. So new spending, on net, makes American families worse off.

6) Myth: Failing government programs simply need more reform, co-ordination, and consolidation. Reality: Many government programs have been "reformed" repeatedly with the same bad results. The real answer for many programs is termination or privatization.

7) Myth: Tax cuts cause high interest rates. Both Kennedy and Daschle say that the Bush tax cut caused high interest rates. Reality: Both short and long-term interest rates are currently low, not high. These days capital markets are global, so modest U.S. budget deficits have negligible effects on interest rates.

8) Myth: Public/private partnerships combine private sector efficiency with government funding. Reality: Mixing business with politics usually leads to corruption and favoritism as private groups latch onto the government gravy train.

9) Myth: Any problem in the private sector is a "crisis" that will get worse without government help. Reality: private markets and individuals are constantly solving problems and making life better for their communities. Washington's "help" usually makes things worse.

10) Myth: Centralization and universality in education and other industries is the wave of the future. Reality: Diversity and decentralization of power are the way for America to go in the 21st Century.