Graph of the Day: President Obama, Fiscal Conservative?
A graph that purports to establish Bill Clinton and Barack Obama as the two most fiscally conservative presidents in modern history has been making its way through the blogosphere, after first originating on Century Foundation Fellow Mark Thoma’sEconomist’s View blog. Thoma’s submitter explains:
Seeing the Krugman commentary comparing real government spending under Obama and Reagan made me curious about what it looks like if you express it in per capita terms? In particular, how does the Obama period compare with other presidencies in terms of penury/austerity versus spendthriftness?
[…]
Ranking since Johnson (starting in 1968), and using the first-quarter comparisons, and calculating growth under Obama through 2011Q4, Clinton is the most austere, followed by Obama. The most spendthrift are (1) Nixon-Ford, (2) Reagan, and (3) Bush II.
So, the story one frequently hears on the right about the massive expansion of government spending under Obama—and liberal profligacy in general—just doesn’t hold up to the facts. Still, there’s been some pushback from commenters wondering about the role of inflation, or whether the story changes when you divide government spending into separate categories for national defense and human resources (employment and social services, Medicare, Social Security, veterans benefits, et cetera). So here is my own version of the graph, which shows annualized growth in government spending on national defense and human resources througout the last seven presidencies, from Q1 to Q1. All of the data is from the Office of Management and Budget historical tables.
And here is annualized real growth in government spending (adjusted using a composite deflator):
No matter how you choose to look at it, the story remains essentially the same. In both graphs, Clinton and Obama stand out as the relative fiscal conservatives next to their spendthrift Republican peers. You can state whatever objections or counterfactuals you like—Reagan was fighting the Cold War, Clinton benefited from a peace dividend, Obama inherited a recession—but, as The Atlantic’s Derek Thompsonpoints out, ”the bottom line is that it is really, truly time for the myth about Big Spender Obama to die.”
UPDATE: Thanks to Mark Thoma and Brad DeLong for retweeting my post, which helped it make the front page of Reuter’s counterparties blog.
President Obama, Fiscal Conservative? - Blog of the Century botc.tcf.org/2012/03/graph-…
— Mark Thoma (@MarkThoma) March 21, 2012
Graph of the Day: President Obama, Fiscal Conservative? - Blog of the Century botc.tcf.org/2012/03/graph-…
— J. Bradford DeLong (@delong) March 21, 2012
Brian Beutler, Talking Points Memo:
Republicans like to portray Democrats as big spenders. But the truth is more complicated. Democratic Congresses were pliant under Reagan and the first Bush, and thus federal spending (particularly military spending under Reagan) grew dramatically. For Bush 41, this trend didn’t hold when he needed it and he lost his re-election bid amid a weak economy.
Working with a Republican Congress, George W. Bush too presided over a major increase in federal spending. This, along with the large tax cuts he passed in 2001 and 2003, exploded federal deficits, but also likely helped him through the economic hard times at the beginning of his first term.
Clinton and Obama, who both lost control of the federal purse strings to an intransigent opposing party halfway through their first terms, were comparatively hamstrung. Politically, this proved to be a much bigger problem for Obama than it was for Clinton — Obama, after all, inherited a historic financial and economic crisis. But Obama’s economy is finally picking up on its own, and just in time. This Congress isn’t about to give him a hand — and, for good measure, thanks to last year’s debt limit deal, Obama’s consigned to a continued downward trend in spending for the next couple of years at least.
Graph of the Day: Mitt’s Reverse Robin Hood Tax Plan
Hoping to revive a struggling campaign and shore up his Republican bona fides, Mitt Romney last week released a new version of his tax plan that would dramatically lower taxes for America’s wealthy while raising rates on the poor. The Tax Policy Center got to work examining the details, and the results aren’t pretty: Romney’s proposal would save the top 1 percent of earners nearly $150,000 per year on average, and the top 0.1 percent over $725,000. Amazingly, that massive cash transfusion would be paid for, in part, by higher taxes on the poorest fifth of Americans, who would see their taxes rise by an average $143.
Compare that to Obama’s tax proposal, which would lower taxes for the middle class while only raising rates on families making over $250,000 per year. Deficit reduction would be helped by the top 1 percent, who would pay about $87,000 more per year on average.
Romney has offered few details about how he would pay would pay for his own plan, which TPC estimates would add nearly $500 billion to the budget deficit when fully implemented, and $900 billion if the Bush tax cuts are allowed to expire. History has shown that tax cuts for millionaires do not pay for themselves (witness the incredible un-miracle of the “Bush Boom”). And while Romney claims he can make up for lost revenue by eliminating deductions and loopholes in the tax code, he has yet to offer any details that would allow TPC to analyze their effect.
