The Washington Post was so upset over President Obama’s latest budget proposal to Republican congressional leaders that it used a front page editorial to complain to readers. While the article included several comments from Republicans warning of the dangers of President Obama’s not yielding to their demands. It added the additional assertion that the deadlock is occurring:
“with time running out for policymakers to agree on a plan to prevent more than $500 billion in tax increases and spending cuts that could rattle the economy.”
This statement grossly misrepresents the reality, since the time will run out “to prevent more than $500 billion in tax increases and spending cuts” more than a year from now. We don’t see all of these tax increases and spending cuts on January 1, as the article would lead readers to believe. They would only take place over the course of a full year if Congress and President Obama never reached a deal. For this reason, there is not much reason for concern that the failure to reach a deal by January 1 “could rattle the economy.”
The article also asserted, with no supporting evidence, that:
“simply canceling the changes [the tax increases and spending cuts scheduled for January 1], however, risks undermining confidence in the nation’s ability to manage its rising debt.”
If the paper has evidence for this claim then it should have presented it. The low interest rates on U.S. government debt suggests that the financial markets are not very concerned about the nation’s ability to manage its rising debt.
The piece also complains about President Obama’s plan to change the structure under which Congress approves the debt ceiling so that it would require a two-thirds vote to prevent the ceiling from being increased. It told readers:
“this change would also deprive Congress of its historic authority over federal borrowing.”
Actually Congress would continue to have complete authority over federal borrowing. It can either appropriate less spending or impose more taxes, just as was always the case. The change in rules on the debt ceiling really has more to do with Congress’s ability to default on its commitments, since the issue with the debt ceiling is whether the country will pay the bills that Congress has opted to run up. No other country in the world has this sort of restriction on debt.
The Washington Post was so upset over President Obama’s latest budget proposal to Republican congressional leaders that it used a front page editorial to complain to readers. While the article included several comments from Republicans warning of the dangers of President Obama’s not yielding to their demands. It added the additional assertion that the deadlock is occurring:
“with time running out for policymakers to agree on a plan to prevent more than $500 billion in tax increases and spending cuts that could rattle the economy.”
This statement grossly misrepresents the reality, since the time will run out “to prevent more than $500 billion in tax increases and spending cuts” more than a year from now. We don’t see all of these tax increases and spending cuts on January 1, as the article would lead readers to believe. They would only take place over the course of a full year if Congress and President Obama never reached a deal. For this reason, there is not much reason for concern that the failure to reach a deal by January 1 “could rattle the economy.”
The article also asserted, with no supporting evidence, that:
“simply canceling the changes [the tax increases and spending cuts scheduled for January 1], however, risks undermining confidence in the nation’s ability to manage its rising debt.”
If the paper has evidence for this claim then it should have presented it. The low interest rates on U.S. government debt suggests that the financial markets are not very concerned about the nation’s ability to manage its rising debt.
The piece also complains about President Obama’s plan to change the structure under which Congress approves the debt ceiling so that it would require a two-thirds vote to prevent the ceiling from being increased. It told readers:
“this change would also deprive Congress of its historic authority over federal borrowing.”
Actually Congress would continue to have complete authority over federal borrowing. It can either appropriate less spending or impose more taxes, just as was always the case. The change in rules on the debt ceiling really has more to do with Congress’s ability to default on its commitments, since the issue with the debt ceiling is whether the country will pay the bills that Congress has opted to run up. No other country in the world has this sort of restriction on debt.
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According to USA Today, he did. USA Today’s editors are hopping mad because people like Senator Dick Durbin keep reminding them of the law which says that Social Security cannot contribute to the deficit.
Under the law, the Social Security program is financed exclusively by its own payroll tax. (The exception is the last two years where general revenue was added to make up for the revenue lost as a result of the payroll tax holiday.) It can only spend money raised through this tax either in the current year or from the interest and principal from government bonds purchased in prior years.
