Semi-Daily Journal

Krugman is practicing the discredited ideology of class warfare!

He forgot to mention the Heritage Foundation!

Here's my favorite, in which we learn that the richest Americans only make 4 times what the poorest make.

http://www.heritage.org/Research/Labor/CDA99-07.cfm

If anybody knows where I can get honest analysis of economic issues from a conservative think tank I'd love to know about it. I read Heritage every now and then for entertainment purposes only.

One place not to go for an honest assessment of what is going on? The US government. Your tax dollars at work:

http://news.ft.com/servlet/ContentServer?pagename=FT.com/StoryFT/FullStory&c=StoryFT&cid=1051390392975&p=1012571727088

Saam B,

I'm not sure the Hudson institute does the kind of work you are looking for (or that they are as honest as one would like - I haven't been looking that long), but it certainly seems a cut above the Heritage Foundation.

You had to wonder when that name (HF) first popped up. The name itself makes such a strong claim that it looks like propoganda - or perhaps a grab for donor money. I have wondered for some time whether the real problem with finding honest analysis is that so much "research" money is really just propoganda money. The bad starve the good, then drown them out. That's one of the nice things about having Krugman point us in the right direction. It isn't just the right that is prone to making ...um...unsupportable assertions.

Once I read through the full CBPP report--including the footnotes--I understood where they come up with their numbers about the declining share of GDP taken by the federal government, and why Krugman believes them.

However, Krugman is still relying on *forecasts* for both federal taxes and GDP, which he does not mention. (Perhaps he does not think it relevant). But I do.

IMHO, there is a large difference between number crunching ("statistical work") and forecasting. The data for federal revenues from October to April is pretty accurate, but the GDP numbers--even for the past, not to mention the future--are still subject to wide fluctuation.

Krugman may be right, or he may be wrong. It is way too early to tell, but it does look like the percent of GDP collected as receipts for the Federal Government will be around 17%, which is historically lower than the average of 18% over the last 40 years, and much lower than the historically high 19.8% average from 1996 to 2001.

Cato has occasionally produced useful analyses, which is more than I can say for Heritage. However, there's an emphasis on the "occasional" -- let the reader beware (and verify the math, and the sources...).

I go to Kausfiles for hard hitting economic and budget analysis.

On the federal share, just look at the trend:
http://faculty.roosevelt.edu/Antler/images/fedrevaspercent.htm
Clearly a nice fairly steady upward trend, reversed only slightly by recent years' actual and estimated data.

Steve: interesting graph. That suggests that highly progressive tax systems are more cyclical than less progressive ones because high income individuals as a group experience greater income fluctuations. Any comments?

"First is the Center on Budget and Policy Priorities ... the statistical work is absolutely impeccable"

Would this be the same CBPP that effectively said the Bush tax cuts *created* the funding shortfall for Social Security and Medicare, claiming the cuts amount to more than the entire shortfall? In Krugman's words....

"The new study, carried out by the Center on Budget and Policy Priorities, estimates the present value of the revenue that will be lost because of the Bush tax cuts ... would have been more than enough to 'top up' Social Security and Medicare, allowing them to operate without benefit cuts for the next 75 years.."
http://www.pkarchive.org/column/032103.html

Which is a darn peculiar statement, being that most of us remember hearing of the coming big shortfalls well before Bush was elected. Even before Clinton was elected.

E.g., GAO budget predictions using baseline fiscal policy in place in 2000 and 2001, *before* the Bush tax cuts, (summarized at http://www.gao.gov/new.items/d01385t.pdf) show annual fiscal deficits reaching 20% of GDP -- equal to the size of the entire federal government today! -- between around 2045 and 2060, depending on the scenario. At that point GAO stops its analysis because it considers a deficit of 20+%-of-GDP-and-rocketing-upward too implausible to consider.

So this "absolutely impeccable" work by CBPP somehow either overlooked a 20% of GDP and rising deficit by 2045-2060 ... or claimed GAO's projection somehow was off by that immense amount ... or claimed the Bush tax cuts in some way cause these mid-century 20%-of-GDP deficits retroactively back through time so they could be projected by GAO in 2000, before the tax cuts were conceived. Which do we pick?

