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John Taylor in Favor of Higher Marginal Income Tax Rates? If Not, Why Not?

by Mike Kimel

John Taylor in Favor of Higher Marginal Income Tax Rates? If Not, Why Not?

A couple of weeks ago, John Taylor posted a graph showing that since 1990, there has been a negative correlation between the Investment to GDP ratio and unemployment.

There’s been some back and forth between Taylor and some of the other big boys (some of it summarized at Mark Thoma’s Economists View, and even Krugman has weighed in).

Lots of fun is being had by all, but it seems everyone, especially John Taylor, is missing a key point. If, as he states in his post, “the most effective way to reduce unemployment is to raise investment as a share of GDP” and if we want to reduce unemployment, then we should be raising the top marginal tax rate.. After all, going back to 1929 (that’s as far back as the Bureau of Economic Analysis has data), there’s a quadratic relationship between the top marginal income tax rate and the ratio of private investment to private consumption.

As I note in the post in which that analysis is done (complete with a nice graph):

correlation between the top marginal tax rate the ratio of investment to consumption for top marginal tax rates below 50% is 55%. That is to say, an increase in tax rates increases the ratio of investment to consumption when tax rates are below 50%.

So… raise top marginal rate —> more investment —> lower unemployment. I imagine John Taylor’s endorsement of higher marginal tax rates should come any moment now.

—————–
Cross-posted at the Presimetrics blog.

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Guest Post: Latest from Cato…

Guest post by Michael Halasy

Latest from Cato…

Kaiser Health News carries an article from Michael Cannon from Cato Institute on the benefits of Ryan’s proposal on Medicare.

Cannon is wrong.

First, he begins by advocating for repeal by comparing the roughly 500 billion in cost of the program to the overall debt and deficit, never mentioning that the 500 billion is actually over 10 years. Next he proceeds to Medicare savings, and concludes that there were no mechanisms to constrain Medicare savings…and he’s right here.

However, then he states: “Even if they were, ObamaCare just spends the presumed savings elsewhere”. Which comes across snippy, and a little arrogant. Then he talks about vouchers, and the proposal by Congressman Paul Ryan.

Here’s what he says:

Second, the budget should restrain Medicare spending by giving enrollees fixed vouchers they can use to purchase any private health plan of their choice. Poor and sick enrollees should get larger vouchers, but the average voucher amount should grow only at the overall rate of inflation. Because vouchers enable seniors to keep the savings, they will do what ObamaCare won’t: reduce the wasteful spending that permeates Medicare. Seniors will choose more economical health plans and put downward pressure on prices across the board. Indeed, vouchers are the only way to contain Medicare spending while protecting seniors from government rationing. Skeptics worry that seniors will make bad decisions with their vouchers. They should keep in mind that, according to Obama’s Council of Economic Advisers, “nearly 30 percent of Medicare’s costs could be saved without adverse health consequences.” In other words, vouchers come with a huge built-in margin of safety: seniors could consume one-third less care without harming their health.

There are some big problems with this, which Mr. Cannon never addresses, or even acknowledges.

To start with, many seniors are living on constricted, fixed incomes. Even with “larger” vouchers, as he suggests, keeping them tied to inflation without addressing the reason for healthcare cost escalation is the same as cutting them out of healthcare altogether…at least the effect will be the same over time. Healthcare has grown at a rate far above inflation for years (6.2% average over the past 10 years). What this will do is to force low income seniors to skip medications, avoid physician visits, and avoid preventative care. This will end up being more costly down the road.

The second problem, is that Mr. Cannon is misrepresenting what the Council of Economic Advisors said about Medicare spending. That 30% represents waste within the system, not necessarily (although likely a small percentage is) over treatment of Medicare patients. It’s a dangerous statement to make.

Finally, the block grant idea has some merit, but let’s be honest. That’s not cost savings…..that’s cost shifting. By removing a percentage of federal funding for this patient population, you are forcing the state to pay for it, which is a problem for many cash strapped states already. Mr. Cannon knows all of this, however, he is trying to put a rosy face on an ugly dog.

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Social Security & the Debt Limit

{Crossposted from dKos Social Security Defenders Group}

Social Security has been off the radar this week for obvious reasons, progressives being more focused on efforts of Republicans to win the War on Women via the Continuing Resolution. Plus while Paul Ryan’s original Roadmap proposed privatization of Social Security his Budget proposal for next year left it mostly aside (except for an obscure ‘trigger’ mechanism for future cuts) in favor of a trillion dollar assault on Medicaid and a proposal to voucherize Medicare. Which only leaves one current assault vehicle, the pending bill to raise the Debt Limit which under current estimates needs to happen by mid May, and sure enough there are rumblings to this effect, no changes to Social Security, no votes to raise the Debt Limit from the Republicans.

