Obama, Bush, Mankiw: A Look Taxes, Spending, and Bull#@% in the Great Recession
by cactus
Obama, Bush, and Mankiw: A Look Taxes, Spending, and Bull#@% in the Great Recession
This post serves as a quick follow-up to my previous post on real GDP per capita growth and the tax burden. Let’s start with a few facts…. not random opinion, but facts.
1. The “Great Recession” began in December of 07 – that is, Q4 07.
2. If you look at Current Federal Gov’t receipts (line 1 of the BEA’s NIPA Table 3.2) divided by personal incomes and (line 1 of the BEA’s NIPA Table 2.1) you get this:
.
I dunno about you, but to me this looks an awful lot like a game of “Meet the new boss, same as the old boss.” Because both bosses seem to be cutting gov’t revenues, that is to say, taxes.
In fact, Obama seems to be a bit more prolific…. (Gubmint Revenues / Personal Income) = 0.22 in Q3 of 2007, and .2000 in Q4 of 2008, GW’s last quarter in office. That is to say, a change of 0.02 over 5 quarters, or about 0.004 a quarter.
But in Q3 of 2009, the last quarter for which we have data, (Gubmint Revenues / Personal Income) = 0.183, which distributed over the three quarters of Obama’s term so far, comes to about 0.005 a quarter. That is to say, the percentage of your income the gubmint takes away went down faster during the time Obama was in office than during the recession months when GW ran the show. Sure, a lot of that was stuff that started under GW, but it is silly to say anything along the lines that taxes have gone up since Obama took office and that’s what’s wrong with the economy right now.
3. The next graph looks at how gubmint revenues and gubmint spending (line 20 of the above mentioned NIPA table 3.2) have changed since Q3 of 2007, the last quarter before the recession. (I’ve adjusted for inflation using the CPI from the middle month of the quarter – data from FRED.)
I’m doing this at speed (deadlines!!!!) but if I didn’t screw up, it looks like this:
All of which is to say, the stimulus, such as it is, is (slightly) more of a reduction in gov’t revenues than an increase in gov’t spending. I had a series of posts last year about how the stimulus was badly designed, and indicating that I was afraid Obama was going to simply continue following the failed policies of the old administration. So far, Obama has disappointed me by doing just that. And we’re all paying a price.
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by cactus
cactus,
Your first chart is an amazing finding. Average effective tax rate falling from 22% to 18%! With no change in tax laws.
The only explanation I can think of is that since the top 10% of tax payers pay 71% of the taxes and higher average tax rates, http://www.taxfoundation.org/news/show/250.html (scroll down for table) those guys must be getting hammered income-wise in this recession.
I assume we are seeing the ‘tax cuts’ or ‘tax rebates’ portion of the stimulus. If you look at the second graph- the spending increase and revenue decrease are almost parallel. Is this the effect of the Bush tax rebate ‘stimulus’ and the various tax cuts in the Obama stimulus?
Doesn’t the recession have a lot to do with it? Wouldn’t there be a bit of backward bracket movement due to un/under-employment? What about the likely reduction in taxable corporate profits?
Clearly the stimulus could have been designed better & that has had an effect on government receipts. But I’m going to withhold judgment on his tax policies until the fight over the Bush tax cuts sunsetting.
sammy,
Three errors, and that’s excusing the use of the Tax Foundation as a reputable source of info.
1. I’ll pretend for a moment that the Tax Foundation is a reputable source, and note that the 71% applies to individual income tax data. Individual income taxes are only a part of the gov’t revenue figures used in the post. I haven’t worked out the figures, but it would be very, very hard to attribute the drop to changes in indiviaul income taxes.
2. “ With no change in tax laws. ” Think cash for clunkers, and all sorts of give-aways to banks and home buyers.
3. You’ve been reading this blog at least since before OldVet passed away, and you participated in some of the comment threads he did. Surely you remember his comments (from the inside of the IRS) about how different administrations had different policies to enforcing tax laws and regulations, which was made obvious all up and down the chain of command at the IRS. I’ve had post after post showing enforcement trumps changes in the law.
Jesse,
I think that explains the bulk of it.
Some Guy,
“Doesn’t the recession have a lot to do with it?”
You might think that, and it is often true, but not always.
Examples… consider the heinous recession that started in May 37 and ran through June of 38. Quarterly data isn’t available for that time, but from 36 to 37, income/receipts jumped from 6.7% to 8.9% (and stayed at 8.8% in 38).
But the same can be true under Rep admins. For instance, Ike’s last recession started in April of 60. But income/receipts rose from 22.2% to 22.8% from 59 to 60.
“Wouldn’t there be a bit of backward bracket movement due to un/under-employment?”
Yes. Bear in mind… the first graph was gov’t receipts / personal income…. which is a ratio. If people lose jobs, their incomes drops to a pittance, but some of their taxes also go away.
“ But I’m going to withhold judgment on his tax policies until the fight over the Bush tax cuts sunsetting.”
Of course. 3 quarters does not a presidency make. Every President, even the good ones, were able to string together at least 3 lousy quarters apiece.
But… it is instructive of his first instincts. And from a different perspective, namely the “let’s discuss the issues and come up with lessons learned,” it also is instructive in the face of what the “experts” are saying – consider Mankiw’s op ed the other day.
sammy:
Actually, lets stick with the top 1% of the taxpayers. Using 10% includes too many of the middle class taxpayers who lost out the 1 percenters when the 2001/2003 tax bills were passed. The usage of of the 10 percenters is disingenuous as it is an attempt to hide the truly rich in income or those making >$500,000. I like to use the Tax Policy Center, Brookings and Urban Institute. They are a little more centrist than The Tax Foundation.
