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Some quotes from CBO’s analysis of the President’s budgetary proposals

rdan…lifted from comments by Movie Guy

Key points from CBO’s analysis of implementing the President’s budgetary proposals.


“As estimated by CBO and the Joint Committee on Taxation, the President’s proposals would add $4.8 trillion to the baseline deficits over the 2010–2019 period. CBO projects that if those proposals were enacted, the deficit would total $1.8 trillion (13.1 percent of GDP) in 2009 and $1.4 trillion (9.6 percent of GDP) in 2010. It would decline to about 4 percent of GDP by 2012 and remain between 4 percent and 6 percent of GDP through 2019.”

“The cumulative deficit from 2010 to 2019 under the President’s proposals would total $9.3 trillion, compared with a cumulative deficit of $4.4 trillion projected under the current-law assumptions embodied in CBO’s baseline.”

“CBO’s estimates of deficits under the President’s budget exceed those anticipated by the Administration by $2.3 trillion over the 2010–2019 period. The differences arise largely because of differing projections of baseline revenues and outlays. CBO’s projection of baseline deficits exceeds the Administration’s estimate (prepared on a comparable basis) by about $1.6 trillion.”


“Proposed changes in tax policy would reduce revenues by an estimated $2.1 trillion (or 6.1 percent) over the next 10 years.”

“The proposals with the greatest effect on the budget include modifications to and the permanent extension of provisions of the 2001 and 2003 tax legislation (EGTRRA and JGTRRA); extension of the Making Work Pay tax credit; indexing of the exemption amounts for the AMT; implementation of a cap-and-trade program to reduce greenhouse-gas emissions; and limits on itemized deductions.”


“Proposed changes in spending programs would add $1.7 trillion (excluding debt service) to outlays over the next 10 years, an increase of 4.4 percent above baseline levels.”

“Outlays for refundable tax credits, higher spending for payments to physicians under Medicare, and increased discretionary spending for a variety of annually appropriated programs account for the bulk of those changes.”


“Debt held by the public would rise, from 41 percent of GDP in 2008 to 57 percent in 2009 and then to 82 percent of GDP by 2019 (compared with 56 percent of GDP in that year under baseline assumptions).”

“Interest costs associated with greater borrowing would add another $1.0 trillion to deficits over the 2010–2019 period.”

Two other links include OMB budget 2009 and OMB on CBO’s New Numbers

guest statement by Movie Guy:

The real problem with the President’s budget proposal falls within the deficit projections for FY2013-19. Simply stated, the deficit numbers are headed in the wrong direction.

The burden of responsibility for government funding will shift to the Congress once the FY2010 budget is adopted in legislation (whatever final product is rendered). But, at this time, the problem exists with the outyear deficit projections put forth by the President and his Administration.

The President has not put forth a sustainable set of budget proposals through 2019.

The deficits projected for 2013-2019 are the problem.

(Update by BW. I have added the respective tables first from the OMB original release and then the CBO’s Preliminary Analysis to allow some side by side comparison of economic projections)

OMB Table S-8

CBO Table 2-6

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Geithner Plan Better than Leaked ?

Robert Waldmann

Due to a snarky suggestion from sammy, I actually read this pdf fact sheet from the Treasury about the Geithner plan (thanks again sammy). It was much less bad than I thought.

Although he doesn’t like to disagree with Krugman, Maynard at Creative Destruction makes this argument (much more briefly and clearly than I will here).

The problem with this [Krugman’s] example is that it assumes that each loan guaranteed by the FDIC is used to buy a single asset that either defaults or pays in full. … But in fact the Treasury’s plan, as I understand it, is for PPPICs to bid for pools of loans/securities held by banks. The FDIC loan guarantee will apply to the pool rather than the original loan. The PPPIC will only default on the loan if the value of the pool turns out to be considerably less than the purchase price (specifically, less by the amount of the firm’s capital investment).

For me a chance to disagree with Krugman is a rare pleasure. I also had a blast disagreeing with Brad DeLong on the same issue. That means I am … consistency is the hobgoblin of small minds.

Now disagreeing with Ken Houghton, now that is scary (don’t let it go to your head Ken its partly that Krugman won’t bother with me). Gulp. here goes (after the jump).

update: Citizen K is on the case too.