So this seems an opportune time to explain the actual relation between Social Security and Public Debt and the paradoxical effects on debt from cuts to future benefits. Because all else held even all this does is increase real debt over the medium term (25 years) while reducing purely theoretical debt over the God help us Infinite Future Horizon. Conceptual unpacking in Extended.As usual a good starting point for the serious student is the Budget Concepts and Budge Process (pdf) section of the Analytical Perspectives of the Budget (html index) released each year by OMB to illustrate the President’s budget both conceptually and historically.

But even beofre citing definitions I would like to direct Kossacks (and any visitors-welcome!) to a very handy web tool maintained by Treasury called Debt to the Penny which true to its name will give you total federal debt to the penny at the end of any specified business day or over date ranges. For example as of close of business Thursday total ‘Public Debt’ was $14,264,245,526,311.58. This figure is the sum of ‘Debt Held by the Public’ at $9,652,195,544,012.12 and ‘Intragovernmental Holdings’ at $4,612,049,982,299.46 (‘debt to the penny’ meaning what it says).

Now ‘Intragovernmental Holdings’ is what OMB calls ‘Debt held by Government accounts’ which in turn “means the debt the Treasury Department owes to accounts within the Federal Government. Most of it results from the surpluses of the Social Security and other trust funds, which are required by law to be invested in Federal securities.” So the commonly expressed opinion that Social Security Trust Funds are not counted in that total $14 trillion of debt cited in the MSM is dead wrong, they constitute $2.6 tn of that $4.6 tn of ‘Intragovernmental Holdings’ or 18% of the total $14.3 tn in Public Debt. In fact Social Security is by far the biggest creditor the U.S. has, with Treasury holdings double those of the Fed and two and a half times that of our largest foreign lender the Chinese.

‘Public Debt’ is not precisely the same as ‘Debt Subject to the Limit’ but for all practical purposes it is the same $14 tn plus, for those interested Treasury supplies the following in their FAQ

What’s the difference between the Public Debt Outstanding and the Public Debt Subject to Limit?

The Public Debt Outstanding represents the face amount or principal amount of marketable and non-marketable securities currently outstanding. The Public Debt Subject to Limit is the maximum amount of money the Government is allowed to borrow without receiving additional authority from Congress. Furthermore, the Public Debt Subject to Limit is the Public Debt Outstanding adjusted for Unamortized Discount on Treasury Bills and Zero Coupon Treasury Bonds, Miscellaneous debt (very old debt), Debt held by the Federal Financing Bank and Guaranteed Debt

.
With the conceptual background set, lets see how Social Security Trust Fund Operations interact with the Debt Limit.

And the answer is simple, though a little counter-intuitive. If Trust Fund principal balances go up in any given year due to a surplus of income over cost adding new offsetting Special Treasuries then so does ‘Intragovernmental Holdings’ and so in turn ‘Public Debt’. On the other hand if in any year total cost exceeds total income including interest, the flow of offsetting Special Treasuries is reversed, then Trust Fund principal goes down and in turn so does Public Debt. In between those two outcomes is a series of years where income EXCLUDING interest trails cost, but the accruing interest covers the gap, in which case the rate of principal increase is slowed and so the rate of growth of total Public Debt due to increased amounts of Intragovernmental Holdings.

Put all of that together and what do you get? Short term cuts in Social Security benefits absent any changes in revenue INCREASE the rate of principal accumulations of Intragovernmental Holdings and so ADD TO DEBT SUBJECT TO THE LIMIT. And the same is true for any benefit change starting before the projected date the Trust Funds hit their maximum, which right now is about $4.2 tn in 2023.

Which is why holding Social Security hostage to this year’s Debt Limit is simple bullshit. one has nothing to do with the other, and any attempts to start phasing in benefit changes via changes in the index (as B-S would starting in 2012) makes total Debt Subject to the Limit HIGHER and not lower. In fact far from giving our children and grandchildren a break it would absent other changes just time shift debt repayment forward in time while making the principal balances and hence ultimate payment amounts larger. It is all more Bait and Switch, just sophistry using ideas about seeming fiscal rectitude to screw over worker-retirees starting ten years out.

(But such a move would reduce ‘Unfunded Liabilities’, which opponents of SS wrongly equate to ‘Debt’. They aren’t but that will be the subject of a later post.)

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ECB policy is tightening – has been for some time

Update: Nouriel Roubini front pages this post on Euromonitor here.

The ECB dove in and hiked its policy rate by 25 basis points to 1.25%. I had the pleasure of listening to Wolfgang Munchau on Thursday, and he reiterated what I reluctantly understood: the ECB’s strict inflation target is ridiculously simple for such a complex region; but more importantly, the Governing Council is just itching to tighten.

Eurointelligence blog highlights the various interpretations of the ECB’s shift in policy: Thomas Mayer at Deutsche Bank suggests that the ECB’s normalization is appropriate, while David Beckworth and others (links at Beckworth’s site) are more sympathetic to the impact on the Periphery. They highlight that relative price fluctuations could facilitate the much-needed redistribution of capital flows (i.e., the current account); and furthermore, that ECB policy is even too tight for the core (a google translation of Kantoos Economics). Yours truly has written extensively about this – among others, here’s one, another, and another. Who’s right? Ultimately time will tell.

