Archive for taxes

What Difference Does Obama’s “Buffett Rule” Make?

President Obama and Democrats have been talking up the Buffett Rule (a minimum 30% tax on people making over $1 million per year) for some time now. So what kind of difference does the Buffett Rule make?

I’ve seen revenue estimates between $30 billion and $40 billion over 10 years, but what kind of difference would that make in the scope of government finances?

Not too much.

[FIXED] Three Charts To E-Mail Your Right Wing Brother-In-Law

Dear goodness, not again.

I had a nice healthy rant all written for this because people who use charts and data to lie piss me off and the self-righteous ones are the worst. But it detracted from this post, so if you want to, you can read it here. Not work that I’m proud of, but it’s fun to write every once in a while.

There is a piece called “The Three Charts to E-Mail Your Right Wing Brother-In-Law” that is making the rounds and impressing many people who don’t know too much about the underlying data. Which is almost everyone.

So lets dig into these charts and how we can fix them.

The first one is about Federal Spending and claims that “Bush Spending” saw an 88% increase while Obama spending has seen only a 7.2% increase.

Bush-Obama Spending Chart

The problems with this chart in no particular order:

Bush was not responsible for all of 2009 spending

These two charts assume that the entirety of the 2009 fiscal situation lies squarely on George W. Bush’s shoulders. I would like to posit that this is unfair. There was a bill that got passed (you may have heard of it) that goes by the popular name “the stimulus”. It started immediately spending vast sums of money starting in the fiscal year 2009. George W. Bush had nothing to do with this bill.

I did a little digging and found that the budget Bush proposed for 2009 was for $3.09 trillion while the amount spent during that fiscal year was $3.52 trillion. Now, this might not matter if these kinds of variations were common. But here is a graph of the difference between the proposed spending and the actual spending for the past 10 years. We’re going to play a game called “one of these things is not like the others”.

We can see that 2009 is a huge outlier… the difference between what was proposed and what was spent is 5 times more than any other year ( $429.1 billion).

Yep… that’s what happens when you propose vast amounts of immediate spending in the middle of a fiscal year. Given that Bush had to sign the budget he was given by a Democratic Congress, I think it’s charitable to say that he is “responsible” for what he proposed: the original $3.09 trillion.

Data is not adjusted for inflation

This is a minor quibble, but it matters because it’s a sign that the person who created the chart doesn’t care about accuracy. Ignoring inflation will always make spending increases look drastic because we’re compounding real increases with inflation increases. It also matters because, if we adjust for inflation and use Bush’s last spending proposal, he increased spending by 39% or about 5% a year.

The chart stops tracking data at a very convenient place

President Obama’s budget proposal basically has us maintaining a stable level of spending until 2014, when it starts increasing drastically. The author chose not to chart this data, even though it was right there in front of him. Why? I assume it’s because he’s a partisan hack, but I’m not altogether prepared to rule out that he is, in fact, just an idiot.

By including these spending targets, we get a much more “apples to apples” comparison where we’re comparing 8 years of “Bush spending” to 7 years of “Obama spending”.

If we take all these problems and put them together, we end up with another chart altogether.

Chart 2

The second chart says that Bush increased the deficit and Obama is decreasing it.

Bush-Obama Deficit Chart

First of all, the same “Bush is responsible for everything in FY2009″ thing above applies here too. In addition to that:

The stimulus was front-loaded with tax cuts

I know that right wingers will maintain till their dying breath that tax cuts don’t reduce revenue, they increase revenue. I’m not really in that camp and this is my blog, so I get to do things my way. So there.

According to CNN at the time, the stimulus was going to save the average household $1,179. Using the 2009 Census estimate of 112.6 million households, that comes out to $132.7 billion. If we add that to the $429 billion difference between Bush’s spending proposal and the spending reality and then subtract that from the final deficit, we get a deficit of $894.4 billion.

$132.7 billion in stimulus tax cuts
+ $429.1 billion in un-planned spending
- $1,415.7 billion actual deficit
======================
$836.2 billion of the 2009 deficit that is “Bush’s fault”

All of the reductions are in the future

Notice how the chart goes down in 2012 and 2013? Notice how neither of those years have happened? This is because President Obama’s 2012 budget has made some pretty incredible claims.

To look at these claims with our feet on the ground, let’s first look at a revenue chart.

