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Economic News, Data and Analysis

Obama health plan outperforms McCain plan in coverage and efficiency

My EPI colleagues have analyzed the Tax Policy Center’s analysis of the Obama and McCain’s health are plans. Main points below…

Obama health plan outperforms McCain plan in coverage and efficiency

  • Efficiency. Over the 10-year period analyzed by the TPC, Senator Obama’s plan provides far greater “bang-for-the-buck,” spending far less per capita for its coverage of the uninsured population (see Figure A below).
  • Cost. The costs of the plans over the 10-year period are in the same ballpark: the Obama plan costs roughly $1.6 trillion, while the McCain plan costs $1.3 trillion (the Obama plan spends roughly 20% more than McCain’s) (see Figure B).
  • Coverage. The Obama plan makes a much bigger dent in covering the uninsured population. On average over the 10-year period, the Obama plan covers over 47% of the forecasted uninsured population, while the McCain plan covers less than 5% (see Figure C).

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Bivens on GDP

GDP posts a modest gain – but still not strong enough to tighten the labor market. Also look at the revision in Q4 from last year.

GDP Picture, July 31, 2008

Even with boost from stimulus, economy just limps along
by EPI economist L. Josh Bivens
U.S. gross domestic product (GDP) grew at a 1.9% annual rate in the second quarter of 2008, following growth of 0.9% in the first quarter of the year, according to a Commerce Department report released today.
While positive growth obviously is better than negative, the underlying trends in the working-age population and productivity mean that GDP growth of less than 2.5% is a recipe for job-loss, rising unemployment, and falling wages. For example, the 0.9% growth rate of the first quarter of this year was accompanied by the loss of 247,000 jobs, and the second quarter’s 1.9% growth was accompanied by a loss of another 191,000. Furthermore, wage growth for non-supervisory workers (80% of the private sector workforce) has lagged inflation in five of the first six months of this year.
Today’s report also included revisions to GDP going back three years, based on more complete source data. These revisions show that GDP actually shrank in the last quarter of 2007 (falling at a 0.2% annual rate). If anybody was taking comfort in the fact that quarterly GDP reports had yet to show negative growth, that solace is now gone.

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Holtz-Eakin vs McCain, part 2

Following on the heals of my previous post:

The Candidates’ Tax Plans: Fuzzy Math – TIME

Here is Douglas Holtz-Eakin, McCain’s chief economic policy adviser. “I used to say that Barack Obama raises taxes and John McCain cuts them, and I was convinced,” he told me in a phone interview this week. “I stand corrected.
[…]
But don’t expect McCain to change his rhetoric on the stump.

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Just Because McCain ‘Said Things In Town Halls…Doesn’t Mean It’s Official’

More fallout from the McCain tax policy bait and switch…

Wonk Room » Holtz-Eakin On $2.8 Trillion Gap: Just Because McCain ‘Said Things In Town Halls…Doesn’t Mean It’s Official’

McCain adviser Douglas Holtz-Eakin responded yesterday to a recent report by the Tax Policy Center, which found a $2.8 trillion gap between McCain’s public economic proposals and what his advisers had been telling tax experts in private.
Slate reports:

Douglas Holtz-Eakin, McCain’s chief economic adviser, says the numbers he provided to the TPC aren’t secret–they’re the same ones he provides to anyone who asks. He also disputes the way the study takes suggestions McCain has made on the stump out of context. “This is parsing words out of campaign appearances to an unreasonable degree,” Holtz-Eakin said. “He has certainly I’m sure said things in town halls” that don’t jibe perfectly with his written plan. But that doesn’t mean it’s official.


Two problems: the numbers Holtz-Eakin gave to the Tax Policy Center in their initial analysis weren’t available to “anyone who asks,” and pointing out the gaping distinctions between what McCain says on the stump and what his advisers say in private, is far from parsing.
For months, the McCain campaign had not offered specific numbers on his profligate budget proposals. In June, Robert Bixby of the Concord Coalition, a prominent advocacy group for balanced budgets, told Bloomberg news: “I haven’t received anything, and if some of the other groups have then I’ll be really ticked off…If he’s got some more complete budget proposal he can send I’d love to get it.”

