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.


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.  


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