Austerity

What Austerity Looks Like in 2013: Taxes Up 14%, Spending Down 4%

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The Congressional Budget Office (CBO) has run the numbers for the first nine months of fiscal year 2013, which started on October 1, 2012. The results?

Receipts From October Through June: Up by 14 Percent Compared With Collections During the Same Period in Fiscal Year 2012

Outlays for the First Three Quarters: Down by 4 Percent (Adjusted for Timing Shifts*) Compared With Spending During the Same Period in Fiscal Year 2012

In dollar amounts, spending is down year over year by $119 billion so far while tax revenues are up by $263 billion. (*: "Timing Shifts" refers to quirks of the calendar, such as when estimated tax payments and payrolls fall; adjusting for them ensures that year-over-year comparisons are accurate.)

Remember the boasts that President Obama used to make about cuting $2.50 in spending for every new dollar of revenue? Or when Republicans would talk about keeping spending flat or declining while holding the line on taxes? Forget about all that. Instead, the first nine months of fiscal 2013 have seen a better than 2-to-1 boost in taxes versus spending cuts. CBO says the revenues hikes come from the end of the Social Security tax holiday and the bumps in rates that kicked in under the fiscal cliff deal back in December. The spending cuts are from the sequester.

The budget deficit through the first nine months of fiscal 2013 is $512 billion, which is good only in relation to the red ink spilled during the same period in fiscal 2012 (which totaled over $900 billion).

Here's a question for the anti-Austerians, those folks who say that the proper response to recessions and slow-downs is for the government to ramp up spending: Are they pissed off that the government is sucking 14 percent more out of an economy that is inevitably described as weak, shaky, and the like? They should be, since those dollars are not even going to supposedly stimulative activities.

As we've noted here before, there's good austerity and bad austerity. The good (read: effective at reducing debt-to-GDP ratios and not crashing an economy) focuses on cutting spending, liberalizing labor laws, reforming entitlements, and either keeping taxes flat or reducing their drag on economic activity. The bad (read: what has generally been tried in Europe over the past few years) involves raising taxes while increasing spending or barely trimming it. That one-two punch stretches out recovery by diverting money and decision-making out of the private sector where it's more likely to benefit more people. All austerity is not created equal and it's clear that austerity which relies on tax hikes more than spending cuts almost always comes a cropper. That's not to say that cutting spending will automatically boost economic growth (though it has at times), but there are real benefits to long-term economic growth to making the sort of structural reforms that form the core of successul austerity packages.

While we're talking spending, austerity, and debt-to-GDP ratios, it's worth revisiting the controversy from a few months back about "debt overhangs." According to economists Carmen Reinhart and Kenneth Rogoff, "debt overhang" occurs when the debt-to-GDP ratio is greater than 90 percent for five or more consecutive years. In a highly influential 2010 paper, Reinhart and Rogoff found that such episodes depressed future economic growth for years by -0.1 percent. In April, researchers affiliated with the University of Massachusetts at Amherst discovered a coding error in Reinhart and Rogoff's data, re-ran the numbers and concluded "the average real GDP growth rate for countries carrying a public-debt-to-GDP ratio of over 90 percent is actually 2.2 percent, not -0.1 percent."

Which is to say that U Mass folks came up with numbers that correspond almost exactly to what Reinhart, Rogoff, and Vincent Reinhart found in their April 2012 paper, "Debt Overhangs: Past and Present." Looking at 26 debt overhangs in 22 advanced economies since 1800, "The authors find that on average, debt levels above 90 percent are associated with growth that is 1.2 percent lower than in other periods (2.3 percent versus 3.5 percent)."

Given that episodes of debt overhang last for decades—"20 of the 26 episodes lasted more than a decade," write Reinhart, Rogoff, and Reinhart, "and the average duration of debt overhang episodes in the sample is 23 years"—the cumulative loss in economic growth is "nearly a quarter below that predicted by the trend in lower-debt periods."

At the end of March, total debt-to-GDP (which includes debt held by the public and intra-governmental debt) was 105 percent.

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  1. Raising taxes stimulates the economy, duh!

    How else can we stop people from clubbing seals?

