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

Obama proposes to exempt some IRS spending on enforcement from budget cap

by Linda Beale

Obama proposes to exempt some IRS spending on enforcement from budget cap

The 2011 debt ceiling compromise, known as the Budget Control Act, establishes automatic cuts in spending for various categories if no further deal is reached to overturn them.
In many ways, it might be ideal to allow the Budget Control Act to come into play. It would force significant reductions in the overall amount allocated to Defense, an area that has fed incessantly on revenues since Reagan’s priority on militarization, coupled with Bush II’s preemptive wars of choice in Afghanistan and Iraq. We need to cut military spending significantly, and it will not hurt the country’s defense to do so. (It may, however, crimp the high-flying styles of some military contractors. About time, I’d say.)

Further, the Budget Control Act explicitly protects Social Security and Medicare, so those programs won’t be curtailed in the process. A good thing, again, since it is important for the nation to see that the fearmongering about Social Security as “insolvent” is just that.
But there’s at least one category of spending that an across-the-board cut makes little sense for–the spending necessary to collect tax from deadbeat/scofflaw or criminal taxpayers. The IRS enforcement budget essentially is an investment in better tax compliance, and returns more dollars to the federal fisc than it takes out.

Obama has recognized that, and seeks to exempt $277 million of the IRS enforcement spending from the Budget Control Act’s cuts. See the discussion here at OMB Watch (Vol. 13, No. 4, Feb. 22, 2012).

One of the main objectives of President Obama’s fiscal year (FY) 2013 budget request for the Internal Revenue Service (IRS) is to reduce the “tax gap,” the difference between what taxpayers owe each year and what they actually pay. The president’s IRS budget request seeks funding increases for both taxpayer services and enforcement programs. Recognizing that a dollar spent on collecting revenue more than pays for itself, the Obama administration has proposed to exclude some IRS enforcement spending from the budget caps imposed by 2011’s debt ceiling deal (known as the Budget Control Act).
Among the enforcement programs the White House is recommending be increased to raise revenues are:

  • An additional $111 million to fight offshore tax evasion, which the IRS estimates will bring in $6.40 for every dollar invested by FY 2015
  • An increase of $39 million to improve international businesses’ compliance with the tax code …. The IRS estimates a return on investment of $8.80 per dollar invested
  • An additional $129 million to implement recent legislative tax changes, including new reporting requirements and certain provisions of the Affordable Care Act (ACA), which the IRS estimates will bring in $3.50 for every dollar invested
  • An increase of $88 million to implement the “Revenue Protection Strategy,” which allows the IRS to adjust a taxpayer’s refund if examiners catch errors. The IRS estimates this initiative will return $1.90 per dollar invested as soon as new hires reach their full potential in FY 2015
  • An additional $35 million to continue certifying tax preparers, which the IRS estimates will bring in $2.30 for every dollar invested by FY 2015

The IRS estimates that combined, these funding increases will bring in an additional $673 billion in FY 2013 alone, and, by FY 2015, an estimated $1.5 trillion in additional annual revenue.

Sounds reasonable. The Bush effort to cut back on IRS funding was a naked gambit for a weakened watchdog that would allow more corporate tax evasion. Enforcement has paid off considerably over the past two years, as the IRS’s effort to unveil offshore bank accounts of US taxpayers has led to significant numbers of taxpayers brining those assets back onto the tax rolls. Congress should recognize the reasonableness of this request, unless it is so besotted with campaign fever that it is willing to sacrifice sound legislation to ideological obstructionism.

crossposted with ataxingmatter

Tags: , , Comments (4) | |

Why Romney Doesn’t Want A Canadian National Healthcare ID Card

Romney’s best line of the day was unscripted. A stray Canadian had driven from Ontario to ask Romney a question and in the process joked that Romney could not have his ID card for Canada’s national health-care system.

The ball sat on the tee for a long second before Romney hit it. “I don’t want it!” Romney said. The crowd roared.

