Economics

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Who benefits from government programs?

Interesting post today on the New York Times Bucks blog.  Posted by Anna Carrns, asks readers to figure out how many government programs each has benefited from.  She writes

Mitt Romney stirred up a hornet’s nest with his comments about the 47 percent of Americans who he thinks are dependent on the government.

It turns out, according to 2008 data from the Cornell Survey Research Institute reported Monday in a Times opinion piece, that 96 percent of Americans have taken part in government benefit programs in one form or another.

Listed below are 21 programs referenced by the researchers. Numbers 1 through 13 are “direct,” meaning that the aid comes directly from the government; the remainder are considered “submerged,” in that they come indirectly, through government tax policies. (For instance, the money you put in your workplace 401(k) plan grows tax-deferred).

  1. Head Start
  2. Social Security Disability
  3. Social Security Retirement and Survivors Benefits
  4. Supplemental Security Income (SSI)
  5. Medicaid
  6. Medicare
  7. Welfare (Temporary Assistance for Needy Families, or T.A.N.F.)
  8. G.I. Bill
  9. Veterans’ benefits
  10. Pell Grants
  11. Unemployment Insurance
  12. Food Stamps
  13. Government Subsidized Housing
  14. Home Mortgage Interest Deduction
  15. Hope and Lifetime Learning Tax Credits
  16. Child and Dependent Care Tax Credit
  17. 529 accounts (qualified tuition programs) or Coverdell education savings account (Education I.R.A.’s)
  18. Earned-income tax credit
  19. Employer subsidized health insurance
  20. Employer subsidized retirement benefits
  21. Federal student loans

I count 8 for myself:  Social Security, Medicare, Pell Grants, Home Mortgage Deduction, Lifetime Learning Tax Credit, Federal student loans, and employer subsidized health insurance and retirement.  Not only that but I spent almost the entirety of my working life administering various government programs or being paid by government grants.  I guess I really am dependent!  How about you?

2011 10 06 - 1237 - Washington DC - Occupy DC

2011 10 06 – 1237 – Washington DC – Occupy DC (Photo credit: thisisbossi)

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Why the poor are like Romney: they don’t pay taxes

We don’t really know how much income tax Mitt Romney actually paid over the years because he hasn’t released many tax returns.  We know that Harry Reid thinks he didn’t pay any.  But what we do know is that he pays a pretty low tax rate of around 12 or 13 percent.  In a recently released videotape of remarks made at a fundraiser this spring, Romeny said

There are 47 percent of the people who will vote for the president no matter what. All right, there are 47 percent who are with him, who are dependent upon government, who believe that they are victims, who believe the government has a responsibility to care for them, who believe that they are entitled to health care, to food, to housing, to you-name-it. That that’s an entitlement. And the government should give it to them. And they will vote for this president no matter what…These are people who pay no income tax.”

Neither Romney or his campaign deny his saying this.  Romney only wishes he had put it better.

A lot of the chatter has been about Obama supporters being called dependent victims, but what about the no tases part?  The Tax Policy Center of the Urban Institute and Brookings Instituion has an 11 page document explaining why 47% of us pay little or no income tax.  There are very interesting charts that explain a great deal about our tax policy.  And, last summer, Roberton Williams posted on the Tax Policy Center’s blog in response to controversey about there report.

He explains

The large percentage of people not paying income tax is often blamed on tax breaks that zero out many households’ income tax bills and can even result in net payments from the government. While that’s the case for many households, a new TPC paper shows that about half of people who don’t owe income tax are off the rolls not because they take advantage of tax breaks but rather because they have low incomes. For example, a couple with two children earning less than $26,400 will pay no federal income tax this year because their $11,600 standard deduction and four exemptions of $3,700 each reduce their taxable income to zero. The basic structure of the income tax simply exempts subsistence levels of income from tax.

…

The conclusion: Three-fourths of those households pay no income tax because of provisions that benefit senior citizens and low-income working families with children. Those provisions include the exclusion of some Social Security benefits from taxable income, the tax credit and extra standard deduction for the elderly, and the child, earned income, and childcare tax credits that primarily help low-income workers with children (see graph). Extending the example offered above, the couple could earn an additional $19,375 without paying income tax because their pre-credit tax liability of $2,056 would be wiped out by a $2,000 child tax credit and $57 of EITC.

