From Vox: Lots of stuff on federal taxes

This might be worth perusing in 2305. Its a series of slides explaining different issues associated with federal taxes. Much of this information is contained in the sections on budgeting and economic policymaking.

- Click here for it.

They answer basic questions about the variety of taxes collected at the national level.

This looks provocative also: |

- The greatest trick the rich ever pulled was making us believe they pay all the taxes.

From the Congressional Budget Office: The Budget and Economic Outlook: 2014 to 2024

Prior to the presentation of the president's budget to Congress, the Congressional Budget Office is required to release a document projecting the budget 10 years into the future - which also requires that it estimate what the economy is likely to be like during that period of time.

Here is a link to the recently released document:

- The Budget and Economic Outlook: 2014 to 2024


Here the two key graphs in the report:




 


Here's what they have to say about projected revenues:

Federal revenues are expected to grow by about 9 percent this year, to $3.0 trillion, or 17.5 percent of GDP—just above their average percentage of the past 40 years (see the figure below). Revenues were well below that average in recent years, both because the income of individuals and corporations fell during the recession and because policymakers reduced some taxes. The expiration of various tax provisions and the improving economy underlie CBO’s projection that revenues will rise sharply this year. Those factors will increase revenues further in 2015, with CBO’s baseline showing another 9 percent rise. After 2015, revenues are projected to grow at about the same pace as output and to average 18.1 percent of GDP under the current-law assumptions of CBO’s baseline.

And here's what they have to say about projected spending:

Federal outlays are expected to increase by 2.6 percent this year, to $3.5 trillion, or 20.5 percent of GDP—their average percentage over the past 40 years. CBO projects that under current law, outlays will grow faster than the economy during the next decade and will equal 22.4 percent of GDP in 2024. With no changes in the applicable laws, spending for Social Security, Medicare (including offsetting receipts), Medicaid, the Children’s Health Insurance Program, and subsidies for health insurance purchased through exchanges will rise from 9.7 percent of GDP in 2014 to 11.7 percent in 2024, CBO estimates. Net interest payments by the federal government are also projected to grow rapidly, climbing from 1.3 percent of GDP in 2014 to 3.3 percent in 2024, mostly because of the return of interest rates to more typical levels. However, the rest of the government’s noninterest spending—for defense, benefit programs other than those mentioned above, and all other nondefense activities—is projected to drop from 9.4 percent of GDP this year to 7.3 percent in 2024 under current law.

The report contains some controversial predictions about the impact of the ACA on the number of jobs in the economy. It argues that a variety of responses to the law's requirements will lead to a reduction of over 2 million jobs by 2012. The White House and congressional Republicans are arguing over what this means for the laws merits.

- see this Washington Post story for greater detail.

Are Republicans winning the battle over spending?

Looks like it.

What is a continuing resolution?

The NYT provides an overview of the politics associated with the continuing resolution just passed by the US House. The one that also cuts funding for ObamaCare.

But first - what is a continuing resolution (also referred to as continuing appropriations) and why do they matter?

Here's a definition from the US Senate website:

continuing resolution/continuing appropriations - Legislation in the form of a joint resolution enacted by Congress, when the new fiscal year is about to begin or has begun, to provide budget authority for Federal agencies and programs to continue in operation until the regular appropriations acts are enacted.

It all comes down to the budgetary process in the US, and that fact that the Constitution stipulates that money cannot be drawn from the Treasury unless it has been appropriated by law - the is the Appropriations Clause.

Both the House and Senate have Appropriations Committees that oversee this process.

Aside from that - as we will soon see - there is nothing in the Constitution about a budgetary process. One only began to be established in the early years of 20th Century when efforts were made - driven by progressives - to professionalize the governing process. This includes the establishment of Budget Committees in the House and Senate. They are in charge of determining how Congress wants funding to be directed - sort of - because some funding is mandatory. This is referred to as the authorization process of the budgetary process. We will cover this soon enough.