But I do suspect that we haven’t seen the end of this crisis. The ECB is squeezing out liquidity when more liquidity is needed. Furthermore, the core remains subject to export shocks via external demand; and there’s building evidence that global growth will slow (see this excellent post on global PMIs by Edward Hugh).

It’s ironic, too. While the ECB is currently being heralded or chastised for raising rates, monetary and financial conditions in Europe have been tight for some time, both on a relative and stand-alone basis!
(read more after the jump!)

First, the ECB’s bond purchase programs, the Securities Market Programme and the Covered Bond Purchase program, amount to just 1.4% of 2010 Eurozone GDP. In stark contrast, the size of the Fed’s program broke 16% (and is rising) and the Bank of England’s purchase program remains firm at around 13% of GDP.


The asset purchase programs are emergence liquidity programs and are not normal monetary policy tools. But while the Fed and the BoE do not sterilize their flows, the ECB does. And my interpretation of ECB rhetoric and policy as of late is that they want out of the secondary-bond purchase business. For example, they’ve slowed their SMP purchases markedly in 2011 (see the ad-hoc announcements here).

Second, Eurozone financial conditions have been tightening since August 2010, while those in the US and England loosened up. Goldman Sachs constructs a financial conditions index, which is comprised of real interest rates (long and short), real exchange rates, and equity market capitalization. I love this index (subscription required), as it represents a broad measure of monetary policy pass-through.

Even though the ECB just started its rate-hiking cycle, they’ve been effectively tightening for some time.

I would say that Eurozone (as a whole) growth prospects are seriously challenged at this time, especially by comparing monetary policy to that in England and the US. We’ll see if the ECB’s able to push its target rate back to 2.5-3% through 2012 – I suspect that may be just a pipe dream, as tight liquidity and a slowing global economy drag economic growth.

The ECB’s actions imply to me that they still do not understand the following: Europe faces a banking crisis not a fiscal crisis!

Rebecca Wilder

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Don’t savings lower the deficit?

AP’s Andrew Taylor describes a part of the federal budget debate that needs clarification for the average voter and others regarding this current round of ‘negotiations’:

Some $18 billion of the spending cuts involve cuts to so-called mandatory programs whose budgets run largely on autopilot. To the dismay of budget purists, these cuts often involve phantom savings allowed under the decidedly arcane rules of congressional budgeting. They include mopping up $2.5 billion in unused money from federal highway programs and $5 billion in fudged savings from capping payments from a Justice Department trust fund for crime victims

Both ideas officially “score” as savings that could be used to pay for spending elsewhere in the day-to-day budgets of domestic agencies. But they have little impact, if any, on the deficit.

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Tax credits are not Government Spending?

The Tax Policy Center The Supreme Court Says Tax Expenditures aren’t Goverbment Spending points us to a notable decision by the Supreme Court that has been lost in the federal budget fracas.

Ever since Stanley Surrey popularized the concept of tax expenditures nearly half a century back, economists have argued that many tax breaks are equivalent to government spending. Virtually any spending program can be transformed into a tax expenditure that directs money in the same way.

This week the Supreme Court rejected that equivalence, ruling that an Arizona tax credit differed enough from a comparable direct spending program to deny taxpayers the right to sue on the basis that the credit represented an unconstitutional government activity. The Court’s decision suggests that while the majority in this decision may be great lawyers, they are lousy economists.

Some background: In 1968, the Court ruled that citizens may sue to stop the government from spending that violates the Constitution, in the specific case supporting religious activity (Flast v. Cohen). Citizens had standing to sue, the Court concluded, because the challenged spending directly affected taxpayers who fund government programs.

The current case, Arizona Christian School Tuition Organization v. Winn et al., involves not direct government spending on an unconstitutional activity but rather a tax credit that serves the same purpose as a spending program. Arizona allows taxpayers to claim a non-refundable credit of $500 a year ($1,000 for couples) for donations to qualified school tuition organizations (STOs), which then use the funds to support tuition payments to private schools. The original suit claimed that STOs violated the First Amendment’s prohibition of government activities promoting the “establishment of religion” because tuition payments could go to parochial schools.

In a 5-4 decision, the Court ruled that the challenged tax credit was not government spending and therefore the claimants lacked the standing to sue allowed in Flast. Unlike spending, the majority argued, tax expenditures do not necessarily affect the tax bills of others; that is, the government won’t necessarily raise taxes to cover the revenue cost of a tax credit. In fact, the opinion claimed, “the purpose of many governmental … tax benefits is ‘to spur economic activity, which in turn increases government revenues.’” And further, private school tuition assistance might induce some students to switch from public to private schools, thus reducing government costs. Since tax expenditures thus don’t necessarily harm taxpayers, they have no right to sue.

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Guest Post: RJs Aggregator – The Ryan Plan

Today RJs Aggregator presents opinion across the web regarding proposed Republican budget cuts for fiscal year 2012. Of note, AB authors Ken Houghton and Kash also contributed to the debate.