$200,000 in the late sixties was considered rich in income then and it was for that group the AMT was passed. It appears a couple of hundred of them were able to avoid all income tax . . . hence the AMT. Given inflation, etc. $200,000 is not rich anymore which is why I will not discuss them and neither did they benefit greatly from Bush’s taxcuts. In any case if you did inlude them, the percentage would not be 71% of all Federal Taxes. It would be 48% of all Federal Taxes would come from this Group. 0f the 1 percenters (>$500,000), the percentage of all Federal Taxes paid would be ~30% and substantially less than what you claim. as Taken from here: http://www.taxpolicycenter.org/numbers/displayatab.cfm?DocID=1817&topic2ID=40&topic3ID=81&DocTypeID=1 If we look at those making >$1million, the percentage of all taxes paid drops to 22%. I guess those 1 percenters need us anyway.
The stimulous is now a reduction in government revenues? It’s like you stopped trying.
but it would be very, very hard to attribute the drop to changes in indiviaul income taxes.
Individual income taxes are 44% of revenue, with Social Security 35% for a combined 80% of revenue. This has to be where you look. http://en.wikipedia.org/wiki/2007_United_States_federal_budget
Cash for clunkers and bank giveaways = no change in tax revenue. In fact c for c is taxable. Home buyer tax credit – I’ll give you that, but since it is only available to certain income levels and subject to restrictions I doubt it accounts for the changes you discovered.
The drop in revenue is due to lack of enforcement? I call BS, and suggest you look elsewhere.
run,
The difference between our two figures is that yours includes payroll taxes, primarily Social Security, which, as we hear over and over here from coberly and Bruce, are just prepaid retirement savings and not part of the budget.
Leaving that aside, using your sources, the top 4.7% ($200K+) account for 48% of revenues. The top 17.6% ($100K+) account for 73% of revenues. So if we are looking for why revenue is dropping, I suggest we look there.
I think you are overlooking the impact of revenue shortfall from payroll taxes being lost due to unemployment and under employment. There are many now working for cash, not more payroll tax collections. Now looking at income tax revenue drops for the same reasons, and we get a big drop in revenue. Adding in the loss in revenue from corporate and business taxes, and we can probably account for the vast majority of revenue loss.
It is definitely NOT ENFORCEMENT differences.
Cactus,
I’m going to help you out here because you’ve got part of it right, but you’re missing part of the story.
First of all, the bulk of the drop in receipts happens in 2008Q2, which is the quarter in which most of the Bush tax rebate checks went out. The rebate checks were counted as a refund (i.e. subtracted from gross receipts to get net receipts).
Second, this drop in receipts in 2008Q2 makes all the other changes in receipts attributable to some program look small by comparison. The homebuyer tax credit is nothing compared to the rebate checks. Even adding all of those programs together can’t touch the rebate checks.
I’m not 100% sure, but I think Cash for Clunkers was an outlay. (Not that it matters much, it is miniscule next to the totals here. It’s not even listed as a separate item in the montly Treasury report–it’s probably just wrapped into “other” somewhere.) I am 100% sure that TARP et al. were outlays (under Department of the Treasury).
Finally, and perhaps most importantly for your interpretation, your 2nd chart shows the cumulative change. Most of the change in receipts happens in 2008Q2. After that your two lines get closer together. That means that post-2008Q2 receipts fell more slowly than outlays grew. In fact, since Obama took office, it looks like the gap that he inherited has pretty much closed. If the rebate hadn’t happened, your lines probably would cross. The drop in receipts post 2008Q2 is fairly moderate and is almost entirely explained by the drop in individual income tax and corporate income tax receipts for FY2009. Since you are looking at receipts/PI, the drop in personal income tax receipts will affect that percentage only slightly, but corporate profit taxes will affect that percentage quite a bit.
And while enforcement may explain part of it, I don’t think it is that much of a stretch to argue that corporate profits really were down this year.
I think that pretty much covers it.
Cantab,
“The stimulous is now a reduction in government revenues? It’s like you stopped trying. “
???? Listen, most normal people use the words “tax cuts” as short hand for a set of events with the following consequences:
1. a smaller percentage of taxpayers’ income is taken from them
2. a smaller percentage of taxpayers’ income is given to the government
It doesn’t mean the fish people of Mulgar have come to Earth with a new recipe for bagels, or that a bookshelf in Newt Gingrich’s residence has driven off in in the hearse that carried Reagan’s body or whatever crazy $#% you’re about to bring up next.
Now, if you’re able to grasp that, the next thing to note is that the “stimulus” included “tax cuts.”
So if a tax cut reduces revenues, and the “stimulus” included “tax cuts” it should be understood by a normal person of normal intelligence that yes, among the various things the stimulus did was reduce the share of people’s income that went to the government.
Bill,
I am not working off the Treasury’s numbers because, frankly, in my opinion they are manipulated. I am using the NIPA figures. And we reach different conclusions in part because of that.
This line in your comment is key:
“First of all, the bulk of the drop in receipts happens in 2008Q2”
The NIPA tables show it isn’t entirely true. The figures I used would have me restate it thus:
“The biggest drop in receipts happens in 2008Q2”
There’s a difference between it being the biggest of eight and only one that matters. As an example… the reductions in 2008Q4 through 2009Q3 (0.25%m 1.17%, 0.27%, and 0.27%, respectively) sum up to about the same drop as in 2008Q2. (I assume we’re talking the graph that looks gov’t revenues as a percentage of personal income.)
Which is to say, regardless of what the Treasury thought going in, and how it is attributing money, the following is either not true or there’s a lot else going on that neither of us is thinking about:
“Even adding all of those programs together can’t touch the rebate checks. “
And one more comment…
“In fact, since Obama took office, it looks like the gap that he inherited has pretty much closed.”