For years, conservatives have been arguing that the United States ought to lower the top marginal tax rate and “broaden the base”—a careful euphemism for eliminating loopholes and deductions, many of which benefit the poor. Now President Obama is putting that orthodoxy to the test, proposing an overhaul of the corporate tax code that would eliminate numerous loopholes and deductions while lowering the top rate to 28 percent. Since few large corporations pay anywhere near the current rate of 35 percent, an effective rate of 28 percent should amount to a tax hike for serial tax avoiders—and a revenue boost for the Treasury.
The proposed framework is not perfect—TCF budget policy analyst Andrew Fieldhouse has an excellent summary of the plan’s merits and shortcomings here, and a follow-up post on debt financing here—but it’s a step in the right direction, and there is a lot at stake. According to a press release this week from Citizens for Tax Justice, General Electric’s latest SEC filing shows that the company paid “at most 2.3 percent of its $81.2 billion in U.S. pretax profits in federal income taxes over the last 10 years.” And GE is not alone—an earlier CTJ report revealed that 280 of the most profitable Fortune 500 companies paid an average rate of just 18.5% from 2008 to 2010, while 78 actually paid zero or less. All together, those 280 companies cost the United States nearly a quarter trillion dollars in taxes that would otherwise have helped balance the federal budget. High profits and low taxes: this is why we need corporate tax reform.
Inside Obama’s World: The President talks to TIME About the Changing Nature of American Power
The Tea-evangelical base has been lulled into a false sense of security by the absurd notion that Obama is somehow useless without his teleprompter. He is not. If you’ve forgotten just how intelligent, measured and eloquent this president is, I suggest you read his new TIME interview with Fareed Zakaria. Neither Romney nor Gingrich are prepared to debate foreign policy at this level.
New York magazine has two new long-form articles well worth your time, from David Frum and Jonathan Chait.
Frum worries that the GOP has lost touch with reality:
I’ve been a Republican all my adult life. I have worked on the editorial page of The Wall Street Journal, at Forbes magazine, at the Manhattan and American Enterprise Institutes, as a speechwriter in the George W. Bush administration. I believe in free markets, low taxes, reasonable regulation, and limited government. I voted for John McCain in 2008, and I have strongly criticized the major policy decisions of the Obama administration. But as I contemplate my party and my movement in 2011, I see things I simply cannot support.
America desperately needs a responsible and compassionate alternative to the Obama administration’s path of bigger government at higher cost. And yet: This past summer, the GOP nearly forced America to the verge of default just to score a point in a budget debate. In the throes of the worst economic crisis since the Depression, Republican politicians demand massive budget cuts and shrug off the concerns of the unemployed. In the face of evidence of dwindling upward mobility and long-stagnating middle-class wages, my party’s economic ideas sometimes seem to have shrunk to just one: more tax cuts for the very highest earners. When I entered Republican politics, during an earlier period of malaise, in the late seventies and early eighties, the movement got most of the big questions—crime, inflation, the Cold War—right. This time, the party is getting the big questions disastrously wrong.
It’s one thing to point out (accurately) that President Obama’s stimulus plan was mostly a compilation of antique Democratic wish lists, and quite another to argue that the correct response to the worst collapse since the thirties is to wait for the economy to get better on its own. It’s one thing to worry (wisely) about the long-term trend in government spending, and another to demand big, immediate cuts when 25 million are out of full-time work and the government can borrow for ten years at 2 percent. It’s a duty to scrutinize the actions and decisions of the incumbent administration, but an abuse to use the filibuster as a routine tool of legislation or to prevent dozens of presidential appointments from even coming to a vote. It’s fine to be unconcerned that the rich are getting richer, but blind to deny that middle-class wages have stagnated or worse over the past dozen years. In the aftershock of 2008, large numbers of Americans feel exploited and abused. Rather than workable solutions, my party is offering low taxes for the currently rich and high spending for the currently old, to be followed by who-knows-what and who-the-hell-cares. This isn’t conservatism; it’s a going-out-of-business sale for the baby-boom generation.
And Chait asks when liberals became so “unreasonable”:
Why are liberals so desperately unhappy with the Obama presidency?
There are any number of arguments about things Obama did wrong. Some of them are completely misplaced, like blaming Obama for compromises that senators forced him to make. Many of them demand Obama do something he can’t do, like Maddow’s urging the administration to pass an energy bill through a special process called budget reconciliation—a great-sounding idea except for the fact that it’s against the rules of the Senate. Others castigate Obama for doing something he did not actually do at all (i.e., Drew Westen’s attention-grabbing, anguished New York Times essay assailing Obama for signing a budget deal with cuts to Medicare, Social Security, and Medicaid that were not actually in the budget in question).
I spend a lot of time rebutting these arguments, and their proponents spend a lot of time calling me an Obama apologist.