Guest Post: The RJs Aggregator – The Ryan Plan

by RJ

House Republicans Propose $4 Trillion in Cuts Over Decade – “House Republicans plan this week to propose more than $4 trillion in federal spending reductions over the next decade by reshaping popular programs like Medicare1, the Budget Committee chairman said Sunday in opening a new front in the intensifying budget wars2. Appearing on “Fox News Sunday,” the chairman, Representative Paul D. Ryan3 of Wisconsin, also said Republicans would call for strict caps on all government spending that would require cuts to take effect whenever Congress exceeded those limits. “We are going to put out a plan that gets our debt on a downward trajectory and gets us to a point of giving our next generation a debt-free nation,””

The Republican budget: Praising Congressman Ryan – The Economist – “BARACK OBAMA, as we unhappily noted when he produced his budget in February, has no credible plan for getting America’s runaway budget deficit under control. Up to now the Republicans have been just as useless; they have confined themselves to provoking a probable government shutdown in pursuit of a fantasy war against the non-security discretionary expenditures that make up only an eighth of the total budget, rather than tackling the long-term problem posed by the escalating costs of entitlements. Now that has changed. On April 5th Paul Ryan, the young chairman of the House Budget Committee, laid out a brave counter-proposal for next year’s budget and beyond (see article)—brave both in identifying the scope of the problem and in proposing the kind of deeply unpopular medicine that will be needed to cope with it. It is far from perfect; but it is the first sign of courage from someone with actual power over the budget.”

(Read much more after the jump!)

Paul Ryan To Boldly Take On Big Poor – “You know how you have been reading for weeks and weeks about how the bold Republican budget, crafted by Prince of Boldness Paul Ryan, will boldly address the deficit problem that President Obama refuses to address? . First, reports the Hill, Ryan will not touch Social Security, which is immensely popular with the middle class. Second, reports Politico, he will take a huge whack out of Medicaid, which primarily benefits the poor: Budget Committee Chairman Paul Ryan has made clear to POLITICO in February that he intends to target Medicaid and Medicare for savings. While Medicaid is easiest to win consensus on, Medicare is the biggest debt driver. I love the part about how Medicaid the the “easiest to win consensus on.” Why is that? Because it’s wasteful? No, Medicaid is super-cheap — so cheap the program routinely has trouble finding doctors willing to accept it. It’s easiest to win consensus on because its beneficiaries have the least political power.”

What Paul Ryan’s budget actually does – “Paul Ryan’s plan for Medicare and Paul Ryan’s plan for Medicaid rely on the same bait-and-switch: They use a reform to disguise a cut. In Medicare’s case, the reform is privatization. The current Medicare program would be dissolved and the next generation of seniors would choose from Medicare-certified private plans on an exchange. But that wouldn’t save money. In fact, it would cost money. As the Congressional Budget Office has said (pdf), since Medicare is cheaper than private insurance, beneficiaries will see “higher premiums in the private market for a package of benefits similar to that currently provided by Medicare.” In Medicaid’s case, the reform is block-granting. Right now, the federal government shares Medicaid costs with the states. That means their payments increase or decrease with Medicaid’s actual rate of spending. Under a block grant system, that’d stop. They’d simply give states a lump sum at the beginning of the year and that’d have to suffice. And if a recession hits and more people need Medicaid or a nasty flu descends and lots of disabled beneficiaries end up in the hospital with pneumonia? Too bad.”

Moment of Blather – “David Brooks’s commentary on Paul Ryan’s “budget proposal” is entitled “Moment of Truth.” Brooks falls over himself gushing about his new man-crush, calling it “the most comprehensive and most courageous budget reform proposal any of us have seen in our lifetimes.” “Ryan is expected to leap into the vacuum left by the president’s passivity,” he continues. Gag me. First of all, Ryan’s plan is not “comprehensive” by any stretch of the imagination. Ryan’s plan does limit taxes to 19 percent of GDP and outlays to 14.75 percent of GDP by by 2050, producing a huge surplus. How does he achieve this budgetary miracle? In part, he does it by waving his magic wand. This is what the CBO has to say (emphasis added):“The proposal specifies a path for all other spending [other than Medicare, Medicaid, and Social Security] (excluding interest) that would cause such spending to decline sharply as a share of GDP—from 12 percent in 2010 to 6 percent in 2022 and 3½ percent by 2050; the proposal does not specify the changes to government programs that might be made in order to produce that path.”

Rivlin: ‘I don’t support the version of Medicare premium support in the the Ryan plan’ – Ezra Klein – ““Alice Rivlin and I designed these Medicare and Medicaid reforms,” Paul Ryan said on “Morning Joe” yesterday. “Alice Rivlin was Clinton’s OMB director… she’s a proud Democrat at the Brookings institution. These entitlement reforms are based off of those models that she and I worked on together.” But Rivlin — who is all that Ryan says she is, in addition to a former vice chair of the Federal Reserve — is not supporting the reforms as written in Ryan’s budget. I spoke with her this morning to ask why. A lightly edited transcript of our conversation follows.”

