On January 7, 200--two weeks before Barack Obama took the oath of office--the Congressional Budget Office forecast the federal budget deficit for fiscal year 2009 at $1.2 trillion. Now, the CBO is projecting the deficit will be only $642 billion for FY 2013, $200 billion less than the nonpartisan budget scorekeeper estimated as recently as February.

For policymakers in Washington, the implications couldn't be clearer. For starters, the counterproductive Beltway fixation on immediate debt reduction, which economists have warned is slowing U.S. economic growth and costing millions of jobs, should be jettisoned ASAP. And to be sure, the Republicans' next round of debt ceiling hostage-taking should be condemned as the economic sabotage it is.

The CBO explained why the U.S. fiscal picture is improving so dramatically:

If the current laws that govern federal taxes and spending do not change, the budget deficit will shrink this year to $642 billion, CBO estimates, the smallest shortfall since 2008. Relative to the size of the economy, the deficit this year--at 4.0 percent of gross domestic product (GDP)--will be less than half as large as the shortfall in 2009, which was 10.1 percent of GDP...

CBO's estimate of the deficit for this year is about $200 billion below the estimate that it produced in February 2013, mostly as a result of higher-than-expected revenues and an increase in payments to the Treasury by Fannie Mae and Freddie Mac. For the 2014-2023 period, CBO now projects a cumulative deficit that is $618 billion less than it projected in February. That reduction results mostly from lower projections of spending for Social Security, Medicare, Medicaid, and interest on the public debt.

By 2015, the annual deficit is now projected to just 2.1 percent of U.S. gross domestic product, well below the 40-year historical average of 3.1 percent. The gap is expected to grow to 3.5 percent by 2023, "because of the pressures of an aging population, rising health care costs, an expansion of federal subsidies for health insurance, and growing interest payments on federal debt."

The new CBO numbers are just the latest confirmation of House Speaker John Boehner's admission that "we have no immediate debt crisis." Coming on the heels of an analysis by the Hamilton Project estimating that austerity at the federal, state and local level has cost up to 2.2 million American jobs, the CBO report should help put to lie that more budget cutting is needed in Washington. As the New York Times explained just last week:

Continue reading »

As the nation teetered on the edge of the so-called "fiscal cliff" in late 2012, Republican leaders warned that higher taxes for the rich would crush "job creators" and derail the U.S. economic recovery. But according to a new survey, a majority of those earning over $500,000 a year report that the new higher rates on income and capital gains have not impacted their spending, charitable giving or investment strategies. As it turns out, the Chicken Little conservatives could have spared themselves this embarrassment had they just heeded the lessons of American history and the predictions of the Congressional Budget Office.

Last fall, the nonpartisan CBO forecast the impact of "going over the fiscal cliff." As the chart above shows, CBO warned that the combination of the expiring Bush tax cuts for all Americans, the end of the temporary payroll tax holiday and the steep budget cuts of the sequester could catapult unemployment to 9.1 percent while slashing gross domestic product by 2.9 percent in 2013. But ending the Bush tax cuts for households earning over $250,000 a year, the agency assured lawmakers, would have virtually no impact (the 0.1 percent of GDP in light blue above) on the U.S. economy at all.

As CNBC reported last Wednesday, the CBO appears to have had it exactly right--at least so far. The GOP's dire predictions that upper-income Americans would "would spend less, invest less and give less to charity" have not come to pass:

The Shullman Luxury and Affluence Monthly Pulse found that 55 percent of people making $500,000 or more said higher taxes have not impacted their spending plans. Fully 61 percent of those making $250,000 or more said taxes have not impacted their spending plans.

On investing, 59 percent of those making $500,000 or more (and 64 percent of the $250,000-plus group) said higher taxes have not impacted their investment strategies. When it comes to charity, 55 percent of those making $500,000 or more, and 62 percent of those making $250,00 or more, said paying more taxes has not impacted their giving plans.

