Friday, August 12, 2011

When Smart People Go Stupid

I don't often agree with Ezra Klein but usually I think he's fairly good on his facts if not his interpretation.  But this is far away from his best work

Passage of the Affordable Care Act last year brought us closer in line with our international peers. But not much closer. And consider the costs we continue to impose on ourselves in the interim: If the United States simply had the per-person health-care costs of Switzerland, which has the second-most expensive health-care system in the world, we would spend $3,000 less per person and save about $900 billion a year. Assuming we need to reduce deficits by about $4 trillion over the next 10 years, those savings would do the heavy lifting with about $5 trillion to spare.
Now, let's back up here and think about this.

Sunday, August 7, 2011

Why S&P Looks Silly

I'm really pretty stunned by the S&P downgrade.  I know they had threatened it but I didn't really understand why.  Reading through their report, I get three potential reasons for the downgrade.

1.  The reduction in debt wasn't big enough ($2.1 trillion instead of $4.0 trillion).

2.  The process was ugly (right up to the wire, etc., etc.)

3.  The Republicans are intransigent on taxes and the Democrats are intransigent on entitlements.

Let me take these one at a time in an effort to show that there's really nothing new here

Saturday, August 6, 2011

The Democratic Plan(?)

Some of you are probably thinking, "Oh NO!  Not another post from somewhere on the fact that the President has never presented a plan to manage the deficit/debt."  Rest assured, this is not that post.  It is however inspired by the recent debt ceiling and downgrade news.  Basically, I started running the following thought experiment with myself.  Assuming that the Democrats in Congress actually wanted to reduce the projected debt increase by $4 trillion over the next 10 years, what would they put together to do so.  Having thought about it and invited comment from folks on the left, I've pretty much come to the conclusion that it isn't possible.  Let me explain how I got there.

Monday, August 1, 2011

Crossing the Streams

OK.  Bad Ghostbusters reference but with all the talk of “cuts” and revenues in Washington these days, I wanted to return to the theme of “real” baseline budgeting.  One of the things that is often said is that balancing the budget will require “massive cuts.”  We must again remember that Washington defines a cut a bit differently than you or I might.  So I will counter with the following picture

Here we see projected spending are receipts based on three sources.  The spending line assumes 2010 spending as the base and grows spending by the rate of inflation plus population as projected in the President’s FY2012 budget submission.  The receipts line is based on the CBO baseline projection subtracting 2 percentage points for every year from FY2013 on to take an (aggressive) assumption of the reduced revenues from making no change in tax policy.  GDP is drawn also from the President’s FY2012 budget submission.

So what would this “spending only” approach tell us.

1.     Spending as a percentage of GDP declines rapidly over the period from 23.6% in 2011 to 19.4% in 2021.  This is without making any cuts in spending.  This is not to say that no benefit cuts may be required but simply that a COLA like view of government spending produces dramatic results.
2.     The government reaches “primary balance”, the goal the President has set for the budget process by 2016 (3.1% deficit) or 2017 (2.4% deficit).
3.     The deficit by 2021 is a mere 0.6% of GDP, suggesting that another couple of years would bring the budget to absolute balance.

Just something for those that argue that a cuts only solution is impossible to think about.  The budget can be nearly balanced with no cuts whatsoever as long as Washington chooses to live within a budget constraint.

Saturday, July 30, 2011

New Look

Now that there are more posts up, I've adjusted the front page to list just the beginning of the different articles.  Thanks to all who have visited

Talking about Tax Progressivity (part 2)

Whether you soldiered through the technical stuff in part 1 or not, welcome to the fun part.[1]

In our first graph, we use the data to look at just the payroll and income taxes, that is, the taxes that can be directly attributable to households.  That the data is presented below[2]

Talking about Tax Progressivity (Part 1)

This is a heavily technical post.  If you don't like heavily technical posts, just remember the picture below and skip to Part 2.

Over the next few posts (it’s going to take a few), we are going to take apart this chart.[1]

We’re going to do this for two reasons.  First, to make a point that I firmly believe having wandered the world of political websites, namely that you can find someone on some website to say what you believe and maybe even draw such a graph; however, to understand what’s going on, you need to dig into the numbers and dig hard.  Second, if you wander the world of political discussions, you invariably get into a discussion about the progressivity of the tax code and, when arguing with someone on the left, you invariably get a version of the chart above because, to a leftist, it says exactly what you want it to say…that is, see how much less the “rich” are taxed today (2004) than they were in the past.

