“We have to deal with the consequences of the downturn in our economy. Food stamps, unemployment insurance, some of the initiatives you just mentioned. What the economists have told us from right to left. There is more bang for the buck, a term they use, by investing in food stamps and in unemployment insurance than in any tax cut.”Well, the economists from the left might have told her that, but economists from the right certainly disagree about the superiority of spending over tax cuts. My husband notes how Kevin Murphy of the University of Chicago and Brad DeLong of Berkley get fully different estimates going into the same model depending on the assumptions that they utilize.
And remember that all of this is being done under the argument that it will stimulates the economy in this emergency. But here is what the Director of the CBO says himself on the his blog summarizing the CBO's scoring of the House bill.
Assuming enactment in mid-February, CBO estimates that the bill would increase outlays by $92 billion during the remaining several months of fiscal year 2009, by $225 billion in fiscal year 2010 (which begins on October 1), by $159 billion in 2011, and by a total of $604 billion over the 2009-2019 period. That spending includes outlays from discretionary appropriations in Division A of the bill and direct spending resulting from Division B.He explains why he thinks that this spending will take longer than usual.
CBO estimates slower rates of spending than historical full-year spending rates in 2009 for a number of reasons:I guess Pelosi's answer would be to tell us not to pay attention to what the CBO has determined about her bill and just pay attention to those unnamed economists from right to left have told her. (Link via Marginal Revolution)* The bill’s enactment would likely occur nearly half way through the fiscal year.Frequently in the past, in all types of federal programs, a noticeable lag has occurred between sharp increases in funding and resulting increases in outlays. Based on such experiences, CBO expects that federal agencies, states, and other recipients of funding would find it difficult to properly manage and oversee a rapid expansion of existing programs so as to spend added funds quickly as they expend their normal resources. The seasonal nature of some spending also affects the speed at which activities can be conducted; for example, major school repairs are generally scheduled during the summer to avoid disrupting classes.
* Previous experience suggest that agencies have difficulty rapidly expanding existing programs while maintaining current services; the funding in H.R. 1 for some programs is substantially greater than the usual annual funding for those activities.
* Spending can be delayed by necessary lags for planning, soliciting bids, entering contracts, and conducting regulatory or environmental reviews.
* Agencies face additional challenges in spending funds for new programs quickly because of the time necessary to develop procedures and criteria, issue regulations, and review plans and proposals before money can be distributed.
UPDATE: Even Larry Summers, the President's own economic adviser warns that any proposed stimulus spending should be temporary. A lot of the proposed spending is not going to fit Summers' own criteria. What would Pelosi's response be to that?
2 comments:
So, can you give us any examples of where tax cuts have led to economic improvement?
At tax rates prevailing in contemporary North America, it seems that all the evidence goes the other way - prosperity improves when taxes are raised slightly.
But go on, provide some data that shows inflation-adjusted per-capita GDP gets bigger after tax cuts.
Biddle,
Tax cuts improve the economy by giving more people more spending power. The resulting increase in consumer confidence prompts consumer spending which leads to more jobs. More jobs means still more spending and that means increased business investment will follow and that will lead to GDP growth through the uptick in commerce, technology development, construction, etc.. Got it? Good. I'm glad to have helped you once again.
As for your challenge for supporting data, I turn to Christina Romer of UC Berkeley, who found $3 in increased Gross Domestic Product (GDP) for every $1 in tax cuts. Increased spending generates at best a mere 40 cents of GDP growth on the dollar. Third, that 40 cents actually goes to special interests like labor unions, politically influential contractors in favored industries and state and local political allies of the party in power.
Read more at the DC Examiner [http://tinyurl.com/c8qnbk]
Now why on Earth would I trust someone from Berkeley? Simple: Christina Romer is Obama’s new chief economic adviser, so she must be right. You can read her study here: http://emlab.berkeley.edu/users/cromer/index.shtml
The flip side of your two headed coin claiming that increased taxation improves prosperity is debunked by J.D. Foster, Ph.D.
Norman B. Ture Senior Fellow in the Economics of Fiscal Policy, Thomas A. Roe Institute for Economic Policy Studies. Foster says of your wish for higher taxes that "The Clinton [Tax] defense is superficially plausible, but it fails under closer scrutiny. Economic growth was solid but hardly spectacular in the years immediately following the 1993 tax increase. The real economic boom occurred in the latter half of the decade, after the 1997 tax cut. Low taxes are still a key to a strong economy".
Foster elaborates:
"President Clinton raised taxes, yet the economy grew, and grew smartly in the latter half of the 1990s. Economists have occasionally been accused of seeing something work in practice and then proving that it cannot work in theory. However, this is not the case here"
"History suggests that the economy performed reasonably well in the years immediately following the tax hike, but history is not causality, and history sometimes needs a more careful examination to tell its story faithfully. Following the tax hike, the economy performed reasonably well, but not as well as one would expect given the conditions at the time. The real economic boom came later in the decade, just when the economy should have slowed as it made the transition from a period of recovery to normal expansion. Further, this acceleration coincided to a remarkable degree with the 1997 tax cut".
"Contrasting the period immediately after the tax hike and the period immediately after the tax cut, the evidence strongly suggests that the tax hike likely slowed the economy as traditional theory suggests, and that it was the tax cut that gave the economy renewed vigor--and gave history the real 1990s boom. In other words, the CLINTON DEFENSE OF HIGHER TAXES DOES NOT HOLD UP".
I strongly suggest that you go to [http://tinyurl.com/2z4f79] and read Foster's article, "Tax Cuts, Not the Clinton Tax Hike, Produced the 1990s Boom".
Remember Biddle, "history is not causality", so do be careful when you make claims regarding tax hikes and economic growth.
But if you don't want to risk the employment of some measure of objectivity on your part then I suggest that you implore your Dem friends to raise taxes 50% across the board if you really believe that prosperity improves when taxes are raised.
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