Open thread Nov. 2, 2012 Dan Crawford | November 2, 2012 8:13 pm Tags: open thread Comments (16) | Digg Facebook Twitter |
Congressional Research Service discovers tax cuts don’t improve economic growth to Senate GOP dismay: http://www.dpcc.senate.gov/?p=blog&id=193
Courtesy David Dayen at FDL: http://news.firedoglake.com/2012/11/01/war-on-facts-republicans-complain-about-congressional-study-on-tax-cuts-for-the-rich-get-it-taken-down/
We have a sustainable level of deficits if they are lower than the economy’s growth rate. Should I be looking at on-budget or at unified budget?
What is off-budget these days?
Arne the answer depends on whether you are looking at ‘debt’ or ‘deficit’. Because ‘off budget’ numbers work in opposing ways.
For example assume the outlier: I.e Low Cost (the optimistic scenario for Social Security) combined with a fully balanced ‘on budget’ outcome. Gee that would be all good! Or would it? Because you could end up with a situation where cash surpluses from Social Security end up eliminating Debt Held by the Public while paradoxically ballooning total Public Debt. In fact it was a variant of this that Greenspan warned Congress about in 2000 when he warned about the danger of elimination of the Long Bond due to excessive surpluses from continuation of Clinton era numbers.
He wasn’t crazy, not as such. Not given the Washington Consensus combined with Chicago Style economic theory. Where he screwed up is in not understanding that the Washington Consensus was hooey (we should have been listening to Baker and Roubini re asset bubbles) and that the policy prescription of the Chicago School of Tax Cuts on Capital Now, Tax Cuts on Capital Forever were not the Magic Beans that theory suggested. Instead a better solution to the ‘problem’ of surpluses would have Ben to target the optimal level of structural debt to GDP and an investment of any surpluses above and beyond that glide path to direct infrastructure investments.
But if the Washington Consensus that the business cycle had been broken forever and 3% Real GDP was permanently baked in the pie had been correct, arithmetically the results would have been apparently self-contradictory: permanent surplus coupled with ballooning Public Debt.
Of course Bush by double spending the projected surplus (as Prof K tried to point out at the time) put paid to that particular paradox. With the result that nobody seemed to notice that in Clinton’s last year that there was both an On Budget and an Off Budget and of course a Unified Budget Surplus all three and yet totalPublic Debt actually went up. Because Off Budget surpluses don’t work in the way one would expect when it comes to Debt. You could look it up (I did)
Per OMB and as explained in the Analytical Perspectives on the Budget (an annual supplement to the Budget of the President) under current law only Social Security and the Post Office are “off-budget”. Though other programs were legally such under previous versions of law.
That is the line between ‘On Budget’ and ‘Off Budget’ is not the same as the line between the Trust Funds that are calculated as making up Intragovernmental Holdings as opposed to the combination of public and private holdings that make up Debt Held by the Public.
For example Federal Reserve holdings of Treasuries are NOT considered Intragovernmental Holdings. Even though interest earnings on them are rebated to Treasury. Nothing in Federal debt and deficit accounting is straightforward. Tho it has it’s own internal logic.
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on budget off budget is mostly a way to fool the public, the press, and the congressmen themselves.
There are some very simple facts.
First is, there is probably no such thing as a “sustainable” level of debt. You can borrow to pay for what you need until the cost of repaying the debt is more than you can afford. We are nowhere near that point. And in the case of The United States, we could probably surpass that point and “pay for” the debt with currency depreciation. Maybe not a good idea, but unlikely to be catastrophic unless accompanied by generally stupid policies… which we may well be seeing.
Second, the Social Security Trust Fund is debt owed by the government to the people who paid the “excess” Social Security tax. The “unified budget” likes to count that excess tax as income without counting the debt. There may be reasons to treat the debt owed to Social Security differently from the debt owed to purchasers of “regular” Treasury bonds. But not to the extent of obscuring or denying where the money came from and to whom it is owed.
The fact which I think Bruce is alluding to is that as long as the government borrows money from the Social Security Trust Fund… and it borrows all of the money that Social Security does not need to pay for current benefits… a growing Trust Fund represents increased debt. This may be a debt that never has to be paid off… if payroll taxes continue to exceed benefits paid out. But that is a situation that would begin to look ugly to some… a growing national debt that begins to look unpayable.
The liars exploit the confusion about this to create panic and the lie “Social Security is broke.”
Social Security is not broke, and the “worthless iou’s” in the Trust Fund continue to be paid off as needed.
It looks as if… as the Trustees have predicted for every year since I have been paying attention… that the Trust Fund will be paid down to the preferred level of “one year’s benefits” in reserve… sometime around 2035 plus or minus five years.
It turns out, and it’s only a coincidence, that after that time, because of increasing life expectancy (yes, in spite of arguments re other factors) the payroll tax would need to be increased, gradually, to pay for that increasing life expectancy without raising the retirement age, or cutting monthly benefits, or otherwise changing the very structure of Social Security… at a rate of about one half of one tenth of one percent per year… roughly forty cents per week per year, divided between the worker and the employer.
This is a reasonable way to pay for a longer retirement. It comes out of incomes that are growing, such that future workers will have MORE money after paying for their retirement than they have today… plus enjoying a longer retirement at a higher standard of living.
But for some reason everyone wants to confuse this simple fact. Some of them… Petersons… are simply criminals who can see a way to make money by destroying Social Security, or insane … like Alan Simpson.. who just want to hurt people in the name of making them “more responsible.”
