WASHINGTON — Facing political attacks over rising costs, President Joe Biden exaggerated his role in reducing the federal deficit and skirted responsibility by asserting that a flood of government spending into the economy has no impact at all on higher prices. It actually does.
Congressional Republicans, meanwhile, went too far in pinning blame for surging gasoline prices on Biden.
A look at the rhetoric and reality:
BIDEN: “Last year, the deficit dropped for the first time since 2015. It fell by $360 billion last year and this year it’s on track to drop by more than $1 trillion after four years in a row of increasing deficits before I took office. We’re now on a track to see the largest-ever decline in a deficit in American history.” — remarks Tuesday.
THE FACTS: It’s not as big as it sounds.
While it’s true the deficit could end up falling by more than $1 trillion, the decline mostly reflects the improving economy as the pandemic has faded, not tax and spending decisions by the Biden White House or Congress. The government is no longer sending out stimulus checks and extra unemployment benefits as it did for the past two years. And tax revenue has increased as millions of Americans have found jobs and gotten pay raises. As a result, the Committee for a Responsible Federal Budget forecasts that the federal government’s annual deficit will drop to $1.2 trillion this year, from $2.8 trillion in 2021 and a record $3 trillion in 2020.
Even with that drop, the deficit would still be at one of the highest levels in history.
Some of the decline is also due to a COVID-era policy change that basically deferred some tax collections. The government now is collecting far more payroll taxes, which fund Social Security and Medicare, after allowing businesses to defer them during the pandemic.
In February, for example, the government’s tax receipts jumped 17%, while spending dropped 9% compared with a year ago. Spending on unemployment aid dropped $41 billion last month compared to February 2021, after an extra $300 in weekly unemployment benefits ended in September.
BIDEN, addressing political rhetoric on rising prices: “So, I’m sick of this stuff. We have to talk about it because the American people think the reason for inflation is the government is spending more money. Simply not true.” — remarks Friday at a House Democratic conference in Philadelphia.
REPUBLICAN NATIONAL COMMITTEE: “Prices are surging, and Americans are footing the bill. No spring road trips because of #Bidenflation.” — tweet Tuesday.
THE FACTS: Biden sidesteps reality. Government spending has been a clear factor behind rising consumer prices, though it’s not the only one.
Biden last year signed a $1.9 trillion coronavirus relief package known as the American Rescue Plan — and many economists say that caused inflation to run higher than it otherwise would. There are multiple sources for inflation including global supply chain issues, the pandemic, stimulus from the Federal Reserve and, now, the Russian war in Ukraine.
But the problem is that Biden pumped more money into the economy than it could handle. Administration officials said before the relief package was passed that the greater risk was do too little to help the economy than to do too much. The implicit risk was inflation, though the tradeoff was faster hiring and stronger growth. Biden got all three: the hiring, the growth and the inflation.
Harvard University economists Jason Furman and Larry Summers – both officials in past Democratic administrations – warned of inflation rising because of the size of the relief package. Many conservative economists joined them, including Michael Strain of the American Enterprise Institute.
Republicans now are casting rising consumer prices as a direct and only result of “Bidenflation.” That’s incorrect. But Biden is wrong to say that government spending has had nothing to do with it.
SENATE REPUBLICAN LEADER MITCH MCCONNELL: “Nobody buys Democrats’ efforts to blame 14 months of failed policies on three weeks of crisis in Europe. Inflation and gas prices were skyrocketing and hurting families long before late last month. The White House needs to stop trying to deny their mistakes and start fixing them.” — tweet Tuesday.
HOUSE REPUBLICAN LEADER KEVIN MCCARTHY: “Democrats want to blame surging prices on Russia. But the truth is, their out-of-touch policies are why we are here in the first place. Remember what happened on Day 1 with one-party rule? The president canceled the Keystone pipeline, and then he stopped new oil and gas leases on federal lands and waters.” — March 8 remarks.
THE FACTS: The Republican leaders of Congress are overstating Biden’s ability to influence energy prices and the impact of the canceled Keystone pipeline.
Gasoline prices have been rising in tandem with oil prices since spring 2020 because demand has grown faster than worldwide production as economies try to shake off the pandemic. More people are driving and flying, and businesses are returning to pre-pandemic levels of activity, leading to more energy consumption, which pushes prices higher.
The price of oil is set on the world market. Even the leading producers – the United States, Saudi Arabia and Russia – don’t get to set the price, although they might try by adjusting production up or down, a process that takes time even when it works. U.S. production dropped sharply in 2020, but it wasn’t because of anything that then-President Donald Trump did; it was because the pandemic crushed demand, causing producers to idle some of their wells rather than sell their oil too cheaply. U.S. oil production has doubled since 2011, but that didn’t stop oil from hitting and surpassing $100 a barrel.
U.S. oil production dipped about 1% from 2020 to 2021, not the dramatic drop portrayed by some of Biden’s critics. The nationwide average gasoline price is up about 80 cents from a month ago, and analysts attribute nearly all of that to the prospect of limiting Russia’s oil exports. McConnell and many other Republicans pushed to ban U.S. imports of Russian oil even before Biden acted.
The Keystone XL pipeline was designed to carry up to 830,000 barrels of oil a day from Canada and North Dakota to refineries along the Gulf Coast. The United States consumed nearly 20 million barrels of oil a day last year, and global consumption was close to 100 million barrels, so the pipeline – which was far from completion when Biden revoked a permit – would have contributed less than 1% to the world supply of oil.
Asked whether the Keystone XL cancellation is the cause of high gas prices, Tom Kloza, analyst for the Oil Price Information Service, said: “A political talking point. Has nothing to do with 2022 price surge.”
Biden has announced decisions to release more oil from a strategic reserve, but those releases have been too small to have any effect on pump prices.