At no point have I stated that Obama is relying entirely on one thing or the other, or that GW did. But over the past two years, the change in gov’t revenue has slightly (and I did use the word “slightly” in the post) exceeded the change in government spending. Obama and GW may have relied on different mixes, but the mixes are not sufficiently different, say, to justify the former head of GW’s CEA writing an op ed piece sayiing essentially, “You know, boys, its time for us to try something different. I’ve got an idea, let’s stop this government spending nonsense and go with tax cuts.”
Bear in mind that some of the tax cuts Obama put in place are only going to hit in 2009Q2 for the same reason that GW’s big club came out in 2007Q9 – that’s when most people pay their income taxes. The rebate on buying a house, for instance, is not being taken out of people’s biweekly pay check like Social Security or the FIT estimate.
Sammy,
If I stated that the drop in income was unrelated, I mistated things. Obviously, reductions in income matter – its an automatic stabilizer, after all. But… just this week we hear that the IRS gives Citi an exemption to cut its taxes by billions… these give-awaysare billions here, billions there… its real money.
But you’re missing my whole point… let’s assume there have been zero give aways, and the entire drop is due to drops in income. Its still a reduction in your tax burden. Its still the prescription that you would suggest we use to get us out of a recession and create massive growth.
And there’s no particular reason to assume that automatic stabilizers cannot be over-ridden during a recession. As a prime example, see the big increase from 1936 to 1937 and 1938. And BTW… that came after FDR had already doubled the tax burden since he had taken office, whereas the current reductions came during a worse recession that in turn came after many years of tax cutting.
Sammy:
Semantics and as my reference shows you are wrong.
cactus,
I haven’t had all my caffene this morning but this line grabbed my attention:
“Its still a reduction in your tax burden. “
My tax burden hasn’t changed. I don’t remember anything that has changed what is withheld from my pay stub, nor have I suddenly been handed a check. The law hasn’t changed so my tax burden hasn’t either. Your first graph is exactly what I would expect as we went from 7% unemployment to 10% now. Less income, less taxes…and the last dollor is taxed a lot differently than the first….
Islam will change
Buff,
The first graph is the government’s take from people’s income. It doesn’t change just because income goes up or down (as a result of unemployment or anything else). It goes up or down because the share that goes to gov’t changes.
And no, the guy who gets a pay check every two weeks is not the one changing that percentage. Recall from the various posts on tax evasion that …( http://www.irs.gov/newsroom/article/0,,id=154496,00.html):
“one percent of all wage, salary, and tip income is misreported, contributing an estimated $10 billion to the tax gap. In contrast, nonfarm sole proprietor income, which is reported on a Schedule C and is subject to little third-party reporting or
What are you talking about? I am wrong about what?
cactus,
I think you are missing the entire point of your finding. As I mentioned in my first post, using your graph, the effective average tax rate for the citizenry has dropped from 22% to 18%. That is huge (25%). Again, something is going on here. I’m not buying suddenly lax enforcement, that’s just a tax cut for tax cheats who are not a big voting block so there is no political payoff. It’s got to be in the brackets. BTW I’m not being partisan.
cactus,
I think you are missing the big point of your finding. The effective average tax rate for the US has dropped from 22% to 18%. That is huge (25%) and a huge drop in government revenues. I am not buying your theory of sudden lax enforcement. That is just a tax cut for tax cheats, which are not a large voting block. The answer has to be in the brackets, with their differing effective tax rates. BTW I am not being partisan here, I’m in puzzle solving mode. I haven’t seen your finding discussed and you could be on to something that hasn’t broken yet.
http://news.yahoo.com/s/ap/20091217/ap_on_go_co/us_afghanistan_contract_oversight
Nothing so much fun as wasting as much money as possible on a war going nowhere. That’s much better than doing anything for contemptible “little people” who need to be left without medical treatment to die in the streets. Serves ’em right for not being rich.
Sammy,
I repeat… reductions in income will reduce the tax burden. But this is a reduction in the percentage of income going to the government. In other words, the pie got smaller, and the government got a smaller share of it. And while cheating makes a difference, in the short haul like this, it probably isn’t the main thing. So what is going on? Well, some percentage of people are moving into lower tax brackets. But the giveaways are clearly bigger than you think.
Frame of reference from our recent Maryland expeirence.
Maryland tried to close the budget shortfall by creating a millionaire tax bracket, raising the top marginal income-tax rate to 6.25%. Cities such as Baltimore and Bethesda also impose income taxes, the state-local tax rate can go as high as 9.45%. The sales tax was also increased 20%.
One-third of the millionaires have disappeared from Maryland tax rolls. In 2008 roughly 3,000 million-dollar income tax returns were filed by the end of April. This year there were 2,000. Either they moved out or their incomes declined below $1 million.
As the Income data is seasonally adjusted there clearly may be issues there. I’d be curious to see the actual gross numbers.
Further, in looking at the income data, Wages are basically flat while Transfer Receipts have moved up. The differential in tax rates between the two types of income are what? Enough to shave 1 – 3 % off the % taken of ‘Personal Income’?
Well, I try to make a civil comment to try to refine your observations a little and you open with:
“I am not working off the Treasury’s numbers because, frankly, in my opinion they are manipulated.”
Ok. Well, that is a show-stopper, isn’t it. I can’t prove that it’s false. Well played.
I referenced the Treasury data because I did look at it to give myself a better idea of the overall (monthly, not seasonally adjusted) picture and to try to verify some of the categories that various items are classified into and what kind of magnitudes we’re talking about.
But I guess all that is unimportant. Honestly, I’ve been more critical of posts where I have been of the opinion that your analysis has been incomplete. Here, I’m acknowledging that you have an interesting point, but that your interpretation needs a little refinement. And this is the best you can do?
And yes, I have a pretty strong hunch that seasonal adjustment factors might play a role here because of the very strong seasonal nature of taxes and spending and the somewhat more random way in which the stimulus has been timed. As an econometrician, you can surely appreciate that this would at least be worth looking into.