Generational Divide Colors Debate Over Medicare’s Future – “The Republican budget released on Tuesday1 is a daring one in many ways. Above all, it would replace the current Medicare2 with a system of private health insurance plans subsidized by the government. Whether you like3 or loathe that idea4, it would undeniably reduce Medicare’s long-term funding gap — which is by far the biggest source of looming federal deficits. Yet there is at least one big way in which the plan isn’t daring at all. It asks for a whole lot of sacrifice from everyone under the age of 55 and little from everyone 55 and over. Representative Paul Ryan5, the Wisconsin Republican who wrote the plan, calls the budget deficit an “existential threat” to the United States. Then he absolves more than one-third of all adults from responsibility in dealing with that threat.”

The cost of Medicaid savings – “Already Rep. Ryan’s budget plan has received a lot of attention. By now you well know that one way it aims to save money is by turning Medicaid into a state block grant program. It is important to recognize that there is a cost to those savings: worse health for low-income individuals. Yet some proponents of Medicaid cuts deny this cost, citing evidence that does not support their case. In a NEJM paper by Harold Pollack, Uwe Reinhardt, and two of us (Austin and Aaron) that published today at 5PM, we emphasize just that. It’s short and ungated, so please read it. In it, we press those who claim Medicaid is worse for health than being uninsured to cough up their causal theory as to how this could be the case.”

Medicaid Savings in Ryan’s Plan Would Come At the Expense of the Poor » “The “Path to Prosperity” budget proposed by House Budget Committee Chairman Paul Ryan (R-WI), includes a plan to revamp Medicaid —which currently provides federal funding to states on an “as-needed” basis to help cover the health care costs of the poor and disabled—into a block grant program. This one initiative alone, according to the budget bill’s supporters, would save $750 billion over ten years. There is little in Ryan’s budget proposal to support just where these savings will come from, but it’s easy to imagine that state caps on Medicaid enrollment, cuts in covered benefits and lowered physician reimbursement, along with an increase in co-pays for beneficiaries will all play an essential role.”

Death Panels are starting to sound awfully good right about now – “Jill – Think about it: How would you rather check out of this God-forsaken level of reality? Would you rather be in a warm bed somewhere, perhaps lying on sheets nice and warm out of the dryer, with the sun streaming in your window and soft music playing into your room, perhaps with the aroma of peppermint, or fresh bread, or whatever your favorite aroma might be, while a doctor slips a needle into your arm and you wooze into a delightful drowsiness and then unconsciousness, and then another needle containing the drug that stops your heart is administered…or would you prefer to die out in the street, old, sick, and alone, huddling from a bitter wind, because you have no home, no shelter, no food, and no medical care? I know which one I’d take. But it’s hard to imagine that the GOP will be kind and compassionate enough to offer the elderly the first one, not if the current House majority gets its way: House Republicans are preparing to introduce a 10-year budget Tuesday that will eliminate Medicare and replace it with a private insurance system that closely resembles the new health care law, and end Medicaid as an entitlement program all together.”

Ryan plan to slash Medicaid will cost the economy nearly two million private sector jobs – “Currently, Medicaid provides comprehensive health coverage to the elderly, disabled, children, and low-income adults.[1] The cost of providing health care coverage is split between the federal government and the states. House Budget Committee Chairman Paul Ryan (R.-Wisc.) released a budget resolution this week that would “block grant” Medicaid, meaning that it would give states a fixed amount of money rather than provide a fixed share of the total costs. Because these grants would grow more slowly than the expected inflation rate for health care costs, this proposal would have the federal government shift an increasing amount of the coverage costs onto states, who will be in turn forced to cut health benefits and other services, cut public investments such as education and transportation, or raise taxes. Using a standard macroeconomic model that is consistent with private- and public-sector forecasters, we find that a $207 billion cut would result in a loss of 2.1 million jobs over the next five years, or 2.9 million full-time equivalent jobs.[3]

Challenge to the Heritage Foundation; Preposterous Unemployment Estimate Revisited – Mish – “In No Path to Prosperity: Ryan’s Incredulous Budget-Balancing Proposal, Preposterous Unemployment Estimate I blasted the Heritage Foundation’s estimate of 4% unemployment rate by 2015. In the above referenced article, I did unemployment math two different ways to show just how silly a 4% unemployment projection is. In an effort to be as fair to the Heritage Foundation as possible, I will do the math a third time factoring in a few more variables. Before doing so, please note that Bernanke estimates it takes 125,000 jobs a month to hold the unemployment rate steady. Thus, in a Bernanke scenario we would need 1.5 million workers a year to break even. I find that number reasonable.”

Long-Term Analysis of a Budget Proposal by Chairman Ryan – “CBO Director’s Blog – In response to a request from House Budget Committee Chairman Paul Ryan, CBO has conducted a long-term analysis of a proposal to substantially change federal payments under the Medicare and Medicaid programs, eliminate the subsidies to be provided through new insurance exchanges under last year’s major health care legislation, leave Social Security as it would be under current law, and set paths for all other federal spending (excluding interest) and federal tax revenues at specified growth rates or percentages of gross domestic product (GDP). CBO analyzed major provisions of the proposal as they were described by the Chairman’s staff. CBO has not reviewed legislative language for the proposal, so this analysis does not represent a cost estimate for legislation that might implement the proposal.”