The Geithner plan as described in the official fact sheet is much less bad than I thought. In particular there are 3 programs (including Talf II the legacy).

The program which involves the FDIC, provides a large no recourse loan to buy pools of loans. The FDIC must approve the pool. The the pool is auctioned, then the FDIC decides how big a loan to make (if any).

The FDIC can (try to) protect its trust fund by not allowing pools with (predictably) huge variance. FDIC bosses do not want to have to go to congress to beg for a top up of the fund (I think that’s putting it mildly). I now think the delay in the roll out may have occurred because the FDIC demanded better tools to protect itself (my old theory was that Warren Buffett demanded that the FDIC get worse tools to protect itself — hobgoblin etc).

Now if the pools were pools of same rated tranches of similar pools of tranches of etc, the Krugman Sachs scam would work. But the FDIC can just say no. I have the impression that the pools which come with a huge FDIC donated Geithner put are supposed to be pools of loans — first order toxic. To me the PDF isn’t clear on whether pools of higher order toxic waste are eligible, but it is clear that the FDIC must agree.

The higher order toxic waste (or junk too toxic for the FDIC) is to be bought in a separate Treasury program in which private partners have to put up at least a third of the money and the Treasury has at least half of the equity. This reduces the value of the Geithner put. In fact letting private partners cut off the losses at the investment losing 2/3 of purchase price might be a reasonable correction for the fact that private partners are risk averse and the Treasury is, or should be, risk loving (if things tank worse than we expect we *want* a larger than planned budget deficit).

So maybe maybe not so bad. I’d say that the banksters have further hard lobbying to do at the FDIC to get a huge handout, so it’s not time for dispair (yet).

Disclaimer: Brad DeLong has authorized me to post quotations from Keynes and Orwell on his site. This post is not pay back. Honest.

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Tax Rates and Tax Havens

By Stormy

As more and more people understand how great wealth is garnered and protected, they will understandably seek ways of ensuring that all pay their fair share. Multi-million dollar bonuses and salaries that escape real and significant taxation place undue burdens on the rest of us. The OECD estimates that between $1.7 trillion and $11.5 trillion is now held in tax havens. That the estimate has such a wide range reflects how little we understand of just how much wealth is there: There is no transparency.

It is interesting to note that the rise of tax havens corresponds with falling taxation rates on the very wealthy. In fact, as the following graph and discussion will demonstrate, the number of tax havens significantly increased after tax rates had fallen. While I do not wish to draw a causal relationship, I do wish to point out that the last three decades have been in control of those with the greatest wealth. Until we start to address the issues surrounding great wealth, we will never create a more equitable society or civilization.

A top marginal rate of 90% is not out of line. Consider the following historical graph of top marginal rates.

During the Great Depression top marginal rates climbed dramatically, rightfully reaching their zenith during WWII. In response to 9/11, we of course cut rates precisely at the moment we were fighting wars on two fronts. Bush Junior told us that going to the mall was the best way to confront Bin Laden. Easy credit and consumer spending was our shared responsibility, I guess. Business thrived; the wealthy got wealthier and Saddam Hussein was punished for not having weapons of mass destruction: All was right with the world.

Now consider the period from 1950 to 1980. During the Civil Rights Movement, top marginal rates remained high (over 70%): It was a period of rising expectations and prosperity. The slight blip upward was our response to the Vietnam War.

Between 1980 and 1990, top marginal rates fell dramatically. Trickle down had taken hold. Here things become interesting. During the 1980’s, tax havens proliferated. In 1984, the International Business Companies Act became a statute of the British Virgin Islands, a response to the U.S. repeal of double taxation with microstates, specifically tiny island nations. This act was replicated elsewhere. To understand its popularity, consider its popularity in the British Virgin Islands. [Source: British Virgin Islands via Wikipedia.]

Tax havens proliferated beyond the Virgin Islands. While the IBC was eliminated in 2006, subsequent laws have not curbed tax havens. As the OECD states, the amount of money now held in tax havens is considerable and unknown. Suppose it is $115.5 trillion?

Nonetheless, we can draw some conclusions. High top tax rates did not create tax havens.

Many will argue that tax havens arose as a response to high taxes. Tax havens came into play after top rates had fallen significantly. To argue that 50% tax rates or higher–say 70% or even 90%–forced the wealthy to go elsewhere is not exactly persuasive.