But you cannot (and did not) dispute that corporate profits essentially disappeared in 2008Q4 and 2009Q1, and as a result corporate profit taxes fell precipitously. Whereas the drop in personal income tax receipts has less effect on receipts/PI, corporate profit taxes do have an effect–a much larger effect than the first time homebuyer’s tax credit.
Seriously. Good luck finding the homebuyer tax credit, cash for clunkers, cash for caulkers (when that happens), etc. in the data. They’re pretty small.
Oh, and one more thing:
“But over the past two years, the change in gov’t revenue has slightly (and I did use the word “slightly” in the post) exceeded the change in government spending.”
Yes, but in the last year, spending growth has exceeded the reduction in revenue (the lines getting closer together). By my calendar, Obama’s been around for 11 months of that and not the preceeding 13. It may seem odd for me to be telling you to give the Democrat a chance, but there you are. I call them as I see them, cactus.
Bill,
I probably could have responded in a more measured way, but your comment came after Cantab’s, and he has a history of trying to aggravate me… and apparently it can be successful.
About the Treasury… I’m not sure I necesarilly trust how they’re allocating what is going where at this time. Perhaps that’s a better way to state it than its being manipulated. Under the circumstances, Treasury’s role is very politicized. As a key player in this whole mess, they have an incentive to present a story in a favorable way to themselves.
Restated… historically, in this blog, I have tried to avoid taking people or institutions at their word, prefering to (if possible) find data that might tell the story. Unfortunately, an institution’s presentation of data itself can be part of their own view of the situation, and Treasury is a part of the story the way it hasn’t been part of other recessions in my adult life. I’m cynical by nature, and I try to avoid getting stuff from the filter of those who have some reason to push one or another story line.
I’m focusing on the NIPA tables because they’re bigger picture, and thus from what I can tell, more independent of any of the story-lines anyone wants to push.
I also agree with you that there is a seasonal component. Big movements are more likely in Q2; I presume the home buying credits will show up next April 15th. As I stated in another comment downthread, it simply doesn’t show up in anyone’s biweekly pay stub.
But none of that obviates what I’m trying to state in the post (and which clearly I’ve stated badly): sure, GW and Obama have not behaved identically. But the difference is not sufficient to state “well, its time to try tax cuts because we’ve been focused on something other than tax cuts and that something else isn’t working.”
As I also noted in another part of the thread – sure, some of this is automatic stabilizers at work. (On taxes you collect less when people make less, on spending unemployment insurance kicks in when people are out of jobs.) But automatic stabilizers don’t negate the fact that we’ve cut taxes and increased spending (both).
“It may seem odd for me to be telling you to give the Democrat a chance, but there you are. I call them as I see them, cactus.”
I also call them as I see them. No doubt sometimes I call them too fast, or make my call too imprecisely. But I’m not going to support the Democrat because he’s a Democrat. I’ve done a number of posts that show that on many series, Dems outperform Republicans, on average, but I’ve also happily put up the series that show the opposite. I don’t either party anything (I like you because though you believe the other side of what I do); the fact that I just spent 8 years excoriating GW doesn’t mean I have the least bit of interest in giving Obama a free ride, and I’ve been criticizing things I didn’t agree with him (e.g., Christina Romer) about since before he took office.
I think Obama has already made the recession worse and prolonged it. My guess is that the recession end will be dated as June or July, but I think continuing TARP and coddling the banks just made it worse. I’ve been stating that all along. I could be wrong, and unfortunately there’s no proof either way, but I’m doing my best to check. And like I said, so far the response from Obama, at the 35,000 feet level where I can see data, looks a lot like the response from Paulson.
Mcwop,
Those numbers need context. What has happened in other states that did not impose the big tax hike? Because, and I don’t want to alarm you, but we’ve been having a huge recession which may have affected the incomes of a very, very large number of people.
scatter,
Agreed the data is no doubt seasonal.
“I’d be curious to see the actual gross numbers. ” If you mean the data I used, the links to each of the NIPA tables are in the post.
“Further, in looking at the income data, Wages are basically flat while Transfer Receipts have moved up. The differential in tax rates between the two types of income are what? Enough to shave 1 – 3 % off the % taken of ‘Personal Income’?”
I apologize, but I just ran out of time and can’t answer this right now. (Deadlines.) I’ll try to get to this later, but its possible this is it for me until next week.
I get that you are talking tax as a % of income. So am I.
But the giveaways are clearly bigger than you think.
What giveaways? Obama had a $200B tax cut as part of his stimulus (the other $75B was just a postponement of the AMT), which began at 2Q 2008 and is spread over 2 years (this includes the homebuyer tax credit). This is approximately $25B per quarter, which is far from accounting for the $275B shortfall in Personal Current Tax Receipts from 3Q 2008 to 3Q 2009.
So we are left with your statement:
Well, some percentage of people are moving into lower tax brackets.
Bingo! In fact the entire Current Receipt shortfall of $429 billion from 2007 I to 2009 III is accounted for in the Personal Current Taxes line (-$488B).
Like I said, you have made a significant discovery of data. I’m on your side in terms of wanting to explain it, and it is within our grasp. It’s clear to me that revenues were highly dependent on a relatively few taxpayers, and when/if those guys income drops it would explain both the reduction in the average tax rate and total receipts. (Also, see mcwop below).
And where does the BEA get data on receipts and outlays? I mean seriously. You think that the Treasury is fudging the numbers on what receipts are increasing or decreasing and which outlays are increasing or decreasing? But you accept the aggregate numbers that come through the filter of the BEA?
Wow. I’m curious about what alternative you would propose to try to get any sort of sense of how individual programs are doing. If you have no alternative, what then? Just shrug your shoulders? Make stuff up? Toss out accusations? Really, I’m starting to wonder why I’m bothering here.