Or perhaps this impeccable work reached it's conclusion by greatly understating the cost of Medicare, through excluding the largest part of it, Medicare part B, as Arnold Kling reported. http://econlog.econlib.org/archives/000072.html

Although -- my mistake -- that wouldn't be an "or", that would be an "and", since in that case this work would have impeccably both greatly understated future Medicare costs (and thus have greatly overstated the size of the Bush tax cuts, which is stated in terms of the cost of Medicare) *and also* have overlooked the forecast 20% of GDP deficits forecast *before* the cuts were enacted -- a double howler.

But how else could it conclude that the revenue lost to the Bush tax cuts "would have been more than enough to 'top up' Social Security and Medicare, allowing them to operate without benefit cuts for the next 75 years ... The Bush tax cuts, not the retirement programs, are the main reason why our fiscal future suddenly looks so bleak."?

Hey, does Brookings' also impeccable analysis project that the Bush tax cuts are so large, so that the revenue lost to them somehow would cover even the spending shortfalls projected before they were enacted, so that SS and Medicare could be "topped up" for 75 years if they hadn't been enacted?

Answer: No way. So *somebody's* analysis isn't so impeccable.

Jim Glass:

Congratulations! Excellent post!

Economists (regardless of ideology) have an ethical obligation to report not just last week's data and debate, but the sum of our experience over the past three decades (at least!).

Stay tuned to the internet. In addition to all the current commentaries suggesting the liquidity trap has just been discovered, we'll shortly find writers who've discovered the falling dollar and all its worrisome implications.

Please, everyone who (like Jim Glass) knows none of these issues are really "new", continue to post the history and context of these important debates!

Steve Antler

Jim Glass:

Congratulations! Excellent post!

Economists (regardless of ideology) have an ethical obligation to report not just last week's data and debate, but the sum of our experience over the past three decades (at least!).

Stay tuned to the internet. In addition to all the current commentaries suggesting the liquidity trap has just been discovered, we'll shortly find writers who've discovered the falling dollar and all its worrisome implications.

Please, everyone who (like Jim Glass) knows none of these issues are really "new", continue to post the history and context of these important debates!

Steve Antler

Paul Krugman is correct. Administration fiscal policy is a disaster. Radical-Republicans are bent on destroying Social Security, Medicare, and Medicaid.

May 29, 2003

Report Warns of Chronic U.S. Budget Deficits
By PERONET DESPEIGNES, FT.com

The Bush administration has shelved a report commissioned by the Treasury that shows the US currently faces a future of chronic federal budget deficits totalling at least $44,200bn in current US dollars.

The study, the most comprehensive assessment of how the US government is at risk of being overwhelmed by the "baby boom" generation's future healthcare and retirement costs, was commissioned by then-Treasury secretary Paul O'Neill.

But the Bush administration chose to keep the findings out of the annual budget report for fiscal year 2004, published in February, as the White House campaigned for a tax-cut package that critics claim will expand future deficits....

Jim:

Let's say social security requires $100, that there is a $10 shortfall and that the Bush tax cuts are $20 (numbers obviously made up for illustration). $20 would be enough to top up at $10 shorfall.

If, however, you're arguing that future funding gaps are so large as to dwarf the effects of the tax cut, then you are arguing that the tax cut is a really really bad idea.

May 29, 2003

Caught in the Squeeze
By BOB HERBERT - NYTimes

One of the things President Bush knows best is when to turn on the klieg lights, and when to keep them off.

On Tuesday, with no fanfare, he signed a bill increasing the federal debt limit by nearly a trillion dollars. You don't want a lot of coverage when you're mortgaging the future.

But yesterday it was high-fives all around as Mr. Bush signed the third-largest tax cut in history at a grand ceremony in the East Room of the White House.

I suppose if your income is large enough, there is every reason to celebrate....

Oops....

May 29, 2003

Tax Law Omits Child Credit in Low-Income Brackets
By DAVID FIRESTONE - NYTimes

A last-minute revision by House and Senate leaders in the tax bill that President Bush signed today will prevent millions of minimum-wage families from receiving the increased child credit that is in the measure, say Congressional officials and outside groups.

