Relevant and even prescient commentary on news, politics and the economy.

Moderately Positive Outlook?

CNN has a story, “Mañana economics: Economists keep saying the sun will come out tomorrow … and tomorrow … and tomorrow.” Here’s the outlook:

GDP actually grew just 2.4 percent in 2002. When surveyed at the start of 2002, forecasters predicted 3.5 percent growth in 2003. Lately, they’ve cut their forecast for the year to 2.2 percent. Now, they’re expecting 3.6 percent GDP growth in 2004.

The improved projections are attributed to the tax cuts (which are in fact somewhat stimulative, though that stimulus may come at the expense of long run investment, as government borrowing to finance deficits pushes interest rates up and crowds out private investment), low interest rates (which have done a lot to keep consumer spending up–mortgages and cars–but haven’t similarly stimulated business investment), the falling dollar (good for exporters; bad for domestic firms that buy a lot of inputs from abroad), rising consumer confidence, and a rising stock market.

2.2% growth is basically ok, closer to recession than to boom, but basically neither. It would take growth rates somewhat above 3% to reverse the unemployment increases that we’ve seen over the last two years.

But not all the news is rosy: using the administration’s own numbers (from the CEA), the tax plan is projected to destroy jobs from 2005-2007. Why? Well it’s billed as creating 700,000 new jobs in total, while creating 1.4 million in 2003-2004 alone. So to total up to 700,000, that many jobs have to vanish after 2004! That’s rather convenient, given the election cycle.

And some of the news is outrageous:

A last-minute revision by House and Senate leaders in the tax bill that President Bush signed today will prevent millions of minimum-wage families from receiving the increased child credit that is in the measure, say Congressional officials and outside groups.

The $400 checks that these families will not get were a big part selling this plan, a way to avoid the “sellout to the wealthy” label. The group that does not benefit includes those making $10,500 to $26,625, meaning that many of these families, likely the majority, do in fact earn enough to pay income taxes, and therefore would benefit from the child credit even if it is not fully refundable (it isn’t).

I’m sure we’ll hear that this was an inadvertent slip (right now, the House is blaming the Senate’s $350b “limit”), but inadvertent slips tell a lot about the priorities of those making the slips.


UPDATE: The numbers about job growth and loss before and after 2003-2004 in the CNN story are based on a mistake Max Sawicky made, where that mistake basically amounts to believing the president’s Council of Economic Advisors February 2003 report. You see, crazy Max thought that by a “creating a job”, the CEA meant “one person working for one year who would not be working under the baseline scenario for that year”, when it turns out that the CEA meant something different. Max explains the details here. I suppose the WSJ editorial page can just blame it on Clinton for confusing us all about what “is” means. I should emphasize that even under the CEA’s interpretations, it remains very front-loaded, meaning the majority of job gains–such as they are–accrue bye the end of 2004.

X-posted at It’s the Economy.

Comments (0) | |

Another Red vs. Blue Post: Does Blueness Cause High Income?

Earlier I showed that, on balance, the Blue states (Gore) subsidize the Red states (Bush). For every dollar that a Red state pays in taxes, they get back an average of $1.12; on the other had, for every dollar a Blue state pays in taxes, they get back an average of only $.87. That’s a -13% rate of return! And Bush said that the 2% rate of return on Social Security is bad! (See the postscript). Observing this disparity, I said this in passing:

“Factually, this [subsidy of Red states by Blue ones] doesn’t bother me. The Blue states are generally wealthier than the Red states, and this is a natural consequence of progressive taxes.”

But this leads naturally to an interesting question: Does liberalism cause higher income? Or does high income cause people to be more liberal? Or is there some third variable–education is a natural candidate–that causes both higher income and more liberal attitudes?