Look it up, cactus… your vaunted NIPA data comes from the Treasury Department!
http://www.bea.gov/national/pdf/NIPAhandbookch1-4.pdf
Cash for clunkers was about $6billion out of a $3 trillion dollar budget. That’s about 1/5 of one percent. The homebuyer’s tax credit will probably be a similar order of magnitude. Even if it was five times as large as C4C, it’s only 1% of the budget. You’ve got to add up a lot of those programs (most of them even smaller) to even come close to the obvious causes for the revenue drop.
Or do you dispute these magnitudes because you can’t trust Geithner?
If so, I give up.
If anyone is interested, BEA has provided an analysis of ARRA impact. See page 4 of the first link below. It’s broken down by current receipts, current expenditures, and net federal government savings; presented for the first three quarters, 2009.
Impact of the ARRA on Selected Government Sector Transactions
http://www.bea.gov/scb/pdf/2009/12%20December/1209_gre.pdf
From the
Survey of Current Business
December 2009
http://www.bea.gov/scb/index.htm
That is the point, Obama did not cut revenues, the recession did because it lowered incomes.
Good link, MG. This supports what I’ve been arguing above, namely that since Obama took office the stimulus has been coming more from expenditures than taxes, and not just slightly more as cactus claims. By the data you cite, if you add the decline in tax receipts to the increase in spending that is directly attributable to the stimulus (ARRA), the breakdown is about 60% on the spending side and 40% on the revenue side. A three-to-two ratio. That’s more than “slightly” in my way of thinking. Your mileage may vary.
Of course, the BEA gets that data from the Treasury, so cactus might not trust it. Who knows.
Thanks, William. I thought it would help.
Glad you engaged others in this conversation. Deeply appreciated.
Cactus,
The government picks our pockets. Our pockets are empty so the pickings of the government are less. They did not cut our taxes, rather we have less money for them to snatch away from us. This is not anything like a tax cut.
Cactus,
I probably could have responded in a more measured way, but your comment came after Cantab’s, and he has a history of trying to aggravate me… and apparently it can be successful.
I don’t try to aggravate you. Your columns are a joke, you’re hear, i’m here, I read your junk and object to it. Go over to Daily Kos (take Bruce with you) and I won’t read your junk or comment on it.
I’m taking a short cut here because I have only a brief time…
If the gov’t takes 150 million (with an m) away from the NEA (which as I recall would be most of its budget) and takes 150 million away from the DoD (a drop in the bucket) to balance the budget, it is not balancing the budget equally on the backs of the NEA and the DoD.
Put another way… reduce Bill Gates’s taxes by $1 million this year, or reduce mine by half of the same amount (i.e., hand me a check for somewhere around $475K) and where do you think the impact is going to be felt the most?
The absolute change in expenditures is going to be larger just because its a bigger piece of the pie (hence the monster deficits since 2001).
If you look at the ARRA impact, summed over three quarters, of current receipts it comes to 10.4% of the amount of the receipts value in Q1 of 2009. (I’m ignoring inflation, but its trivial.)
The same calculation for expenditures… the impact of 3Q worth of spending comes to 11.2% of the total expenditures for Q1 of 2009.
One last thing… of course the BEA gets some data from the Treasury and a zillion other sources. But the question is how it looks at that data and at what level.
As an example… you can find data on federal gov’t expenditures and federal gov’t receipts on both the OMB sites and the BEA. A lot of it originates from the OMB, but the BEA still reports different numbers. Reason… they try to back out things that go in for political reasons (e.g., timing). And that’s every year. With the current mess, there’s even more politics than usual.
OK, at least some of this – oh, let’s call it “discussion” – is about how to use words. Discussions over how to use words often turn out to be attempts to “win” an argument through defining terms, rather than through showing evidence. Which is crap, and just about as common as crap, too.
If you need to insist on “tax cut” rather than “revenue reduction” and define “tax cut” in a particular way in order to win the argument, you may need to reconsider the argument. As cactus notes, “I didn’t get a tax cut” is irrelevant to macroeconomic performance. It is also irrelevant to this discussion. A good government doesn’t make policy for your specific benefit. It makes policy for the general good. I realize many people lose sight of that, but that doesn’t make them smart.
Also note that the original post was about revenue and revenue per capita, not about tax rates or marginal tax rates. As in–
“All of which is to say, the stimulus, such as it is, is (slightly) more of a reduction in gov’t revenues than an increase in gov’t spending.
See? No rates. No tax cuts. Revenue.
Now, on to things that actually matter. Yeah, automatic stabilizers are a considerable part of what happens to revenue and spending through the course of a business cycle. Automatic stabilizers don’t require new legislation, so they start to work early, which is a big help in dealing with the business cycle. Automatic stabilizers, by helping restrain growth when the economy heats up, probably reduce the severity and maybe the frequency of recessions.
So maybe what we need are far more powerful automatic stabilizers. As has been noted, part of the action is not the result of specific policy changes, but just the natural run of things during a recession. Yep, so setting aside all the silly efforts to score points, let’s consider what a better set of stabilizers might look like.
We want big multipliers. Small government types, take note. The bigger the multiplier, the smaller the size of the program needed for the same macroeconomic impact. So giving up the fiction that tax cuts are the best medicine for treating recession (or education or scalp itch) in this particular instance would have the upside – for small government fans – of smaller government, relative to the impact on the business cycle.
We might want to do some good. The mean-spirited among us like to argue that people who don’t have a job or who lose a job are somehow bad people, but the mechanism of recession makes it pretty clear that isn’t true. A waitress at a restaurant near a factory that closes down didn’t change her behavior, and didn’t work in a business that needed “wringing out” in the sense that the housing sector did. Nonetheless, her income falls during recession. So we might want to build in stronger income supports during recession. Soup kitchens are under a tremendous strain, so we might want to feed more indigents during recession.
