March 01, 2010
What Are These Three Numbers?
These numbers are expressed in billions of FY2010 dollars.
Figure 1, in billions of FY2010 dollars.
The first bar is the impact on the unified budget balance of the Economic Growth and Tax Relief Reconciliation Act (EGTRRA) of 2001. The second is the impact on the budget balance of the Jobs and Growth Tax Relief Reconciliation Act (JGTRRA) of 2003. The third bar is the CBO estimated impact on the deficit of the Patient Protection and Affordable Care Act proposed in the Senate on November 19, for 2010-2019.
Figure 2: Impact on budget balance, in billions of FY2010$, for EGTRRA; for JGTRRA; and for Patient Protection and Affordable Care Act. Source: CBO, Budget and Economic Outlook: An Update (August. 2001), Table 1-4; CBO, Budget and Economic Outlook: An Update (August 2003), Table 1-8 (revenue implications only); CBO, "Patient Protection and Affordable Care Act: Cost estimate for the amendment in the nature of a substitute to H.R. 3590, as proposed in the Senate on November 18, 2009".
Note that I used the CPI-all to convert to FY2010$. I used the CBO's January 2010 forecasts for calendar year CPI year-on-year inflation rate for 2010 and 2011, and projections for 2012-2019.
Posted by Menzie Chinn at March 1, 2010 06:40 PMdigg this | reddit
menzie: As the 2001 act and 2003 act actually increased revenues, the results are from more spending. Nasty political consequences.
Posted by: tim kemper at March 1, 2010 07:11 PM
tim, I'm guessing that since these numbers are from the cbo, that they'd take into account any "increased revenues". in other words (correct me if I'm wrong, menzie), these are net impacts.
and while we're on the subject, just how much did the bush tax cuts increase cyclically-adjusted, per capita revenues? if your answer is "lots!", i'm guessing you don't know what those terms mean.
Posted by: psummers at March 1, 2010 07:35 PM
tim said, "the 2001 act and 2003 act actually increased revenues"
The following is from the Bush Administration's OMB:
Fall in government revenues in each year, as a percentage of FY2000 revenues, in constant dollars:
This is especially damning, since generally government revenues generally grow when you don't change the tax rate, due to economic growth and increases in population. The fact that revenues FALL, despite economic & population growth, blows Mr. Kemper's argument out of the water.
Posted by: libert at March 1, 2010 08:05 PM
Dr. Chinn, you betray your agenda in that you are using statistics to lie.
These are not even remotely similar and your facile comparision is misleading. You juxtapose two laws that are mostly tax cuts (which allow people to keep more of what they earn) with a tax increase and spending bill.
Yes, I will stipulate that the Republicans were irresponsible by cutting taxes without also cutting spending, but they were at least starting from a position of small surpluses. It isn't immoral to return some of that income to those that produced it.
The CBO score for the PPACA is also horribly misleading. It omits the "doctor fix" and is frontloaded with deficit reduction before the expanded benefits kick in. Tax increases start immediately and ramp up ahead of outlays until they take the lead in 2016.
In addition, I find it hard to take the cost estimates from 2015-2019 at face value. Every single expansion of government involvement in health care has ended up costing more than the initial estimates. I fail to see why this would be different.
Regardless, how do you justify government forcing an individual to purchase a product or service that they do not want to buy?
Posted by: Mike Wilson at March 1, 2010 08:23 PM
I suppose people will never learn...
How could you even begin to analyze something as opaque and gimmicked with off balance sheet accounting like the Federal Budget?
You would at least suspect that it would cause a somewhat pause in economic professionals in commenting on something of this nature...but, no, they go forward, head first, plunging right into an assessment.
Does anyone have any idea just how much the Pentagon alone actually spends in one year? If anyone from the "outside" really thinks that they know the actual budgeting of the Pentagon has no clue as to what they're talking about because so much of it is hidden. GAO has said repeatedly that the balance sheet gimmicks with the Pentagon are beyond belief.
I find it disturbing that, even now, we're continuously seeing such assessments based on information that lacks transparency, which really amounts to reckless assessments.