And some just want to turn Social Security into welfare to satisfy their need for “social justice” which means making the rich pay for everything the poor need… even when the poor can, and prefer to, pay for it themselves.
And some, apparently, just enjoy the sheer wonkishness of complicating a simple situation.
and at the risk of complicating it myself: the easiest way to pay for the projected shortfall would be to raise the payroll tax one tenth of one percent, on each the worker and the employer, in fifteen of the next twenty years. this is about eighty cents per week in each of those fifteen years, while wages should go up about eight dollars per week in all of those twenty years. This is a higher rate than the average rate needed over the next seventy five years, but it solves the “2035” problem, and is not burdensome, and who really knows what will happen over the next seventy five years.
“And some just want to turn Social Security into welfare to satisfy their need for “social justice” which means making the rich pay for everything the poor need… even when the poor can, and prefer to, pay for it themselves” coberly
You know that I agree with virtually all that you (and Bruce) have to say re. Social Security. The statement quoted above does, however, show up in many of your comments about the issue. Note that in your preceding paragraph you are able to identify two individuals at the forefront of the intent to scrtew with SS. You do not identify anyone as being in that opposite camp, those who seek social justice for the poor. I’m sure that you mean well by trying to show that there are varying sides to the argument, but there is no false equivalence in the Social Security argument. There is Peterson and his ilk and there are those who want to keep the prgram as it is. Who is it that is puching the social justice meme? Please, drop that part of your argument. It lacks validity.
On the earlier report on Ca taxes and people not leaving. I would put the issue differently, it takes another life event to result in folks re-thinking their life choices, at that point taxes might come in as a factor. Moving is a hassle plain and simple, for the classes cited it involves paying the private real estate transfer tax to the broker and the other folks involved in the title transfer. In addition you have to decide what to dispose of and what to keep, as well as what kind of new housing arrangements you want. These are major a major hassle. So you may do these if you retire or make a job change, get a divorce, or the like.
unfortunately it does not lack validity. there are organizations that describe themselves as “for SocialSecurity.” I do not identify them by name as they are already mad at me, and in fact they may be doing some good and i don’t believe in shooting my friends.
Nevertheless these people know full well that the cost of fixing social security is pennies per week if paid by the people who will get the benefits. But they NEVER mention the fact. They prefer to call for “raise the cap” or other ways to tax the rich to pay for social security. As far as i can tell they are motivated by a psychological need to “tax the rich to pay for the poor poor.” That’s fine, but it’s as good a way to kill Social Security as turning it over to Wall Street.
I have nothing against welfare, or taxing the rich. But not for SocialSecurity which succeeds exactly because it is not welfare and does not tax the rich.
However the current SS benefit formula does benefit the low end over the upper end of the range where SS taxes are paid. The replacement is 90% of the first 791 a month then 32% to 4768 and 15% from there to the earnings limit. It is this formula which leads some folks to claim that SS is a bad bargin for folks whose average career earnings are over 4768 a month.
I asked about deficits, not debt. There is a sustainable level of deficit in that even though the debt is increasing as a dollar amount it is decreasing as a percentage of GDP.
I realize this seems like a SS question since SS is essentially the only off-budget item, but that is not my intent. I was discussing this with someone who says that we should use the unified budget whereas I felt only the on-budget deficit should be counted (to answer the question about sustainable deficits).
Correct me if I am wrong, but the interest paid to the SS TF is an on-budget item: correct?
Arne it’s the on-budget deficit that adds to debt, unless your name is Peterson. If you assume that the government will just stop paying Social Security benefits, then you may dismiss debt to the SSTF and focus on the unified budget deficit and “debt held by the public” rather than the public or national debt. Your friend has fallen into the trap of making this assumption. And from an economic standpoint, concerning deficit sustainability, it makes no difference whether the borrowed money comes from your 401-k contributions or your FICA contributions.
That’s true. and that’s the point. At age 21, say, you don’t know (though you think you do) whether you will end up rich or poor. So you buy insurance in the form of the payroll tax. If you end up poor, the insurance provides a boost to your savings so you end up less poor. If you end up rich, your insurance payment provides that boost.
This is not welfare, you paid a premium for the insurance. You are not paying a “tax” to support “the poor.”
I don’t think this is a small point. But folks who don’t want to understand it won’t.
Those folks are those who know in advance that they will be rich. And those who, after the fact, know that they didn’t need the insurance.
But there is some historical evidence that these folks are fooling themselves.
the whole on budget off budget, debt vs deficit, “argument” confuses me, as it was designed to do.
If I may take a peasant shot at it:
paying the interest TO the Trust Fund, when it is actually paid, and not just a bookkeeping entry, is “on budget.”
The money borrowed FROM the Trust Fund ought to be recorded on-budget as a debt. I believe… not sure… that it is recorded instead as “revenue” with no bookkeeping that tracks it as debt.
This is a cute way of keeping two sets of books in broad daylight. But it’s dishonest all the same.
Of course the Congress can treat the money any way it likes. But the people ought to not let them get away with it. And the fact is that so far there does not appear to have been any real world attempt to deny that the iou’s are real debt.
About the only way to understand this is to resist firmly assuming the words mean what they seem to mean, or are said to mean, and just look at it hard enough to see where the money comes from and where it goes… or is supposed to go under current law. The Trust Fund is a real asset of Social Security, and a real debt of the United States.
And a debt is just net accumulated deficits, probably adjusted for interest one way or the other.
I know that Bruce says this common sense view doesn’t work with “the budget.” But to enter into “the budget’s” tangled web is to invite insanity.