This is a chart that shows the increase and decrease of federal revenue changes over a 12 month collection period. We can see that recessions mean revenues decrease by as much as 15% year-to-year and that in boom times they can increase by a little over 10% year-to-year. The biggest increase we’ve ever seen was 12% year-to-year increase (from the 2004 fiscal year to the 2005 fiscal year).

Now this is the same chart including the revenue increases that the Obama budget proposal assumes will happen.

Now that is some f***ing audacious hope right there.

The Obama budget assumes for the sake of future budget planning that we will blow 30 years of revenue data out of the water by clocking in a 21% revenue increase in 2012 and a 14% revenue increase in 2013. Then they assume things will “calm down” to a stable 7-8% annual increase, which is merely massive (as opposed to completely insane).

This is a particularly important point because the estimates that the Obama team made were not just optimistic. They assume we are on some kind of federal revenue breakthrough unheard in this generation.

The revenue assumptions in this budget proposal have sped right past optimism and into delusion.

For the sake of fixing this second chart, I am going to be incredibly generous and assume that we see 9% revenue growth over the next 4 years. This would be very good news for our deficit situation and is extremely unlikely. It is not, however, technically impossible, so we’ll give some benefit of the doubt there.

Fixing Chart 2

Accounting for these issues, assuming that we hit the spending targets we’re aiming for (a big if but one I’m willing to let it slide) here is the second chart updated.

Chart 3:

Bush-Obama-Jobs-Chart

Permutations of this chart have been around for some time. President Obama’s team first started using it in mid 2009 to promote the idea that the stimulus was working. It’s actually the most honest of the charts here, but there are still some problems with it.

Using Only Establishment Private Jobs Data

This makes things look a little better because we’ve been losing public sector jobs over the last year or two. I’m not saying “counting only private sector jobs is an invalid measurement”. What I am saying is that it is a red flag that the person may be cherry-picking data to get the best result.

As for using establishment data instead of household survey data, there’s nothing particularly wrong with that, but it is good to note that the household survey counts about 10 million more jobs and  covers people who are employed but not on a payroll, so it will give a somewhat more complete picture of the employment situation. And, unsurprisingly, the data doesn’t look quite as good for Obama. It’s not particularly bad… it’s just “meh”.

It’s Bush’s Fault Only When It’s Bad

But the funniest thing about this chart? The author has spent the last 2 charts convincing us that EVERYTHING that happened in the 2009 fiscal year was Bush’s fault. In this chart, the tune has changed entirely because, if the author gave Bush credit to the end of the 2009 fiscal year, it would look like Bush saved the day. The most drastic reductions in job loss would then fall under the “Bush’s fault” umbrella.

And we can’t have that. When it comes to a choice between honest consistency and making George W. Bush look bad, the author didn’t even blink. So, in a move that is so dishonest is is actually funny, the chart author basically says, “All jobs saved are due to President Obama and his courageous stimulus, but I blame George W. Bush for all the stimulus spending and stimulus tax cuts that created those jobs.”

I created a alternate version of this chart that represents my complaints listed above, but I want to make note that, while I feel the previous “fixes” are a better representation of reality, this chart is not nearly as fair as those were. I personally prefer the BLS household data (which I used in this chart) over the payroll data (which the original chart author used), but I’m not comfortable giving Bush credit for stopping job losses 9 months after he left office. I’m representing it this way only because I want to give an indication of how the author would have done it if he or she maintained an internal consistency.

The Federal Deficit: A Spending AND Revenue Problem

The past couple days, I’ve been railing against the tax/benefits compromise on Twitter and getting a lot of push-back from the right side of the Twitter-verse. The argument goes something like this:

“The deficit is due to the fact that we’re spending too much, not because we’re not pulling in enough revenue. We have a spending problem, not a revenue problem.”

In response to this, I’d like to submit the following into evidence. It is a graph of the federal receipts and federal spending since 1980, taken from the monthly treasury report, which is as non-partisan a source as possible. The gap between the red line and the green line is the deficit.

Technical note: The data here is inflation adjusted by month and represents a rolling 12 month sum. So, for example, the point for October, 2010 (the latest data point) is a sum of the previous 12 months of receipts and outlays, all adjusted for inflation. This is necessary due to the fact that the treasury reports fluctuate drastically from month to month… especially in April, for obvious reasons.

So, what can we learn from this chart?

  1. our current deficit is driven by BOTH a dramatic increase in spending and a devastating decline in revenue.
  2. the Bush tax cuts are not wholly to blame for the deficit. If revenue had held steady at 2007 levels, we’d still be looking at record deficits based only on the spending increases.
  3. spending increases are not wholly to blame for the deficit. If spending had held steady at 2007 levels, we’d still be looking at record deficits.
  4. compared to revenue, spending is relatively stable, increasing more or less steadily year after year.