An outbreak of wisdom amongst our professional economists might entail them holding back on making such assessments and calling for more transparency so that they could begin to even formulate an informed conclusion
However, I suppose, though, many of them feel that they have to stay busy and publish, publish, publish, at all costs, publish--of course, it's axiomatic that such over extension will have a negative effect on quality
As a side note, but a topic I feel is still very much relevant to the above line of thought is tenure. There is, or was, or maybe never (one has to go no further than Descartes' 'Discourse' to see what he thought of academics in his own lifetime), was a time, even if only in concept, where tenure was considered something sacred. The point of tenure was to protect an intellectual's ability to earn income while making honest assessments, even, and especially, in the face of unpopularity; that is, if viewed as a moral code, than one may say that tenure bestows the responsibility for on to have an intellectual conscious (something that the philosopher Herr Nietzsche went into great detail for his readers).
Perhaps what I've said above might be taken with offense, perhaps it I meant to be, irregardless, if anyone is to be considered a "professional" in their field then we should hold them to a much higher standard.
A case in point: when CEO of JPMorgan Jamie Dimon said before the Financial Crisis Commission that we were wrong in assuming housing prices wouldn't go up for ever. How was there just not simple outrage at such a statement? How can anyone can themselves a professional in finance or economics and not see the greatest bubble in history? I know Mr. Dimon knows better, but do others?
Posted by: Brian at March 1, 2010 08:42 PM
Though tim kemper has been lampooned already, I think it is always worth taking the time to discredit supply side.
Supply-side advocates always like to take the simplistic approach that says "Well, revenues a few years later were higher than before so the tax cuts must have generated more revenue". What this ignores is that nominal GDP grows at between 4 and 7 percent, nearly every year, and that government revenues follow along that path unless severely interrupted by very large changes in tax policy or severe economic disruptions. Even very large tax cuts only reduce the government share of GDP by a little over 1%. So, if federal government taxes as a percent of GDP, all else held constant, drop from 20% to 19%, it would only take approximately 1-2 years to re-cooperate that revenue on a nominal basis. However, compared to where you would have been in absence of the tax cuts, the comparison is not favorable to supply-side advocates.
Fundamentally, the Bush tax cuts have put the share of GDP collected by taxes at too low of a level to adequately fund government, even at much reduced levels. I would also be severely strained to point to evidence that the tax cuts meaningfully stimulated growth to make up for the hit to revenue. I recall evidence of some multiplier, but one considerably less than 1.
Posted by: Brian Quinn at March 1, 2010 09:38 PM
Sorry, sidestepping partisan ranting for a second, doesn't table 3 in the CBO projections for 2010-2019 expects an overall deficit of 599$ billions?
I can't seem to reconcile those numbers with the first page of the letter where I read:
"would yield a net reduction in federal deficits of $130 billion"
Posted by: Ernesto at March 1, 2010 09:53 PM
Ernesto: If you inspect the fourth block "Net Change in the Deficit" in Table 1, you will see the -130 billion entry.
Posted by: Menzie Chinn at March 1, 2010 10:14 PM
Our focus should be on the SIZE of government (G). Every entitlement program increases the size of G, which eventually means higher Taxes (T) for everyone.
The health care bill should be opposed because it increases G, don't be distracted by proponents who want to shift your attention to its effect on T-G.
If we begin requiring a pay as you go approach for every additional dollar of governemnt spending, like a new health bill, we still run deficits over $1 tillion every year. Obama is increasing fees and taxes to pay for his new programs, but the U.S. governemnt will still need to raise taxes even further to get social security and medicare/medicaid spending under control over the next few years.
We need to put a ceiling on G right now! Otherwise, we are just fooling ourselves and creating a slow growth/high tax economy for our children because our government will need more tax revenue to pay for all the entitlements it has created.
Let's get the existing entitlements under control NOW, then we can talk about new entitlements.
I really have to question the wisdom of those who propose new entitlements before we get our existing entitlement committments under control.
Posted by: tj at March 2, 2010 06:02 AM
In the sense of Freidman's observation - "To spend it to tax" - it is true that we should look to the size of government to determine the actual tax burden imposed on tax payers.
Everything beyond that amounts to your particular preference for limiting the size of government. I don't share that preference. I think that if private interests have proven incapable of serving public health insurance needs, then the public should take a hand.
We want certain things from life, and some of them are provided from outside the home. In the provision of those things from outside the home, there is no reason to assume the government is necessarily inferior in providing them. I would much rather sit down at a privately run restaurant. I don't remember all that many good public-sector-provided meals. Public sector provided insurance, on the other hand, seems to work pretty well. Same with publicly provided health services. Why should we forgo good care at a reasonable price through a well run institution just because it doesn't match up with your preference for a smaller government?
