SYLVIE DOUGLIS, BYLINE: NPR.
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DARIAN WOODS, HOST:
There is a statistic that crops up every now and then on social media or the news.
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UNIDENTIFIED PERSON #1: Sixty percent of adults say they are living paycheck to paycheck.
UNIDENTIFIED PERSON #2: A new report finding more Americans are living paycheck to paycheck.
WOODS: The problem is though, it's not true, at least not in the way you'd usually understand it. And another economic myth.
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JOSH HAWLEY: Our trade deficit with China as we stand...
WOODS: This false idea advanced here by Republican Senator Josh Hawley that the trade deficit is always bad.
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HAWLEY: Every dollar of that deficit represents blue-collar jobs destroyed.
ADRIAN MA, HOST:
Another economic myth I always hear is about a different deficit, which is the U.S. government's deficit and this idea that we could just get rid of it by taxing the top 1% of earners. Here is the former U.S. labor secretary under Bill Clinton, Robert Reich.
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ROBERT REICH: The super wealthy have to pay their fair share.
WOODS: The truth, as we often find out, isn't as simple. This is THE INDICATOR FROM PLANET MONEY. I'm Darian Woods.
MA: And I'm Adrian Ma. Today on the show - economic myth busting. We take three factoids about the American economy and run them through the fact-checkers. No mercy for anyone. That's after the break.
WOODS: So it's economic myth-busting time. And up first, we're looking into this claim that most Americans are living paycheck to paycheck. Matt Darling knows a lot about this one. He's a senior employment analyst at the think tank the Niskanen Center. And Matt dedicates a good share of his free time to one particular hobby.
MATT DARLING: Arguing with people on Twitter.
WOODS: That sounds like a losing proposition.
DARLING: You'd think so. But, like, every once in a while you have someone coming like, oh, that really changed my mind on things. And, you know, and then that keeps you going for another three months of losing those arguments.
WOODS: (Laughter).
MA: (Laughter) One of those arguments Matt is obsessed with, by the way, is this notion that most Americans are just destitute the day before payday. He says, on the contrary. The median American household has a net worth of $193,000.
WOODS: Yeah. But a lot of that wealth is often tied up in retirement accounts and housing. So, you can't necessarily draw down on those assets like an ATM if a big expense comes out.
DARLING: Exactly, exactly. But you also do have stuff. So we do know the middle household, the median household has about $8,000 in checking and savings accounts.
WOODS: OK. That's money you can use.
DARLING: That's money you can use. It's not necessarily a ton of money. It's not enough money to get you past, like, a big medical expense or if you lose your job. But it's enough, hopefully, to survive to the next paycheck.
MA: A lot of Americans do have solid savings. One survey found about half have three months of expenses saved up.
DARLING: It's not the case that just, you know, most Americans are just sort of waiting for that next paycheck before they can buy groceries.
MA: So it's really fuzzy to understand what exactly these surveys - which are often done by financial companies - what they actually mean. Matt prefers to look at the poverty rate. As of 2022, the official poverty rate stood at 12% - still a problem, but a different type of problem than if 60% of Americans weren't making ends meet.
WOODS: And that brings us to our next economic fact-checking mission, which is the trade deficit. That's the gap that shows that the U.S. buys more from the rest of the world than it sells. Here's Donald Trump's former U.S. trade representative, Robert Lighthizer.
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ROBERT LIGHTHIZER: These massive trade deficits that we run are transferring our wealth.
MA: But is the trade deficit always a problem? To walk us through this, we called up Mary Lovely, senior fellow at the Peterson Institute for International Economics. And Mary told us that the deficit is not the result of so-called unfair trade deals.
MARY LOVELY: Some debt is good. So it really depends on what you're using the debt for.
WOODS: Mary points out that we use debt to pay for both consumption, which is spending for today, and also investment.
LOVELY: There is a difference there. Investment, of course, helps us be more productive and richer in the future, and so it eases the burden of paying back the debt when the time comes.
MA: This is a familiar argument, one that defenders of the government's deficit also use. We talked about this a couple of weeks ago, and that familiarity makes sense because the government deficit contributes a lot to the trade deficit.