This means that Social Security can never add to the deficit, except in the same way that Peter Peterson sells his government bonds. When Peterson sells his bonds, the government must either cut spending, raise taxes or borrow the money from someone else. Since the actors in financial markets are more realistic than the frantic Washington types who are working themselves into hysterics about the deficit, the government will have no problem borrowing from someone else either when Peter Peterson sells his bonds or Social Security cashes in some of its bonds.
Anyhow, give USA Today and the other deficit fear mongers a gigantic “F” for flunking reading comprehension. Unless Congress changes the law, Social Security cannot contribute to the deficit, got it boys and girls?
btw, USA Today also has another bizarre invention in this editorial. It tells readers:
“From 1983 through 2009, Social Security collected more in taxes than it paid in benefits. The surpluses were supposed to go into the trust fund, protected by what Al Gore called a “lockbox” when he ran for president in 2000. Alas, there is no lockbox and never has been; the money came into the Treasury and went out just as quickly, spent on the government’s day-to-day expenses and replaced by IOUs in a file cabinet.”
Huh? What on earth is the paper talking about? The surplus did go into the trust fund, buying U.S. government bonds, which the paper bizarrely calls IOUs. This is exactly what the law required. It’s not clear where USA Today thinks government bonds should be kept, but apparently not in a filing cabinet.
Anyhow Al Gore did have a specific proposal for the treatment of the surplus. It’s not clear that he would have implemented it if elected (it would have meant running large budget surpluses even as the U.S. economy sank into recession in 2001. That is unconscionably stupid economic policy), but it certainly is not what is required under the law, even if folks at USA Today really liked it.
I’m going off to see what the yield is on GE and Verizon IOUs.
Addendum:
Sorry folks, I didn’t mean to be overly obscure on the Peterson selling his bonds reference. He could have bonds that actually come due that he will cash in and the Treasury would have to roll over this debt, as it does all the time, as some folks have pointed out. But I was actually thinking of the more typical case where he dumps $30 million of bonds in the market. In that case, Peterson was the person who was originally lending money to the U.S. government, but then another person (the buyer) will then be holding the loan. That is what I meant that we would need someone else to borrow from. Of course on the bonds he holds Peterson is obviously the person at risk (he needs to find someone), but as a practical matter, since we are issuing new bonds all the time, it has the same effect on the market if Peterson dumps his $30 million as if the government has to issue another $30 million in new bonds.
According to USA Today, he did. USA Today’s editors are hopping mad because people like Senator Dick Durbin keep reminding them of the law which says that Social Security cannot contribute to the deficit.
Under the law, the Social Security program is financed exclusively by its own payroll tax. (The exception is the last two years where general revenue was added to make up for the revenue lost as a result of the payroll tax holiday.) It can only spend money raised through this tax either in the current year or from the interest and principal from government bonds purchased in prior years.
This means that Social Security can never add to the deficit, except in the same way that Peter Peterson sells his government bonds. When Peterson sells his bonds, the government must either cut spending, raise taxes or borrow the money from someone else. Since the actors in financial markets are more realistic than the frantic Washington types who are working themselves into hysterics about the deficit, the government will have no problem borrowing from someone else either when Peter Peterson sells his bonds or Social Security cashes in some of its bonds.
Anyhow, give USA Today and the other deficit fear mongers a gigantic “F” for flunking reading comprehension. Unless Congress changes the law, Social Security cannot contribute to the deficit, got it boys and girls?
btw, USA Today also has another bizarre invention in this editorial. It tells readers:
“From 1983 through 2009, Social Security collected more in taxes than it paid in benefits. The surpluses were supposed to go into the trust fund, protected by what Al Gore called a “lockbox” when he ran for president in 2000. Alas, there is no lockbox and never has been; the money came into the Treasury and went out just as quickly, spent on the government’s day-to-day expenses and replaced by IOUs in a file cabinet.”
Huh? What on earth is the paper talking about? The surplus did go into the trust fund, buying U.S. government bonds, which the paper bizarrely calls IOUs. This is exactly what the law required. It’s not clear where USA Today thinks government bonds should be kept, but apparently not in a filing cabinet.