For those who want to include taxes, OK, though again, the multiplier may be small. Doesn’t matter though, because if it is automatic, the policy will be balanced through the business cycle. What goes down will go up. There is, however, a benefit to choosing among taxes to see which have bigger multipliers and focusing on them. That would mean creating a tax system in which more revenue is collected through taxes with high multipliers. We would want to consider other goals, too. If income taxes have a greater impact on behavior at the low end of incomes than the high end (just an example, not a statement of fact), then increasing taxes on lower income households would work better as a countercyclical measure, but is a bad idea for distributional reasons.
Oh, and Cantab, cactus lives here. You are just a guest. You seem to misunderstand who leaves and who stays in a situation like that. No surprise, since you also seem to misunderstand how the economy works, misunderstand what evidence is, and misunderstand how logic works. Constant efforts to clear these other things up for you don’t seem to have made much difference, but let’s try on just the narrow point of who leaves and who stays. cactus is on the masthead of the blog. He stays. You are a propogandist who shows up in an effort to distract other readers from valid points that don’t suit your dogma-masters. Maybe you should show yourself the door.
Cactus – Sammy said what I was trying to get at. The last dollar earned is tax ed at a higher rate than the first. SO I would expect exactly what this graph shows in a recession….
Islam will change
cactus,
I disagree with that definition. Tax cuts (by the Feds) mean the tax rate changes. Nothing more. The fact that I pay less % of my income or less total, when my pay drops from $100K to $50K, does NOT mean I got a tax cut. They have not cut our taxes. The fact they are bringing in less revenue with a progressive taxation system is absolutely no surprise in a recesssion.
Islam will change
Cantab,
I agree with kharris – cactus is on the masthead and has been a main poster for years. I may disagree with his interpretation of the data, but I try to do it respectively (when I can) and it never crossed my mind to ask him to leave (especially for a hate site like DKos). You can snark or be sarcastic all you want but logic and data is preferred. So its you who will get banned and Rdan has banned people before.
Plus it usually very easy to punch holes in the arguments here at AB with just a little amouunt of logic – using their own data. The data BTW, which has never been manipulated by posters here (unlike the AGW floks…)
Yea had to take that last swipe… 🙂
Islam will change
Fair enough. Outlays are larger (much larger these days) than receipts, so on that basis the absolute value of the stimulus should be that much more skewed towards spending just to keep things “even.” However, I think your illustration is a little weird. Sure a tax cut of the same amount would affect you and Bill Gates differently. But can you use that to argue that changes in spending and taxes need to be proportional to their levels in order to keep things “even”? I’m not sure that anthropomorphizing the NIPA accounts is going to always lead to sensible conclusions.
Be that as it may, if you want to compare the spending account and the revenue account to Bill Gates and you and draw normative conclusions from that, who am I to stop you?
But I can’t let this one go by without objecting.
“As an example… you can find data on federal gov’t expenditures and federal gov’t receipts on both the OMB sites and the BEA. A lot of it originates from the OMB, but the BEA still reports different numbers. Reason… they try to back out things that go in for political reasons (e.g., timing). And that’s every year. With the current mess, there’s even more politics than usual.”
Not quite right. The primary source for quarterly data is the Monthly Treasury Statement. Annual revisions bring in data from OMB. Reason: It’s not OMB’s job to track the monthly ins and outs. It’s the Treasury’s job (via the IRS). The OMB is part of the Executive Office of the President responsible for crafting the budget. They don’t handle the money. The annual revisions reconcile the data from the different sources.
Now, as to the differences in what is reported. There are simple explanations. You realize that NIPA accounts are based on the calendar year while the OMB deals with the fiscal year, correct? For example, I’m looking at Table 1.1 from OMB’s historical statistics and it is clearly based on the fiscal year, while everyone knows that NIPA data is based on the calendar year. There are adjustments made, and certainly the quarterly NIPA data is also seasonally adjusted (whereas the Montly Treasury Bulletin is not). But to suggest that there are overtly political reasons for the adjustments or that there is some sort of manipulation going on is over the top.
It’s all described right here:
http://www.bea.gov/scb/pdf/2008/03%20March/0308_fedbudget.pdf
That’s it. That’s all. If you don’t want to read the link or choose not to accept it, that is your choice. I’ve said all I can.
You can be cynical. But you can’t thumb your nose at volumes of methodological summaries about how this data is gathered, analyzed, and reported by just waving an accusation that it’s all political and not expect me to call you on it.
Bill,
I was actually thinking of exactly the doc you wrote… or rather, one from an earlier year that I quoted extensively in a post a while back. Timing is only one issue, as this quote from this year’s doc that you cite indicates:
“The NIPA estimates differ from the budget for three primary reasons:
●
Coverage. These adjustments are necessary because certain transactions that are excluded from the NIPAs are included in the budget (and vice versa).
●
Netting and grossing. These adjustments are necessary because certain transactions are recorded as offsets to outlays in the budget but are recorded as receipts in the NIPAs.
●
Timing. These adjustments are necessary because in the budget,
most receipts and outlays are recorded on a cash basis, while in the NIPAs, some transactions are recorded on an accrual basis.”
There are also some differences (in some years, not small) having to do with gov’t run enterprises such as the Post Office and the TVA.
And budget also, frankly, leaves off “off-budget” items that come up in supplementals. (For reasons that have nothing to do with anything except politics, since about 2004 the need to provide funding for the Iraq War has been considered a surprise every year, and in more recent years, so have quite a few dollars for military modernization.)
This isn’t a great analogy, but consider the difference between the accountants who do the tax work and the accountants who do the investor relations work at your typical Fortune 500 corporation – the underlying data is the same, but one group is out there with the goal of making profits look as big possible, and one group is out there with the goal of making profits look as small as possible, and as a result, they come up with very, very different numbers. The BEA’s purpose and the OMB’s purpose are similarly different. The BEA is a piece of the Dep’t of Commerce, and is a bit more insulated from the political games.