CBO: GOP Budget Would Increase Debt, Then Stick It To Medicare Patients – “The nonpartisan Congressional Budget Office’s initial analysis of the House GOP budget released today by Rep. Paul Ryan (R-WI) is filled with nuggets of bad news for Republicans. In addition to acknowledging that seniors, disabled and elderly people would be hit with much higher out-of-pocket health care costs, the CBO finds that by the end of the 10-year budget window, public debt will actually be higher than it would be if the GOP just did nothing. Under the so-called “extended baseline scenario” — a.k.a. projections based on current law — debt held by the public will grow to 67 percent of GDP by 2022. Under the GOP plan, public debt would reach 70 percent of GDP in the same window. In other words, the spending cuts Republicans would realize in the first 10 years would be outpaced by deficit increasing tax-cuts, which Ryan also proposes. After that, debt projections under the plan improve decade-by-decade relative to current law. That’s because 2022 would mark the beginning of the Medicare privatization plan. 04 05 Ryan Letter (scribd)”

Ryan’s Budget Plan Is Ridiculous, But It Could Shift the Debate – “Ezra Klein has helpfully assembled a summary of the Ryan GOP budget. As you can see, while everyone’s talking about the privatization of Medicare and block-grant of Medicaid, there are plenty of other pieces worth discussing here even without any of that. Ryan would reduce discretionary spending to pre-2008 levels and freeze it for five years. He would repeal the Affordable Care Act and Dodd-Frank entirely. He would block grant the food stamp program, giving a set amount of money indexed to inflation, regardless of economic conditions. He would eliminate all changes to Pell Grants, kicking them back to 2008 levels. And he would use the savings from all that to make the Bush tax cuts effectively permanent, but actually do worse than that, by changing the tax code to lower the top individual and corporate tax rates to 25% and making up the revenue on the poor. So this is a pretty pathetic budget. And it also happens to be a complete fiction. The numbers are not to be trusted at all. Ryan assumes $1.4 trillion in savings from health care repeal when the Congressional Budget Office scores repeal as increasing the deficit. He uses “dynamic scoring” to perpetuate a fiction that tax cuts will increase tax revenue. He sets unrealistic spending caps without determining how to get there or how future Congresses not bound by his budget will abide by them. Worst, he assumes a world-historical low unemployment rate based on a Heritage Foundation study that claimed the Bush tax cuts would lead to the same kind of prosperity (hint: they didn’t). Indeed, by 2021, Ryan assumes a 2.8% unemployment rate, which is how he achieves the revenue needed to make the numbers work. Included with this projection is an implausible housing boom.”

Magical thinking won’t create jobs: Heritage forecasts for Ryan plan are fantasy – “Rep. Paul Ryan (R-Wisc.) has produced a magical budget that “strengthens the safety net” by slashing trillions of dollars from Medicaid and Medicare. He also proposes to “strengthen” Social Security by dismissing the $2.4 trillion Social Security trust fund as valueless, based on “dubious accounting.” It is no surprise, therefore, that the economic analysis Ryan holds up to support his plan is pure fantasy. According to Ryan: “A study just released by the Heritage Center for Data Analysis projects that The Path to Prosperity will help create nearly one million new private-sector jobs next year, bring the unemployment rate down to 4% by 2015, and result in 2.5 million additional private-sector jobs in the last year of the decade.” The Heritage Center’s forecasts for the Ryan plan are even bolder in the out years: It predicts unemployment will fall to an unprecedented 2.8% by 2021.”

Memory Hole Alert – Krugman – “Wow. Yesterday afternoon I downloaded the tables from that Heritage report that’s the basis for the Ryan plan. The first page looked like this: You can see the unemployment forecast, with the amazing 2.8 percent prediction, in the fourth set of figures. But go to the same place right now, and you get this: Yep — they took the offending number out. I mean, really, guys — this is all over the blogosphere; did you really think you could get away with pretending it was never there? Anyway, you now know what kind of people we’re dealing with. Update: For reference, here they are (pdf files): As of yesterday. As of today.”

Paul Ryan Does Wall Street’s Bidding In Budget – “House Republicans — led by House Budget Committee Chairman Paul Ryan (R-WI) — released their 2012 budget today. The plan includes a giant tax cut for the wealthy, as well as a complete dismantling of Medicare and Medicaid. But it also includes a gift for Wall Street, in the form of a repeal of the provisions of the Dodd-Frank financial reform law that protect taxpayers from having to bail out failed financial institutions.The provisions in question — which Ryan dubbed “permanent bailout authority” in a Wall Street Journal op-ed today, reviving a key GOP talking point from the financial reform debate — are actually two distinct parts of the financial reform law.”