Some of the complaints are right, and despite being an Obama apologist, I’ve made quite a few of them myself. (The debt-ceiling hostage negotiations drove me to distraction.) But I don’t think any of the complaints—right, wrong, or otherwise—really explain why liberals are so depressed.
Here is my explanation: Liberals are dissatisfied with Obama because liberals, on the whole, are incapable of feeling satisfied with a Democratic president. They can be happy with the idea of a Democratic president—indeed, dancing-in-the-streets delirious—but not with the real thing. The various theories of disconsolate liberals all suffer from a failure to compare Obama with any plausible baseline. Instead they compare Obama with an imaginary president—either an imaginary Obama or a fantasy version of a past president.
June 6, 1985: Ronald Reagan, erstwhile patron saint of the Republican Party, makes the case for higher taxes.
The “Buffett Rule” Is Simple Math
By Benjamin Landy
After going before Congress to declare that “millionaires and billionaires” should pay their “fair share” of taxes, President Obama was swiftly condemned by conservatives for engaging in what House Republicans Paul Ryan and John Boehner have unapologetically termed “class warfare.” To most Americans, however, the principle behind what Obama is now calling the “Buffett Rule” seems pretty straightforward: there is no reason why the ultra-rich—like the eponymous Warren Buffett—should ever pay less taxes than their secretaries. Or, as the White House puts it, no household making over $1 million annually should pay a smaller share of its income in taxes than middle-class families pay. “This isn’t class warfare,” Obama insists. “This is simple math.” Numerous polls show the American people agree.
Unfortunately, nothing about increasing taxes is ever that simple: in the three weeks since Obama first unveiled his jobs plan, the conservative commentariat have been unrelenting in their distortions of the facts about tax progressivity and income inequality in this country. It is not uncommon to hear, for instance, that the 10 percent of households with the highest incomes pay more than half of all federal taxes and contribute over 70 percent of income taxes. This is true. But it ignores the crucial fact that this same “top ten” also controls more than 70 percent of all U.S. wealth, while the bottom 50 percent holds barely 2 percent.
The most recent distortion making the rounds is that Obama was lying when he claimed that some millionaires are getting away with paying lower tax rates than their secretaries, since those in the top tax brackets pay more on average than middle-class Americans. But that “average” conceals a reality obvious to anyone who bothers to check the IRS data: many millionaires are cheating the system. A quick glance at the effective tax rates of the 400 richest Americans reveals that the majority of them paid between zero and 20 percent of their income in 2007, less than most families making just $50,000 a year.
In the table above, you can see the approximate number of millionaires paying less than middle-income families; highlighted in yellow are any rates that appear regressive relative to similar rates at other income levels—the most egregious examples are highlighted in blue. This allows us to see that in 2011, 40 percent of taxpayers with incomes between $30,000 and $40,000 paid more than 12.9 percent of their income in taxes, while a full quarter of millionaires paid less than 12.6 percent. That’s 108,293 people in the top 1 percent of income earners who paid less than the average for a median income household. Close to 50,000 of them paid less than 5 percent.
The main reason the effective tax rate appears so low for millionaires is that wealthy Americans tend to make more of their income from capital gains than the midde class; in fact, 93 percent of all financial wealth in the United States is held by the top quintile. Since long-term capital gains are taxed at a maximum of 15 percent, we now have a situation where 40 percent of people making more than a million dollars a year pay nearly the same rate as those making a tenth of that. The graph to the right illustrates how the effective tax rate for the ultra-rich drops dramatically as their share of income coming from capital gains increases.
Of course, legislating a “Buffett Rule” would not by itself solve the problem of income inequality, as it fails to address the abundance of tax loopholes and deductions that also enable higher-income earners to dodge taxes. But as an alternative minimum tax, it would effectively end at least one major loophole—the preferential treatment given to those wealthy few who make their money from non-labor income—and would act as a powerful symbolic gesture to the 90 percent of Americans who should never be asked to pay more than the nation’s millionaires and billionaires. That’s not class warfare. It’s simple math.
What Can We Expect from Obama’s Jobs Speech?
At this point, it seems unlikely that Obama will be able to deliver more than empty rhetoric at his upcoming jobs speech, absent a bold plan on mortgage refinancing (as I discussed in a recent post). This kind of politics, unfortunately, is relevant for few outside of the punditocracy — and, as Yglesias notes, won’t accomplish anything meaningful in the real world. You know, the one that real, unemployed people still live in.
The fact that President Obama is requesting a joint session of congress to hear his jobs speech certainly reflects an effort to raise the political stakes around it, despite the considerable evidence that presidential speeches don’t move the needle on politics. Still, let’s assume for the sake of argument that a presidential speech can be a big deal. What do progressives want to hear? Paul Krugman, for example, says “let’s see what the jobs plan looks like — and more important, since the GOP will block everything, how (and if) he makes a political issue of that obstruction.”