— “Two Michigan rallies revealRomney, Santorum flaws,” David A. Fahrenthold, Washington Post, Feb. 25, reporting on a rally earlier that day in Shelby Township, Mich. (suburban Detroit)

Hmm.  Well, okay.  Romney and his wife Ann, an MS victim, have about $220 million with which to pay their medical expenses. 
But there’s another reason that they don’t need national medical insurance: They live in Massachusetts, and so, by law, have medical insurance, even though neither Romney nor Ann is employed and even though Ann has a serious medical condition the onset of which predates the end of their coverage through Romney’s last employer.  That law is known, among those who deride it, as “Romneycare.”

Tags: , , , , , Comments (31) | |

Public vs. Private Debt: The Long View

Poking around in FRED while thinking about money created by banks and by government, I came up with the following graph, which I found to be pretty eye-popping:

Federal Debt Held by the Public as a Percentage of Total Credit Market Debt Owed

That’s a pretty profound secular shift. But far from delivering any obvious conclusions for me, it raises several questions.

• First, what’s included in TCMDO? (Is there a glossary of these measures available somewhere? I haven’t been able to find one.) I assume government bills and bonds are included — including those held by the Fed. I assume it does not include bonds held by the Social Security trust fund — nonpublic debt. (Or does it?)

• Since financial industry debt is “different,” what does the graph look like if we exclude that?

Federal Debt Held by the Public as a Percentage of (Total Credit Market Debt Owed – Financial Sector Debt Owed)

• Should we adjust for credit-market instruments held by the Fed?

• Are there more illuminating measures to display in this graph?

• What does this say about the stock of “safe assets” in the economy?

• How does this relate to JKH and Steve Waldman’s notions of government money (created through deficit spending) as “leverage” — in Michael Sankowski’s words: “JKH points out (S-I) is like the denominator in leverage. When (S-I) [govt deficit spending plus/minus trade imbalance] gets too small compared to S or I, then the private sector steps in with private creation of S. But these claims aren’t always as credible as government NFA. Plus, private sector S can sometimes be marked to market in ways which makes valuation difficult.”

Sorry to be so inconclusive. As always I’m hoping to be educated by finer minds than mine.

Cross-posted at Asymptosis.

Tags: Comments (14) | |

Republicans: More Education, Less Reality

Via Chris Mooney to Digby to Krugman then me — this remarkable item from a Pew report:

College-educated Republicans are more likely to deny scientific reality.

They don’t spend their time in college (or life) trying to learn how the world works; they spend it learning how to mine, harvest, cherry-pick, and twist any “facts” they can find to conform to, and support, their faith-based beliefs.

Is it any wonder that among scientists — who devote their lives to trying to figure out how the world works — 55% are Democrats and only 6% are Republicans? (Click for source.)

Curious about the reality of Republican thinking? Check out The Republican Brain: The Science of Why They Deny Science—and Reality, due out in April from Wiley.

Cross-posted at Asymptosis.

Tags: Comments (6) | |

Health Care Thoughts: Research on Defensive Medicine (Part 1)

by Tom aka Rusty Rustbelt Health

 Care Thoughts: Research on Defensive Medicine (Part 1)

(Background – I have been an executive in two orthopaedic centers, and write and lecture for orthopaedic practice executives.)

A Vanderbilt research survey of orthopaedic surgeons indicate that 24% of diagnostic testing is “defensive medicine.” This does not surprise me, as I have been in the room when defensive medicine protocols have be decided. I have been involved in settling about two dozen malpractice suits against orthopedists (three had some merit, one was certainly malpractice). I also have done analysis for both sides in other malpractice actions.

Orthopaedists treat patients who have intense pain from serious injuries and conditions, and many of those patients have high expectations for positive outcomes. Those outcomes are not always possible, despite near miraculous results in many cases. But don’t they have insurance? Yes, but the stress and costs of a malpractice suit grind on physicians, even when suits are ridiculous it is a very unpleasant experience. An orthopaedist who does surgery without an MRI study puts him/herself in real jeopardy, and to be fair some lab and cardiology tests are required by accreditation standards.