Why is Paul Ryan’s Budget Trying to Dismantle Financial Reform?“It’s not enough to gut programs for low-income Americans. Paul Ryan wants to roll the clock back on Wall Street to 2008. The budget Paul Ryan released yesterday has huge cuts that are likely to fall on the poorest Americans while offering all kinds of bonuses to the top 1%. Others will be talking about how it eliminates Medicare and Medicaid. I want to talk about how it dismantles one of the few regulations put on Wall Street post-crisis. Let’s back up with a high-level overview.”

Taking Note: Congressman Ryan’s Doublethink – “One of the main reasons that the conservative movement continues to dictate the terms of domestic policy debates is its mastery at applying language that resonates favorably with the public to deeply unpopular ideas. Representative Paul Ryan’s “Path to Prosperity,” starting with the title, is full of more instances of “holding two contradictory beliefs in one’s mind simultaneously” than George Orwell himself could have conjured. Some examples of doublespeak (a term Orwell did not coin) in Ryan’s plan, along with translations into plain English that would more accurately inform the public:”

Representative Ryan’s Roadmap: Interesting Implied Macro Impacts – “I’ve read and re-read the Heritage Foundation’s analysis of how the projections for the Ryan plan were developed. I’m sure it’s my own failing, but I still don’t quite understand what is going on. And this is after Heritage took down their original documentation that indicated unemployment would eventually hit 2.8%.[0] (Here is National Journal’s take on the original Heritage analysis.) Even ignoring the unemployment number (which seems to have moved a bit, although not reported in the document), I thought it worthwhile to mention the other oddities of the report. First, it is important to note that the simulation forecasts relative to the CBO alternative fiscal scenario, rather than extended baseline, as would typically be the case. Obviously, this makes the Ryan plan “look better” in terms of budget deficits and (given Heritage’s modeling approach incorporating substantial supply side effects) in terms of growth. Second, it is very interesting to take a look at the forecasts. For GDP (Figure 1), the forecasts imply a noticeable increase, amounting to a 2.4% higher GDP (in log terms, relative to baseline) by 2021. Perhaps reflecting the assumptions built into the model, despite reduced effective personal tax rates (see Appendix 3 tables), personal tax receipts are higher (Figure 2).”

The Ryan Plan Is “Fundamentally Immoral” – “Even people not particularly enamored with government involvement in health insurance hate the Ryan plan for Medicare: You put the load right on me, Democracy in America: Paul Ryan’s plan to replace Medicare with a system of vouchers for seniors to buy health care on the private market … ends the guarantee that all American seniors will have health insurance. The Medicare system we’ve had in place for the past 45 years promises that once you reach 65, you will be covered by a government-financed health-insurance plan. Mr. Ryan’s plan promises that once you reach 65, you will receive a voucher for an amount that he thinks ought to be enough for individuals to purchase a private health-insurance plan. … If that voucher isn’t worth enough for some particular senior to buy insurance, and that particular senior isn’t wealthy enough to top off the coverage, or is a bit forgetful and neglects to purchase insurance, there’s no guarantee that that person will be insured. It’s up to you; you carry the risk.”

Ryan Plan Unconstitutional Under Senate GOP Balanced Budget Amendment – “Under the balanced budget amendment proposal unveiled last Thursday with all 47 GOP senators on board, the blueprint presented by House Budget Committee Chairman Paul Ryan on Tuesday would be unconstitutional until sometime after 2030. It’s not that Ryan’s budget plan doesn’t balance; excluding interest payments, it would balance starting 2015, which does clear the bar set by the balanced budget amendment. But primary (or noninterest) spending, though down sharply from close to 23% of GDP this year, would remain at 17% of GDP or higher beyond 2030. Never mind that Ryan and his GOP cohorts have just taken on tremendous political risk by proposing to turn Medicare into a fixed-payment voucher for buying private health coverage or that he would cut $750 billion in Medicaid costs this decade while providing flexibility — and shifting responsibility — to the states.”

Ryan Plan’s “Path to Prosperity” Is Just for the Wealthy, CBPP: “House Budget Committee Chairman Paul Ryan’s name for his budget — “The Path to Prosperity” — is a cruel joke. For the last three decades, nearly all the gains of economic growth have gone to the tiny sliver of people at the top of the income scale. The challenge for policymakers is how to restore opportunity for middle- and lower-income Americans by once again widening the path of prosperity. Unfortunately, Chairman Ryan’s plan would narrow it further.For the wealthy, Ryan’s proposals are pure gold:

  • A typical hedge fund manager would benefit from Ryan’s extension of the Bush tax cuts for high-income people; the average person making at least $1 million a year would get $125,000 a year in tax breaks.
  • Heirs to multi-million-dollar estates would benefit from Ryan’s estate tax proposal, which would let them inherit the first $10 million in estate value entirely tax-free.
  • High-income investors would benefit from Ryan’s elimination of Medicare taxes on their investment income.
  • And large numbers of high earners would benefit from Ryan’s call to cut the top rate to 25 percent, the lowest in 80 years.”