Anyhow Al Gore did have a specific proposal for the treatment of the surplus. It’s not clear that he would have implemented it if elected (it would have meant running large budget surpluses even as the U.S. economy sank into recession in 2001. That is unconscionably stupid economic policy), but it certainly is not what is required under the law, even if folks at USA Today really liked it.
I’m going off to see what the yield is on GE and Verizon IOUs.
Addendum:
Sorry folks, I didn’t mean to be overly obscure on the Peterson selling his bonds reference. He could have bonds that actually come due that he will cash in and the Treasury would have to roll over this debt, as it does all the time, as some folks have pointed out. But I was actually thinking of the more typical case where he dumps $30 million of bonds in the market. In that case, Peterson was the person who was originally lending money to the U.S. government, but then another person (the buyer) will then be holding the loan. That is what I meant that we would need someone else to borrow from. Of course on the bonds he holds Peterson is obviously the person at risk (he needs to find someone), but as a practical matter, since we are issuing new bonds all the time, it has the same effect on the market if Peterson dumps his $30 million as if the government has to issue another $30 million in new bonds.
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Yes, things are really dire. Readers of the NYT, Washington Post and other major news outlets have been treated to large numbers of stories in recent months telling us that technology is going to make large segments of our workforce obsolete. According to these stories millions, or even tens of millions, of people will be unable to find jobs in the economy of the future.
But wait, it’s getting even worse. Not only are we not going to have enough jobs, the Post now tells us that we will not have enough people. It reports on a new study showing that the United States had the lowest birth rate since 1920 last year. The article tells us:
“The decline could have far-reaching implications for U.S. economic and social policy. A continuing decline would challenge long-held assumptions that births to immigrants will help maintain the U.S. population and provide the taxpaying work force needed to support the aging baby boomer generation.”
So there you have it, not only will we not have enough jobs, the Post is telling us that we won’t have enough people. It can’t get much worse than that!
This shows us the level of seriousness of Washington policy debates. We are supposed to be simultaneously terrified by diametrically opposite problems. To make this as clear as possible, just in case any Washington Post editors are reading, if we have a shortage of labor due to a slow growing or even declining population, then we don’t have to worry about large numbers of workers being unable to find jobs. There will be a labor shortage. This implies rapidly rising wages and employers who are willing to provide whatever training workers need to do the jobs available.
This means that at least one of the grave problems currently being pushed by the Serious People does not exist. A little arithmetic (a skill in short supply in policy circles) should make it clear that inadequate population growth is not going to be a dire problem. The figure below compares the impact on workers’ living standards of the projected increase in the ratio of workers to retirees over the next twenty three years with various rates of productivity growth. (You can find the explanation for the calculation here.)
Source: Author’s calculations.
The basic story is that even a 1.0 percent rate of productivity growth (the slowest we’ve seen in the post-War period) swamps the impact of demographics on living standards. Of course if technology is going to displace huge numbers of workers, as we’re being told, then we will see much more rapid productivity growth so the relative impact of demographics will be even less important.
In short the demographic scare story is sheer silliness. It is of course unfortunate if people who would like children feel that they are too financially insecure to have them, but the idea that we should be troubled by a less crowded, less polluted country? As they say in our nation’s capitol, only in the Washington Post.
Yes, things are really dire. Readers of the NYT, Washington Post and other major news outlets have been treated to large numbers of stories in recent months telling us that technology is going to make large segments of our workforce obsolete. According to these stories millions, or even tens of millions, of people will be unable to find jobs in the economy of the future.
But wait, it’s getting even worse. Not only are we not going to have enough jobs, the Post now tells us that we will not have enough people. It reports on a new study showing that the United States had the lowest birth rate since 1920 last year. The article tells us:
“The decline could have far-reaching implications for U.S. economic and social policy. A continuing decline would challenge long-held assumptions that births to immigrants will help maintain the U.S. population and provide the taxpaying work force needed to support the aging baby boomer generation.”