Those provisions matter most for households with income under $50,000, who make up nearly 90 percent of those made nontaxable by tax expenditures. Higher-income households pay no tax because of other provisions. Itemized deductions and credits for children and education are a bigger factor for households with income between $50,000 and $100,000. The relatively few nontaxable households with income over $100,000 benefit most from above-the-line and itemized deductions and reduced tax rates on capital gains and dividends.

So our tax code is structured so those with less income pay less and those with the most income can take advantage of various ways of investing and reporting income to also pay less tax. 

David Brooks writing in today’s  New York Times called Romney “Thurston Howell” Romney after the millionaire guy in Gilligan’s Island.  After citing the Romney quote, Brooks comments

This comment suggests a few things. First, it suggests that he really doesn’t know much about the country he inhabits. Who are these freeloaders? Is it the Iraq war veteran who goes to the V.A.? Is it the student getting a loan to go to college? Is it the retiree on Social Security or Medicare?

It suggests that Romney doesn’t know much about the culture of America. Yes, the entitlement state has expanded, but America remains one of the hardest-working nations on earth. Americans work longer hours than just about anyone else. Americans believe in work more than almost any other people. Ninety-two percent say that hard work is the key to success, according to a 2009 Pew Research Survey.

It says that Romney doesn’t know much about the political culture. Americans haven’t become childlike worshipers of big government. On the contrary, trust in government has declined. The number of people who think government spending promotes social mobility has fallen.

The people who receive the disproportionate share of government spending are not big-government lovers. They are Republicans. They are senior citizens. They are white men with high school degrees. As Bill Galston of the Brookings Institution has noted, the people who have benefited from the entitlements explosion are middle-class workers, more so than the dependent poor.

I don’t often agree with Brooks, but I do agree with 80% – at least- of what he wrote today.

Of course, the voters have a long history of voting against self interest so as an Obama supporter I have to be cautious about the impact of Romney’s statement.  Still, it provides insight into how the man thinks.  I know Romney is trying to pass this off as a discussio of campaign strategy, but that strategy disses almost half of us who Romeny calls victims.

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The National Debt and the GDP

Being a little behind in reading my email, I just saw this from Ezra Klein.  He suggests you keep this in mind while you watch the Republicans try to push the debt onto the President and the Democrats.

Notice that you can barely see TARP.  It is that dark blue streak that is separating the other two blue parts of the graph.  Even the stimulus is pretty small.

The deficit is pretty easy to understand when you look at it in a graph.  If you reduced the Bush tax cuts for income over &250,000 and worked on the costs of the wars – and didn’t start any new ones – you can really begin to reduce the debt.  Maybe the huge number of people who think the tax breaks for the wealthy should be eliminated understand this better than Mitt and Paul and the rest of their gang.  Certainly they understand this better than Grover Nordquist.

So when you are watching the Republicans in Tampa, remember this chart and thank Ezra Klein.

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Paul Ryan’s Proposals in a Nutshell

The Boston Globe columnist, Scott Lehigh wrote what I think is one of the best summaries of Paul Ryan’s budget proposal compared to President Obama’s proposals.  And whether Mitt Romney likes it or not, he is tied to the Ryan budget which he once described as “marvelous”.

Lehigh describes the Ryan budget this way

There will be a fierce fight to frame the argument, but Romney and Ryan will have a tougher challenge persuading the relatively small percentage of undecided voters. With Ryan as his running mate, Romney will no longer be able to hide behind strategic ambiguity about his budget and tax cut plans. To date, a lack of key details has made those proposals hard to analyze, which has obviously been intentional. Nor does the Republicans’ presumptive nominee want to be pinned to the details of Ryan’s Medicare plan, which would shift thousands in health care costs onto the backs of future generations of seniors; one of the talking points the campaign distributed to help Republicans discuss Ryan’s selection is that, as president, Romney will have his own Medicare proposal. But absent necessary details about Romney’s proposal, Ryan’s plan will and should stand as a fair campaign proxy.