$3 Trillion Here, $3 Trillion There – “Krugman OK, $2.9 trillion. Anyway, pretty soon you’ll be talking about real money. Richard Rubin and Stephen Sloan direct us to a new Tax Policy Center assessment of the tax cuts in the Ryan plan (all, repeat all, of which go to top incomes and corporations) The people at TPC are careful to say that this is not a full assessment of the Ryan plan, because The proposed resolution includes measures to broaden the individual and corporate tax bases, but lacks sufficient detail for an estimate including those provisions. I’ll say. In fact, the proposal says it will broaden the tax base, but says nothing whatsoever about how. And it would take an awful lot of broadening to make up for the revenue losses, which are estimated at $2.9 trillion. As Rubin and Sloan point out, even completely eliminating the mortgage interest deduction wouldn’t be enough to close more than a fraction of the gap.And what does the chairman of the Ways and Means Committee have to say? His spokesperson says, The pro-growth tax reform proposal included in Chairman Ryan’s budget proposal is both revenue neutral and holds revenue at historical norms. I believe that translates as, “We believe in voodoo. Also, arithmetic has a well-known liberal bias.””

RJ: In all, Paul Krugman has 18 blog posts on the Ryan plan in addition to his regular column, which for the most part I haven’t included here; for his complete analysis, drill back through his blog to the Apr 5th post titled Groundhog Day on the Budget.

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Guest post: Regional Disparities in Health Spending in Medicare

by Michael Halasy Health Policy Analyst and Emergency Medicine PA

Regional Disparities in Health Spending…

Jason Shafrin, over at the Healthcare Economist, brings up an interesting paper examining the data from the Dartmouth Atlas. For those that are unfamiliar, the Dartmouth Atlas is a compendium of data examining Medicare spending per beneficiary, and then comparing that spending by geographic region. The differences are stark. I know. I use the Dartmouth Atlas data in my health policy talks all the time. The data was highlighted in an Atul Gawande article in 2009 on McAllen, Texas. Jason points us to an article from the New England Journal by Zuckerman…

“Unadjusted Medicare spending per beneficiary was 52% higher in geographic regions in the highest spending quintile than in regions in the lowest quintile. After adjustment for demographic and baseline health characteristics and changes in health status, the difference in spending between the highest and lowest quintiles was reduced to 33%. Health status accounted for 29% of the unadjusted geographic difference in per-beneficiary spending; additional adjustment for area-level dif ferences in the supply of medical resources did not further reduce the observed differences between the top and bottom quintiles.”

Now, sure, health status may reduce the difference in spending, but it doesn’t completely eliminate it. In fact, I would argue that 33% is still a large difference, and one that still needs to be addressed. Comparing the spending in Florida to Minnesota PER beneficiary is quite startling indeed.

crossposted with Health Policy Wonk

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I Wonder What John Yoo Thinks of All This

by Beverly Mann

I Wonder What John Yoo Thinks of All This

Most of you, I’m sure, know of the controversy concerning Freedom of Information requests by Wisconsin Republican officials to University of Wisconsin professor history and environmental studies professor William Cronon, in retaliation for certain postings on his new blog and for a New York Times op-ed piece critical of his state’s high-profile Tea Party governor. The requests demand copies of all the professor’s email exchanges using his university email account that include certain search words.

Cronon’s blog posts reported on a secretive rightwing state-legislation-drafting mill called the American Legislative Exchange Council, the Chamber of Commerce’s (not to mention the Koch brothers’) private Make A Wish Foundation, which drafts “model” legislation directed against unions, litigation plaintiffs and other usual-suspect Chamber/Koch targets, and then forwards the drafts to state legislators for introduction as legislative bills.

Actually, although this group’s membership is secret, the forwarding probably doesn’t require middleman lobbyists, because apparently some Republican state legislators are members. The group’s “model” legislation almost certainly is the source of a veritable slew of extremis sometimes really weird, sometimes clearly unconstitutional legislative bills proposed in state legislatures around the country in recent years, including more than a few that have been enacted. The immediate purpose of FIOA requests to Cronon is to find emails that include political discussion or planning, although of course the larger goal is retaliation and intimidation.

But Cronon, not surprisingly, didn’t remain the only victim of this FIOA-request-as-a-political-weapon tactic against state university professors for long. After all, all states have Freedom of Information laws, and most have liberal professors at state universities. The folks at the far-right Mackinac Center in Michigan have made a request to see e-mails from people in the labor studies departments at the University of Michigan and Wayne State University. And, undoubtedly, other such requests are in the works elsewhere. As well they should be.

It occurred to me that John Yoo is a professor at a public university, U-C, Berkeley. And I’d bet that his university email trove would make for some interesting reading. So, I’m sure, would the university email-account exchanges of, say, certain law professors at George Mason University a state university in Virginia that is a longtime Federalist Society hotbed. As is the venerable law school at the Univerity of Virginia. Ahhh, yes. Turnabout is fair play. And it’s time that the Democrats start playing fair. —-

Cross-posted on my blog at Annarborist

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