Of course, it's still early in the year. It's possible some of the well-to-do (that is, households earning over $450,000 a year) have not yet adjusted to the fiscal cliff deal that raised their income tax rate to 39.6 percent (from 35) and capital gains and dividend tax rate to 20 percent (from 15) in addition to the surcharges from the Affordable Care Act.

Possible, but unlikely. As the decades of U.S. history show, the American economy grew faster and produced more jobs when upper-class tax rates were higher--even much higher--than today. And as the data also show, lower capitals gains tax rates don't fuel greater investment, but instead greater income inequality.

Continue reading »

Back in 2010, Ohio Rep. John Boehner defied recent history and basic math when he comically denied that the Bush tax cuts enacted in 2001 and 2003 played any role in producing federal budget deficits ever since. Now in his refusal to countenance any new tax revenue to avoid the job-killing sequester, Speaker Boehner is peddling a new deception. Pretending to ignore inflation, population growth and the expansion of the American economy, Boehner is now claiming federal tax revenue is at a record high.

Speaking to Scott Pelley of CBS News earlier this week, Boehner said no tax increases could be part of any bipartisan plan to avoid the first $85 billion in cuts to discretionary spending beginning March 1. Why?

"The president got his tax hikes in January. The federal government will have more revenue this year than any year in our history. It's time to tackle spending. Period."

As he declared further talks on Thursday, Boehner once again declared, "The revenue issue is now closed." He added:

"How much more money do we want to steal from the American people to fund more government?"

Now, the $2.7 trillion in fiscal year 2013 revenue recently forecast by the Congressional Budget Office is, by a small margin, Uncle Sam's largest haul when measured in current dollars. But as a percentage of the total American economy (see chart above), federal tax revenues remain well below historical averages.

The handy CBO chart paints a pretty clear picture of Boehner's whitewashing. At less than 17 percent of U.S. GDP, federal revenue for FY 2013 is near historically lows. But that is an improvement over 2010, when the disastrous recession combined with the continuing drain from the Bush tax cuts slashed federal receipts to the 15 percent level not seen since the early 1950's. Meanwhile, the costs of two wars, emergency recovery measures including TARP and the stimulus, and counter-cyclical demand for food stamps, unemployment benefits and health care pushed Washington's spending to levels not seen since Ronald Reagan's first term. (It's worth noting that federal spending is almost flat since Barack Obama first took the oath of office, while the annual deficit has declined.) Contrary to Republican mythology that "tax cuts pay for themselves," it took five years for the Treasury to recover from the Bush tax cuts of 2001.

That last point is made clearer when taking inflation into account.

Continue reading »

So Mitt Romney has decided to end his presidential campaign the same way he started it. That is, by lying. During what his aides touted as a "major address" in Iowa Friday, Governor Romney charged that while President Obama "inherited a troubled economy," he "made the problem worse." That's the same long-debunked myth Romney used in his June 2, 2011 speech formally announcing his candidacy when he declared Obama "When he took office, the economy was in recession, and he made it worse, and he made it last longer."

But while Romney was pummeled by fact checkers last year as soon as the words first left his lips (prompting Mitt to hilariously claim for 24 hours "I didn't say things are worse; what I said was the economy hasn't turned around"), the "Obama made it worse" fraud has remained the centerpiece of his campaign. Unfortunately for Romney, the facts and the overwhelming consensus of economists - including the nonpartisan Congressional Budget Office and John McCain's 2008 brain trust - flatly contradict Mitt's closing argument. Instead, the numbers show and the experts confirm that President Obama saved the American free-enterprise system from the abyss and averted Great Depression 2.0.