WOODS: There is no clear-cut relationship between trade deficits and growth in the wider economy. But the U.S. has had a trade deficit since the 1970s, and the pattern has gone like this. The U.S. borrowed from overseas to invest or spend, and the economy grew. Americans became wealthier. They paid back that debt, and they borrowed more. They invested more. They spent more and grew more. And so when Mary hears headlines about, say, a record trade deficit...
LOVELY: I mostly ignore it. We could play out the scenario of what would be needed to close it quickly. And one way that the deficit would close is if spending fell rapidly in the U.S. And spending would fall during a recession. Would anybody prefer that situation to where we are today?
MA: Now, Mary says it can be risky for lower-income countries to borrow too much. Unlike in the U.S., those countries can't often borrow in their own currency.
LOVELY: The United States borrows in its own currency. It just will not run out of dollars to pay back its creditors.
WOODS: That's what overseas investors believe, as they have continued to invest and lend to Americans.
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MA: And this gets us to conversations about the related but different deficit, the federal government's deficit, which is the difference between what the government takes in and taxes and what it spends. And the federal deficit is large and growing, and there's a proposed solution typically touted by politicians and advocates keen to maintain or even grow the current level of government spending. Here is President Joe Biden on taxing the very wealthiest Americans.
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PRESIDENT JOE BIDEN: Forty billion dollars a year. Imagine what we could do, from cutting the deficit to providing for child care.
WOODS: That's related to our third economic myth, that only taxing the top 1% of earners can raise the federal government's budget deficit. And for this, we found Brian Riedl. He's a fellow at the Manhattan Institute and lives and breathes the federal budget. He's advised think tanks. He's advised Republican senators Mitt Romney and Marco Rubio in their presidential campaigns.
BRIAN RIEDL: I wrote nearly 600 studies and articles on deficits since 2001.
WOODS: Six hundred?
RIEDL: Yeah.
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MA: And to be clear, Brian is not saying that taxing top earners couldn't be part of a solution. He just says that it doesn't mathematically work out to be the only solution. At the moment, the deficit is around 6% of GDP and growing.
RIEDL: You could probably get at most 1- to 2% of GDP in new revenues from taxing the rich. And that's if you set every tax-the-rich policy at its revenue-maximizing rate with no regard for how it affects the economy or anything. If you said, our only goal is to extract as much money from rich people as possible. You could get about 1- to 2% of GDP. That's real money. It doesn't get you off the hook for making difficult decisions elsewhere.
WOODS: Now, the Congressional Budget Office does project that the top end of this estimate, you know, when you're soaking the rich as much as you can, that amount could stabilize the government's debt as a share of GDP. But if your goal is to reduce it, then you need to find more options. Those difficult decisions could include spending less, or if we keep current spending plans while trying to reduce the deficit, that would mean raising taxes on more Americans.
RIEDL: The middle class is going to have to pay to close most of the gap. That's how Europe does it. They don't do it by taxing the rich higher than the United States on average. Virtually the entire difference between Europe and the U.S. is value-added taxes.
MA: A value-added tax is similar to a sales tax, and European countries often have these taxes set at a higher rate than the U.S.
RIEDL: And if you even want to go to Scandinavia, the entire difference is payroll taxes and value-added taxes, which are broad-based and affect the middle class. That's where most of the money is.
WOODS: Yeah. So Brian thinks that a lot more money could be found from the many Americans who are not living paycheck to paycheck.
MA: So Matt Darling, at the start of the show, says, you know, when he's arguing with people on Twitter, he's able to convince a small number of people with the facts. But, I don't know, Darian, do you think we have done that?
WOODS: If we've stopped just one misleading economic idea, I'll be happy.
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WOODS: In case you missed it, we have a new line of merch for our INDICATOR listeners. Help our show by getting our new INDICATOR T-shirt or becoming a Planet Money+ supporter. Links are in our show notes. This episode was produced by Angel Carreras, with engineering by Gilly Moon. It was fact-checked by Sierra Juarez. Kate Concannon is our editor, and THE INDICATOR is a production of NPR.
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