U.S. Budget and Economy

On December 10th, the Congressional Budget Office released a one-page table which shows the estimated cost for the so-called "tax deal". More specifically, it shows the estimated change in revenues and direct spending for S.A. 4753, an amendment to H.R. 4853, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. The following graph shows the resulting revenues, outlays, and deficits when this change is added to the current baseline: The graph also shows the revenues, outlays, and deficits for the baseline and the alternative under which EGTRRA and JGTRRA (the 2001 and 2003 Bush tax cuts) are permanently extended and AMT (Alternative Minimum Tax) is indexed for inflation. The actual numbers and sources for this and the following graph can be found at this link . As can be seen, none of the alternatives have much effect on outlays. Regarding revenues, the tax deal causes a two-year slowdown in their projected recovery and the permanent exten...

On November 21st, the Wall Street Journal ran an editorial titled "Higher Taxes Won't Reduce the Deficit " . The authors of the editorial are Stephen Moore and Richard Vedder. Moore is listed as a senior economics writer for The Wall Street Journal editorial page and Vedder is listed as a professor of economics at Ohio University and an adjunct scholar at the American Enterprise Institute. The editorial begins by mentioning that the draft recommendations of the president's commission on deficit reduction and a plan put forward by Alice Rivlin have proposed taxes as a part of reducing the deficit. It continues: The claim here, echoed by endless purveyors of conventional wisdom in Washington, is that these added revenues—potentially a half-trillion dollars a year—will be used to reduce the $8 trillion to $10 trillion deficits in the coming decade. If history is any guide, however, that won't happen. Instead, Congress will simply spend the money. In the late 1980...

At the end of my November 8th post , I asked for anyone who knows of an economic study that purports to show that any income tax cut has paid for itself to please post a link to it. On November 18th, I received the following reply: I'm not an economist of any flavor, but I was wondering what you thought of the article by Stephen J Entin from the Institute for Research on the Economics of Taxation that I've linked below. He appears to argue that increased capital gains tax should decrease net federal revenues. Any thoughts appreciated. http://iret.org/pub/CapitalGains-1.pdf The rest of this post will attempt to answer this reply: My request at the end of my November 8th post did refer to income tax cuts, not capital gains tax cuts and those are the primary focus of my analysis which I referenced there. The only involved analysis of capital gains tax cuts that I have done are in my prior posts, here , here , and here . Following is my chief conclusion from that relatively s...

On November 7th, David Stockman and Mike Pence appeared on This Week with Christiane Amanpour to debate tax cuts. David Stockman was a budget director for President Ronald Reagan and Mike Pence is a Congressman and has been the Chairman of the House Republican Conference for the past two years. A video of the tax cut debate can be found on the This Week website and a transcript can be found at this link . Following is an excerpt from that transcript: PENCE: Before we get -- look, David Stockman is, you know, he's a really famous guy and a thoughtful guy. I just disagree with him vehemently and I, frankly, have for about 30 years. David believes that every tax increase equals a revenue increase, but that's not true. Anybody who is familiar with the historical data from the IRS knows that raising income tax rates will likely actually reduce federal revenues. AMANPOUR: Let me ask David... PENCE: So if we raise taxes, the American people are very likely going to -- the top 1 pe...

On July 2nd, the Bureau of Labor Statistics released its Employment Situation Summary for June of 2010. Following is the first paragraph: Total nonfarm payroll employment declined by 125,000 in June, and the unemployment rate edged down to 9.5 percent, the U.S. Bureau of Labor Statistics reported today. The decline in payroll employment reflected a decrease (-225,000) in the number of temporary employees working on Census 2010. Private-sector payroll employment edged up by 83,000. The drop of 125,000 in nonfarm payroll employment put the number of nonfarm payroll jobs at 130.47 million, just about the same level that existed in December of 1999. Hence, we have gone 10 and a half years with no job growth. Perhaps more disturbing, however, has been the growth in long-term unemployment. On this topic, the December report stated the following: In June, the number of long-term unemployed (those jobless for 27 weeks and over) was unchanged at 6.8 million. These individuals made up 45.5 p...