So there you have it, not only will we not have enough jobs, the Post is telling us that we won’t have enough people. It can’t get much worse than that!
This shows us the level of seriousness of Washington policy debates. We are supposed to be simultaneously terrified by diametrically opposite problems. To make this as clear as possible, just in case any Washington Post editors are reading, if we have a shortage of labor due to a slow growing or even declining population, then we don’t have to worry about large numbers of workers being unable to find jobs. There will be a labor shortage. This implies rapidly rising wages and employers who are willing to provide whatever training workers need to do the jobs available.
This means that at least one of the grave problems currently being pushed by the Serious People does not exist. A little arithmetic (a skill in short supply in policy circles) should make it clear that inadequate population growth is not going to be a dire problem. The figure below compares the impact on workers’ living standards of the projected increase in the ratio of workers to retirees over the next twenty three years with various rates of productivity growth. (You can find the explanation for the calculation here.)
Source: Author’s calculations.
The basic story is that even a 1.0 percent rate of productivity growth (the slowest we’ve seen in the post-War period) swamps the impact of demographics on living standards. Of course if technology is going to displace huge numbers of workers, as we’re being told, then we will see much more rapid productivity growth so the relative impact of demographics will be even less important.
In short the demographic scare story is sheer silliness. It is of course unfortunate if people who would like children feel that they are too financially insecure to have them, but the idea that we should be troubled by a less crowded, less polluted country? As they say in our nation’s capitol, only in the Washington Post.
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The major media outlets did their best to ignore the housing bubble as it was growing to ever more dangerous levels. Incredibly, they still cannot recognize and understand the bubble even after its collapse sank the economy. Hence we get the Washington Post offering us 10 charts that explain “what is holding back the economy.”
Of course the Washington Post is a large corporation so they can waste money on unnecessary and misleading charts. Since CEPR is a small not-for-profit, we explain it all in one chart.
Source: Author’s calculations.
The basic story remains as simple as can possible be. We had a huge building boom that went bust. Instead of building houses at a near record pace, construction fell back to the lowest level in 50 years due to enormous oversupply. Similarly, the consumption boom that was driven by $8 trillion in bubble generated housing equity faded when that wealth disappeared.
The Post piece holds out the hope that underwater homeowners will increase annual consumption by $400-$500 billion when they get above water. That would imply around $40,000 a year in additional consumption from families with a median income of around $70,000. This is not the sort of stuff that deserves to be taken seriously. It’s also important to remember that the ratio of consumption to disposable income is unusually high, not low.
The other items on my chart are the falloff in non-residential construction following the collapse of the bubble in that sector and the drop-off in state and local government spending that resulted from the loss of property taxes and other revenue following the collapse of the bubble.
This single chart very simply tells the story of the housing bubble. If the Post needs make work projects they can always have people make up charts for no reason, but it would be better if they didn’t include them in the newspaper. It might confuse readers.
The major media outlets did their best to ignore the housing bubble as it was growing to ever more dangerous levels. Incredibly, they still cannot recognize and understand the bubble even after its collapse sank the economy. Hence we get the Washington Post offering us 10 charts that explain “what is holding back the economy.”
Of course the Washington Post is a large corporation so they can waste money on unnecessary and misleading charts. Since CEPR is a small not-for-profit, we explain it all in one chart.
Source: Author’s calculations.
The basic story remains as simple as can possible be. We had a huge building boom that went bust. Instead of building houses at a near record pace, construction fell back to the lowest level in 50 years due to enormous oversupply. Similarly, the consumption boom that was driven by $8 trillion in bubble generated housing equity faded when that wealth disappeared.
The Post piece holds out the hope that underwater homeowners will increase annual consumption by $400-$500 billion when they get above water. That would imply around $40,000 a year in additional consumption from families with a median income of around $70,000. This is not the sort of stuff that deserves to be taken seriously. It’s also important to remember that the ratio of consumption to disposable income is unusually high, not low.