First, the facts: raw income-by-state data are available here, and population data are here. You can see them conveniently combined into one table here. Here are the highlights:

# States
Total Income Total Population Average Median Household Income
Red 30 $5,628,131,171,397 140,626,203 $40,021.92
Blue 21 $6,501,454,021,776 140,795,703 $46,176.51
National 51 $12,129,585,193,173 281,421,906 $43,101.07

Clearly, while the population of the Blue states roughly equals that of the Red states, the Blue states earn nearly $900 billion (7% of GDP) more than the Red states. This means that because the tax system, even after factoring in all possible deductions and shelters, is moderately progressive, the Blue/Democratic states pay no less than 7% more of the nation’s tax bill than do Red/Republican states.

What’s the point of all this? In a future post, I’ll make some grand generalizations about progressive societies, the Dark Ages, and the connections between liberalism and wealth creation. I may even make the case that liberalism does in fact cause wealth. In the meantime, I offer this you this quip to use when debating Republicans who complain about the dire need for more tax cuts: It’s our money, we can promote the common weal by giving it away via a progressive tax system if we want to. If you don’t like it, lower the average Blue state tax bill by $3,000 and raise the average Red state tax bill by $3,000. I think that’s a great answer to some moron saying “move to Cuba”.


P.S. An exact Bush quote, from an October 2000 debate between Bush and Gore: “I want to get a better rate of return for your own money than the paltry 2 percent that the current Social Security trust gets today.” In that debate, Bush made the same point in slightly varying ways a number of times (Entire transcript here).

P.P.S. Note to math geeks: yes, I used median income as the average, because that’s what I found easiest on the page. In general, the median of the income distribution is below the average, so take this as a back, or perhaps two sides, of the napkin post. “Average Median Household Income” is computed as SUM(median incomes*populations)/SUM(populations), separately for Red and Blue states.

Comments (0) | |

Ingenious Republicans

My last post made me think about how clever the Republicans are. That 5% tax rate on dividend and capital gains income for lower income families is tactically brilliant. First, it makes a great sound byte:

Intrepid Reporter: Senator X, isn’t the new tax bill you just voted for a big give away to the wealthy?

Senator X: Not at all, my young friend. In fact, while we did cut the rate for the wealthy to 15%, we cut the rate on poor and middle income families down to 5%.Thats one-third as much.

Intrepid Reporter: Isn’t that essentially meaningless, given that only a handful of poor and middle income familes earn any income at all from dividends and capital gains. Virtually all of their disposable income is spent on day care, the mortgage, health care, maybe college savings. How many families with children making $41k have, outside of retirement accounts, more than $1,000 in stocks, Senator?

Intrepid Reporter: Oh, neat. I’ll write that up.

Second, it’s close to free: since the large majority of the people to whom the 5% rate will apply don’t have any dividend or stock income, the actual cost of this 5% provision is probably quite low (the costly part is lowering the rate on the wealthy from 35% to 15%). Third, insofar as the 5% rate does in fact apply to some people, who are they? Seniors! What’s so special about seniors? Well, of course we love each and every one of them. But in politics, what they are really known for is voting in large numbers. It’s a trifecta!


Comments (0) | |


In reference to my posts here and then here, a few people emailed to make the point that seniors with income of $41,000 could very plausibly have dividend and capital gains income totaling $1,000 per year. I comletely agree. However, the numbers in the right panel of the NYT’s figure, titled “Married, two children under 17″, are not relevant for seniors.

For seniors, the more relevant number is the $211 in the middle panel. This total savings of $211 is very close to just the savings due to reducing the tax rate on $1,000 of dividend and capital gains income from 28% to 5%! What does that mean? Well without the $1,000 assumption, Deloitte and Touche–and thus the NYT–would have had to report a benefit of roughly zero for the “Single, no children” category. (If the stock income tax rate for this bracket is only being cut from 28% to 15%, then the savings for singles without stock income would be $81).


Comments (0) | |

I’m a Little Worried…

…about Kevin Drum, aka CalPundit, who seems uncharacteristically out of sorts today. What’s bringing him down? A laundry list of things gone bad, and he doesn’t even mention “massive deficits as far as the eye can see” or inane new abortion restrictions. Things would probably not seem so grim to him if there were a chance of the Democrats recapturing the House (no way), the Senate (a longshot), or the White House (?).