As I said yesterday, the problem here is that the kind of robust jobs plan Krugman or I would like to see is probably quite different from the kind of jobs plan that makes for optimal politics. If you’re talking about a purely political speech then dwelling on the fact that negative real interest rates are crazy or how the Federal Reserve should be more tolerant of higher prices and especially higher prices for food and gasoline is a bad strategy. The public doesn’t have a deep understanding of the deficit or passionate views about it, but they know that they’re “bad.” The public has less understanding of monetary policy, but they know that inflation is “bad.” You can revive the economy with higher deficits and more tolerance for inflation, but you don’t inspire the public with it. If the speech is just about politics, you have to judge it purely as political messaging and not for agreement with wonky accounts of the truth.
Are Obama And Bush Really The Same?
Jonathan Chait doesn’t think so. Contra David Bromwich at Huff Po:
It does persuasively argue that President Obama has continued many of President Bush’s policies in foreign affairs. Much less persuasively, it attempts to make the case for “Obama’s perpetuation of Bush’s economic policies.”
I’d find if fascinating to read an argument as to why things like, oh, the Affordable Care Act, EPA regulation of carbon emissions, financial reform, the appointment of Sonia Sotomayor and Elena Kagan to the Supreme Court, and so on represent more or less the same things George W. Bush did. Sadly, Bromwich doesn’t make that case. He assumes, without spelling out his argument, that the extension of the Bush tax cuts represented an actual support for the entirety of the Bush tax cuts, as opposed to bargain for more stimulus. (Bromwich does not explain why, if Obama really wants to make all the Bush tax cuts permanent, he hasn’t agreed to just make them all permanent.)
Graph of the Day: Is the ‘Great Recession’ Really a Household Debt Crisis?
By Benjamin Landy
“Why is everyone still referring to the recent financial crisis as the ‘Great Recession’?” asks Harvard economist and former IMF chief Kenneth Rogoff, in a recent article for Project Syndicate. “The phrase ‘Great Recession’ creates the impression that the economy is following the contours of a typical recession, only more severe – something like a really bad cold,” he adds. “But the real problem is that the global economy is badly overleveraged.”
Unfortunately, the American household is no exception. While political discourse has been dominated in recent months by arguments over our enormous national debt, climaxing with the tense mid-summer negotiations over the debt ceiling in Washington, the problem of household debt has gone largely unmentioned in the media. Now that is beginning to change, as a consensus develops among economists, pundits, and policymakers that Americans’ paralyzing mortgage and credit card debt is the main factor holding the economy back from recovery.
The facts are these: although household debt peaked at $116,457 per household in 2008—nearly 100 percent of GDP at the time the financial markets collapsed—mortgage and credit debt has decreased merely seven percent as of 2010. The average American household would have to deleverage an additional 97 percent to return to 1976 levels. And while no one is arguing that household debt needs to be at those levels to restart the economy, it is generally understood that consumption will not increase adequately until Americans’ debts are significantly reduced.
When we last experienced a deep recession in 1982, the household debt-to-GDP ratio was about 45 percent, or $17,286. So when the government adjusted its monetary policy, the economy was able to recover quickly. Today, with the average household still holding over $100,000 of debt, a more ambitious program will be required to return demand—and thus unemployment—to pre-recession levels.
Thankfully, a recent New York Times report indicates that the Obama administration may be planning just that. According to the article’s sources, who would not be named, White House officials are currently weighing a variety of proposals to allow millions of homeowners to refinance their homes with government-backed mortgages at current low interest rates of about 4 percent, saving those homeowners $85 billion a year and creating a strong stimulus to the economy.
The Washington Post’s Ezra Klein, for one, is not optimistic that this kind of government-backed refinancing scheme could work in the current political climate, but at least it proves that the administration is paying attention to the household debt problem and trying to come up with creative solutions to stimulate demand. Until we find a way to do that, millions of Americans will remain jobless, and the economic recovery will continue at its anemic pace. At the very least, the administration’s recognition that the “Great Recession” is really a household-debt crisis sends the positive message that Obama’s “pivot” to job creation is more than just hot air.
Obama Calls for Syrian President to Step Down
NYT: President Obama called on Thursday for the Syrian president, Bashar al-Assad, to leave power, and issued a new executive order providing for additional sanctions. It is the first time the United States has explicitly called for Mr. Assad’s departure from power.
“For the sake of the Syrian people, the time has come for President Assad to step aside,” Mr. Obama says in the statement issued by the White House.
More here.
WINNING HEARTS AND MINDS?
President Obama holds a town-hall-style meeting in Cannon Falls, Minnesota on Monday, at the start of a three-day, three-state campaign-style bus tour. (Photo: Doug Mills / The New York Times)