The other items on my chart are the falloff in non-residential construction following the collapse of the bubble in that sector and the drop-off in state and local government spending that resulted from the loss of property taxes and other revenue following the collapse of the bubble.
This single chart very simply tells the story of the housing bubble. If the Post needs make work projects they can always have people make up charts for no reason, but it would be better if they didn’t include them in the newspaper. It might confuse readers.
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David Cay Johnston has a nice column in the NYT discussing how a failure of antitrust regulation has effectively allowed the old ATT monopoly to recreate itself as a duopoly, although this time without regulation.
David Cay Johnston has a nice column in the NYT discussing how a failure of antitrust regulation has effectively allowed the old ATT monopoly to recreate itself as a duopoly, although this time without regulation.
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NAFTA may not have done much to improve Mexico’s growth rate, but its approval sure did wonders for U.S. reporting on Mexico’s economy. The Washington Post in particular has run several pieces touting Mexico’s booming economy and rising middle class (e.g here and here). In fact, a 2007 Post editorial even claimed that Mexico’s GDP had quadrupled in the years from 1988 to 2007. (The actual growth figure was 83 percent.)
The NYT appears to be getting into the act with an article discussing Mexico’s changing relationship with the U.S. as it inaugurates a new president. The article told readers:
“Mexico fell into a deep recession in 2009 when American demand for Mexican-made imports collapsed. But the recovery under President Felipe Calderón has been notable, with growth expected to reach almost 4 percent this year, roughly twice that of the United States.
While Brazil is often thought of as Latin America’s economic marvel, Mexico’s economy outpaced Brazil’s last year and is expected to do so again this year. Business that had fled Mexico in favor of China has started to return, as the wage gap narrows and transportation and other costs rise.”
A 4.0 percent growth rate is not especially rapid for developing countries. Furthermore, the fact that wages in Mexico have fallen sharply relative to wages in China is bad economic news for the vast majority of people in Mexico. Mexican workers used to be much better off than Chinese workers, the fact that this may no longer be the case is the result of Mexico’s bad economic performance.
No one would seriously change their view of the relative performance of Latin American countries based on a single year’s data. In fact, in terms of miracles, Argentina has done far better than Brazil and Mexico ranks dead last in per capita GDP growth in Latin America from 1996 to the present.
Source: International Monetary Fund.
NAFTA may not have done much to improve Mexico’s growth rate, but its approval sure did wonders for U.S. reporting on Mexico’s economy. The Washington Post in particular has run several pieces touting Mexico’s booming economy and rising middle class (e.g here and here). In fact, a 2007 Post editorial even claimed that Mexico’s GDP had quadrupled in the years from 1988 to 2007. (The actual growth figure was 83 percent.)
The NYT appears to be getting into the act with an article discussing Mexico’s changing relationship with the U.S. as it inaugurates a new president. The article told readers:
“Mexico fell into a deep recession in 2009 when American demand for Mexican-made imports collapsed. But the recovery under President Felipe Calderón has been notable, with growth expected to reach almost 4 percent this year, roughly twice that of the United States.
While Brazil is often thought of as Latin America’s economic marvel, Mexico’s economy outpaced Brazil’s last year and is expected to do so again this year. Business that had fled Mexico in favor of China has started to return, as the wage gap narrows and transportation and other costs rise.”
A 4.0 percent growth rate is not especially rapid for developing countries. Furthermore, the fact that wages in Mexico have fallen sharply relative to wages in China is bad economic news for the vast majority of people in Mexico. Mexican workers used to be much better off than Chinese workers, the fact that this may no longer be the case is the result of Mexico’s bad economic performance.
No one would seriously change their view of the relative performance of Latin American countries based on a single year’s data. In fact, in terms of miracles, Argentina has done far better than Brazil and Mexico ranks dead last in per capita GDP growth in Latin America from 1996 to the present.
Source: International Monetary Fund.