    1. If we could get seals to start clubbing though, now that would be stimulus.

  2. I frankly can’t believe spending is down even 4%. Given the history of the last fifty years, that is almost miraculous.

    One small point

    Receipts From October Through June: Up by 14 Percent Compared With Collections During the Same Period in Fiscal Year 2012

    Receipts are not tax rates. Saying “taxes up 14%” implies that everyone’s tax rates went up by 14%. That is not what the report says. The report says the government is collecting 14% more money. That may be the result of tax rates increasing or it could also be the result of the economy doing a bit better and the government collecting more money under the same tax rates or somewhere in between.

    More importantly, the two numbers really have nothing to do with each other. Just because revenue went up by 14% doesn’t mean spending should go down by 14% or 30% or none at all. If revenue were flat, spending should still go down. The idea that receipts are rising faster than spending is being cut, doesn’t really mean much.

    Here is what austerity should look like “fuck you cut spending”. If receipts also go up, that means we pay off our debts a little faster. The 4% cut is the important number, which objectively sucks, but on the grade on the curve scale of our current government is surprising. I wouldn’t have guess it was that high.

    1. I frankly can’t believe spending is down even 4%.

      That’s because it isn’t. Remember, it’s only down 4% from what they were going to spend this year; I don’t have the info handy nor the time to research it, but I suspect spending is actually up year over year.

      1. No. That is not the case. That is what I thought too. But read the quote.

        Outlays for the First Three Quarters: Down by 4 Percent (Adjusted for Timing Shifts*) Compared With Spending During the Same Period in Fiscal Year 2012

        It is down in actual terms this year compared to last. It doesn’t say “down 4% compared to projected spending”. It says “down for percent compared to THIS POINT IN FY2012”. That means it is actually down, not increasing less.

        1. (Adjusted for Timing Shifts*)

          Every time I see an “adjustment,” I immediately assume someone’s full of shit somewhere.

          1. No, That is adjusting for the way money is spent during the year. That is not adjusting for “projected increases”. The budget isn’t spent and taxes are not collected uniformly throughout the year. So spending and the deficit in a given month can’t just be projected out as a year end total. For example, a lot spending occurs in April as people get their tax returns back. There are all kinds of quirks like that. All the asterisk means is that the figure adjusts for that to come up with a real figure of what the year end spending and deficit totals are going to be.

            1. Right, I completely understand, I’m just saying that once some asshole has “adjusted” the numbers, you have no idea what their method of adjustment was nor which data was included or not included. Are you counting half-finished projects that the bill hasn’t come due for yet? Who knows. It leaves the option open to create a news story and have a lot of celebration about it, then when the real bill hits you can bury the story with no real mention. “Oh woops, we forgot that we had to spend that 500 billion. Oh well.”

              Not trying to argue here John, but “adjusting” is how these assholes try to make things look good for whoever they want. Just give us actual numbers and let *me* deal with them.

              1. Nah, I think spending is actually down. The CBO puts these sorts of numbers out for a living. And they generally get them correct.

                1. You mean like they got Obamacare correct?

                  Sarcasm intended.

                  1. They did get Obamacare correct and Congress told them to change their assumptions and try again. If you have evidence that that is going on here, I would like to see it.

                    The reason why the Obamacare thing was so memorable is because the CBO is otherwise so reliable. This is a simple figure. it is a figure they do every single year and month. Moreover, this is not projecting the future. It is simply counting what has happened. It is a little harder to fake that than it is to change your projections of the future.

                    It is what it is and almost certainly correct.

                    1. Moreover, this is not projecting the future. It is simply counting what has happened.

                      Counting, and adjusting

                      See why I might be skeptical here?

                      Someone, somewhere is telling them how to adjust, specifically, and they didn’t use the phrase “timing adjustment.” I am skeptical of that person’s motivations, and I’m skeptical of how they affected the outcome.

                    2. Note, skepticism should not be confused with cynicism in this case.

                    3. Here’s what I don’t understand:

                      If you are doing year-over-year comparisons, what do you need seasonal or timing adjustments for?

    2. Saying “taxes up 14%” implies that everyone’s tax rates went up by 14%.

      No it doesnt. “Taxes up 14%” is pretty clear. It should say “tax revenue up 14%” for maximum clarity, but from context it was pretty clear.

