Some facts about the stimulus
If you've watched CSPAN today you saw a lot of talk about what works and what doesn't in the stimulus bill. As expected Republicans favor tax cuts of all kinds to solve the problem. Dems favor direct government spending. In a minute I'd like you to look at some numbers and compare, but first let's keep the following in mind. As the recession
deepens, states' deficits are rising and could total $350 billion to $370
billion over the next 2 1/2 years. That translates into huge budget cuts as
well as tax and fee increases, and these things will reduce overall demand,
which removes even more money from the economy.
A lot of these states are mandated by law to balance their budgets each year. Foolishly they passed balanced budget amendments that thankfully Republicans were never able to ram through congress in the 1980s. Other states like California are so deeply in debt with no way to raise or borrow funds after years of mismanagement they are essentially bankrupt.
Now let's look at those figures. They come courtesy of the Int'l. Labor Communications Association. Now that sounds like a lefty organization (it is) and for some that would automatically make their data suspect. Well here's what the ICLA has to say about that:
Right about now somebody will be asking: "Did some wacky liberal (from Neptune) come up with this research and how much credibility does it have?" Sure, this is the sort of policy position you'd expect to come from Barack Obama or some sort of "progressive" think tank. But it comes from Moody's Economy.com, which is an entirely different animal. It is a leading independent provider of economic analysis, data, and forecasting and credit risk services. And its chief economist, Mark Zandi, is a former advisor to presidential candidate John McCain.
Fiscal Economic Bang for the Buck
One year $ change in real GDP for a given $ reduction
in federal tax revenue or increase in spending
Tax Cuts
Non-refundable lump-sum tax rebate 1.02
Refundable lump-sum tax rebate 1.26
Temporary tax cuts
Accelerated depreciation 0.27
Across the board tax cut 1.03
Payroll tax holiday 1.29
Permanent tax cuts
Make Bush income tax cuts permanent 0.29
Cut in corporate tax rate 0.30
Make dividend and capital gains tax cuts permanent 0.37
Extend alternative minimum tax patch 0.48
Spending Increases
General aid to state governments 1.36
Increased infrastructure spending 1.59
Extending UI benefits 1.64
Temporary increase in food stamps 1.73
Source: Moody's Economy.com
http://www.ilcaonline.org/ht/display/ArticleDetails/i/75963
Feel free to send this to your crazy Uncle Spric or Niece Renaye. They need to know the facts. While you're at it send it your local congressman. Like what's his name says fax it to him or her. Send it to as many US senators as you'd like. John McCain might like to know at least one of his economic advisors isn't insane.
A lot of these states are mandated by law to balance their budgets each year. Foolishly they passed balanced budget amendments that thankfully Republicans were never able to ram through congress in the 1980s. Other states like California are so deeply in debt with no way to raise or borrow funds after years of mismanagement they are essentially bankrupt.
Now let's look at those figures. They come courtesy of the Int'l. Labor Communications Association. Now that sounds like a lefty organization (it is) and for some that would automatically make their data suspect. Well here's what the ICLA has to say about that:
Right about now somebody will be asking: "Did some wacky liberal (from Neptune) come up with this research and how much credibility does it have?" Sure, this is the sort of policy position you'd expect to come from Barack Obama or some sort of "progressive" think tank. But it comes from Moody's Economy.com, which is an entirely different animal. It is a leading independent provider of economic analysis, data, and forecasting and credit risk services. And its chief economist, Mark Zandi, is a former advisor to presidential candidate John McCain.
Fiscal Economic Bang for the Buck
One year $ change in real GDP for a given $ reduction
in federal tax revenue or increase in spending
Tax Cuts
Non-refundable lump-sum tax rebate 1.02
Refundable lump-sum tax rebate 1.26
Temporary tax cuts
Accelerated depreciation 0.27
Across the board tax cut 1.03
Payroll tax holiday 1.29
Permanent tax cuts
Make Bush income tax cuts permanent 0.29
Cut in corporate tax rate 0.30
Make dividend and capital gains tax cuts permanent 0.37
Extend alternative minimum tax patch 0.48
Spending Increases
General aid to state governments 1.36
Increased infrastructure spending 1.59
Extending UI benefits 1.64
Temporary increase in food stamps 1.73
Source: Moody's Economy.com
http://www.ilcaonline.org/ht/display/ArticleDetails/i/75963
Feel free to send this to your crazy Uncle Spric or Niece Renaye. They need to know the facts. While you're at it send it your local congressman. Like what's his name says fax it to him or her. Send it to as many US senators as you'd like. John McCain might like to know at least one of his economic advisors isn't insane.
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I used this same report with some Treasury folks here a while back, Mark. Interestingly, a batch of them were so young they didn't have a clue that this sort of thing was available to help them figure a way through. (And some of the others knew no more economics than they'd picked up in the latest Business Week.)