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It seems that many people have been bothered by a Wall Street Journal column co-authored by Chris Cox and Bill Archer, the former Chair of the House Ways and Means Committee. The column warns of an $86 trillion dollar deficit if we propoerly account for the liabilities of Social Security, Medicare and other government obligations. That’s scary.
Fortunately, we have been around the block with this argument before. If we go to the CEPR’s oldies section we find this 2003 classic on the $44 trillion deficit scare. The story’s the same, even if the numbers have been changed somewhat.
It seems that many people have been bothered by a Wall Street Journal column co-authored by Chris Cox and Bill Archer, the former Chair of the House Ways and Means Committee. The column warns of an $86 trillion dollar deficit if we propoerly account for the liabilities of Social Security, Medicare and other government obligations. That’s scary.
Fortunately, we have been around the block with this argument before. If we go to the CEPR’s oldies section we find this 2003 classic on the $44 trillion deficit scare. The story’s the same, even if the numbers have been changed somewhat.
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Both the NYT and Washington Post reported on a tax proposal from Republicans which could lead to a large tax increase on the slightly rich, while leaving the very rich little affected. The proposal would have the lower tax brackets (e.g. the 10 percent rate on the first $20,000 of income and the 15 percent rate on income between $20,000 and $70,000) phased out for households with incomes above $250,000.
Remarkably, neither paper pointed out to readers that this proposal would imply a substantial increase in marginal tax rates for those in income range where these lower tax rates were being phased out. This omission was striking both because of the policy and political implications of the proposal.
On the policy side it would mean that most of the people seeing higher tax rates would be subject to a higher marginal tax rate. (The phase out of the lower brackets is the same thing as a higher marginal tax rate.) While neither article mentioned the range over which the phase out would occur, the vast majority of the people over the $250,000 threshold earn an amount near this threshold. This means that if the phase out ended at $750,000, or even $500,000, most of the people facing tax increases would be in the bubble range facing the higher marginal tax rate.
Insofar as we are concerned about the disincentive of higher marginal tax rates, we should want to see as few people as possible subject to higher rates. This policy would cause a large number of the slightly wealthy to face a higher marginal tax rate.
The politics of this proposal are even more striking. The Republicans had highlighted the fate of small business owners who they like to call “job creators.” This policy would imply a higher tax rate on the vast majority of the job creators, while leaving the very rich little affected, since their income would place them well above the bubble cutoff. This proposal would seem to imply that the Republicans were willing to nail the job creators to benefit the very wealthy.
Readers of the NYT and Post might have missed this basic fact, but fortunately Nate Silver came to the rescue. He carefully explained the basic story to readers in his blog this morning.
Both the NYT and Washington Post reported on a tax proposal from Republicans which could lead to a large tax increase on the slightly rich, while leaving the very rich little affected. The proposal would have the lower tax brackets (e.g. the 10 percent rate on the first $20,000 of income and the 15 percent rate on income between $20,000 and $70,000) phased out for households with incomes above $250,000.
Remarkably, neither paper pointed out to readers that this proposal would imply a substantial increase in marginal tax rates for those in income range where these lower tax rates were being phased out. This omission was striking both because of the policy and political implications of the proposal.
On the policy side it would mean that most of the people seeing higher tax rates would be subject to a higher marginal tax rate. (The phase out of the lower brackets is the same thing as a higher marginal tax rate.) While neither article mentioned the range over which the phase out would occur, the vast majority of the people over the $250,000 threshold earn an amount near this threshold. This means that if the phase out ended at $750,000, or even $500,000, most of the people facing tax increases would be in the bubble range facing the higher marginal tax rate.
Insofar as we are concerned about the disincentive of higher marginal tax rates, we should want to see as few people as possible subject to higher rates. This policy would cause a large number of the slightly wealthy to face a higher marginal tax rate.
The politics of this proposal are even more striking. The Republicans had highlighted the fate of small business owners who they like to call “job creators.” This policy would imply a higher tax rate on the vast majority of the job creators, while leaving the very rich little affected, since their income would place them well above the bubble cutoff. This proposal would seem to imply that the Republicans were willing to nail the job creators to benefit the very wealthy.