      “Tax Rate up 14%” would mean what you are saying.

    3. I frankly can’t believe spending is down even 4%. Given the history of the last fifty years, that is almost miraculous

      I don’t think it is. I looked at the Treasury statement through May (granted, June might be different), and found that total outlays were 2.426 trillion this year, and 2.402 trillion last year, with a total deficit of $626 billion. The deficit is quite a bit lower (about 25% lower) than last year at the same time period.

      I looked up the Social Security numbers to see what impact the tax increase had on that total figure, and it shows a $59 billion increase. So about 25% of the current difference in the deficit was due to just that one change. There is also a HUGE jump in April reciepts y/o/y in FY13; Dec and Jan were slightly higher, but we’ll have to see how June and Sept shakes out.

      http://www.fms.treas.gov/mts/mts0513.pdf

      1. Oh, and here’s a fun fact: the deficit for Medicare/Medicaid receipts and outlays is over $600 billion.

  3. Under White House projections, this year’s inherited budget deficit of $1.3 trillion will be cut to $533 billion by fiscal year 2013, the end of the first term.

    “So we’ll cut it at least in half,” the official said.

    Read more: http://www.politico.com/news/s…..z2YkoWqBHT

    Gillespie: The budget deficit through the first nine months of fiscal 2013 is $512 billion

    Missed by a year.

    1. Not even you are so stupid as to equate 9 months with a year.

      1. The final fiscal quarter is a light spending one = $650 billion is in the bag for the year.

        1. You mean that horrible sequestration that Obama didn’t want and told the country would cause the apocalypse? You mean that?

          Your slurping Obama’s cock is funny as a comedy act like one time. But it is not funny a thousand times.

        2. The final fiscal quarter is a light spending one = $650 billion is in the bag for the year.

          Which is still a pretty fucking far cry from $533 billion. Missing by 18% would be considered pretty fucking pathetic in any industry outside government.

          It’s also worth pointing out that about 600 billion of that “inherited” deficit was non-budgeted “emergency” spending approved while Obama was signing the bills.

          1. Not true. The CBO stated the 2008-09 deficit would be $1.3 trillion while Bush was still in office.

            1. Except the Democrats felt they were going to win the Presidency and decided to not give the President a budget to sign. Instead he just signed CRAs. Obama signed that budget.

              So your argument is that Bush should get ‘scored’ on a year the Congress didn’t even see fit to send him a budget. In similar fashion, I just gave you an F in Chemistry.

        3. The final fiscal quarter is a light spending one = $650 billion is in the bag for the year.

          As of the end of May, the current deficit is $626 billion.

          http://www.fms.treas.gov/mts/mts0513.pdf
          page 19

    2. God you are a lying fucking moron. Those projections were based on policies that were never implemented. The budget deficit is down because retard lost Congress and the Republicans forced him to do a bunch of things he didn’t want to do.

      What you are saying in between slurping Obama’s cock is that Obama once fantasized about cutting the deficit and thanks to losing the House and being forced to do a bunch of things he didn’t want to, the deficit went down.

      1. Quit lying John. I posted facts from Politico.

        (but then you would have nothing)

        1. I posted facts from Politico.

          AHAHAHAHAHAHAHHAHAHAHAHAHAHAHAHAHAHH

        2. LOLOL

          You just posted that Obama projected the budget deficit to go down. But you never mention that the fact that it is going down, had nothing to do with the assumptions and policies that caused Obama to say that in the first place.

          Again, Obama lied and pretended he was going to reduce the deficit. No shit. We kind of already knew that.

          I should cut you some slack. This is a case of you being so stupid an incapable of rational thought, that you don’t even understand your own talking points. You just get them from your handlers and paste them up. It is not really fair of me to actually address them to you. It is not like you have any idea what they mean.

          1. The Budget Control Act was Obama’s legislation, idiot. Senate Democrats supported it 45-6.

            1. And they then proceeded to do everything they could to get it repealed. They never wanted it. Are you so fucking stupid you think none of us remember the whole sequestration vote?

              The last thing they ever wanted was for that law to actually go into affect. The idea was to pass something they could scare the public into supporting what they wanted to avoid cutting spending.