Others will argue that lower tax rates were a response to the growth of tax havens. That argument has slightly more merit, although I find it still weak.

Tax havens, however, grew fastest when taxes were lowest. I would argue that for the very rich, enough has never been enough.

Money has gone elsewhere despite lowering tax rates. Slick money handlers, slimy tax havens, and piggy politicians that cannot keep their snouts out of the lobby gravy train have seen to that.

We talk endlessly about the impoverished poor, about the promise of globalization. Here in the U.S., we talk endlessly about what do about those losing their jobs and those with no health insurance. We worry about the enormous debt we are creating, while we do everything we can to insure that those who have made that debt inevitable keep their cash, their plush hide-a-ways.

We worry and fret about how we should approach those with obscene amounts of money. Do we dare raise their taxes? Will we offend them? Will we be accused of trampling on the divine entrepreneurial spirit? Does not every individual have the right to amass billions? Hell, no. Every billionaire has countless little people to thank. He sits upon a mountain of struggling poor–top dog, indefinably noble, a testament to the principle we seem to hold dear: Greed.

Here is the taxation principle I would propose: No one should walk away with more than one million dollars a year after taxation. I think one million is more than generous. Money garnered from these silk purses would go a long way towards creating a more equitable world. Ask the world’s poor who now rummage through the world’s garbage heaps for a bit to eat or something to wear.

Oh, I am so un-American! Frankly, my dear, I don’t give a damn.

We have serious problems ahead–and the monstrous inequities in wealth that now cancer the planet will explode as we face global warming, resource depletion, rising seas, and ever-growing pollution. Rest assure, those with great wealth will build their mountain retreats while the rest of us scramble. We are facing a threat greater than any world war. If we do not confront it directly, then the show is over. We do have resources. Unfortunately, we are sadly lacking in will and moral stature.

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Honest accounting and deficits matter? Real change?


The following is the meme on the deficits for many Republicans. I do not recall any CBO thoughts being quoted so forcefully and completely on the budget by a Republican…or even mentioned much…in years. Supporters are tossing out the meme, usually with no numbers or per centages and a comparison. Prove it Mr. McCain, don’t just spit it out. There have been a lot of experiments since the 70’s.

Of course such spending is unsustainable…everyone knows that. How does one deal with today, post TARP? Our Republican friends toss out warnings and hope something sticks? What are they tossing…mud, hopefully.

Time quotes McCain on the new budget:

“The Congressional Budget Office report proves that the Administration has indeed engaged in a policy of generational theft,” said Senator John McCain. “The CBO numbers show the reality of the fundamentally flawed assumptions of the President’s budget and make clear what it really is: a risky, debt-ridden threat to the Nation. The CBO’s report projects deficits of over $2 trillion higher than what the White House predicted.”

“This staggering deficit threatens our children’s and grandchildren’s future and simply cannot be sustained,” continued McCain. “If the Administration had learned anything in the last week, I would have hoped that it was that the American people deserve an honest accounting of what they’re paying for. The profligate spending spree the Congress and Administration has been engaged in must be controlled. I call on my colleagues on both sides of the aisle to chart a different course toward real change and fiscal responsibility.”

Update 2: Bruce Webb says “Considering that just about $1.2 trillion of FY 2009 debt was accrued on Bush’s watch a fair reading of the CBO chart is that Obama would have exactly one year higher than Bush’s highest.” in comments.

Update: This is a graph from the CBO analysis:

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Robert Waldmann

This post about a post by Matthew Yglesias was, in part, motivated by a post by Ezra Klein on how he should’t care how many comments a post gets.

I have noticed that posts with titles including either “soak the rich” or “Social Security” get lots of comments. I don’t want to horn in on Bruce Webb’s turf (and besides he knows what he is talking about) so if another post of mine gets 0 comments, I think I will just entitle an open thread “Soak the Rich.”

I mean what was wrong with it ? It even had a (trying to be) funny title. You kids do remember the advertising slogan for Jaws II (“just when you thought it was safe to get back in the water” a perfect canonical brilliant wonderful use of illogic in the service of commerce) don’t you ?