Second, the reality is that you simply can’t accomplish what Romney and Ryan hope to — that is, a large, new across-the-board tax cut while tackling the long-term federal budget deficit — without hitting both middle-class and moderate earners. A recent analysis by the nonpartisan, well-regarded Tax Policy Center illustrated that very point. It showed that Romney’s vague assertion that he could pay for his new tax cut by closing loopholes and deductions, but without targeting those important to the middle class, was undoable. If Romney hews to his resolution to pay for his tax cut through loophole closings, the elimination of deductions would be so extensive that the average middle class family would see a tax hike, according to the center’s analysis.

Of course we already know that Romney considers the Tax Policy Center to be a Democratic front.  The difference in approaches?

Now, with the baby boomers retiring and increasingly drawing on Medicare, Medicaid, and Social Security, the nation faces a large gap between future spending commitments and future revenues. But though tax cuts helped create the problem, Romney and Ryan insist it must all be solved through spending cuts. That flies in the face of several recent bipartisan deficit commissions, which have said that policy makers should rely on both spending cuts and new revenues.

President Obama, by contrast, wants tax breaks for upper earners to expire, which would mean more revenue, and thus lighter cuts in future spending. Because Obama wants to keeps the tax breaks for families making less than $250,000, substantial spending cuts will still be required, including reductions in entitlements. Obama has left many of those details for the future. But that failing is less egregious than Romney’s. Obama, after all, would recapture $750 billion or more (over 10 years) by ending the Bush tax cuts. And the president isn’t proposing a large new tax cut.

We can only hope that the Democrats can define Paul Ryan as successfully as they were able to define Mitt Romney.

Mitt Romney will no longer be able to hide behind strategic ambiguity about his budget and tax cut plans with Paul Ryan as his running mate.

Photograph by SHANNON STAPLETON/REUTERS

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Paying a Fair Share or the Buffett Rule

I’ve gotten several email recently from the President, from Elizabeth Warren and from other progressive organizations about the Senate vote on the Buffett rule.  Since I’m pretty sure that Senator John Kerry will vote for the bill and Senator Scott Brown will vote against it, I haven’t called, emailed or written either of them about it.

I have, however,  wondered what the bill actually does.  So thank you to Ezra Klein’s Wonkblog in the Washington Post this morning for his explanation.  The big vote everyone is talking about is actually a bill introduced by Senator Sheldon Whitehouse from Rhode Island.  He explained the bill to Ezra who explains it to us.

In other words: The “Paying a Fair Share Act” doesn’t mean someone making $1,500,000 will pay at least the same percentage of his income in taxes as the average middle-class family. It means he would pay a somewhat higher marginal rate on the income he earns over $1 million — in this case, on the excess $500,000.

Moreover, that higher marginal rate would only reach 30 percent on income over $2 million. Between $1 million and $2 million, the Buffett rule phases in so as to avoid a sharp “tax cliff” at the million-dollar mark.

But would it still raise money to help ease the deficit?

Another misconception: The proposal doesn’t raise $47 billion over 10 years. Or, rather, it does, but only if you use the “current law baseline” that assumes the full expiration of the Bush tax cuts. No one really uses that baseline. If you look at Paul Ryan’s budget, for instance, its appendix tables use a “current policy baseline,” which assumes, among other things, that the Bush tax cuts are extended.

Compared with that baseline, the Paying a Fair Share Act actually raises about $160 billion. Still not enough to solve our deficit problems on its own, but nothing to sneeze at.

So as usual it is a little more complicated than the President makes it sound, but still a good thing to support.

 

 

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Creating Jobs: which party does better

The Republicans will campaign on the idea that lowing taxes on the wealthy (I think Romney wants to keep the Bush tax cuts and even cut more) creates jobs because the money the wealthy do not pay in taxes goes to create jobs.  Fay Paxton has looked at the history of job creation and posted an analysis on Winning Progressive.   Her conclusion:  Democrats create more jobs.  These charts describe private sector job creation.

Yes, the first months of the Obama Administration were rough, but as the chart shows, we started bleeding jobs under George W. Bush.

Ronald Reagan wins among Republicans, but he wasn’t afraid of raising taxes.