Readers of the NYT and Post might have missed this basic fact, but fortunately Nate Silver came to the rescue. He carefully explained the basic story to readers in his blog this morning.
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Folks who have been awake during the last six months recall that the Republicans opposed raising marginal tax rates on the wealthy as the highest principle of politics and economics. That is why it should have been a huge news story when they proposed a plan that would do exactly this, but only for the less wealthy who fall in that esteemed group they call “job creators.” Remarkably the Post article that reported on this change totally ignored this break with Republican theology.
The break comes in the form of what the Post describes as a “bubble tax” which it claims that Republicans are proposing. The bubble tax would phase out the lower tax brackets (e.g. the 10 percent tax bracket for income under $17,900 and the 15 percent bracket for income between $17,900 and $72,500). This phase out implies an increase in the marginal tax rate over the period of the phase out. For example, if the phase out for couples occurs between the income range of $250,000 and $750,000 it would be roughly equivalent to an increase of 5 percentage points in the marginal tax rate over this income interval. That would actually be a larger increase in the marginal tax rate for people in this income range than just letting the Bush tax cuts expire. (Of course the phase out could be more gradual, but then it would raise less money.)
The income levels that would be most affected by this sort of restructuring of the tax code includes the overwhelming majority of small business owners who the Republicans have blessed as “the job creators.” Given this change in positions by the Republicans, it might have been appropriate to headline this piece something like:
“Republicans throw “job creators” under the bus to limit taxes for the very rich.”
The article also refers to a proposal by Senator Susan Collins that would raise taxes on people earning more than $1 million, except for those who own a small business. It would have been worth pointing out to readers that this small business exemption would essentially make the tax increase optional for the very rich. It is unlikely that there are many people in this income category who either could not figure out how to make themselves a small business owner or hire an accountant to pull off this trick.
In keeping with the Post’s longstanding editorial policy of pushing for cuts in Social Security the third paragraph of the piece referred to the:
“skyrocketing cost of federal retirement programs such as Social Security and Medicare.”
Of course Social Security costs are not skyrocketing by most definitions of the term, with spending as a share of GDP projected to increase from 5 percent to 6 percent over the next two decades. Medicare costs are rising more rapidly, but this is due to projections that show U.S. health care costs in general rising rapidly.
The piece also used the term “fiscal cliff” in both the headline and first paragraph. This term, which is not an accurate description of the impact of the expiration of the tax cuts and the spending sequester that takes place in January, helps to imply an atmosphere of crisis over not reaching a budget deal by January 1. This also fits the Post’s agenda of pushing for a deal this year that is likely to be on more favorable terms to the Republicans than a deal that is made after the tax cuts expire.
Folks who have been awake during the last six months recall that the Republicans opposed raising marginal tax rates on the wealthy as the highest principle of politics and economics. That is why it should have been a huge news story when they proposed a plan that would do exactly this, but only for the less wealthy who fall in that esteemed group they call “job creators.” Remarkably the Post article that reported on this change totally ignored this break with Republican theology.
The break comes in the form of what the Post describes as a “bubble tax” which it claims that Republicans are proposing. The bubble tax would phase out the lower tax brackets (e.g. the 10 percent tax bracket for income under $17,900 and the 15 percent bracket for income between $17,900 and $72,500). This phase out implies an increase in the marginal tax rate over the period of the phase out. For example, if the phase out for couples occurs between the income range of $250,000 and $750,000 it would be roughly equivalent to an increase of 5 percentage points in the marginal tax rate over this income interval. That would actually be a larger increase in the marginal tax rate for people in this income range than just letting the Bush tax cuts expire. (Of course the phase out could be more gradual, but then it would raise less money.)