Posted by: kharris at March 2, 2010 08:02 AM
This analysis is BS. It basically states that the health care act doesn't hurt the deficit. However, a lot of the taxes are back end loaded (read, never going to be enacted) and the other taxes to pay for this cover 10 years, to provide services for 4 or 6 years, meaning it takes twice as many taxes per year to cover the costs on an annualized basis, meaning this really is all a bunch of BS and going to result in additional huge deficits. Especially since there are no real cost control measures.
Posted by: jm at March 2, 2010 08:28 AM
I was going to say that the first bar was my debt condition after I bought my first house. Then the second was my debt position when I sent my children to college. The third was my debt position when I reached retirement age. My house is paid for and my children both have 6 digit incomes and great careers.
Ain't numbers a wonderful thing!
Posted by: RicardoZ at March 2, 2010 08:39 AM
jm: There is no analysis here. It's merely an observation on inflation-adjusted impacts of two legislative measures that have passed via the reconciliation process.
Posted by: Menzie Chinn at March 2, 2010 09:02 AM
The government has no business taking on another huge entitlement program until they produce a plan to pay for the approaching needs of the existing entitlement programs. All 3 of those charts above display our government's inability to deal with long run solvency issues. Why are we increasing taxes and fees to pay for health care, BEFORE we increase taxes and fees to pay for existing programs?
Posted by: tj at March 2, 2010 09:57 AM
Posted by: Ernesto at March 2, 2010 10:05 AM
For people who hold to the supply-side and neoclassical view I would like some explanation and evidence regarding the following facts.
1. Why was the U.S. job, income, and net worth growth from 2001-2010 was the lowest since WWII given the two supply-side tax cuts of 2001 and 2003? Why was economic growth lower in 2001-2010 time period then any other decade since 1940 despite the low taxes, the WTO free trade agreement and the admission to China to the WTO,, and the most deregulated economy since the 1920s?
2. Why was economic and jog growth so much better in the 1940s through 1970s, despite marginal income tax rates of 70%, at times 90%, for those in the highest income brakets?
3. Is there any evidence that tax rates, and only tax rates, are key factor for growth in developed and near developed countries? Despite the conservative meme, why has America's and Japan's growth, despite lower taxes, been less than Europe during the 2001-2010 period (although all three have become excruitiatingly slow or recessionary at the moment).
4. Why has the United States, at the periods of its highest income inequality (the 1920s and now) has had major financial crisises followed by deep recessions and prolonged high unemployment?
5. Please define "producer" clases? Are they banks CEOs and traders, stock brokers, investment bankers, deal makers, private equity groups, and all the other manipulators of capital? Are they CEOs and and upper management who have driven so many companies into the ground the last 30 years? Are they the ones protected by ferociously enforced Government monopolies call patents, copyrights, trademarks, and professional licensing? Who is in this class because of actual talent and hard work or have become "producers" due to birth, personal friendships, and political manuvering within institutions?
6. Why should the average person support a regime that means his or her increasing odds of immiseration with the only hope becoming hitting it rich in the lottery?
Posted by: rickstersherpa at March 2, 2010 10:28 AM
Why was economic and jog growth so much better in the 1940s through 1970s, despite marginal income tax rates of 70%, at times 90%, for those in the highest income brakets?
Posted by: bzumile223 at March 2, 2010 10:48 AM
Comparing the 10-year CBO estimated cost of legislation that had a 10-year sunset clause built in to that of legislation that a) has no sunset clause, and b) begins collecting taxes immediately but delays benefits for four years is comparing apples to tricycles.
Posted by: Sniper at March 2, 2010 03:35 PM
tj's criticism hits not only kharris, but this whole exercise. It is nonsense to say the recent legislation is paying for itself when it merely takes revenue that is needed for other, pre-existing programs, and uses it to pay for expanding health care. Mankiw had a good analogy - someone very obese saying he will go on a diet next week, in order to pay for a large helping of pie that he wants today.
Posted by: don at March 2, 2010 06:32 PM
It isn't immoral to return some of that income to those that produced it.
The problem is that the Bush tax cuts returned some (a lot) of that income to the already very rich which is very different from saying it returned income to those that produced it which would be labor (not rich). Because regular people lost out over time, they went into debt and lost health care and the economy showed very poor growth because when people don't have money they obviously can't spend it. But it sure sounds good to say "returned income to those who produced it". Just like "trickle down" always sounded good to some.