Most taxpayers will receive a $400-a-child check in the mail this summer as a result of the law, which raises the child tax credit, to $1,000 from $600. It had been clear from the beginning that the wealthiest families would not receive the credit, which is intended to phase out at high incomes.

But after studying the bill approved on Friday, liberal and child advocacy groups discovered that a different group of families would also not benefit from the $400 increase — families who make just above the minimum wage.

Because of the formula for calculating the credit, most families with incomes from $10,500 to $26,625 will not benefit. The Center on Budget and Policy Priorities, a liberal group, says those families include 11.9 million children, or one of every six children under 17....

One question that intrigues me is, why "Most taxpayers will receive a $xxx check in the mail", instead of a transference into a bank account? Mail and check processing is more expensive.

DSW

"Clearly a nice fairly steady upward trend, reversed only slightly by recent years' actual and estimated data."

The revenue bump is due to the one-time jump in capital gains for the 1990s, I believe.

Antoni, getting a direct deposit doesn't have as strong of political benefits for the administration.

Jim, I'm intrigued. Here's the reference to the CBPP study Krugamn mentioned.

http://www.cbpp.org/3-5-03bud-fact.htm

They don't mention Medicare B deficits, but they explicitly say their number is Medicare part A:

"The projected deficit in the Medicare Hospital Insurance (HI) program ? also known as Medicare Part A ? is 1.1 percent of GDP, according to the trustees? report." (this is the same number that's in the chart)

I think the problem is that Krugman misstated the article's conclusions. CBPP does *not* say that "foregoing the Bush tax cut would give us enough money to pay off the Medicare & SS deficits." They say that the Bush tax cut is equivalent in size to those deficits.

That is:

Before tax cut: expected fed deficit of 10 trillion, entirely due to SS & Medicare A deficits.

After tax cut: expected fed deficit of 20 trillion, half due to SS & Medicare A, half due to the tax cut.

Blame Paul on this one, not the CBPP.

Richard- good puncturing of Glass' normal blizzard of misdirecting numbers.

Most of us have spent our whole lives hearing about the "coming shortfalls" and "before Clinton" there did seem to be little hope.

But the Man from Hope proved that all the handwringing from the right about all the ways the Federal Government was going to grow uncontrollably was complete bullshit used just to get them in office.

BTW, Glass/Kling are somehow baffled at the concept that future expenditures of Medicare/SS aren't part of the payroll tax- duh, that's because of these bonds that the FED OWES THEM. Try to follow, guys- these programs are in a surplus, Bush is borrowing money from them instead of using general revenue in order to stuff Haliburton and Carlyle Group's pockets. If you take out a home equity loan and spend it on a vacation, it is quite possible that woe is you when you when someday you can't make a mortgage payment but it ain't the bank's fault.

Unlike the Bush Misadminstartion, there's nothing sneaky and below-board about CBPP's work.

Jim: “E.g., GAO budget predictions using baseline fiscal policy in place in 2000 and 2001, *before* the Bush tax cuts, (summarized at http://www.gao.gov/new.items/d01385t.pdf) show annual fiscal deficits reaching 20% of GDP -- equal to the size of the entire federal government today! -- between around 2045 and 2060, depending on the scenario. At that point GAO stops its analysis because it considers a deficit of 20+%-of-GDP-and-rocketing-upward too implausible to consider.”

They are not using the baseline in place in 2000 and 2001

the panel recommended that in the last 50 years of the 75-year projection period, per-beneficiary program costs should be assumed to grow at a rate one percentage point above per-capita gross domestic product (GDP) growth….we have incorporated higher long-term health care cost growth consistent with the Medicare technical panel’s recommendation into our January update.

You have to watch out for the power of compounding.

Your mistake, you misread the report.

Jim: “Or perhaps this impeccable work reached it's conclusion by greatly understating the cost of Medicare, through excluding the largest part of it, Medicare part B, as Arnold Kling reported.”

Medicare part B is not the largest part of Medicare part B is about 70% of part A

"Let's say social security requires $100, that there is a $10 shortfall and that the Bush tax cuts are $20 (numbers obviously made up for illustration). $20 would be enough to top up at $10 shorfall."

No, if you didn't cut the extra $20 you'd still have a $10 shortfall you can't top off, instead of an increase to a $30 shortfall.

