The Chinese Own Us, and Other Fallacies

As a member of the media, let me say we do a lot of things well. But when it comes to parsing the nation's budget, deficit and debt burden, our math deficiency shows. We didn't get into this business because of our love of the Black-Scholes model—whatever that is.

When it comes to the U.S. debt picture, we either are out of our league or tend to let too many compromised, ideologue voices do the interpretation.

That's why the debate about the federal budget for the near and long term this week probably has a lot of my colleagues confused, though they'd never admit it. If we're overwhelmed, chances are our audience is, too. You may be smarter than us, but you depend on us for the information.

So, in an effort to bring some clarity, I've tried to cull some of the best analysis of the budget-deficit debate this week. The most compelling stuff hasn't been reheated arguments about trickle-down economics or the wealth gap from people like Paul Krugman and David Stockman. It's been, for the most part, simple numbers.

For instance, Jeff Grundlach at DoubleLine Funds gave a revealing presentation this week about U.S. debt.

The media myth is that China and other foreign countries own most of our $13.5 trillion in outstanding debt. Mr. Grundlach points out that China owns less than 10% of that amount. More than half is owned domestically: 42.1% by U.S. individuals and institutions, 17.7% in the Social Security trust fund, 6% in the military retirement fund and so on.

More good information can be found at the Office of Management and Budget's website. The OMB broke down the proposed 2012 numbers into a graphic in which the sizes of blocks represent the amount of the budget pie they are eating.

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Bloomberg News

The Congressional Budget Office found that Rep. Paul Ryan's plan would, by 2030, essentially force 45% of retirees to pay for 68% of the costs currently paid for by Medicare.

This too helped dismiss some myths. It turns out that Planned Parenthood, which receives $360 million, and National Public Radio, which receives grants of about $5 million, aren't even big enough to show up on the graphic. On the flip side, Social Security, at 20% of the pie, dwarfs just about everything.

The OMB punches a hole in another myth: that the deficits will skyrocket. As a debt burden over time, that's true. But on an annual basis, the budget deficit is expected to shrink from the current 10% of gross domestic product to 5% as soon as 2014.

Another story that doesn't add up: that U.S. corporations have the highest tax rates in the world. That's true, but it's an incomplete picture. For one, U.S. corporate tax rates have been shrinking for 50 years. Secondly, most companies avoid paying the top rate.

Here, the conservative Tax Policy Center, aligned with the Brookings Institution, dispels the myth with a chart that shows corporate income taxes have fallen steadily to less than 1% of GDP from more than 6% in the early 1950s.

Though its latest data are from 2007, the TPC also points out that U.S. corporations were able to lower their taxable income by nearly 25% using the raft of deductions, including parking profits offshore, available from the Internal Revenue Service. Assuming companies in other parts of the world are paying their taxes, that makes the 35% corporate tax rate seem less of a burden.

The long-term budget battle also has had its share of he-said-she-said analysis.

Wisconsin Congressman Paul Ryan, the GOP point man on the budget, wants to lower the corporate tax rate. His long-term proposal was reviewed by the Congressional Budget Office. It didn't have much to say about the tax cuts, but it thoroughly examined the spending cuts, particularly those for Medicare. The CBO found that Mr. Ryan's plan would, by 2030, essentially force 45% of retirees to pay for 68% of the costs currently paid for by Medicare.

Mr. Ryan's plan also calls for making permanent those controversial Bush tax cuts that were extended in 2010 and will expire again in 2012. The left-leaning Center on Budget and Policy Priorities estimates, using government statistics, a tax revenue loss of $4.5 trillion over the next decade if the cuts are made permanent.

If the cuts expire, the added revenue would be enough to halt the rise in debt projected over the next decade, ending at more than 95% of GDP in 2021 and keep debt levels at about 80% of GDP.

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Associated Press

President Barack Obama said Wednesday that Social Security isn't a deficit problem, but his own deficit commission, the Social Security Administration, and Congress see a problem: Do nothing and the Social Security Trust fund will run out in 2037.

On Wednesday, President Obama offered few specifics, but he did say Social Security isn't a deficit problem. He may want to check with his own deficit commission. The Federal Commission on Fiscal Responsibility and Reform said the program will run a $600 billion deficit during the next 10 years. Is it a problem? The commission, the Social Security Administration, Congress and everyone else seems to agree: Do nothing and the Social Security Trust fund will run out in 2037.

You get the picture. There are nearly as many claims about what where we stand fiscally as there are claims to inventing Facebook.

Numbers can be massaged and taken out of context. And this is by no means an complete analysis of the nation's budget and debt picture.

But it's also fair to say we can put to rest some myths that have been floating around. The Chinese do not own us. Corporate taxes probably can be lowered as long as corporations are made to pay their taxes. The deficit can be stabilized either through higher taxes, in the president's plan, or benefit cuts, in Mr. Ryan's plan, or simply by the elimination of the Bush-era tax cuts.

Knowing the truth about exactly where we stand doesn't make any of our budget problems less daunting, but at least we'll be debating facts instead of fiction.

Write to David Weidner at david.weidner@dowjones.com