So what about federal public sector jobs?  The Republicans always claim that the Democrats are the party of big government.  Is this true?  Paxton says

Republicans talk about being conservatives who believe in small government and reducing the federal workforce. The numbers don’t bear out their claims.  In a press conference, House Speaker John Boehner said, “In the last two years, under President Obama, the federal government has added 200,000 new federal jobs.”  The Republicans even advanced legislation calling for a reduction of 200,000 federal employees.

Here’s the truth:

According to the Office of Personnel Management, it is true that the federal workforce increased by 237,000 employees. What Boehner does not tell…150,000 of the employees added to the roles were uniformed military personnel, no doubt to accommodate the wars in Iraq and Afghanistan. The 237,000 figure also includes temporary Census workers.

Despite claims of huge government expansion, historically, Democratic presidents reduced the size of the federal government workforce. The federal employment numbers, according to the U.S. Office of Personnel Management, the department charged with tracking the number of employees, the data shows the following:

Paxton summarizes

If we combine the totals for all federal employees, including the military:
Reagan began office with a total of 4,982,000 employees and ended his term with 5,292,000 employees. While President Obama took office with a federal employee roster of 4,430,000 employees (fewer than Reagan). At the end of 2010 President Obama’s federal workforce numbered 4,443,000; that’s 849,000 fewer employees than Reagan, the advocate of small government! Add to this the fact that President Reagan governed during peacetime, while President Obama inherited two wars.

So the figures don’t lie:  Democrats do a much better at creating new private sector jobs and reducing the size of the federal government.

 

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Ryan’s Budget and the 2012 Election

 Dan Wasserman sums up the Ryan Budget.

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President Obama called the Ryan Budget “Social Darwinism” quoting that wise Republican, Newt Gingrich.  Mitt Romney called it “marvelous”.  Paul Krugman calls it “Pink Slime Economics”

Here is Krugman

And when I say fraudulent, I mean just that. The trouble with the budget devised by Paul Ryan, the chairman of the House Budget Committee, isn’t just its almost inconceivably cruel priorities, the way it slashes taxes for corporations and the rich while drastically cutting food and medical aid to the needy. Even aside from all that, the Ryan budget purports to reduce the deficit — but the alleged deficit reduction depends on the completely unsupported assertion that trillions of dollars in revenue can be found by closing tax loopholes.

And we’re talking about a lot of loophole-closing. As Howard Gleckman of the nonpartisan Tax Policy Center points out, to make his numbers work Mr. Ryan would, by 2022, have to close enough loopholes to yield an extra $700 billion in revenue every year. That’s a lot of money, even in an economy as big as ours. So which specific loopholes has Mr. Ryan, who issued a 98-page manifesto on behalf of his budget, said he would close?

None. Not one. He has, however, categorically ruled out any move to close the major loophole that benefits the rich, namely the ultra-low tax rates on income from capital. (That’s the loophole that lets Mitt Romney pay only 14 percent of his income in taxes, a lower tax rate than that faced by many middle-class families.)

This budget fight and the election to come are about what we want the country to be.  The Republicans have that much right.  Will we become a country with the rich hiding in gated communities and getting richer or will we a a country where everyone has a chance to succeed, where the less fortunate get help, and where there is a robust middle class?  Democracies thrive in countries with an educated middle class.  Look at the driving forces behind the Arab Spring.  The choices this election will be clear. 

The budget fight is also about whether or not a deficit is important right now.  Yes, we can’t continue to grow the deficit indefinitely, but it seems to this non-economist, that the way to deal with the deficit is not through draconian cuts to the domestic budget, but spend on things that result in jobs.  When people work they pay taxes and the deficit can begin to come down.  But cutting food stamps, unemployment insurance, job retaining programs, aid to education, are all key to growing jobs or helping those who can’t find them.

Andrew Rosenthal put it better in today’s New York Times.

He ticked off some of the budget’s most near-sighted assaults: financial aid cuts to nearly 10 million college students; 1,600 fewer medical grants; 4,000 fewer scientific research grants. Starting in 2014, it would cut around 200,000 children from the Head Start program and 2 million mothers and their young children from a food assistance program. “We wouldn’t have the capacity to enforce the laws that protect the air we breathe, the water we drink or the food that we eat,” he said.