Worth noting that the "bang for the buck" specified in these categories can swing a great deal when you get down to specifics (road work vs building retrofit vs wind turbine - all classed as "infrastructure"), and also, depending on economic conditions and attitudes as a whole. It's not the same as just pulling a few general levers, the down-and-dirty details matter a great deal.
P.S. Funny to see the same sorts of writing oddities show up with both Uncle & Auntie,,,, such as this particular,,,, tendency. Must be something in the water. ;-)
January 29, 2009 2:11 AM | Reply | Permalink
Yeah Quinn, devils in the details and all that. Plus laying down gravel on a road in AL and raking it out with chain gang labor is likely to be cheaper but isn't likely to give as much stim bang for the buck as laying down asphalt with union labor in IL.
But as broad outlines go this one is hard to refute, especially as it comes from one of McCain's own advisors.
January 29, 2009 10:28 AM | Reply | Permalink
I may have missed something, but are those dollar amount changes positive or negative? Are they all positive, or all negative?
January 29, 2009 2:46 PM | Reply | Permalink
Renaye for every dollar expended on making Bush's tax cuts permanent you $0.29 back in stimulus, i.e. maybe a few more wealthy people buy a new Lexus or Mercedes. More likely it'd juts go into the stock market chasing the next bubble. The Republican supply side mantra that tax cuts boost the economy, increase tax revenues haven't been born out over the last 28 years since Reagan started the experiment. Out nat'l debt. went from $990 billion in 1981 to almost $11 trillion today.
For every dollar expended on increased infrastructure spending you get back $1.59 i.e. material bought from parts suppliers and workers hired to bring broadband to Red River Valley towns or build windmills on the windswept plains.
You not only wind up hiring people who then spend those wages back into the economy who otherwise would be on the dole you wind up with tangible improvements to the economy for the future.
The Republican mantra that government spending will crowd private spending out of the credit markets doesn't apply today because there is no private investment going on. The economy is in a shambles, no bank wants to lend to private businesses whose prospects appear so bleak. Government spending must take up the slack, not just to feed people, but to let contracts to businesses to do this work so they can hire, they can buy materials which all ripples through the economy.
It's not a panacea, we're expected to lose another 5 to 7 million jobs in the private sector alone this year and at best this package will create 3.7 million jobs. But that's 3.7 million jobs and a whole lot of other economic activity we wouldn't otherwise have.
January 29, 2009 3:59 PM | Reply | Permalink
Okay, thanks, I just didn't understand the format.
Now I know it's bogus that if you spend a dollar on food stamps, someone eats the food, then $1.73 is recovered by the economy somehow while the food completes it's trip to the sewage treatment plant. This is ridiculous.
It that's the case, we need to come out with beer stamps. That's what most food stamps are spent on anyway. I buy em all the time fifty cents on the dollar, then help them drink the beer they buy with the money. Have to drive them to the store though.
January 29, 2009 4:21 PM | Reply | Permalink
I don't think "food" in "food stamps" means what you think it means renaye. It is illegal to use food stamps to get booze as far as I know. Now in TX or OK, well maybe they play a little looser with the law. What town did you say you live in? We can get some jack booted USDA thug inspectors down there to clean up that practice. If you and your friends want to earn beer money resell some Obama lava lamps (made in Chicago) on Ebay or something. These are not items readily available in rural areas and you'll be able to build a list of buyers and homes you'll want to burn when you've had enough and decide a rampage is the only way to save the country. Two birds, one stone.
January 29, 2009 5:05 PM | Reply | Permalink
You're a good teacher, Mark.
But your student's dumb as a turdstick. Either that, or drunk.
They seem to think that that dollar just lays there in the till, incapable of moving on... and that food magically transports into the store, just for them.
Shame they never grew up on a farm. Though... come to think of it... maybe they did. Just on the other side of the fence.
Here Spric! Here Spriiiiiiiiiic! Come get the nice slop! Mmmmmm, good Spric. Yummy slop, eh? Easy there Spric. Eeeeeeasy. Don't get that snout so far in there you block the airholes. Could lose some brain cells there....
January 29, 2009 4:38 PM | Reply | Permalink
A good teacher, and kind enough to answer the question seriously.
A better person than me, that's for sure.
January 29, 2009 4:53 PM | Reply | Permalink
Me too. I've stopped reading his/her/it's comments.
January 29, 2009 4:58 PM | Reply | Permalink
Thanks guys, patience has it's rewards. It may not always be evident, there may not be any proof I can show for it with the secret ballot but in politics if we argue the facts, and we always have the facts on our side, that well known reality with a liberal bias, we win. And everybody is better off for it.
January 29, 2009 5:18 PM | Reply | Permalink
Bless you Saint Mark. ;)
January 29, 2009 5:36 PM | Reply | Permalink
Thank you my son, now give back the chalice, give it back, dammit don't make me wrestle it out of your hands, give it back. Aw, now look what you did. That thing is silver! Do you know how much it's gonna cost to hammer that dent out?
January 29, 2009 6:05 PM | Reply | Permalink
"One year $ change in real GDP FOR a given $ reduction". It's a ratio.