Yesterday, I received an interesting question from Michael Fremer who has a blog at this link . Following is his question: I sent my right wing friends some of your analyses and they gulp, but then respond "Who is econdataus and why should we believe him?" And i can't answer that... Can you? My reply (with a few edits for readability) was as follows: In regards to "who is econdataus", you can tell them that I am nobody they would know. I am a math major and software engineer. As I mention in my profile , I became interested in U.S. budget and economic matters back in 1992, the first time that I remember the debt becoming a major issue in a presidential election. Around that time, I became aware of more and more cases where public political discussion seemed to be based on bad or incomplete data. Hence, my first goal was to build a site with carefully compiled and sourced data in the areas in which I was interested. This gives me (and hopefully others) a re...

From February 1st through the 4th, the Buttonwood's notebook blog of the Economist magazine had some interesting posts on the risks of sovereign debt. They were titled The debt trap: ranking the suspects , More debt rankings , The new gold standard , and Adding in the deficit . The first post addresses the effect of a debt trap, where the bond yield is higher than the economy's nominal growth rate. The second post adds in the effect of the debt-to-GDP ratio. Finally, the last post adds in the effect of the primary surplus/deficit. Also called the primary balance, this is equal to revenues minus spending, excluding interest costs. If the primary balance is positive, it's a primary surplus. If negative, it's a primary deficit. The effect of these four factors (bond yield, GDP growth, debt-to-GDP ratio, and primary balance) are also addressed in a Reuter's column titled Sovereign debt maths show risk of vicious circle . The column mentions all four factors in ...

As mentioned in my prior post, the U.S. Budget for fiscal year 2011 was released on February 1, 2010. As in prior years, it included the Analytical Perspectives which contains a section on the long-run budget outlook. The following graph shows the outlook for the federal receipts, outlays, and debt held by the public as projected by this section. The actual numbers and sources for this and the following graph can be found at this link . As can be seen, receipts are projected to rise and spending is projected to drop over the next 10 years, causing the deficit to narrow to 4.2 percent of GDP by 2020. However, outlays are then projected to begin a steady rise, causing the deficit to reach a record 62.3 percent of GDP by 2085. This is projected to cause the debt held by the public to rise to 829.7 percent of GDP. This is over seven times the prior high of 108.7 percent of GDP reached in 1946, at the end of World War II. In addition, it is over double the level projected in the pri...

On February 1, the U.S. Budget for fiscal year 2011 was released. Regarding the deficit, a Reuters article from that day stated the following: The budget forecast a $1.56 trillion deficit in 2010, or 10.6 percent of gross domestic product (GDP), up from a 9.9 percent share of GDP in 2009. But the shortfall was forecast to shrink to 8.3 percent of GDP in 2011. By the time his term ends in January 2013, it would have halved from the level Obama inherited on taking office last year, keeping a key pledge. That supposes Obama gets Congress to agree to spending cuts and that the economy rebounds strongly enough to sharply lift tax revenues. The following graph shows selected measures of the deficit since 1970: The actual numbers and sources can be found at this link . As can be seen, the numbers in the Reuters article are for the "unified deficit", shown in purple in the graph. The unified deficit is usually very close to the change in the debt held by the public (labelled ...

On January 8th, the Bureau of Labor Statistics released its Employment Situation Summary for December of 2009. It stated that nonfarm payroll employment dropped by 85,000 in December. That put the number of nonfarm payroll jobs at 130.91 million, just about the same level that existed in February of 2000. Hence, we have gone nearly a decade with virtually no job growth. Perhaps more disturbing, however, has been the growth in long-term unemployment. On this topic, the December report stated the following: Among the unemployed, the number of long-term unemployed (those jobless for 27 weeks and over) continued to trend up, reaching 6.1 million. In December, 4 in 10 unemployed workers were jobless for 27 weeks or longer. The following graph shows the average and median duration of unemployment since 1948: Links to the actual data used to create this graph can be found at this link . As can be seen, the average and median duration of unemployment have risen to what is by far their hi...

Following is an excerpt from a Wall Street Journal article from December 31, 2009: The Treasury sold more than $2.1 trillion in notes and bonds this year, more than in the previous two years combined, to fund a widening budget shortfall and finance programs to rescue the banking system and support the economy. Yet, despite the supply onslaught, buyers—from foreign central banks to U.S. households and domestic commercial banks—flocked to the sales. As a result, the government's borrowing costs fell to historic lows in 2009. Regarding these borrowing costs, the Treasury Department posts the average interest rates on U.S. Treasury Securities at this link . This shows the monthly averages from 2001 through 2009 and was apparently used to create the graph at this link . The table for December 2009 shows that the average interest rates for Treasury Bills (which have a maturity of one year or less) fell to a mere 0.237 percent at the end of 2009, compared to 1.082 percent at the end o...