Still, it’s important to keep in mind that there are still 18 month before the election, and that in 1991 with 18 months until E-day, Bush the Elder looked invincible. There was even a hilarious Saturday Night Live skit from 1991 that featured the Democratic contenders each trying to get the other to accept the nomination (and the presumed crushing that was to ensue). Weren’t the Democratic candidates referred to as “The Seven Dwarves” or something like that? I vaguely recall that Clinton was polling in the low single digits in the spring of 1991 as well, and we know how that turned out. I guess my point is that anything can happen, possibly even the Democrats winning control of one of the elected branches of government in 2004.


Comments (0) | |

How Silly is the Times?

In my last post, I mentioned that the NYT story has a graphic showing the savings for various income leves, incuding for a family making $41,000 in household income per year. The tax savings in that graphic assumed that the $41,000 in income family had $500/year each in dividend and capital gain income–an assumption I called “patently absurd”. Let’s see the absurdity in action. Remember that we are talking only about stocks held outside of retirement accounts. What does it take to make $500 in dividend income?

Consider Coca-Cola, a company famous for it’s dividend yield (“The Motley Fool” calls it “The National Bank of Coke”). Coke is paying out $.88/share in dividends this year, meaning you need to own 568 shares of Coke (KO) to get $500 in dividends. At the current price of $37/share, that’s $21,022 worth of stock in Coke held outside of retirement accounts. How many families making $41,000 do you know with that level of stock holdings. Some, to be sure, but it’s very unusual.

What does it take to make $500 per year in capital gains? Let’s assume the market appreciates at 10%/year (you may have heard that the historical rate of return on the S&P and Nasdaq are around 11%, which they are, but thats including dividends, so let’s say 10%). To make $500/year in capital gains, a family must on average year in and year out sell a bit over $5,000 worth of stock. Does that sound like anyone in that income range that you know?


Comments (0) | |

More Wall Street Journal (and the NYT)

As it turns out if you want actual information, non-distorted even, about the likely-to-pass tax cut proposal, you have to go to the Wall Street Journal. All of the following are on Page 1, above the fold:

  • Bush’s Tax Cut: Victory–at a Cost
  • Bill marked by gimmicks marches past glitches, toward passage
  • How a $350 billion price tag could balloon as high as $810 billion
  • Much of what bill gives will be taken by strapped states, cities
  • Meanwhile, rising deficits force Congress to move toward raising U.S. debt ceiling
  • Sunset provisions overshadow dividend tax cut

You wouldn’t get all this from, for instance, the NYT. There, if you go to the national section you can at least find one story with this subheading: “A hard look at various elements of the $318 billion tax bill shows a plan that could lose $800 billion in tax revenues over 10 years.” But continuing with it’s slanted coverage, consider this graphic (click to enlarge):

Click to Enlarge

What’s wrong with this? I looked at it and I thought, “Hey, at least this works out ok for middle income families with income around $41,000, particularly if they have kids”. Then I thought, “But of course the marriage credits have a two year sunset”, and then I thought “Hey, what’s this about ‘Assumes’ and ‘capital gains of:’ and ‘dividend income of:’ and then putting in $500 for each.”

That’s patently absurd. Families making $41,000 per year do not–outside of tax-sheltered retirement accounts–have remotely near this amount of capital gains and dividend income. If the NYT wants to make stuff up (or hire Deloitte and Touche to do so), why not just assume they get all of their income from stocks? How does this fiction affect the numbers? Well there’s $1000 of fictional stock-based income that will be taxed at 15% instead of 28%, which means the savings for the $41,000 family are overstated by $130–an 11% over statement of the benefit. Similarly, though I’m less certain on this point, $30,000 per year in stock income for families in the $530,000k and over bracket seems on the low side. So this assumption understates the top-end benefits of this tax plan. One more thing: where’s the row for “Annual Household Income of $18,000″?


