The Congregational Budget Office (CBO) is out with its annual report. It’s a blockbuster. This 165 page monster is filled with dozens of charts, graphs and detailed projections. It will be talked about for weeks. The report provides a dismal outlook for the economy. There is one data point I’d like to focus on.
Here is the CBO forecast for real GDP for 2012 and 2013:
The 1.1% Real GDP number for 2013 surprised me. The CBO’s expectations are way under those of both the “Blue Chip” economists and the Federal Reserve:
What does it mean if the economy is going to slow, as CBO now thinks? Some consequences:
The CBO now forecasts Social Security to run into trouble in just a few years. This is a very substantial change in the outlook for SS. Changed fortunes make it certain that America’s favorite entitlement program will be on the table for a significant re-vamp.
The CBO has answered two critical question:
1) In what year does SS first goes into deficit (including interest)?
2) What is the size of the SS Trust Fund when #1 has been achieved?
Key data is here:
Wait for it!! “It’s Bush’s Fault”, “It’s the Republican’s Fault”, my policies haven’t been fully implemented yet, It’s anyones fault but mine!! 0-bama will not take any blame for any failures he has created. He has made his campaign strategy clear: Distort, Distract, and deceive. Don’t expect him to be running on his record because clearly that’s a loser. He said it best when he said any President who runs the National Debt up to $9 trillion is unpatriotic. OK, then any President who runs it up to $16trillion and climbing is treasonous!! Yep I’m pointing my finger and for all you wimpy liberal wachos who are offended I got an idea!! Blame your Messiah 0-bama!!
It has been a long-running joke that the first report of the GDP for each quarter is an over-estimate by a large margin.
That makes the big headlines.
Then, like the Friday night document dumps we have come to expect from Obama’s administration, the real GDP quarterly numbers, adjusted to REALITY come out as quietly as possible.
Remember that the CBO’s numbers can only be generated based on the data given them by the garbage in the bills.
Like ObamaCare and the ”doctor-fix,” that never really happens.
But the CBO’s numbers count on it happening.
Remember, too, that the CBO’s numbers are based on only current law…..if anything changes, for the bad or for the good……the CBO would have to re-jigger the whole thing.
I love the CBO’s assumption that tax revenues will rise because people will blithely take raises to adjust for inflation while not doing anything to protect their new higher income from that next tax bracket!
RIIIIIIIIIIIGHT!
NOT!
I read through the whole thing yesterday. The trends are disturbing to say the least. They estimate mandatory spending to climb slowly to 14% of GDP, discretionary spending (of which half is defense) to decline from 9% to 6%, and interest on the debt to rise from 2% to 3% (I guess they figure despite printing $trillions our lenders won’t demand that we pay interest rates sufficient to cover inflation). But the good news is the deficits shrink because of a very large and hard-to-believe increase in income tax receipts! Yep, income taxes are expected to go from 7.3% to 11.5% of GDP, while payroll taxes remain at 6%, corporate taxes at 2%, and all other taxes at 2%.
I spent quite a bit of time analyzing the “tax expenditures” section, which is unfortunately not detailed enough in some areas. Piecing together the information there with information from other sources I came up with the following estimates (all numbers %GDP):
2.0% Bush tax cuts for "the 99%" (estimated from NYT article circa late 2010)
1.8% employer health care tax preference
1.1% retirement plans (pensions, 401k, IRAs)
0.8% home mortgage deduction
0.4% Bush 35% top tax rate (estimated from IRS data)
0.4% capital gains tax rate (Clinton era)
0.1% Bush 15% capital gains tax rate (adds to above)
0.3% state and local taxes deduction
0.3% charitable contribution deduction
0.1% estate and gift taxes
?? AMT patch
Some conclusions from this:
1. The hand-wringing over the capital gains tax preference is much ado about little revenue. Bush’s contribution is 0.1%. Can even liberals agree that the motive for raising this tax rate isn’t to generate serious revenue?
2. Can we agree that, at 0.1% of GDP, the death tax isn’t about revenue either? And if we’re not trying to generate revenue, why accept all the negative economics that avoidance of this tax causes?
3. Can we please lay to rest the myth that the Bush tax cuts went primarily to “the wealthy” when 80% of the revenue impact is lower rates for the 99%? This myth is based on spinning the individual impact, which of course is higher if you’re paying more tax, to make it sound as if we ran large deficits to line the pockets of fat cats. The reality of tax preferences is that anything divided by a large number of people ends up having poor leverage – just look at the payroll tax cut which shorts Social Security by 1/3 to give the average worker $40/week.
As a side note, if anyone has any data about the “cost” of the AMT patch I’d like to have it to complete the above picture – my suspicion is that it’s yet another case where a horrific complexity is perpetuated for not much dough. Also, if anyone has revenue estimates for the odious medicare investment surtax (part of the health care law due to hit in 2013) I’d like to have those too – my intuition is that it’s another nasty complexity that will raise very little revenue. Along the same lines, estimates of the STOU AMT 2.0 (the 30% millionaire rate) is that it will raise $30 billion / year, or about 0.2%. On the expense side, in case anyone cares, the “doc fix” costs about 0.1% of GDP – it barely makes a dent in the deficit and yet we can’t agree to make it permanent and move on?
I wish people would get engaged on at least understanding the basic math behind both the dreadful expenditure projections and the revenue sources. Where, IMO, the Democrats are weak on taxes is that they seem to be focussed on social engineering and not on revenues. Is the goal of the tax system to punish success or force social outcomes deemed desirable by politicians? Or is the goal to raise revenue to fund the government in a fair manner and with as few negative economic consequences as possible?
@Doug:
Doug,
Great analysis.
Unfortunately, Obama is not appealing to folks who think.
He is mouthing his ”fairness” garbage to those who only FEEL.
Like the OWSers who will be heading the nationwide riots as soon as it is warm enough.
(It was already warm enough in Oakland.)
I’m already seeing ads on the financial media about funds that can give great returns without any capital gains.
@Doug:
Doug, I second Nan’s comment. Great analysis. And even better questions at the end.
IMO, of course the liberal/progressives are more worried about “social engineering” than in actual revenues. This is what fuels the “Occupy ——” movements. This is what fuels the stupid apples/oranges comparison between Buffet’s tax rate and his secretary’s tax rate.
And regardless of how loud or often their protestations may be, the liberal/progressives do so acting out of pure envy. Hence, their hate-filled rhetoric about corporations being “evil” and “greedy” and wishing things upon them that would make even the most violent criminals cringe.
It’s all about social engineering. Can someone remind me the last time social engineering led to a prosperous country?
If Obama is put back in and or has his party in position to have any influence on our country and the economy, it is a very serious disaster. Unfortunately, if the Republican party force Romney down our throats, I fear it is not going to get much better and then we will hear the Republican Party is the cause of all our ills. We need to have some who knows the system and has as much against the republican establishment as the democrats and who knows how the system works. That is Newt with all his history and flaws. I think he will radically change a lot of what is going on and that is why those in power want to see him stopped. Lets face it, when it really goes left, the rich and powerful will have a great opportunity to get even more wealth and power. Vote Newt.