Sadly for Romney and his Republican allies, history did not begin on January 20, 2009. And the data show that President Obama didn't inherit a "troubled economy," but one literally on the brink of collapse. Obama entered office in 2009 as the Bush recession was in full swing. GDP had plummeted by a shocking 8.9 percent the previous quarter. 820,000 jobs were lost in January 2009 alone; all told 2.2 million evaporated in the three months before Obama's stimulus was passed that February. (That might explain why more than three years after he left office, Americans still blame George W. Bush for the economic calamity he bequeathed to Barack Obama.) Now, even with the difficult recovery, the U.S. has produced over 30 consecutive months of private sector job gains and a return to economic growth. And despite Romney's charge that President Obama's are "the most anti-investment, anti-business, anti-jobs series of polices in modern American history," the Dow Jones has jumped by 68 percent since January 20, 2009. Corporate profits are at record highs even as firms' tax burden continues to drop.

Nevertheless, Governor Romney charged in June that the President "slowed the recovery and harmed our economy," a result he called "a moral failure of tragic proportions." Sadly for his campaign's mythmaking, just 24 hours earlier, the director of the nonpartisan Congressional Budget Office blew Romney's bogus claim out of the water.

Continue reading »

On the eve of last week's presidential debate, Republican Mitt Romney floated a trial balloon to deflect public attention from his detail-free tax plan certain to give a massive windfall for the wealthy, burden middle class taxpayers and balloon the national debt. But largely overlooked in his murky and still-to-be defined proposal to put a dollar cap on individual tax deductions is the devastating impact it would have on charitable giving. Combined with his demand to end the estate tax, Romney's plan would choke off donations to America's non-profits, churches and charities.

When President Obama in 2009 proposed raising $318 billion over the next decade by trimming wealthier taxpayers' deductions for charitable giving from 35to 28 percent, Republicans were apoplectic. Then House Minority Leader John Boehner darkly warned the reform would "deliver a sharp blow to charities at a time when they are hurting during the economic downturn." But as Bloomberg and The Chronicle of Philanthropy each explained at the time, Obama's proposal would likely have little to no impact on charitable giving. An analysis by the Center on Budget and Policy put the impact at only 1.9 percent of total donations. Noting that the same upper income 28 percent deduction was in place during Ronald Reagan's first term, then-OMB chief Peter Orszag rightly concluded that "what drives charitable contributions is overall economic growth."

But Governor Romney's proposed cap on individual deductions is another matter altogether. As he explained his new plan conveniently unveiled on the eve of last week's first presidential debate:

"As an option you could say everybody's going to get up to a $17,000 deduction; and you could use your charitable deduction, your home mortgage deduction, or others - your healthcare deduction. And you can fill that bucket, if you will, that $17,000 bucket that way. And higher income people might have a lower number."

Within 24 hours, Romney changed his plan yet again. Once-again side-stepping the question of which tax credits, deductions and loopholes he would end, Romney pulled a new figure out of the air during Wednesday's debate:

"Make up a number, $25,000, $50,000. Anybody can have deductions up to that amount. And then that number disappears for high-income people."

If so, a large source of funding for America's hospitals, museums, institutions of higher education and more might disappear as well.

Currently, only about 30 percent of filers itemize their deductions, which in 2009 averaged over $26,000. But as Ezra Klein explained last week, "80 percent of tax savings from itemization goes to the top 20 percent of Americans households, and 25 percent of the savings goes to the 1 percent." In 2011, the Congressional Budget Office said those making over $500,000 a year gave 3.4 percent of their income to charity. (Individual contributions accounted for $227 billion of the $304 billion raised by charities in 2009.) Romney's proposed cap would have its greatest impact on upper-income, blue state residents, whose larger state and local tax bills and home mortgage interest payments currently provide the biggest sources of deductions. But charitable giving by the wealthiest Americans, like Mitt Romney's own $2.25 million deduction in 2011, could be slashed as well.

Jim Andreoni, a UC San Diego professor of economics who studies the economics of charitable giving, explained why:

"The effect on charitable giving is likely to be large for high income individuals, especially in the short run..."Some deductions are difficult to change, like mortgage interest or property taxes," says Andreoni. "Those will stay fixed for now, and for many high earners will more than use up the $17,000 cap on deductions. By contrast, charitable giving is about the only category of deduction that people can use in the short run to adjust for an increase in taxes. ... [E]ven though both your mortgage and your charitable giving are losing some tax benefits, only your giving can change in the short run to make up part of that loss.