- Here's the Wikipedia on the US budget process.

But none of this really matters here. What matter is the appropriations process and the fact that we are near the end of the fiscal year. What is that? Again, from the Senate:

fiscal year - The fiscal year is the accounting period for the federal government which begins on October 1 and ends on September 30. The fiscal year is designated by the calendar year in which it ends; for example, fiscal year 2013 begins on October 1, 2012 and ends on September 30, 2013. Congress passes appropriations legislation to fund the government for every fiscal year.

- Click here for a CRS report on the process.
- And here for another CRS report - a bit more thorough.

We are coming up on the end of the 2012-2013 fiscal year. That's what the media really refers to when it says that the US government is about to run out of money. In theory, the new fiscal year 2013-2014 cannot begin, or at least money for that period cannot be drawn from the Treasury, unless appropriations bills are passed. These are to provide funding through the next fiscal year.

As we will see when we discuss the budget, this seldom really happens. Conflicts over spending usually result in these bills not being passed in time. So how does the US government get the money it is required to spend due to existing law?

From the continuing resolutions. These are bills that provide short term funding for government when the appropriations bills are not passed. So what the House passed was such a bill, but with a condition - that funding for Obamacare be terminated - which won't happen of course.

We'll follow this over the next couple of weeks. Since war does not appear to be likely with Syria - this is the most exciting stuff we have going on.

CBO's Updated Budget Projections: Fiscal Years 2013-1023

The Congressional Budget Office revises the estimates it made 4 months ago. The deficit is projected to stabilize as a percentage of GDP - in the next few years - around 21%. Wonkblog comments here.

Some random items on the Obama Budget

- The NYT has a chronology of the budgetting process so far this year.

- And a graphic which compares a variety of budgets, including Obama's.

- The NYT states this proposal puts entitlements on the table.

- The Washington Post points out that it spends far more on the elderly than on the young.

- Yahoo News runs through some of the more unusual tax increases it proposes.

- Democrats are concerned that cuts to Social Security will hurt them at the polls in 2014.

US Gross Domestic Product - 2012

For this week's look at the US economy and the budget:
According to the Bureau of Labor Statistics. the US GDP at the end of 2012 was just under $16 trillion - $15.864 trillion.

If you need a refresher on what the GDP is click here. Some of the figure we will be looking at regarding the budget are set in percentages of GDP. It might be helpful to know what that figure is.

For more detail:

- Trading Economics.
- Google Data.
- US economy climbs off the mat.

From Wonkblog: Everything you need to know about Chained CPI in one post

Here's a great opening:

Here is a sentence you won’t hear politicians or policy wonks saying in the next few weeks: “We should pay Social Security beneficiaries less in the future and push a lot of people into higher tax brackets.” Here is a sentence you almost certainly will hear: “Let’s adopt chained CPI.”

Welcome to the dark art of obscurantist deficit reduction. Of course, the only ways to cut the deficit are by increasing tax revenue (either through higher rates, fewer deductions, or faster growth) or cutting spending. But both of those methods are unpopular. So, to get any support for their plans, politicians who insist on cutting the deficit have to find ways to cut spending or raise taxes that don’t look like they’re doing just that. Perhaps the most popular option along these lines is adopting “chained CPI.”

Then the author decribes the different ways inflation can be measured and the struggle over which to apply to Social Security:

Here’s how it works: Numerous government programs, most notably Social Security benefits and the income thresholds for tax brackets, are indexed for inflation. But inflation can be measured in a number of ways. The tax code, for instance, uses CPI-U (Consumer Price Index – Urban), which measures prices for consumers in urban areas, to adjust the income cutoffs for different tax brackets. Social Security uses CPI-W, which is like CPI-U but only counts prices paid by urban wage-earners, not all consumers.

