Making Stuff Up About the Buffett Rule?

On the White House website, as of 7PM Eastern on April 10, you can find the following graph






Now if you read to the bottom, you'll see the source as "CBO."  I found this pretty interesting because, to my knowledge, the CBO has never published effective tax rates back to 1960.  I know because I've spent a lot of time looking for them.

They have published effective tax rates back to 1979 and you can find those here.  Let's do a quick comparison.  The WH chart shows the effective tax rates of the top 0.1% as below those of the top 1% from 2003 on and says the source is the CBO.  Meanwhile the CBO data (which only goes through 2005) shows no such thing.  The WH chart also appears to show (based on interpreting the axes) far higher tax rates than were actually in place according to the CBO report in 1980.  But since they haven't published the data or linked to the CBO, it's a bit hard to know.

But it's this chart that allows the WH to argue that tax rates have declined by more than 50 percent for "the wealthy."  Meanwhile the CBO data for the top 0.01% shows a decline of about 30 percent from 1979 to 2005, pretty much the same decline in percentage terms as most income groups although less than those in the bottom quintile.

So I'm left with 2 questions:  Did the WH misquote the CBO?  If they did, where did the data come from?  If they didn't, can they show us the CBO data?

Update:  The White House shows in a different report the same data but in this report, they clearly source the data as not coming from the CBO and not even being actual data but rather data created by the CEA.  The specific quote is: "Average Federal tax rates for a sample of 2005 taxpayers after adjusting for growth in the national wage index" and the source is basically CEA analysis.  CEA/CBO what's the difference?

Hyperventilating about Dystopia

Dystopia is one of those words that you don't read all that often in blogs about politics.  Yet it seems to be showing up with surprising frequency in recent discussions about the Ryan budget proposal.  You see, the proposal to reduce non entitlement spending to 3.75% of GDP by 2050 is going to require the dismantling of the government, at least according to the critics

But is this critique actually true?  Math would suggest it isn't.  In 2010 according to the CBO historical tables, Federal spending (ex-social security, medicare, medicaid, and interest) was about 13 percent of GDP.

Now let's make a few adjustments.  Let's exclude overseas contingency operations (Afghanistan and Iraq).  Today those account for about 1.0% of GDP.  Let's also exclude higher than normal automatic stabilizers (TANF, UI, etc) that account for about 0.5% of GDP.  That leave us an adjusted baseline of about 11.5% of GDP.

Now let's make some assumptions and do some math.  Let's assume that GDP grows at its average rate from 1970 to 2010 (about 2.8% real) and let's assume inflation of about 3 percent per annum.  This latter assumption is higher than what the government typically uses but the model isn't particularly sensitive to the inflation assumption.

If you now run the model out to 2050, the 11.5% of GDP under those assumptions would become 3.75% of GDP, exactly equivalent to the number in the Ryan budget.  Please note that Ryan doesn't get to the number with these assumptions but in aggregate, spending continues to grow under the Ryan budget at the rate of inflation throughout the period and still reaches the 3.75% target.  In other words, Ryan's budget "cuts" simply amount to a COLA on the federal government outside of entitlements.

Dystopia indeed.

My balanced budget proposal

It's been a long time but here's my new and exciting balanced budget proposal.

Option 1:  Grow government spending at the average cost of living adjustment for SS over the last decade - 2.5% per year.

Option 2:  Grow government spending at the rate that government spending grew during the two terms of the Clinton administration (FY 1993 to FY2001) - 2.6% per year.

In both options, leave tax policy unchanged.  In other words, leave the Bush/Obama tax cuts in place, keep patching the AMT, don't add any new taxes beyond those currently in place.

Deficit in 2022?

Under Option 1, it would be -$2 billion (aka a surplus)

Under Option 2, it would be $45 billion (aka pretty much a wash).

Under the President's budget, it would be $704 billion (aka not a surplus).

Funny isn't it.

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.

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

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.

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.