Tuesday, July 26, 2011

The two sides of the debt ceiling discussion (and not the two you are thinking of)

I was thinking about the debt ceiling debate a bit (hey, isn’t everyone) and I started thinking about how I would vote on the Reid or Boehner plans and how I would explain my vote to someone and I concluded something that I haven’t seen written about much.

In short, there are only two principled (not political) stands on how to vote on the debt ceiling…either you vote yes on both the Boehner and Reid plans or you vote no on both of them.  Voting yes on one and no on the other serves no principle of which I can think.

Friday, July 22, 2011

The two most imporant things

The President delivered a press conference full of sound and fury today.  Rather than have a long debate about all he said, I want to focus on only two things.  I'm drawing from the WSJ transcript which accords with my memory of having heard it live.

Wednesday, July 20, 2011

Cut, Cap and Balance: A Big Opportunity Lost

Much ink (mostly virtual) has been spilled on cut, cap and balance, the latest House Republican approach to addressing the budget and raising the debt ceiling.  Unfortunately, the House Republicans took 3 good ideas and put them into one bad bill.  Let me take the pieces one at a time.

Saturday, July 16, 2011

The Things We Can Learn from the CBO

If you don’t know the CBO, you don’t know political economics.  Sure, you can argue about some of their projections, bound as they are by the governing legislation (see the PPACA for a good example).  However, they do some very simple and compelling analysis that everyone should see.

Here’s one example where the CBO attempts to account for the changes from their 2001 projection by going year by year to assess the changes in spending and revenues from their projection and the source of these changes.[1]

So what can we learn from this fairly complicated analysis from the CBO.[2]

As a starting point, let’s look at how the changes break out by source.

Thursday, July 14, 2011

"Show Me the Money"

Like every other political blogger in America, I wanted to write a post on the debt ceiling crisis.  Unfortunately, since this blog is supposed to be about facts, it's likely to be a pretty short post because there don't appear to be any facts.  There are lots of stories.  You can go pretty much anywhere you like to read them.  Someone offered this and it was rejected.  No they didn't, it was just a trial balloon.  Republicans won't accept any tax increases.  Well, maybe they will.  Democrats are going to reform entitlements.  No maybe they aren't.  Well, let's stick to the one fact we pretty much know.

Defaulting on the debt is both a really bad idea and really unnecessary.  That's the only fact we have.

Tuesday, July 12, 2011

Some Truth on Tax Expenditures

The term tax expenditures has become all the rage, particularly on the left of late.  The purpose is to establish some rhetorical equivalence between preferences in the tax code and actual disbursals of money by Congress.  The validity of this line of thought is a topic for another day (or two).  Today’s purpose is to focus on a commonly argued perspective as it relates to tax expenditures, namely that they primarily benefit the rich.  DeeDee Meyers provides a common refrain:

Even tax breaks that are supposed to help the middle class too often skew toward the wealthy. Consider the mortgage interest deduction. While political leaders in both parties have long considered it untouchable, it actually helps those at the top of the income scale far more than those at the bottom.[1]

This is a pretty common (and pretty incorrect) point of view but it takes a little bit of understanding to get you there.  As a starting point, let’s look at the savings that come from certain popular tax expenditures.  As Meyers did, we’ll start with the home interest and property tax deductions.

The benefits of these deductions (according to the Tax Policy Center) accrue as follows[2]:

Saturday, July 9, 2011

How about a "real" baseline for spending?

One of the great frustrations in arguing about government spending is that everything government does is expressed relative to a baseline and, every time that government changes its mind about something, the baseline changes.  Since government is always changing its mind about things, the baseline is always changing, making it very difficult to understand what you are actually comparing a particular outcome to.

In addition, the whole notion of a baseline doesn’t really make a lot of sense when it varies all over the place.  To give you an example, when President Clinton submitted his 1994 budget, CBO projected spending growth of 3.4% per year as the “baseline”.  This in a period where inflation averaged between 1.5% and 3.0%[1].  In 2011, the CBO projected spending growth of 5.1% with inflation pegged at 1.8% for the entire period.[2]  Thus, the baseline is highly variable period to period and unrelated to the inflation or population in any particular way.

Rather, the baseline reflects what government would grow according to various agencies if government were simply to keep doing what it was doing without any focus on efficiency at all.  There is generally nothing in the assessments of baselines to suggest that any particular outcome driven by the government can be done more efficiently; nor is there any sense that income constraints exist.