Various deficit-reduction frameworks, including Bowles-Simpson, Domenici-Rivlin and the Gang of Six plan, would convert all programs using CPI-U or CPI-W to a third measure — called C-CPI-U, or chained CPI. Most inflation measures, including CPI-U and CPI-W, track the price of a certain basket of goods. That basket could include, say, a year’s supply of propane. When propane costs go up, CPI-U and CPI-W include that as an increase in the cost of living.

But some people would just stop using propane if its price went up. They’d switch to electric heating, or a geothermal system, or a wood stove. So their actual heating costs wouldn’t go up as much as CPI-U and CPI-W would suggest. Chained CPI attempts to take “substitution effects” like this into account. Thus, its number generally rises more slowly than other metrics.

Obama releases 2014 budget

From the Washington Post:

President Obama unveiled a 10-year budget blueprint Wednesday that calls for nearly $250 billion in new spending on jobs, public works and expanded pre-school education and nearly $800 billion in new taxes, including an extra 94 cents a pack on cigarettes.

But the president’s spending plan would also cut more than $1 trillion from programs across the federal government — for the first time targeting Social Security benefits — in an effort to persuade congressional Republicans to join him in finishing the job of debt reduction they started two years ago.

. . .In his fifth annual budget request to Congress, Obama walks a fine line between reassuring voters anxious about the sluggish economy and facilitating compromise with a GOP that remains fixated on the dangerously high national debt.

Obama’s written message to Congress calls a growing economy the “North Star that guides our efforts.” To that end, his budget seeks $50 billion in new cash for roads and public works, $1 billion for 15 new institutes to promote innovation in manufacturing and $77 billion to make free, public pre-school available to 4-year-olds nationwide.

The cost of those initiatives would be covered through spending cuts and new revenues, including placing a $3 million cap on the value of individual retirement accounts and raising the federal cigarette tax from $1.01 to $1.95 per pack.

Meanwhile, the budget continues Obama’s outreach to Republicans by converting the private debt-reduction offer he has been making for months to GOP leaders into a formal proposal. That package proposes to replace the sequester — $1.2 trillion in deep, automatic spending cuts that took effect March 1 — with $1.8 trillion in alternative policies.

Here's a link to the document.

From the Fiscal Times: 5 Things You Must Know About Our National Debt

This is as good a place as any to get a handle on the national debt, the issues associated and the conflicts over what to do about it and whether it is a pressing economic problem, or simply a political issue.

We will unpack the nature of the debt - what it is exactly - soon enough, but to get a look ahead click here and here. 

We will also later discuss how the debt is incurred. Put simply, the US gets into debt when it needs to sell treasury bonds to pay for items that it is obligated to pay for by law, but that we do not have the tax revenue to pay for. These bonds are offered in the open market at rates determined somewhat by the market (we'll wade into details soon enough). If the market consideres these bonds to be safe, the interest rate is low. If the market considers the bonds to be risky, the interest rate is high because that will guarantee the bonds holders will make money on the bonds even if they might be defaulted.

The question is this: When does the nature of the debt start to convince bond hoders that treasury bonds are risky? What is that level? Can we determine this ahead of time and adopt strategies to deal with it?

The article pooints out that a central dispute right now concerns goals. Should the gal right now be to pay down the debt, or to stabilize it? Democrats prefer the latter, Republicans the former. Much of the controversy right now over budget plans comes down to that dispute. Republicans are more likely to say we are at crisis levels, Democrats are not.

So while there is a shared assumption that excessive debt is not good for the nation and can suffocate the private sector, there seems to be no consensus among economists on what level of debt does so.

Right now the debt is 76% of GDP - which is double the historic rate of 39% of GDP. What debt to GDP ratio pushes the US over the edge? What is the tipping point? Soon after WWII, the debt to GDP ration was around 120%, but was quickly paid down.