More on access in part 2.

Tags: , , Comments (1) | |

All of the Euro Area Usual Competitive Suspects in One Chart…But with a Twist

by Rebecca Wilder

All of the Euro Area Usual Competitive Suspects in One Chart…But with a Twist

The European Commission’s Economic and Financial Affairs initiated the Macroeconomic Imbalance Procedure (MIP) Scoreboard. The MIP Scorecard will be used to identify emerging or persistent macroeconomic imbalances in a country. In their inaugural release, the EC listed 12 EU countries in need of further review for potential imbalances (program countries are exempt from this review process).

The accompanying database of the factors in the MIP score is made available at Eurostat. This database is particularly exciting for a data geek like me. Included in the MIP database is an indicator that I’ve wanted to construct for some time: country level exports as a share of world exports. World export share is a much broader measure of competitiveness than the commonly reported export share of country GDP.

Belgium, which is one of the 12 countries on review for potential imbalances, has experienced an 0.5 ppt drop in world export share, 2.4% in 2002 to 1.9% in 2010. Seems like a big drop – but what does a 1.9% export share mean in terms of the size of the Belgian population in the Euro area 12 (EA 12)? In 2010, Belgium’s world export share was 2.2 times what it’s EA 12 population share implies – loss of competitiveness, yes, but still competitive.
The chart below illustrates the following: (country world export share as a share of EA 12 world export share)/(country share of EA 12 population). The data can be downloaded at Eurostat: export share, and population).

If the index level > 1, then the country has a greater share of the EA 12 world export share than that implied by its population as compared to that of the EA 12 – competitive; If the index level < 1, then the country has a smaller share of the EA 12 world export share than that implied by its population relative to that of the EA 12 - not competitive.
Some takeaways from this chart are:

  1. All the usual ‘competitive’ suspects are at the top: Ireland, Netherlands, Belgium, Austria, Germany, and Finland. These countries hold in excess of 1.2 to 3.1 times EA 12 world export share than their relative size in the EA 12.
  2. All of the usual ‘uncompetitive’ suspects are at the bottom: Greece, Portugal, Spain, Italy, and France. These countries hold anywhere from 30% to 70% less world export share of that in the EA 12 than their population share would imply.
  3. Ireland is the most competitive in this respect, and Greece is the least.
  4. Germany is more in the middle with just a 27% higher export share of the EA world export share than that implied by its population share….

That’s it for today. I’d like to hear your feedback.


originally oublished at The Wilder View…Economonitors

Tags: Comments (1) | |

GOP candidates’ policies would raise federal debt by whopping trillions

by Linda Beale

GOP candidates’ policies would raise federal debt by whopping trillions

The GOP likes to pretend to take the high road, proclaiming itself to be against increasing the federal debt, running big deficits, or otherwise not running our government like a person runs their household. Pundits on the right tend to look at Greece and warn–watch out, America, you’re gonna be there next.

Of course, there’s a big difference in a family on a limited budget and the federal government. The government can print money to pay its bills; when people do that, it’s called counterfeiting. The amount of quantitative easing is limited, though where the limits are difficult to establish with any certainty–at some point. And there’s a big difference between the US and Greece. Unlike Greece, we have a sovereign money supply (Greece is tied to the European Union, unless it decides to break away and suffer the consequences). And unlike Greece, though our debt is high, it is still only about 70% of GDP. And lucky for us, the foreign nations who buy our debt need somewhere to put all those dollars that they’ve acquired through their cheap exports to us.

There’s another big difference between the US and Greece. We have a long history of a stable and workable tax system–in spite of the frequent tinkering that Congress has done over the years. We have at times had politicians in office who recognize their responsibilities to the system and enact new tax laws, in spite of the intense lobbying by Big Business and wealthy interests to try to derail all tax increases. We can and should increase taxes now, especially on those most able to pay.