Which brings us to the Treasury… this year, more than most years by far, the Treasury is a player in the proceedings.
Buff & kharris,
Occasionally (and that includes this week) there are behind the discussions among the Bears about one or another particularly eggregious commentator. Cantab/aaron came up this week.
FWIW, and I don’t think I’m out of line giving away a little housekeeping secret, the biggest defenders cantab/aaron has among the writers at AB are Bruce and I. By that I mean… we’re the ones who feel most strongly that he should be allowed to continue to peddle his nonsense here. My guess is that cantab will never in a million years have the mental capacity and the necessary introspection to figure out why.
Don’t forget the seasonal adjustment of quarterly NIPA data, which given the massive inflows around April 15 is not trivial (and at times probably as significant or more significant than the other differences… at least in the quarterly data [though not the annual data]).
And if you check that link I gave and from which you quoted, you will see that over the last 3 years, the NIPA has pretty consistently come in about 3% higher than the budget on both the expenditure and the receipts side. Some variation from year to year, which is perfectly understandable. But it seems pretty consistent. Obviously the netting and grossing differences explain why NIPA gives a higher number. I just cannot understand why you continue to insist that these differences are political games. You can’t just accept that there are good reasons for NIPA to not net things out and for the Treasury to net things out that have nothing to do with politics? That’s what I don’t understand about your position, cactus.
And while it may seem as if this is much ado about nothing, the fact that this is where you took refuge when I questioned your interpretation of the data reveals something about your own agenda and approach to the data.
After all, if the differences between NIPA and the budget are reasonably consistent (and transparently reported in the link I supplied and from which you quote), then how do they matter in the trends you showed in the original graph?
Differences between NIPA and the budget are differences in levels, not differences in trend growth rates. Yet when I questioned your interpretation of the seasonally adjusted quarterly data, this is where you took us, saying that the difference between NIPA and Treasury is politics. Even if there is a shred of truth to that, it has almost no bearing on the question at hand.
Now, one more thing and then I’m really done (I hope). Bush’s tax rebate came almost all at once. Obama changed the withholding tax to complement his “Making Work Pay” tax credit. That tax credit is more significant than any of the other red herrings you threw out (C4C, the homebuyers tax credit, etc.) So you are right that Obama did cut taxes. (Though the drop in corporate profits and the associated tax revenue is a large part of the story too.) But the way you present the material obscured rather than illuminated some important issues (you never mentioned “Making Work Pay” or the timing issues related to it). And that’s really what I often have a problem with in your posts. You make vague generalizations and then when you’re called on it, you change the subject or say, “well, that’s all just political games.” No, it’s not. I expect more than that from you.
In short, we agree that Obama has cut taxes and that there are difference in NIPA vs Treasury data. We disagree on whether Obama’s stimulus is more then “slightly” skewed toward spending (I think it is more than “slightly”, you acknowledge only “slightly. We both cite data; let the reader decide.) We disagree on how political and meaningful the differences in NIPA vs Treasury data are. I’ve looked at the data in the link I gave and anyone else can as well, and I have argued that it explains levels more than growth rates. You’ve given a couple of questionable analogies.
And finally, cactus, supplementals are not off-budget. The Iraq war has been fully accounted for in the outlays reported in both Treasury and NIPA data, and you know it. In the same way, the TARP was not included in the president’s budget submitted to Congress either. (We didn’t know in February ’08 that we would need it in the fall.) And yet, just look at the data from the Treasury. […]
Well said! mcwop
kharris:
Thanks
You made the day a little bit brighter
hat is either just sloppy or willfully trying to mislead. It seems like every time I take issue with a point, you throw out another unsubstantiated claim to throw me off the trail. “
You don’t have to buy into my view of politics… outsiders can disagree the motivations of insiders. But the point of the post is that to a large extent, we’re living in a “meet the new boss, essentially the same as the old boss” when it comes to saving the world. (As I recall, that’s stated in the post.) The same giveaways to the banks with nary a thought to Main Street, and the same view that reducing the amount that is paid in taxes is as important as increasing the government expenditures.
And in the end, I try to rely on data, not what anyone says because I’m a cynical bastard who doesn’t trust anyone. I also don’t start with the assumption that people should trust me – in my posts, I may try to provide some explanations, but I alaways try to be clear and precise about where the data comes from and what I’ve done with it so that anyone can replicate it. And as I noted upthread:
“If you look at the ARRA impact, summed over three quarters, of current receipts it comes to 10.4% of the amount of the receipts value in Q1 of 2009. (I’m ignoring inflation, but its trivial.)
The same calculation for expenditures… the impact of 3Q worth of spending comes to 11.2% of the total expenditures for Q1 of 2009.”
Now, whether this will continue going forward or not, I have no idea. I am neither (and you may find this hard to believe) a fan of the Democratic Party (or any of its factions) or Obama, but I am surprised that Obama has not hewed more closely to some of the, ahem, principals of his Party thus far.
But can you see that many of the differences between the sources are in levels, not growth rates, and therefore basically irrelevant concerning the interpretation in the original post?
Or at least can you just admit that when you said:
“And budget also, frankly, leaves off “off-budget” items that come up in supplementals.”
that you just made a careless mistake?
Supplementals are still on-budget. Off-budget refers to specific programs (with Social Security being the largest) that tie specific revenues to specific outlays. The war has been largely financed with supplementals, but they are not “off-budget.” I mean, if I were the cynical type, I would think you’re trying to whip up some sort of conspriacy angle here by getting your readers to believe that the war isn’t really being counted in the economic statistics or that it is part of the difference between the different sources.
But it’s just not true. The term “off-budget” refers to funds that are kept separate by law (Social Security and the Post Office). This is the only official definition you will find. However, a Google search reveals that many opponents of the war have equated “off-budget” with “supplemental.” But they are just being sloppy with the terms. Supplementals are outside of the budget process, but they are not “off-budget” in an accounting sense.