The author toys with the problems posed - possibly - when the ratio hits 80% or 90%. We don't really know what the result is because if we cut spending right now when the economy is still struggling. Debt can be caused by a slow economy since it will not create the revenues that allow for the debt to be paid down. this is the argument against austerity. Paying down the debt prematurely can hamstring the economy which leads to greater debt.

The author states that it matter who holds the debt. Some of our debt is held domestically, by Americans. But some is held by foreigners, which creates risks. In Japan, most of their debt is held domestically so their 220% debt to GDP is tolerated. That might not be the case with US debt.

The author concludes by stating that bondholders need to have some level of trust in the ability of elected leaders to handle crises effectively. Stable debt to GDP ratios means nothing if levels of trust are low. 

Obama to release budget this week

But since its been leaked to the press - or at least some version of it was - commentators have been picking it through. The Washington Post describes what it's seen, click here for it.

President Obama will propose a budget next week that embraces a risky strategy of courting Republicans for a grand bargain on the debt while angering Democratic allies with cuts to the nation’s entitlement programs.

White House officials said Friday that Obama’s budget would cut Medicare and Social Security and ask for less tax revenue than he has previously sought. The budget, to be released Wednesday, will fully incorporate the offer Obama made to House Speaker John A. Boehner (R-Ohio) during December’s “fiscal cliff” talks — which included $1.8 trillion in deficit reduction through spending cuts and tax increases.

It's been criticized by Democrats of being too centrist. Concessions that might have been made after negotiations have been offered as a starting point, so there are concerns about where this might ultimately end up.

The cuts to Social Security will be made by adopting a "chained CPI" as an adjustment to benefits. Wikipedia has a section on it - of course - click here for it. I'll post separately about it, but there is a hunch that the current CPI (cost of living) formula overstates inflation, so Social Security beneficiaries are receving too much in benefits. This will adjust those changes downward - which is already unpopular. The left is not pleased at the moment.

Tax increases are to come from limits on tax deducations and closed loopholes for industries - including oil and gas - so expect pushback from the Texas delegation. Limits on tax deductions will affect households earning more than $250,000. A 28% cap is proposed to be placed on total deductions.

Wonkblog might be the best place to start getting a handle on its content, Obama's strategy and links to additional sources of information about it.

Click here for content:

The upside of this strategy is clear: Obama gets “caught trying” on a budget compromise. House Republicans have put forward a series of extremely conservative budget proposals that show no interest in a compromise. Senate Democrats have a more modest plan, but one that doesn’t include any notable concessions to Republicans. Obama will position himself in the middle. His budget will incude high-profile concessions to Republicans — though he will emphasize that he’ll only accept those concessions if they come with significant new revenues. No one will be able to say he isn’t trying to reach a deal, and the cries from liberals will prove that he’s forcing his base to accept very tough medicine.

Expect lots of charts and graphs. We're heading into the budget soon so the numbers will start to fly. 

Vote-A-Rama begins

The Senate has begun voting on a series of amendments - 400 apparently - to the budget.

Click here for a live blog of the vote.

The Hill provides background:

After getting off to a late start, the Senate finally began its much-anticipated budget "vote-a-rama," the free-wheeling process by which senators can seek an unlimited number of amendments to the 2014 budget bill. Senators were scheduled to start at 3 p.m., but began the process at 3:45 p.m. 

Majority Leader Harry Reid (D-Nev.) started the day by urging members to limit amendments to the typical 25 to 35 that are normally seen during these votes. But the pent-up budget frustrations on the part of Republicans, after four years with no Senate budget process, could lead them to push for more. 

Consideration of amendments is the penultimate phase of budget work for the Senate. Once all requests are considered, the Senate hopes to pass it either late tonight or possibly in the early hours of Saturday morning.

But before then, amendments could be called up on any number of subjects that have been the subject of debate over the last several months. Amendments have been filed on the legality of drone strikes against Americans on U.S. soil, cutting taxes, ending offshore tax havens, repealing the healthcare law, gun control, immigration and even withholding the pay of White House officials if the budget is late.