So, high income donors will have two reasons to cut back on giving. First, they are losing after-tax income from deductions on things other than giving and that are hard to adjust, like mortgage interest. Second, giving itself will become far more expensive and is far easier to change than other deductions. It's intuitive to me that charitable giving will take a big hit from the cap on deductions."

(Given his annual 10 percent tithe mandated by his church, Mitt Romney would likely be an exception to the rule. Still, that doesn't make his claim that his charitable contributions make his own paltry tax rate "really closer to 45 or 50 percent" any more true.)

But capping the dollar value of annual deductions isn't the only way Mitt Romney's tax plan would gut charitable giving. As it turns out, Romney's proposal to end the estate tax, a move which would save his heirs $80 million and those of his billionaire backers billions more, would dramatically slow the cash flow to America's non-profits.

Continue reading »

In figuring out the cost of one-third of states refusing Medicaid expansion, the real information isn't in the answers. It's in asking the right questions. This story includes no information about how much money those uninsured people will eventually cost the taxpayers under other line items -- like the programs that exist to pay for their medical bills, administered through hospitals, or the projected increase in Social Security disability claims. Nor does it address the human cost of having three million uninsured people. But as we know, we are all merely disposable digits in the grand national austerity movement! Sarah Kliff:

The Congressional Budget Office is out with its analysis of how the Supreme Court decision will impact the Affordable Care Act’s budget. The big ticket takeaway is this: The non-partisan scorekeeper estimates that 3 million people fewer people will gain coverage due to states opting out of the Medicaid expansion, resulting in $84 billion less in federal spending.

Let’s break down those numbers a bit. The Congressional Budget Office does not list out which states could pass up the Medicaid expansion. But it does predict that “some states will probably forgo the expansion entirely.”

The CBO then estimates that for every person who does not enroll in Medicaid because of that, and goes uninsured, the federal government saves $6,000 in spending by 2022. For the average person who does not enroll in Medicaid, but instead gets subsidized coverage from the health insurance exchange, the federal government spends $9,000 – $3,000 more than they would have had those individuals been in Medicaid.

“With about 6 million fewer people being covered by Medicaid but only about 3 million more people receiving subsidies through the exchanges and about 3 million more people being uninsured…the projected decrease in total federal spending on Medicaid is larger than the anticipated increase in total exchange subsidies,” the CBO concludes.

Oh, and in completely unrelated news:

States that opted for larger Medicaid programs had better health outcomes and slightly lower death rates, a study in the New England Journal of Medicine said Wednesday.

[...] The new study, by researchers at the Harvard School of Public Health, was primarily designed to look at the impact on death rates in three states that expanded Medicaid—Maine, New York and Arizona—compared with four nearby states that didn't. Overall, the study found a drop in mortality of 6.1% on average in the five years after initial expansion. Death rates fell by 19.6 deaths per 100,000 adults compared with the control states of New Hampshire, Pennsylvania, Nevada and New Mexico.

This week, Rex Nutting of the MarketWatch caused a stir with his analysis correctly showing that federal spending has hardly budged under President Obama, rising at the slowest pace since the Dwight Eisenhower was in the White House. Predictably, James Pethokoukis of the conservative American Enterprise Institute cited the jump in Washington's spending as a percentage of the U.S. economy to comically "prove" that "actually, the Obama spending binge really did happen." Comically, that is, because Pethokoukis conveniently ignores the staggering economic contraction resulting from the Bush recession, with GDP only last year having returned to 2008 levels. Even less surprising, the perpetual tax-cutters of the right neglected to mention that thanks to the steep recession and the Treasury-draining Bush tax cuts, total federal tax revenues as a percentage of GDP hit their lowest level since 1950.