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Diagnosing the Dynamics of Social Security

by Bruce Webb

Social Security is typically discussed in static terms, that is it ‘will’ or ‘is projected’ to get to this state or that at some fixed point in the future. This I think is an artifact of ‘crisis’ being seen as the result of a known fixed event, namely Boomer Retirement. And it is certainly true that what was until recently the largest demographic cohort in American history is scheduled to retire between now and 2031. That is we know the wave is going to crash the only question is how rough the surf is going to be when it does.

It is this sense of inevitability derived from a fixed or static event that has led us to decision making drawn from ‘will’ rather than ‘if’. But in actuality Social Security is not fixed in stasis by the demographics, it is instead a dynamic system on any number of axes and should be studied as such in our search for proper policy choices.

One dynamic axis is that of Report time, in that the projected outcomes vary from Report year to Report year. If the crisis was really a static one fixed in place by the demographics you would expect that any year of inaction would make the ultimate gap between cost and income that much harder to fill and/or make the onset of the gap be sooner than projected. This is turn would lead naturally to assertions like ‘sooner is better than later’ and ‘the longer we wait the greater the shock treatment needed’. And indeed this was the actual outcome of Report Years 1993 to 1996, Trust Fund depletion came ever closer in time and the cost of the fix needed continued to rise. But a funny thing happened starting in 1997, the arrow reversed and TF depletion started retreating back in time and the cost of an immediate fix started to shrink. Suddenly what had been a crisis fixed by demography became a dynamic system. Which should have changed the analytical question from ‘what should we do’ to ‘why is it moving the way it does’ and more importantly ‘can this go on’.

That analytical shift never seemed to happen, to the extent that anyone even noticed the reversal it tended to be seen just as variation around the known result of Boomer Retirement, because whatever the numbers showed Boomers were not getting any younger. But for those who chose to ask the ‘why’ and ‘can’ question the result was kind of stunning. Social Security was not static at all, its outlook changed depending on particular projections that varied dynamically not only within each Report but between them. 1997’s Intermediate Cost alternative was not necessarily identical to 2000’s which in turn were not those of 2004. Once you break through the idea that you are fundamentally facing a static crisis fixed by the demography you end up open to some new analytical avenues.

One is just to examine the various projections in sequence, what caused the 1998 result to be so much better than the 1997, why did you get the deterioration between 2005 and 2006 Reports and the improvement between the 2007 and 2008? Are these movements just variations around a trend line firmly aimed at crisis or is the trend line pointing somewhere else? And the answers to these questions show that the SSA’s Office of the Chief Actuary is wrestling with a live system where the inputs never quite come in exactly as expected and the assumptions remain open for modification. For example there was a change in projected depletion date from 2034 to 2037 between the 1999 and 2000 Reports with a corresponding drop in cost of an immediate fix from 2.02% of payroll to 1.92%. On inspection the cause of this dramatic change was a big change in input from actual 1999 economic performance, future numbers were if anything moved in a more pessimistic direction. Which is to say that 10% of ‘Crisis’ simply vanished and I might add never really came back. Further dynamic movements in inputs and assumptions have moved that date to 2041 and the payroll gap down to 1.7%. (And we can expect the marked slump in receipts first visible in early Fall to move those numbers at least slightly the other way).

More analysis of the dynamic (if not dynamic analysis) below the fold.

Once you break free of the stasis you are free to examine the dynamics of Social Security from several perspectives. One is the diagnostic, what caused the models to move in the first place? And is this improvement likely self-sustaining, i.e.will the patient simply get better on its own? Or is the improvement simply transitory with a reversion to full blown crisis ahead? Or perhaps the improvement is real but plateaued, just leaving us with a smaller problem perhaps requiring a different fix? Alternatively you could take a pro-active stance. Having learned that the models can move and having determined why they moved are there steps we could take to assist that movement?

All of these questions come almost automatically once you make the shift from a static projection of demographic crisis to a dynamic projection taking in all the moving parts and determining which ones are moving on their own and which need some exterior push. But it all starts with noticing that the system is moving at all.