UPDATE: The NYT assumption may be more biased than I thought. From the NRO: “Lower-bracket taxpayers will pay a 5 percent rate [on capital gains and dividend income] for the 2003-2007 period and zero percent in 2008″. This mean that part of the savings come from the fictional $1000 in stock income being taxed at 5% instead of 28%, meaning the fake savings would be $230 (tax on $1000 is $50 instead of $280) instead of $130, if the NYT used the new 5% rate. 5%, or 50%, it doesn’t matter what the rate is, since the dividend income for that bracket is way, way, below $1000. Based on a CNN story that I can’t find anymore, only 28% of filers indicated some dividend income and 63% of those made more than $100k per year in income.

Comments (0) | |

Thanks to MB (of Wampum)

For coming up with the It’s Still the Economy Team Blog idea. Thursday, in Salon, Joe Conason had this to say:

An excellent blog aptly named “It’s Still the Economy, Stupid” provides graphic illustrations of how the GOP “jobs” tax cut will be maldistributed — and the record number of jobs Bush has lost so far.

I believe the first graphic (“maldistributed”) he refers to is by yours truly, here (and here); the second one Conason cites (“jobs Bush has lost so far”) is here, by MB.


Comments (0) | |


Blogger is really doing a number on my hit count. Even on my T1 line at work, over the last three days, my odds of successfully opening my blog are around 33%. Same goes for trying to open Atrios. Maybe it’s the Amazon links? That last part was a joke, but I commented them out and now it seems to be working much better.



Thursday, May 22, 2003

BlogSpot has been especially sluggish recently and we are working hard to improve the situation. We sincerely apologize that the problem has taken longer to resolve than expected and for the frustration of having poor performance from the servers.

posted by Jason Goldman | 6:41 PM

Comments (0) | |

Teasers on the Front Page of [even the conservative] Wall Street Journal

  • P.1: Congress Nears Deal to Cut Taxes by $350 Billion: In Bush Victory, Accord Reduces Rates on Dividends; Top-Bracket Relief Survives
  • P. A2: Congress is at risk of passing the Great Tax Shelter Act
  • P. A4: Bush is losing on the tax issue with Americans
  • P. C1: The bill may let some rich investers avoid almost all levies

Here’s a nice highlight from the A2 story:

“…a rich investor might, for instance, borrow money and deduct interest payments…then use the money to buy shares of stock on which he would earn a tax-free dividend paid from profits that have never been taxed. Bottom line: The profits are never taxed, not even once, and the economy gets no new capital or savings because the investor borrows the money that he used to buy the shares.”

From the WSJ/NBC poll on A4, Bush’s overall approval is at 62%; 64% think there are better ways than a tax cut to increase economic growth (7% unsure); by a 55-36 margin, money to help pay for health care beats out tax cuts; and 53% said the 2001 Bush Tax Cut had no real effect on U.S. economic performance, with 15% saying they hurt and 25% saying they helped. Also, Lieberman, Kerry, and Gephart are all 20+% behind Bush in 2004 election polls, though a generic Democrat is only behind 47% to 32%.

From the C1 story:

“I guarantee it produces very, very low [tax] rates”, possibly even zero says Ronald Pearlman, a tax-law professor at Georgetown.

As Warren Buffet points out, the government can’t create a free lunch. Since spending, including discretionary spending, is increasing under Republican Control of the White House, the House, and the Senate, if someone pays less, then someone else has to pay more. We know who will pay less. Guess who will pay more?


P.S. As these stories make clear, there is another reason that the cost of tax cut will be over $350b. I’m guessing that the costs of cutting the dividend tax to 15% were computed as (35%-15%)*($Dividend Income), while totally ignoring the substitution effect: people with the means to do so will shift money in ways to minimize their tax bills, increasing the cost of the tax cut.

X-Posted at It’s Still the Economy.

Comments (0) | |