But lets get our proportions right. E.g, look at figure 4 in the GAO summary cited above. It projects combined spending on SS, Medicare and Medicaid rising from about 7% of GDP today to about 22% of GDP in 2050 (while the entire government takes 20% of GDP today) -- an increase of about 15% of GDP. The GAO's year 2000 deficit projection of 20+%-and-off-the-chart for about 2050 results directly from this and resulting interest charges -- in a pre-recession, pre-war, *pre-Bush tax cut* scenario where a decade of surpluses would be saved first!

Does anybody really believe that the Bush tax cuts will total anything like 15% of GDP in 2050? And that we possessed that revenue until 2001, when Bush cut it away, so all the prior decade of analysis of the looming shortfall (including this GAO report) was all nonsense?

Because that's the claim of: "the revenue that will be lost because of the Bush tax cuts ... would have been more than enough to 'top up' Social Security and Medicare, allowing them to operate without benefit cuts for the next 75 years." For all the impeccable statistical analysis put out by GAO, CBPP and Krugman, at least one of them is preposterously wrong on this.

"CBPP does *not* say ... Blame Paul on this one, not the CBPP."

I noticed that, but dare I criticize him here? ;-)

It looks to me like CBPP played a PR game by talking out loud about "Medicare" while making people like Arnold Kling go through the notes to find they meant only the less expensive portion of it, and their presentation wound up gaming PK among others. But how anyone could say the whole coming SS/Medicare funding gap was created *after* 2000 by the Bush tax cuts is beyond me -- unless one wanted to really, really jump to that conclusion.

Some have said the problem with PK is he doesn't have enough words to express himself per column, but I don't think so, it looks to me more like he doesn't spend enough time per column. Back when he started and made some factual errors the editor of smartertimes.com, IIRC, (who has since moved on to edit a real newspaper) said the Times makes its other op-ed writers give up their regular jobs but waived that rule for PK, and suggested that might be the issue. PK himself has written on his web site about how he turns around his stories over a couple days part-time googling research, and he said in the WaPo profile that he usually doesn't call those he writes about to verify things since he thinks he knows what they'd say, and we know the kinds of conclusions he prefers ... sometimes it all shows. The composed thoughtfulness that used to tone down his natural acerbity and lead to surprising insights in his Slate writing is gone.

Well, if you can find a press release where they imply that no tax cut = hunky dory Social Security, but until then I'm calling no foul. They don't say anything of the sort.

I think PK just doesn't have enough time any more. He's got an awful lot on his plate.....

Jim-

I think you are misreading the report. The Bush tax cut IF EXTENDED BEYOND 2011 will cut projected revenues to a much greater extent than the gap between projected SS and Medicare/aid revenue from payroll and expenses paid out.

Yes there is a gap between revenue and pay out. But that gap can be covered by the SS trust fund through 2040. Because all of the SS trust fund plus some has been borrowed by the rest of the government, the trust fund money MUST BE PAID BACK by 2040. This creates a revenue problem IF we enter that period with huge debt.

After 2040, it was always recognized that there was a gap between revenue and pay out. However, if one looks at revenue that would be lost due to extending the Bush tax cuts, that revenue loss is greater than the SS shortfall, suggesting that that shorfall could be fixed thorugh adding revenue.

You don't seem to be familiar with the work of Gale Orzag and Auerbach in projecting long term revenue and deficits. That work has shown that the 10 year time line for surplus was always misleading because it considered a time period when boomers were making maximum payroll contributions to SS and did not consider the period after the boomers retire when SS costs escalate and revenues drop. The surplus was never there if a longer time line was consdered. By averaging the costs of decades, SS is affordable. That is what the 1980s legislation was supposed to do. Using SS surpluses to give tax cuts to the wealthy undermines the 1980s legislation. That is the bottom line.

http://www.cbpp.org/3-5-03bud.htm

for analysis on why the tax cuts lose more revenue than the SS/Medicare shortfall.

This has always been the case and similar argument has been put forth before the 2000 election. Note that the Orzag et al even suggest that some tweaking of SS benefits might b part of the picture. This is not even on the GOP radar screen, but this is where Clinton and the Gore lockbox were coming from.