US: hits and myths
The US economy is booming. But how does this success affect Europe and China? What items weigh most heavily onWashington's budget? Fact-checking has an answer for many of these questions.
- Friday, 27 February 2015
China holds over half of the US public debt
FALSE - Even though China holds the most US Treasury bonds, which in October 2014 had a book value of $1,252 billion (€1,100bn), this figure only accounts for 10% of the entire US debt in public hands, which at the same time stood at $12,800 billion (€11,300bn). Japan has a very similar share of Washington's debt, amounting to $1,222 billion (€1,075bn), but this seems to receive much less attention, not to mention Belgium, third in this particular ranking, but very rarely considered one of the 'foreign owners' of the US economy. Even considering all the shares of US public debt in the hands of other countries, we are still below 50%: it was 41% in 2003 and in recent years has grown to around 47%.
US growth is the primary factor in deficit reduction
TRUE - One of the least emphasized successes of the Obama Administration has been the reduction of public debt: the drop recorded in 2013, when the deficit was cut to $680 billion (€600bn) from the $1,100 billion (€970bn) of the previous year has been the largest drop recorded since the second world war. The main contributor to this success story has been the increase in tax revenue (+12.9%) caused primarily by the acceleration in economic growth.
The US public finance indicators are better than Europe's
FALSE - Even though the United States' gross national product has been clearly better than the eurozone's over the last five years, when it comes to the indices describing the state of health of public finance, the judgement is reversed. For Washington, the deficit/GDP ratio that in 2010 was as high as 11.3% has been almost halved, dropping to 5.5% in 2014. But these levels have always been higher than those achieved in euroland, which, from a deficit/GDP ratio of 6.2% in 2010 dropped last year to 2.9%. The same outcome is obtained when analysing the relationship between public debt and GDP: the values posted in the US, which has seen this parameter grow from 94.8% in 2010 to 105.6% in 2014, are constantly higher than those of the Single European Currency countries, where during the same period they have increased from 85.9% to 96.4%.
Tax deductions and tax avoidance have a greater impact on the US budget than defence and social security spending
TRUE - According to Tax Policy Center data, in 2014 the tax revenue lost by the US tax offices due to avoidance and tax deductions totalled $1,400 billion (€1,235bn) while the General Accountability office estimates the figure at $1,100 billion (€970bn) in 2013. These sums are much higher than the expected 2014 defence of $600 billion (€530bn) or Social Security payments ($845bn - €745bn). If we consider that the forecast for overall public spending in 2014 stands at $3,500 billion (€3,085bn), it transpires that tax avoidance and deductions amount to a third of the total. The most significant tax deduction items include home mortgage interest payments and employer-sponsored health policies.