Medicaid would be gutted, Medicare would be turned into a voucher program – but the Republicans would still cut taxes by $4.6 trillion over the next decade. The cuts, as usual, would mostly benefit the wealthy.

Mr. Obama noted that the stated purpose of the Republican budget is to reduce the federal budget deficit, but he called it a Trojan horse and “thinly veiled social Darwinism.” The real purpose is to cripple government. And he said, because it guts “the very things we need to grow an economy that’s built to last – education and training, research and development, our infrastructure – it is a prescription for decline.”

The Republican response to Mr. Obama – that the nation is in a debt crisis and the president doesn’t get it – just made his point for him. We don’t have a debt crisis. We have a medium- to long-term budget problem, driven largely by rising health costs combined with an aging population. Health care reform is an honest attempt to deal with that. Letting the Bush tax cuts expire, starting with the high-end ones, would be an honest attempt to deal with that. Then there’s our lack of jobs, lack of income growth, diminishing prospects and dwindling opportunities.

And we shouldn’t forget that George W. Bush told us we didn’t need to raise taxes to pay for the war in Iraq because it would pay for itself through oil revenue.  He cut taxes for the 1% instead and created a deficit.  This probably wouldn’t have been so catastrophic except that the economy collapsed in 2008.  Here is a link to a nice chart.

So the Ryan Budget will be at the heart of the election this fall – especially if Paul Ryan is Romney’s VP.  It will be interesting.

 

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Understanding Health Care Reform

Health Care reform is coming before the Supreme Court soon and in an effort to really understand what it is all about I picked up a copy of Jonathan Gruber‘s book “Health Care Reform”

Health Care Reform: What It Is, Why It's Necessary, How It Works

It is a nifty graphic novel which does an excellent job of explaining why we need health care reformm what the reform will do and when, and how is will help reduce the deficit.  This last is the most complicated and I’m not sure I got it all in a single reading.

Gruber uses several characters in differing circumstances to illustrate the law’s impact.  On the whole, very nicely done and highly recommended if you want to understand what the Affordable Health Care Act is all about.  Gruber is an economist who worked first with Mitt Romney on reform in Massachusetts and then with President Obama and his team.

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Who is really European?

I was reading Paul Krugman’s column in the New York Times this morning and I started thinking.  The Republicans accuse President Obama of trying to make us more like European Socialists, but in reality it is they who want to make us European.  Think about it a minute.

Krugman writes

Last week the European Commission confirmed what everyone suspected: the economies it surveys are shrinking, not growing. It’s not an official recession yet, but the only real question is how deep the downturn will be.

And this downturn is hitting nations that have never recovered from the last recession. For all America’s troubles, its gross domestic product has finally surpassed its pre-crisis peak; Europe’s has not. And some nations are suffering Great Depression-level pain: Greece and Ireland have had double-digit declines in output, Spain has 23 percent unemployment, Britain’s slump has now gone on longer than its slump in the 1930s.

Worse yet, European leaders — and quite a few influential players here — are still wedded to the economic doctrine responsible for this disaster.

What is that doctrine?  Basically you gut the retirement system, layoff workers, cut wages, and increase taxes.  Krugman puts it this way

Specifically, in early 2010 austerity economics — the insistence that governments should slash spending even in the face of high unemployment — became all the rage in European capitals. The doctrine asserted that the direct negative effects of spending cuts on employment would be offset by changes in “confidence,” that savage spending cuts would lead to a surge in consumer and business spending, while nations failing to make such cuts would see capital flight and soaring interest rates. If this sounds to you like something Herbert Hoover might have said, you’re right: It does and he did.

President Herbert Hoover.

Image via Wikipedia

 

Thomas Wright in a column published in the Financial Times brings in the Republicans.  He points out the while Mitt Romney and Newt Gingrich want to deal immediately with the debt crisis – like the Europeans – Democrats and, in particular the President, believe that the debt is a long term issue and not a near term crisis. 

I’m certainly not an expert, but it does appear that the European Hooverism is being largely driven by Germany.  It will be interesting to see how that works out for them in the long run.  What happens when the Greek economy continues to sink and they decide to pull out of the Euro? 

Back to Krugman again.