The income levels that would be most affected by this sort of restructuring of the tax code includes the overwhelming majority of small business owners who the Republicans have blessed as “the job creators.” Given this change in positions by the Republicans, it might have been appropriate to headline this piece something like:
“Republicans throw “job creators” under the bus to limit taxes for the very rich.”
The article also refers to a proposal by Senator Susan Collins that would raise taxes on people earning more than $1 million, except for those who own a small business. It would have been worth pointing out to readers that this small business exemption would essentially make the tax increase optional for the very rich. It is unlikely that there are many people in this income category who either could not figure out how to make themselves a small business owner or hire an accountant to pull off this trick.
In keeping with the Post’s longstanding editorial policy of pushing for cuts in Social Security the third paragraph of the piece referred to the:
“skyrocketing cost of federal retirement programs such as Social Security and Medicare.”
Of course Social Security costs are not skyrocketing by most definitions of the term, with spending as a share of GDP projected to increase from 5 percent to 6 percent over the next two decades. Medicare costs are rising more rapidly, but this is due to projections that show U.S. health care costs in general rising rapidly.
The piece also used the term “fiscal cliff” in both the headline and first paragraph. This term, which is not an accurate description of the impact of the expiration of the tax cuts and the spending sequester that takes place in January, helps to imply an atmosphere of crisis over not reaching a budget deal by January 1. This also fits the Post’s agenda of pushing for a deal this year that is likely to be on more favorable terms to the Republicans than a deal that is made after the tax cuts expire.
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Robert Samuelson is again perplexed by the failure of the economy to recover more rapidly. It is difficult for those of us who understand national income accounting (the stuff we teach in intro econ) to understand the confusion.
Prior to the economic collapse the economy was being driven by a housing bubble. When the bubble burst, we lost more than $600 billion in annual construction demand and more than $500 billion in annual consumption demand. There is no obvious mechanism in the economy to replace this demand.
Samuelson tells us that companies are cautious and reluctant to invest due to the uncertain state of the economy. However the equipment and software share of investment is pretty much back to its pre-recession level. It’s not clear why we should expect the share to rise higher, especially at a time when there is so much excess capacity in many sectors.
Source: Bureau of Economic Analysis.
Consumption is also unusually high relative to disposable income, although below its bubble peak. This drop is also not surprising given the loss of $8 trillion in housing wealth.
Source: Bureau of Economic Analysis.
Samuelson also expresses surprise that there has not been more of a rebound in housing, telling readers:
“The Fed’s low interest rates and plunging home prices (down about a third nationally) might have triggered a strong housing revival.”
Of course given that vacancy rates remain close to the record highs hit earlier in the downturn, it is not surprising that construction has not been stronger.
If more people engaged in policy debates learned national income accounting it would eliminate much of the confusion that dominates debates.
Robert Samuelson is again perplexed by the failure of the economy to recover more rapidly. It is difficult for those of us who understand national income accounting (the stuff we teach in intro econ) to understand the confusion.
Prior to the economic collapse the economy was being driven by a housing bubble. When the bubble burst, we lost more than $600 billion in annual construction demand and more than $500 billion in annual consumption demand. There is no obvious mechanism in the economy to replace this demand.
Samuelson tells us that companies are cautious and reluctant to invest due to the uncertain state of the economy. However the equipment and software share of investment is pretty much back to its pre-recession level. It’s not clear why we should expect the share to rise higher, especially at a time when there is so much excess capacity in many sectors.
Source: Bureau of Economic Analysis.
Consumption is also unusually high relative to disposable income, although below its bubble peak. This drop is also not surprising given the loss of $8 trillion in housing wealth.
Source: Bureau of Economic Analysis.
Samuelson also expresses surprise that there has not been more of a rebound in housing, telling readers:
“The Fed’s low interest rates and plunging home prices (down about a third nationally) might have triggered a strong housing revival.”
Of course given that vacancy rates remain close to the record highs hit earlier in the downturn, it is not surprising that construction has not been stronger.
If more people engaged in policy debates learned national income accounting it would eliminate much of the confusion that dominates debates.
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