January 29, 2009 3:17 PM | Reply | Permalink
This is great ammunition, just great.
Rebates and infrastructure stick out right away.
I do not know how I missed this last nite. But better late than never.
I bookmarked the page.
Reps, as you know, just love to throw out garbage.
It is beginning to look like WSJ just cannot be trusted for 'facts' anymore. I mean I always verified but your points are good.
January 29, 2009 5:15 PM | Reply | Permalink
One problem with those figures is that all of the permanent tax cuts you list are directed primarily at upper income taxpayers. Directing them primarily to lower- and middle-income taxpayers will give a quite different result. One clue to this is the number for a temporary payroll tax (a regressive tax) holiday. Here you show a multiplier about the same as general aid to state governments. Making this a permanent cut will make that number bigger.
Bottom line is that the common mantra of "tax cuts aren't stimulative" is only half true. They can be very stimulative if they're directed properly. Permanent cuts in regressive taxes should be a part of the stimulus bill.
January 29, 2009 5:38 PM | Reply | Permalink
A permanent payroll tax cut (FICA) permanently destroys Social Security, Medicare, and Medicaid funding. Of course turning 65 year olds into soylent green would solve that problem but I think the groundswell of support for either proposal would be tiny.
January 29, 2009 6:12 PM | Reply | Permalink
Great post. Rec'd
I am no accountant, nor do I play one on TV. I'm self employed so I don't have withholding, I just pay my quarterlies and do whatever my accountant tells me to do. I think payroll taxes [the withholding kind] include income tax and FICA. If the tax break for those lower to middle income taxpayers was only on the income tax portion of their taxes, MBF's idea sounds like it makes sense. If the FICA taxes stay the same the top limit is taken off of the OASDI part, I don't think the medicare part has a top end, We could generate plenty for those programs.
Ravi Batra's Greenspan's Fraud has some great stuff showing how the doubling of the social security tax rate during Reagan had nothing to do with ensuring that there would be money for us boomers and everything to do with hiding the deficit that the tax breaks for the rich created.
It makes sense to me that someone making $70,000 would spend the money from a tax break on getting the kids braces or a new stove whereas the wealthy will just let theirs chase the next bubble, as you so rightly pointed out.
January 29, 2009 7:20 PM | Reply | Permalink
Payroll taxes is common parlance for FICA taxes while income taxes are considered separately. Most low income workers don't pay income taxes because of the earned income tax credit, a program wholeheartedly endorsed by Reagan and used as a cudgel by Republicans including him ever since. When Republicans say "we're giving tax rebates to people who don't even pay income taxes" they're talking only talking about part of the picture. Anybody who works pays FICA, sales, real estate (even if they don't own property) and all kinds of taxes. Republicans apparently think making poverty as onerous as possible and giving the wealthy as much of a free pass as they can is a magical incentive that not only inspires people to be wealthy but is all the constitution requires to promote the general welfare.
In 1982 Reagan got his butt kicked in the midterms for trying to means test Social Security. As a result he agreed with Tip O'Neill to set up a commission, chaired by Greenspan, to figure out how to resolve the very real crisis then facing Social Security. Keep in mind the SSA was hemorrhaging cash at the time with interest rates at 18% as Volker tried to tame stagflation by reining in the money supply. With skyhigh inflation COLA adjustments were going thru the roof and that wasn't even taking into account the coming baby boomer bulge. So Greenspan's solution, which O"Neill rammed thru congress and Reagan signed into law called for doubling the FICA tax and a couple of other tweaks to build the Trust Fund to handle the baby boomer bulge and alleviate the then current problem.
Once inflation cooled off (mainly from oil prices dropping) the immediate crisis ended. We still ran the SS surpluses and congress borrowed them back by buying treasury bonds and using the proceeds to paper over part of Reagan's deficits. That wasn't necessarily a bad thing as far as it goes. We want our money working for us keeping government borrowing down for the deficits and in turn growing the Trust Fund for tomorrow. The Trust Fund would be a lot smaller if we'd stuffed that money in mattresses all those years and the nat'l debt would be trillions higher.
OTH around 2018 when baby boomers start retiring en masse congress is either going to have to start carving money out of the regular budget to cash out those bonds instead of borrowing from the Trust Fund or issue new bonds. My hope is they'll cut the Defense budget by a couple hundred billion a year.
January 29, 2009 8:47 PM | Reply | Permalink
This is what I love: a reasoned, seasoned post that lets readers draw their conclusions incontrovertibly from the facts given.
Take the Golden Gate Bridge. A pretty little piece of infrastructure that keeps on giving. Tolls, flow of traffic, tourism, trade, along with the hard work of what would have otherwise been out of work engineers, crfatsment and laborers.
Now compare and contrast that to the $300 tax rebate check. The bridge redeveloped an entire region and helps support a state and national economy. That $300 was collectively flushed down the toilet.
Public works are the backbone of civilization. Hasn't any Republican ever played Sim City?
January 29, 2009 6:48 PM | Reply | Permalink