On January 7, 2009, Reuters reported that President Bush was bequeathing a $1.2 trillion budget deficit to his successor. That record gap was fueled by Bush's $700 billion TARP program and plummeting tax revenue due to the shrinking American economy. As Reuters noted, President-Elect Obama "said he expects deficits around $1 trillion for years, forcing tough budget choices."

Which is exactly what came to pass. But even with the 2009 stimulus program and the necessarily growing outlays for Medicaid, unemployment insurance, food stamps and other safety net programs, those trillion deficits had less to do with Barack Obama boosting spending than the dramatic loss of tax revenue. As former Reagan administration official Bruce Bartlett explained in October 2009:

According to the Congressional Budget Office's January 2009 estimate for fiscal year 2009, outlays were projected to be $3,543 billion and revenues were projected to be $2,357 billion, leaving a deficit of $1,186 billion. Keep in mind that these estimates were made before Obama took office, based on existing law and policy, and did not take into account any actions that Obama might implement...

Now let's fast forward to the end of fiscal year 2009, which ended on September 30. According to CBO, it ended with spending at $3,515 billion and revenues of $2,106 billion for a deficit of $1,409 billion.

To recap, the deficit came in $223 billion higher than projected [in January], but spending was $28 billion and revenues were $251 billion less than expected. Thus we can conclude that more than 100 percent of the increase in the deficit since January is accounted for by lower revenues. Not one penny is due to higher spending.

Obama's own tax cuts, the ones contained in the February 2009 stimulus bill, "reduced revenues in FY2009 by $98 billion over what would otherwise have been the case."

Continue reading »

If nothing else, Mitt Romney seems dedicated to proving that repetition of a lie will make it true. On no point is Romney's tilting against the windmill of truth more comically pathetic than his long-ago debunked claim that President Obama "did not cause this recession, but he made it worse." After a tidal wave of fact-checkers demolished his mythology last summer, Romney on June 30 pretended, "I didn't say that things are worse" before reinstating the falsehood in his stump speech just days later. Now, Mitt has a new twist on his "Obama made it worse" fraud, declaring in light of the improving economic outlook that "It's getting better not because of him, it's in spite of him and what he's done."

Sadly for the myth-maker from Massachusetts, the numbers and the overwhelming consensus of economists - including John McCain's 2008 brain trust - demand Mitt Romney give credit where credit is due.

That, of course, is something the serial deceiver Romney is refusing to do, even as he acknowledges the economy is improving. As Mitt put it in New Hampshire ten days ago:

"I'm sure the president will want to take credit for it, for any improvement. Guess what? He doesn't deserve it."

Two days later during a GOP debate, Romney repackaged his con job this way:

"The president is going to try and take responsibility for things getting better. You know, it's like the rooster taking responsibility for the sunrise. He didn't do it," Romney said. "In fact, what he did was make things harder for America to get going again."

But back on planet Earth where the force of gravity still applies and the sun rises in the east and sets in the west, Romney's slander shuold receive the ridicule it rightly deserves.

This summer, Time blasted Romney's accusation that "the recession is deeper because of our President," concluding "that Romney's claim has no credible basis" because "there's no credible economic data showing that Obama has inflamed our economic problems." As Greg Sargent noted on June 27, both the AP and the Washington Post's own fact-checker demolished Romney's talking point on the recession which the NBER declared over in June 2009. Confronted three days later by NBC producer Sue Kroll about the growing economy, modest job gains and surging stock market, Romney simply denied he ever made the charge:

"I didn't say that things are worse...What I said was that economy hasn't turned around."

Nevertheless, just four days later Romney marked Independence Day by returning to his lie. As the New York Times reported:

Speaking at the annual July Fourth parade here on Monday, Mr. Romney told a crowd of supporters and passersby, "the recession is deeper because of our president," adding, "it's seen an anemic recovery because of our president."

Mr. Romney made a similar assertion earlier when reporters had pressed him on the point near the parade staging grounds, after initially seeming to limit his commentary to the president's handling of the recovery, which he said, "has been slower and more painful,'' But then he went ahead and said it, that the president "made the recession worse."