That last one indicated to me that the federal government has more control over spending then they have over revenue. Because of this (in my humble opinion) it does make more sense to try to cut spending than to raise taxes, since we have more control over the spending side.

However, we need to look at the situation practically. We can’t possibly cut enough out of the federal budget to balance it without additional revenue. Those kinds of budget cuts are not even remotely feasible politically. I’ve little interest in playing fantasy politics where we magically get rid of a fourth of the government without people lighting their Congressmen on fire.We have about enough revenue to balance a budget from 10 years ago.

The rebuttal, of course is that raising taxes will slow economic growth, which will drive revenue down anyway. I believe there is some merit to this, but does that mean we’re going to just tolerate insane deficits while we wait patiently for the economy to improve?

There is no way to have our cake and eat it too. Lower taxes is quickly becoming a luxury of a country whose financial situation is not dire. If we want to close the deficit, we need more revenue and less spending. Period. Full stop.

7 Nasty Liberal Lies about 8 Nasty Conservative Lies

This is a response to the Alternet article 8 Nasty Conservative Lies About the Democrats and Obama That Must Be Debunked Before the Election which is about as unbiased as one would expect from the title.

Oh, this is so boring. But smart people I know have been suckered in by it, so I suppose it needs to be rebutted. How tedious.

1) President Obama actually reduced the deficit since George Bush’s last deficit was $1.416 trillion.

In a sleight of hand worthy of a 7-year-old magician wannabe, he notes that, since Bush signed the 2009 budget, he is therefore responsible for all the debt in 2009, which was $1.416 trillion. He does not, however, explain that the stimulus was passed that year and added drastically to the deficit for 2009. Why is there no mention this? Because the author is interested only in political point-scoring, not the truth.

2) Obama actually cut taxes

This one is actually true. President Obama did cut taxes as a part of the stimulus. But apparently those tax cuts had no effect on the deficit described above, being replaced by money from the happiness rainbow tree that the author believes Obama keeps in the back yard. It is entertaining that the author says these tax cuts were “wasted” since he will soon cite the CBO report on the stimulus, which claims that the tax cuts helped stimulate growth. Consistency is apparently not as much fun as throwing poo.

3) President Obama didn’t bail out the banks, George Bush did.

True, but Obama did vote for the bailout, as did John McCain. Perhaps he is claiming that Senators aren’t important and shouldn’t be held responsible for their own actions and that Congress has virtually nothing to do with governing the nation, in which case the whole article seems irrelevant since it’s not a presidential election and changing Congress won’t actually have an effect on anything. It’s hard to tell, he’s short on details.

4) The stimulus totally worked

He cites the CBO report on the stimulus. Whoop-de-do. The CBO report is an estimate based on an algorithm. When the Obama administration went to the CBO before the stimulus, the CBO plugged the numbers into a computer and said “If you spend X money, you will get Y jobs”. Nearly 2 years later, the Obama administration asked the CBO to plug the numbers in again and – surprise! – they got the same result. It is not based on any actual measurement of the job market, it’s based on a model.

A better way of determining if the stimulus worked would be to ask “Did we follow the unemployment curve the administration said we would?” The answer is “hell no”. Unemployment is far worse than the administration predicted with the stimulus. This is a point which the author explains at length. I’m just kidding; he totally ignores it, perhaps imagining that he had addressed it but could no longer make out the words from behind the spittle covering his laptop screen.

5) Businesses don’t hire based on tax cuts

Young, small businesses hire more than big businesses. They will usually work the people they have as much as possible until it becomes clear that they cannot pull in any more business without new people. Fewer taxes means more money. More money could simply mean more profit (as it has recently with larger companies), or it could mean more growth, more employees, even more money. It varies from business to business. But saying “it’s complicated” does not give the author the intellectual political anger management outlet he clearly needs, so I guess we should be glad he’s not biting anyone’s fingers off.

6) Health care reform reduces gov’t deficits

Here, he cites an article from before the health care reform bill was passed. Since then, the estimate has jumped up as things like the 21% cut in Medicare reimbursement was postponed, then postponed again and large companies like McDonald’s got permission to ignore the law when they told the government that they would drop coverage for their employees if they didn’t get a waiver.