              You really do enjoy having your nose rubbed in your own shit don’t you?

              1. Why do you respond to it?

                I really wish reasonable worked like incif did and I didnt have to see the responses to people I have blocked.

          2. I am guilty of this too, so I understand, but consider that you are arguing with someone who claims to be a libertarian, more so than any of us, yet spends all of his effort defending the most collectivist, authoritarian pres in history.

            I wonder if I could have included any more commas in that…..

    3. Am I supposed to impressed by cutting a deficit that was massively inflated in one year due to a bad recession, such that the deficit is still far larger than it was in FY 2008?

      1. Yes. You have to remember since Shreek is retarded and demented, he assumes we are too.

    4. Except Obama’s proposed budgets were never passed. And it was the House Repubs who fought for the debt ceiling debate and Budget Control Act. They also refused to move off the sequestration cuts, unlike Obama.

  4. “What Austerity Looks Like in 2013: Taxes Up 14%, Spending Down 4%”

    That is austerity in a way!

    It’s just austerity for me.

    Not the government.

  5. Alternate alt-text

    “I’m going to have to take 30% of this to ensure you pay your fair share”.

  6. “CBO says the revenues hikes come from the end of the Social Security tax holiday and the bumps in rates that kicked in under the fiscal cliff deal back in December”

    Surely the first part of that (ending the SS tax holiday) must be a huge component?

    1. I want to say the payroll tax going back up is about $200 billion, that the raising of income taxes on people over $400 k a year is about $50 billion and the various ObamaCare taxes that went into effect are about $100 billion (though some of those i think might have gone in earlier). So year a good $300 plus of the decline in the deficits have to do with the increased tax rates imposed this year.

      1. That helps with the analysis some. I guess my main point was that it wasn’t so much higher taxes on “the rich” that helped but the SS taxes.

        However, I suspect that we will be hearing something along the lines of “President Obama’s insistence on raising taxes on the super-wealthy has lowered the deficit.”

    2. Surely the first part of that (ending the SS tax holiday) must be a huge component?

      See my post above–it’s about 25% of the overall increase.

  7. They should be, since those dollars are not even going to supposedly stimulative activities

    100% WRONG!!

    Those dollars are paying for some of the last 75 stimulus packages enacted over the last 40 years.

    1. Those dollars are paying for some of the last 75 stimulus packages enacted over the last 40 years.

      Nope. We are still running a deficit so we havent even begun to pay for those yet.

      1. Yeah, paying the interest on them really doesn’t count.

  8. I want to say the payroll tax going back up is about $200 billion, that the raising of income taxes on people over $400 k a year is about $50 billion and the various ObamaCare taxes that went into effect are about $100 billion (though some of those i think might have gone in earlier). So year a good $300 plus of the decline in the deficits have to do with the increased tax rates imposed this year.

  9. So spending going down 4% means we’re spending at what, mid 2011 levels?

    Fuck you. Cut spending (more).

    1. Does this mean the “No, fuck you, cut spending” promotion worked? Huh. Maybe we should say it more often.

  10. Thanks, Nick. This is a great example of why almost every other news outlet in this country is a goddam joke.

  11. I didn’t click thru on the links but FICA went up 30% (roughly). Over at the Tax Policy Center I see that in 2012 FICA tax receipts totaled $845 billion out of $2.5 trillion of total receipts. That’s about a third. So if nothing changed EXCEPT the FICA tax increasing by about 30% you would get a 10% increase in receipts vs the 14% total (and I’m ignoring the economy/more workers, which likely pushes the 10% much close to the 14% total).

    Point being – this isn’t some ‘soak the rich’ thing. This is a soak the worker thing. EVERY worker pays more in FICA, and collectively WE are paying most of that 14%, not Warren Buffet. And recall the reporting at January 1st – 77% of households impacted by the FICA tax increase. 77%. So that means the poorest 23% of the country was exempted, right? Hardly. The 23% is a mix of retirees, the comfortable rich and the unemployed, both short term (where I have some sympathy) and long term (where I have none). In the 77% – the working poor. I can understand why the politicos have hidden this – but why the media?

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