How can you tell? Look at the data. When the war begins, which series ratchets up dramatically–by hundreds of billions of dollars? Is it the on-budget series or the off-budget series?
On-budget. Go check it for yourself. Supplementals are best thought of as late additions to the budget, not things kept off the budget. Again, “off-budget” as an official term is reserved for Social Security and the Post Office.
I’m done with this. You’re a moving target. Rather than responding to my specific arguments, you just jump to something else. I mean, if you can’t see from your 2nd graph that the cumulative change in outlays has essentially caught up with the change in receipts and that the “catch up” period has been the last 5 or 6 quarters, then I don’t know what more I can say. Starting in late 2007, Bush led with tax cuts (the rebate, mostly). The fall in receipts surged ahead of the rise in spending. Since late 2008, a relative surge in spending erased most of that gap. Don’t you see that is what your own chart is showing?
(Granted, some of that spending was TARP, and thus of dubious stimulus, but your original post didn’t take up those details either.)
It’s your place. You can have the last word. But if you can’t admit your mistake on the distinction between supplemental and off-budget, it does change the way that I view our ability to converse about these matters.
We clearly are having a difference of interpretation. I’m pretty sure I did not write that supplementals are “off-budget” but rather they are left off the budget or not included in the budget. If I did, then I was clearly in error.
Now, being “left off the budget” doesn’t mean the spending doesn’t take place, or that it isn’t counted in the nation’s accounting, but it does very precisely mean that when the President sends his budget request to Congress, and Congress (after doing its horse-trading) approves of something more or less resembling that budget request, and the President then signs into law that pile of paperwork that arrives on his desk, it does not, as far as I can tell, include his requests for “supplemental appropriations.” (Those get voted on later, and show up on the Preznit’s desk later.) However, when you look at the OMB’s historical tables, all the spending, from the original budget and from the supplementals, is sitting there.
However, real-time, its a different story. Real-time, putting Iraq into supplementals means the administration can claim to be more fiscally responsible than it actually is. Which was my reason for bringing up the OMB in the first place – you can trust their data (including what they tell you about how spending was allocated) a year or more after the fact, but you can’t trust it in real time because of their role in the political process. And in 08 and 09, Treasury has become a player in the process in the same way the OMB always is. I do not have enough information to know whether the allocations they describe are correct, but I do have enough information to know that this time around, Treasury has a motivation for them to show certain things.
Because of that, if I can avoid Treasury’s slicing and dicing, I’m doing just that. From what I can tell, there is no motivation for the high level BEA data to be handled any different than it ever is (Commerce is not a relevant player in the TARP process, and BEA is too small a piece of TARP for the admin to think of reaching through to them).
Now, I don’t think I’ve been at all slippery about this. It fits with my long-standing philosophy to find the data from the folks closest to the original source who nevertheless have the least amount of incentive for the data to show specific outcomes.
As to the gap and how its closing, yes, it is closing, but I can only repeat… upthread I went with the data MG provided, which showed results for 2009Q1, 2009Q2, and 2009Q3, and I’m getting this:
“If you look at the ARRA impact, summed over three quarters, of current receipts it comes to 10.4% of the amount of the receipts value in Q1 of 2009. (I’m ignoring inflation, but its trivial.)
The same calculation for expenditures… the impact of 3Q worth of spending comes to 11.2% of the total expenditures for Q1 of 2009.”
“I’m pretty sure I did not write that supplementals are “off-budget” but rather they are left off the budget or not included in the budget. If I did, then I was clearly in error.”
What do you mean pretty sure you did not? Look up. It’s there in black and white pixels. Anyway, your mea culpa is accepted.
“However, real-time, its a different story. Real-time, putting Iraq into supplementals means the administration can claim to be more fiscally responsible than it actually is.”
No. They. Cannot.
At least not if you believe that the monthly receipts and outlays reported by the Treasury are a true representation of the money that came in and went out during that month–regardless of what was in the budget. That’s what BEA looks at for quarterly data, making small adjustments for legitimate and well explained reasons (territory we’ve already covered). That’s it. The whole notion that supplementals are what screws up the data (you were the one who brought it up) is baseless.
“Which was my reason for bringing up the OMB in the first place – you can trust their data (including what they tell you about how spending was allocated) a year or more after the fact, but you can’t trust it in real time because of their role in the political process.”
NIPA knows that you can’t use OMB in real time… so they don’t! They use the Monthly Treasury Statement–the one thing that tracks actual income and outgo in real time! There is no other real time tracking! This is Treasury’s job!
“I do not have enough information to know whether the allocations they describe are correct, but I do have enough information to know that this time around, Treasury has a motivation for them to show certain things.”
And it is here that we have an impasse. You don’t want to hear that the source of your quarterly data is from a source that you do not trust. (Where else could BEA obtain real time data? Not to mention the fact that they say that is where they get it.) You offer no evidence that there is anything shady going on. And wouldn’t you think that if the BEA had noticed anything shady that it would be reported? Doesn’t it stand to reason that the fact that BEA has been taking the real time data from the treasury and reconciling it with annual data from OMB for decades without any hint of anything nefarious going on suggest that they have confidence in the real time data? Isn’t that the sort of check-and-balance that should avoid exactly what you’re worried about? But your readers are supposed to ignore that sort of logical reasoning and accept your unsubstantiated accusations?
Granted, speculating on motives for data manipulation make for more exciting blog posts and definitely appeals to some segments of the audience. Plus it lets you spin things any way you want. After all, the accusation doesn’t have to be based in facts or evidence–just a motive that you attribute to them. The mere mention of it will raise doubt in the reader and hopefully convince the reader to accept your side of the story because your motives are obviously more pure.
I can’t just sit back and let that go unanswered.