As it turns out, it's not just the tidal wave of reporters and fact-checkers that washed away the mud Mitt Romney hurled at President Obama on the economy. A bevy of economists, including ones who worked for Romney endorser John McCain, long ago concluded that Barack Obama saved the U.S. economy from calamity.

Continue reading »

With the rise of the Occupy movement and confirmation from the nonpartisan CBO that the U.S. income gap is at its highest level since 1929, defensive conservatives by necessity spawned a thriving if laughable cottage industry in income inequality denialism. Now with word from the New York Times that the share of income for the top 1 percent dropped from 23 to 17 percent between 2007 and 2009, you can expect more cries of "so get a time machine, Occupy Wall Street!"

But the right-wing echo chamber need not worry about the plight of the tragically rich. While working Americans continue to struggle as the economy slowly recovers from the Bush recession, the rebound of Wall Street has ensured that the upper crust has already recouped its losses. As the data show, millionaires are not only making a rapid comeback. For the gilded class, the economic downturn is already over.

Seizing on federal tax data showing that the average income for the top 1 percent fell to $957,000 in 2009 from $1.4 million in 2007, conservatives have complained that income inequality is so over:

Analysts say the drop largely reflects the stock market plunge, and most think top incomes recovered somewhat in 2010, as Wall Street rebounded and corporate profits grew. Still, the drop alters a figure often emphasized by inequality critics, and it has gone largely unnoticed outside the blogosphere.

By focusing on the top 1 percent, the Occupy Wall Street movement has made economic fairness a subject of street protest and political debate.

"It's very interesting that this has become such a big topic now when the numbers are back to where they were in the 1990s," said Steven Kaplan, an economist at the University of Chicago's business school. "People didn't seem to be complaining about it then."

That might have been because during the 8-year Clinton boom that generated 23 million new jobs, the rising tide for once did lift all (or at least most) boats. But after the Bush recession that started in December 2007, many Americans' dinghies were capsized by yachts once again cruising at full speed. As it turns out, the recession that has proved so devastating for most Americans for the wealthy has been merely a hiccup.

Continue reading »

On this the fourth Thanksgiving weekend since the start of the Bush recession, families across America are still struggling with persistently high unemployment, underwater mortgages and stagnant wages. But as the nonpartisan Congressional Budget Office (CBO) reminded us this week, Americans can be thankful for the 2009 stimulus. Despite Republican mythmaking that the American Recovery and Reinvestment Act (ARRA) "created zero jobs," the CBO reported that the stimulus added up to 2.4 million jobs and boosted GDP by as much as 1.9 points in the past quarter. As it turns out, that conclusion confirms the consensus of most economists - including John McCain's 2008 brain trust- that President Obama's recovery program is continuing to deliver benefits for the American people.

From the beginning, the CBO has testified to the success of the largely concluded 2009 stimulus package in driving employment and economic growth. (That's one reason why Republicans like GOP frontrunner Newt Gingrich want to abolish the agency.) Now, as The Hill reported Tuesday, the CBO has found that "President Obama's 2009 stimulus package continues to benefit the struggling economy":

The agency said the measure raised gross domestic product by between 0.3 and 1.9 percent in the third quarter of 2011, which ended Sept. 30. The Commerce Department said Tuesday that GDP in that quarter was only 2 percent total.

CBO said that the stimulus also lowered the unemployment rate by between 0.2 and 1.3 percentage points and increased the number of people employed by between 0.4 million and 2.4 million...

By CBO's numbers, the $800 billion stimulus added up to 0.9 million jobs in 2009, 3.3 million jobs in 2010 and 2.6 million jobs in 2011.

But to really gauge the success of the stimulus, it's worth taking a second look at just how dire the U.S. economic situation was when the Obama administration made its fateful prediction that unemployment would peak at 8 percent. As The Economist and the Washington Post's Ezra Klein detailed, in early 2009 the American economy was not only in much worse shape than anyone imagined; it was literally on the brink of collapse.

Continue reading »