Thus, the various cost-savings of the bill have been shown implausible or manipulative (which is exactly what I said would happen to those absurd estimates nearly a year ago). They were nothing but projection manipulation devices and anyone who wasn’t drunk could see that was the case.

7) Social Security is fine. It’s not a Ponzi scheme.

Yes, Social Security has run a surplus… up to this year when it ran a decifit. Projections have it pushing back into surplus for a couple years until, in 2016, it dips back into deficit forever. “No problem,” the increasingly dense author of the article says, “There’s a trust fund”. Yeah… a trust fund held in US debt. The SS trust fund buys up US debt, which the government pays back regularly, so it’s a pretty safe asset. That trust fund should last for a while, but eventually we will be paying Social Security returns to older investors (the elderly) from their own money or money paid by newer investors (the younger generation).

That is the definition of a Ponzi scheme.

8 ) Government spending is good for the economy

Here the author talks about how the government spends so much on infrastructure, roads, airports, schools (in an ideal world these things are all good for the economy) but only a “small part of the government’s budget” is for welfare and foreign aid. I’m kind of funny inasmuch as I think that 60% of our budget is not a “small part”. (I’m counting SS, Medicare/Medicaid, Health and Human Services, Housing and Urban Development, and “other” mandatory programs. But not interest on the debt.)

Roads and schools? (Transportation and Education) They account for 3.3% of the budget. Since welfare and foreign aid are such a “small part” of the budget, the author won’t mind if we get rid of it. I’d be delighted if we reduced the other parts of the budget so that Transportation and Education made the bulk of it.

Overall, the author targets builds up conservative strawmen of “lies” and then uses liberal strawmen (and selective data) to “prove” them wrong. This article is nothing more than red meat for people who already agree and don’t have time to do the research themselves. It’s sloppy, lazy, angry and impotent. And, worst of all, it spreads disinformation. Hopefully this post is something of an antidote.

(Note: There are few links here because this data is so easily available and I’m in a crunch time at work.)

Not All Money Is Created Equal

I had a thought last night that, what with tax season coming right on up, it would be fun to do a visualization of income and tax distribution. So I wandered down to the CBO and grabbed this document and turned it into a visualization. Sadly, their latest data is pushing 4 years old, so I’ll probably have to update it sometime soon.

(click for the full resolution image)

If you’d like to use a low res version of this chart in your own blog, this one has just the shapes and very little text, so it scales better smaller more better readability. The information here is kind of blunt… I’m sure there are several variables I haven’t accounted for. But this is a pretty accurate portrayal of the data at the CBO (unless I did a calculation wrong).

I wanted to do this because I get really sick of people who say things like “The top 1% of income earners pay 27% of the taxes.” Unless you believe that someone who makes $15K a year should pay $20K in taxes, that is a very silly statement. If the top 1% of income earners make 27% of all the money, it would be perfectly reasonable for them to pay 27% of all the taxes.

That’s why I wanted to make this chart. I want to be able to communicate in a single image how much the top (and bottom) earners make as well as how much they pay in taxes. The thing I think this chart brings out is that we have a progressive taxation system that does not treat all money equally. (Some may bristle that I just called our taxation system progressive, but I’m going to stick by that description. It may not be as progressive as some wish it was, but it is progressive.)

If you earn between the 80th and 90th percentile, you’re the closest we come purely equitable income taxation. That group makes 14% of all the money and pays 14% of all the income taxes.

A tax system that treated all money equally (like a flat tax) would look something like this:

In this system, dollar number ten million and one made by a hedge fund manager would be taxed at the same rate that a dollar made by a single mom earning minimum wage at a fast food restaurant. Every new dollar made would be “created equal” under the tax law. Such a system would probably reduce compliance costs as well, although I imagine it wouldn’t be particularly popular. “Let’s tax the poor more so that we can tax the rich less!” doesn’t sound like a winning campaign.

And, just for fun, I created the “pure socialism” model of this chart as well.

Of course, pure socialism is pretty silly, so this would never happen. Reason one is that, if everyone made the same amount of money, we wouldn’t have quintiles or “the top 1%”. It would just be a blob.

And it wouldn’t make any distinction between people who work hard and people who are lazy. As Penn Jillette has stated (I’m paraphrasing), “laziness is a perfectly valid life choice”. Life gives us all sorts of things to trade off with. Some people trade money (or the potential of earning money) for hanging around the apartment playing video games. Nothing wrong with that. But I don’t mean to get off on a “socialism is really silly” tangent.

I just hope that these charts are helpful and fun. Feel free to steal (with proper attribution).