Meanwhile, countries that didn’t jump on the austerity train — most notably, Japan and the United States — continue to have very low borrowing costs, defying the dire predictions of fiscal hawks.

…

So what will it take to convince the Pain Caucus, the people on both sides of the Atlantic who insist that we can cut our way to prosperity, that they are wrong?

After all, the usual suspects were quick to pronounce the idea of fiscal stimulus dead for all time after President Obama’s efforts failed to produce a quick fall in unemployment — even though many economists warned in advance that the stimulus was too small. Yet as far as I can tell, austerity is still considered responsible and necessary despite its catastrophic failure in practice.

The big question:  Will the Congress pass the President’s new jobs bill?  Or will it stick to slash, slash, slash?  Increasing aid to local governments for police, fire, schools and programs like the Community Development Block Grant (CDBG) will prevent layoffs and enable hiring.  Take CDBG  for example.  The City of Boston uses the funds to assist human services programs like afterschool and youth recreation, to assist small businesses and nonprofits make repairs and improvements, and help low income homeowners make repairs.  There are rules about who can get assistance.  Jobs are ceated when the business or nonprofit hires staff or a contractor to make repairs and improvements.  Assistance to homeowners also creates jobs.  Many other localities use CDBG to improve roads and sidewalks.  I think everyone understand how keeping teachers, police, and firefighters employed helps local governments.  It also increases the tax base for all levels of government and will eventually help lower the debt.  Or am I being too simplistic?

Krugman ends this way

Look, I understand why influential people are reluctant to admit that policy ideas they thought reflected deep wisdom actually amounted to utter, destructive folly. But it’s time to put delusional beliefs about the virtues of austerity in a depressed economy behind us.

So it seems that it is really the Republicans who are more European with their belief in continued austerity.  They need to look around and see what is happening in Europe and decide if they – and us – really want to be like them or continue to pursue the President’s American exceptionalism.

 

 

 

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Rich Mitt just doesn’t get it

Mitt Romney is extremely wealthy.  Theodore Roosevelt, Franklin Roosevelt, John Kennedy and Lyndon Johnson also all had money.  But they also had something else that Mitt just doesn’t have:  empathy for people who have to work for a living and sometimes can’t even make it with a job (or jobs) and certainly empathy for those who can’t find a job, are in fear of losing their homes, and for whatever reason are poor.

Let’s look at selected quotes from Mitt compiled by AshleyParker in the New York Times.

On Wednesday morning in an interview with CNN, Mr. Romney said, “I’m not concerned about the very poor,” a sound bite that ricocheted around the Web and cable news channels, and which Mr. Romney felt the need to clarify with reporters as he flew to Minnesota.

Taking in the full context of his remarks, as Mr. Romney urged reporters to do, his statement seems more benign: “I’m not concerned about the very poor. We have a safety net there. If it needs a repair, I’ll fix it. I’m not concerned about the very rich; they’re doing just fine.” He is most concerned about the middle class, he said.  [Of course Romney has already endorsed the Ryan budget which would rip craters into that safety net he wants to repair.]

But for a campaign that has itself been accused of taking President Obama’s words out of context, the remark about the poor immediately became cataloged in a growing list of awkward comments by Mr. Romney, including a remark that his speaking fees last year of $374,327 were “not very much” and his line that “corporations are people.”

 And we know that Romney would make a better President than others because he has “lived on the streets” I think meaning he hasn’t lived in Washington.  If I remember correctly he asked some homeowners facing foreclosure to have empathy for the banks because like corporations they were people, but I may have just dreamed that. 

Last June, he told a group of unemployed workers in Florida, who had just finished telling him their stories, that he understood their plight.

“I’m also unemployed,” Mr. Romney said as a joke. “I’m networking. I have my sight on a particular job.”

At a debate, he offered Gov. Rick Perry of Texas a $10,000 wager — an amount that, even if facetious, reminded voters just how much disposable income Mr. Romney has.

Speaking to crowds in New Hampshire, Mr. Romney claimed that he, too, had feared the “pink slip” during his life.

I think when Romney says these things, going off script, he is showing his true colors.  He really doesn’t understand or care about how the 99% live.  Just like Hollingsworth.

 

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