Posted by: LauraNo at March 3, 2010 07:12 PM
So, in retrospect, the data indicate the previous two uses of Reconcilliation Act have been a disaster for the unified budget balance, despite the promises of the majority party at the time.
Do we learn from this, or do we try for 3 out of 3 disasters?
Posted by: ju at March 4, 2010 09:26 AM
The government does it all the time. The government requires you to buy car insurance before you're allowed to operate a car, doesn't it?
The justification is that it is the government's responsibility to maintain order and rule of law.
Posted by: David S at March 4, 2010 12:59 PM
As someone who is not an expert in economics, I find both the chart in the piece above and the ensuing discussion interesting and informative, as it appears some of you are indeed knowledgeable, and I never mind drinking at a fountain. Red, Blue, or Purple.
With a proviso, that is: I never know if the fountain serves Kool Aid -- Cherry, Tropical Punch, and Grape, respectively. Each appeals to certain palates. Even the official Kool Aid motto is worth bringing to mind: "Bringing more smiles per gallon."
Of course, whether a certain flavor of politico-economic Kool Aid brings a smile or not is largely a matter of personal taste, at least in the present climate in which the "civil" part of our national "civil discourse" has utterly vanished.
I don't *have* to be an economist to realize that just about everyone has an agenda and an interest in blaring it, coupled with demonizing the other sides, especially through the favored, though fatally-flawed, tactic of ad hominem arguments.
Regarding health care specifically, I know this for certain: the private sector has *not* served me well (nor did it ever in other areas, such as auto insurance), and in my most recent search for coverage, although I input extraordinarily generous-to-the-insurer parameters -- NO coverage until the bill hit $250,000, a lifetime MAX payout of $1,000,000, NO emergency medical evacuation [even locally], etc. -- the premium came back at $13,200 a year. And that was before I listed any negative except that I smoke (i.e., I hadn't even gotten to the medical history part, neither for me nor my family). AND I live in Thailand (which the company would cover), where medical costs are a small fraction of what they are in the U.S., even in top, U.S.-quality (top of the line) hospitals, and those do exist here
A bit over $36 a DAY for coverage that very well might not *ever* kick in.
Yes, I'm 58. And there are other factors that would have come up later, had I not logged off the site, that undoubtedly would have increased the premium, such as the facts that both my Father and his Father died of cancer, there is a statistically-significant history of heart disease on both sides, I had skin cancer -- though not melanoma -- 11 years ago (with no recurrence since), and so on. What would the final premium have been? I have no idea. Except that it would have been north of $13,200 -- of that there can be no rational doubt.
I'm not for a one-size-fits-all government plan. I *am* for some sort of OPTION -- an OPTION, mind you, one alongside OTHER options -- for a government plan, even just a very basic one. An exchange, properly set up, would suit me fine; I'm not looking for a handout, just bargaining power. And I would be happy to have those other options in the private sector available too, so if I wanted to spend a gazillion dollars on premiums for gold-plated "Cadillac" plan [and could afford to do so!] then I could.
Are the Democrats' numbers rigged? Sure they are. So were many of Bush's, with his huge unfunded mandates -- two wars, a tax rebate, and so on. And Clinton's, and Buish the Elder's, and . . . well, you get the point: this is not the province of either party; they're happy co-inhabitants of this Fairy Tale World, a.k.a. "Bizarro World" and "The 5th Dimension."
Posted by: Mekhong Kurt at March 6, 2010 12:56 AM
What a crock! http://www.washingtonpost.com/wp-dyn/content/article/2010/03/05/AR2010030502974.html
Posted by: mytram at March 6, 2010 05:55 PM
Obama's tax-cutting agenda is by far the biggest contributor to those budget gaps, the CBO said.
Spending is a problem, of course, but the growth in spending is not the current issue. The deficit is growing because of declining revenue, due to several things: (A) Bush tax cuts (B) Obama tax cuts (C) recession
Posted by: Anonymous at March 8, 2010 02:49 PM
I wish the CBO would do some cost/benefit analysis that considered the effect on more budgets than just the federal one. A lot of individuals will be effected by a mandate and I don't see how this proposal will do much of anything to do reduce the proportion of GDP that we're spending on medicine. While I'm usually pretty libertarian, it even makes sense to me go with a truly universal medical system that allows for additional spending above and beyond what the government is willing to provide (universal, multi-payer).
I fear we're just walking into another corporate giveaway, arguing about the wrong issues, etc... but what can we do about it anyway?
Posted by: underground at March 13, 2010 02:31 PM