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An Updated Analysis of the 2008 Presidential Candidates’ Tax Plans

The Tax Policy Center has released an updated analysis of the two campaign’s tax plans.
The outcomes are similar to the first iteration (see below) – with Obama’s tax plan reducing taxes for middle-income (quintile) taxpayers by about $1,000, which is 3 times as large as McCain’s reductions for that group. McCain’s plan would reduce taxes on those in the top 1% by approximately $50,000, whereas those at the top would see an increase under Obama’s plan.
Update: Looks like this version also examines the impact of the policies as stated by the candidates, and not just what their advisers told the TPC. For McCain, the 10-year impact is $2.8 trillion worse than his advisers described to the TPC analysts. By contrast, Obama comes out $370 billion over 10 years to the up-side (most of which comes from a payroll tax surcharge for those making more than $250,000).

An Updated Analysis of the 2008 Presidential Candidates’ Tax Plans

The two candidates’ tax plans would have sharply different distributional effects. Senator McCain’s tax cuts would primarily benefit those with very high incomes, almost all of whom would receive large tax cuts that would, on average, raise their after-tax incomes by more than twice the average for all households. Many fewer households at the bottom of the income distribution would get tax cuts and those tax cuts would be small as a share of after-tax income. In marked contrast, Senator Obama offers much larger tax breaks to low- and middle-income taxpayers and would increase taxes on high-income taxpayers. The largest tax cuts, as a share of income, would go to those at the bottom of the income distribution, while taxpayers with the highest income would see their taxes rise significantly.

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Visual CPI

Neat-o. (Though a couple months old.)
From the NYTimes, an interactive graphic: “Each shape below represents how much the average American spends in different categories. Larger shapes make up a larger part of spending.” Click on the image for full functionality.
CPI_vis.jpg

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Climate Change Economics: Orszag in WaPo

CBO director Peter Orszag weighs in on the allocation of carbon permits under a cap-and-trade regime. Orszag argues the standard economics of the program — that only with an auction can the revenue be recycled, through lower taxes or rebates. Without the auction, polluters would be able to raise prices, and be given $100 billion+ in a new tradable commodity.
While both Sens McCain and Obama support a cap-and-trade program, only Obama supports a full immediate auction.

Peter R. Orszag – Climate Change Economics – washingtonpost.com

A second way to reduce costs under a cap-and-trade program involves the method for initially distributing emissions allowances. The key questions here are whether some or all of the allowances will be sold by the government or given away — and, if they are sold, how the revenue will be used.
Cap-and-trade programs create a new commodity: the right to emit carbon. With a constraint on total emissions, allowances would suddenly be highly valuable — likely to be worth more than $100 billion per year. Selling them would provide revenue to offset some of the costs of the program. For example, revenue could be used to lower existing taxes that dampen economic activity. Following this path, the cost to the U.S. economy of a 15 percent cut in emissions might be half as large as it would be if the allowances were given away.
Another possible use of revenue from auctioning allowances is to offset the effects that higher energy prices would have on low- and moderate-income households. Although such price increases encourage greater efficiency in reducing emissions, and are thus essential to the success of a cap-and-trade program, they would impose a disproportionate burden on low- and moderate-income households. The Congressional Budget Office has found that if the allowances were sold and the revenue used to provide equal rebates to every household, lower-income households could be financially better off because the rebate would be larger than the average increase in their spending on energy-intensive goods. Alternatively, the distributional consequences could be offset by increasing the earned-income tax credit or boosting food stamp benefits.
By contrast, granting allowances free to emitters would not be well suited to reducing either the macroeconomic costs or the distributional effects of a cap-and-trade program. Businesses would raise energy prices for their customers regardless of whether the allowances were auctioned or given away. Indeed, providing free permits to energy producers and energy-intensive firms would be equivalent to auctioning the permits and simply giving the proceeds to the firms. The result would be a lost opportunity to use the money to offset the costs of emissions reductions as well as the potential creation of regressive “windfall profits” for the relatively high-income shareholders of those companies.