So is that what the GOP candidates are proposing, after all their whining about how Democrats are fiscally irresponsible and blaming Obama for increasing our debt load? Nope, not at all. Except for Ron Paul, who wants to harshly cut every government activity, the rest of the GOP candidates have enormous tax cuts and middling spending cuts (mostly to programs that benefit ordinary Americans) and would add to the deficit by trillions of dollars, according to the Committee for a Responsible Federal Budget. See Primary Numbers: The GOP Canddiates and the National Debt (Feb. 24, 2012). Gingrich would have the biggest increase–about $7 trillion in new debt over a two-term presidency. Santorum would increase the debt by about $4.5 trillion, and Romney would increase it by about $2.6 trillion (unless he really comes up with some offsets as promised). All three of them are likely depending on the laughable Laffer Curve idea to help them achieve their promises–the assumption that their tax cuts for the wealthy would result in more growth and therefore more tax revenues.

crossposted with ataxingmatter

Tags: , , Comments (1) | |

Why the Government Must Keep Running Deficits. Forever.

Imagine an economy that consists of two households, one firm, one bank, and one government.

The government issues $50 to each household (maybe they do some work for it), crediting their bank accounts and running a $100 deficit. Voila! There’s money!

Now one household works for the firm, creating $50 in value, goods. The firm gives the household $50 in equity — company stock — basically a promise to give them some amount of money in the future. (The firm posts the $50 in newly created value as an asset on the lefthand side of their balance sheet, and $50 as shareholder equity on the righthand side — a liability).

The household can’t use that equity to buy a pack of gum today, so they want to monetize it — sell it to someone else. There’s only one “someone” — the other household.

But what if the other household doesn’t want to buy it because they’ve only got $50 and want hold it for the future? (It’s the babysitting coop dilemma.)

This is why in a growing economy where extra value is being created through people’s efforts, the government has to run deficits — creating money by crediting people’s/firms’ accounts with newly “printed” dollars.

If people can’t convert that extra value they’ve created into general-purpose “credit” (dollars) that can be exchanged for a variety of goods, they can’t spend. Which 1) gives them notably less incentive to create the value in the first place, and 2) prevents them from continuing the buying/selling log-rolling exercise that is our economy.

You’ve got a lot of newly created value/goods, but nobody with money to buy them.

Imagine if the cumulative government deficits today — the stock of money that government has spent into existence — were at the same level it was in 1900. The economy would be completely inoperable, locked up in primitive barter arrangements for lack of general-purpose money.

This is why government debt is not never, has not ever been, cannot ever be, paid off.

Another way to think about this: money — created, provided, by government as a public good — is a means for us to save consumption for the future. (“Saving consumption” is a funny concept, but it’s what we do when we put dollars under a mattress.) The only other way to do so is to create consumable real assets that will last, including those that can be used to create more consumables in the future (themselves being consumed in the process). It’s pretty impractical for a household to save all their consumption in this way, for all sorts of physical, personal, and logistical reasons.

Cross-posted at Asymptosis.

Tags: Comments (35) | |

Matthew Yglesias: Do Low Taxes Cause Inflation?

It’s nice to see Matthew Yglesias embracing Modern Monetary Theory, but I wonder if he totally gets it:

The point of collecting taxes isn’t that the government needs money (it can print money) it’s that if the quantity of taxes is too low relative to the stock of money, then the money loses its value and the price level rises.

He’s riffing on the the idea that tax obligations are the ultimate source of sovereign currencies’ value, the reason everyone has to accept that currency’s value, but I think he’s simplifying things to the point of error.

At least, he should be talking about deficits/surpluses and their Inflation/deflation effects, not just taxes. Now I suppose if you add ceteris paribus re government spending to his statement, it carries more water. But still, this doesn’t really follow: A) the ultimate value of dollars derives from their utility in retiring tax obligations, so B) more taxation makes dollars more valuable.

Cross-posted at Asymptosis.

Tags: Comments (1) | |