Back in 2000 the answer to these questions was pretty easy. From 1997 to 2000 the Reports had significantly under estimated near term growth, moreover then wise men like Greenspan were busy assuring us that these growth rates were totally sustainable, that we could crank out 3% productivity forever. Which if true meant that there would be no Social Security crisis at all, if anything that meant the system was over-funded going forwards and the real discussion should be the amount of timing of FICA tax cuts. Well much of the bloom went off that particular rose when productivity crashed in Q4 2005 and with it stalled the steady improvement in outlook we had experienced right through the Spring of that year (which in retrospect explains the ease of the victory of the ‘ There Is no Crisis’ pushback on the Bush plan). And flashing forward to today is truly sobering, recent numbers show OAS having stalled and DI actually in retrograde. (Biggs has the February numbers in his post Slowdown Slashes Social Security Surplus and they are not pretty). On the other hand the 2009 Report is due out next week and so will give us a new moving target to examine.

(And speaking of moving target it will be very interesting to compare the GDP projections in the Social Security Report to those in the Budget to those in the CBO analysis of the Budget. The 2008 Report had Intermediate Cost projecting 2.3% Real GDP by 2017 and never improving from there over the actuarial window, while Low Cost had Real GDP at 2.8% with ultimate 2.9% long term. My bet is that we will end up splitting the difference.)

Much of the typical argumentation around Social Security was formed in place via a snapshot of where the system was at the time, typically from the early 1990’s when the projected collision of ‘deficits as far as the eye can see’ and Boomer retirement set up a fairly grim scenario. For example people often point out that Krugman was fairly pessimistic about Social Security in 1996. Well he had a right to be concerned the dynamics of SS from 1993 to 1996 were awful. But the earth moved under his feet by 1999 Baker and Weisbrot were fully justified in calling it a Phony Crisis, and this was still true in 2004. Given the totality of what we knew then and the Bush Administrations own projections of economic growth from his tax cuts there simply was no crisis at all. And there still isn’t, not really, even the big shock of the current recession/depression will probably be weathered fine by Social Security. But the situation is fluid, it is dynamic and needs to be discussed in those terms. We need to shelve the ‘will be’ and embrace the ‘may be’ and the ‘if so’.

(To anticipate some commenters. The current deficits projected for the next decade don’t create the same scenario as those of the late eighties, early nineties because the date of TF depletion has been time shifted forward in time in a way that is irreversible, it has now more or less been disconnected from the point of maximum Boomer strain on the system rather than coinciding with it as it used to project).

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Drug testing for those being bailed out


Associated Press carries some news on our perceptions and priorities. Now who HAS the money for more drugs…especially cocaine? Oh the irony!

CHARLESTON, W.Va. – Want government assistance? Just say no to drugs.

Lawmakers in at least eight states want recipients of food stamps, unemployment benefits or welfare to submit to random drug testing.

The effort comes as more Americans turn to these safety nets to ride out the recession. Poverty and civil liberties advocates fear the strategy could backfire, discouraging some people from seeking financial aid and making already desperate situations worse.

Those in favor of the drug tests say they are motivated out of a concern for their constituents’ health and ability to put themselves on more solid financial footing once the economy rebounds. But proponents concede they also want to send a message: you don’t get something for nothing.

“Nobody’s being forced into these assistance programs,” said Craig Blair, a Republican in the West Virginia Legislature who has created a Web site — — that bears a bobble-headed likeness of himself advocating this position. “If so many jobs require random drug tests these days, why not these benefits?”

Blair is proposing the most comprehensive measure in the country, as it would apply to anyone applying for food stamps, unemployment compensation or the federal programs usually known as “welfare”: Temporary Assistance for Needy Families and Women, Infants and Children.

Lawmakers in other states are offering similar, but more modest proposals…

Update: PGL writes about some of this in 2006 here

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Georgia is #1; Citigroup is worse than bankrupt

A heartfelt congratulations to the United State of Georgia (from whose namesake “University of” I got my Finance MBA), which today passed California in the battle for Most Failed Banks (9 v 8) in the past year.

In fairness, California did not have a failure until July, while Georgia waited until August.

The two states have been running virtually neck-and-neck, but Georgia’s third failure of this month, and second in two weeks, allowed it to close the month with the overall lead.

In other news, those who are still foolishly holding out the hope that p*ss*ng away several Billion more dollars will make The Big C solvent are invited to meet the reality of their asset mix. Or the staid, less optimistic version here (companion text here).

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Who Said It ?

Robert Waldmann

“All for ourselves and nothing for other people, seems, in every age of the world, to have been the vile maxim of the masters of” [the universe]

Note the placement of the close quotation mark and no peeking please.

Adam Smith (1776) “The Wealth of Nations.” Book III Chapter 4.

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