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“Still A Massive Tax Shelter”

Avi-Yonah sums up the problems with McCain’s expensing proposal…

Wonk Room » McCain’s Expensing Idea Revisited: Still A Massive Tax Shelter

McCain’s Expensing Idea Revisited: Still A Massive Tax Shelter»
Our guest blogger is Reuven S. Avi-Yonah, the Irwin I. Cohn Professor of Law at University of Michigan Law School.
For a while, Senator John McCain has been advocating letting corporations expense (currently deduct) the cost of purchasing business equipment. This is touted as a way of helping the economy, despite the lack of any evidence that it would do so.
Sen. McCain’s original proposal involved open ended expensing with no limitations. As I pointed out in an earlier paper, this proposal would not only “bust the budget” because of its direct cost, but it would also open the door to an immense increase in tax sheltering.
That is because corporations could borrow funds and use these funds to buy business equipment. The whole amount of the investment would be immediately deductible, as would the interest on the loan. The deductions would be larger than the size of the investment, generating extra deductions that could shield other income from taxes. Tax lawyers call this a “negative tax rate” and it is similar to the shelters that proliferated before the 1986 Tax Reform Act.
Sen. McCain has recently revised his proposal in the face of such criticism. He now proposes to limit expensing to equipment purchased between 2009 and 2013 and to limit the deduction of interest on loans incurred to purchase such equipment.
[…]
More importantly, the revised proposal is still open to massive tax sheltering. Limitations on interest deductibility have proven unworkable because money is fungible. If interest on loans incurred to finance business equipment purchases cannot be deducted, corporations would borrow to fund other expenditures and use the money freed up that way to buy the equipment.
[…]
Sen. McCain’s revised proposal will not work either. There is no evidence it will help the economy, the budgetary cost would still be significant, and the anti-tax shelters provision would just add complexity without deterring the shelters. This whole proposal is wrong-headed and should simply be scrapped.

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Gas prices

With Obama out of the country, there’s not been much econ discussion recently. But here is McCain blaming Obama for higher gas prices.
Seems like a wee-bit of a stretch to me. Obama’s campaign response points out that McCain has been the one in Washington for over 25 years and has opposed investments in renewable energy and opposed increases in fuel efficiency standards.
McCain’s “solutions” – an increases in drilling and a temporary reduction in the gas tax would have little or no impact on prices, and would do nothing to wean the US off of carbon-based fuels.

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Stimulus and Infrastructure


Congress is looking to put together a second economic stimulus package (see below). This one may include funding for national infrastructure including roads, bridges and schools.
An often-heard criticism of this approach is that spending on infrastructure can come too slowly to have an impact.
One counter example to this point is the bridge collapse in Minneapolis from last August: the concrete for the replacement bridge began flowing last winter, and the bridge is now halfway done. They expect to be finished entirely by December.
There are many other projects, especially repair work, that can and should be done now–they need to be done anyway so why not accelerate the spending to stimulate the economy in the short-run? On schools, for example, “…the Portland Public Schools estimate an $800 million deferred maintenance backlog and the Los Angeles Unified School District estimates a $5 billion backlog in their existing facilities”.
The sooner we start, the sooner we can get our highways unclogged, our schools more energy efficient, and our bridges safer–all while stimulating jobs creation for our weak economy.

Democrats See a Need for Further Economic Stimulus – NYTimes.com

On Tuesday, Nancy Pelosi of California, the speaker of the House, and other House Democrats met with economists to draft another stimulus package, saying it was likely to include spending for roads, bridges, schools and other public facilities, as well as aid for states confronting smaller tax revenues in the face of the housing downturn.
“This is a serious situation,” said Lawrence H. Summers, a former Treasury secretary in the Clinton administration who attended the meeting, according to Bloomberg News. “We are in much more danger of responding inefficiently than in responding excessively.”

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