THIS BLOG: My February 2011 essay, the Six Point Program, is a comprehensive proposal to restore prosperity. I recommend it. Go the the column at the right, click-on February, 2011. Look for the Contents page also, December of 2010. We can do two major things in this nation: we can make sure all jobs pay a decent wage -- they don't, believe me --- and democratically we can create jobs for everyone.
The Federal Budget
Comparing the Clinton years with the Bush years
Data from the Congressional Budget Office, Office of Management and Budget, Historical Budget Data, January 2011.
Year National Debt
1980 ----- 26.1% of GDP --- before Reagan
1992 ----- 48.1% of GDP --- after Reagan and G.H.W. Bush years, up 22.0%
2000 ----- 34.7% of GDP --- after Clinton, down 13.4%
2009 ----- 53.5% of GDP --- after G. W. Bush, up 18.8%
The publicly held national debt (debt not held by intragovernmental agencies such as Social Security Trust Fund) as a percentage of annual GDP has oscillated up and down and up. For 10 years, 1970 to 1980 the debt had held steady around 26% of GDP.
This graph originates from here, Data 360 web page.
See the graph at Wikipedia of the national debt levels:
There are fewer private sector jobs today than 11 years ago in 2000. And taxes were higher in 2000 by 6% of GDP, and that would be by $900 billion in today's money. Let me refer you to Hughes and Seneca of Rutgers University (America's Post-Recession Employment Arithmetic) for the first fact. Not since 1930s have there been fewer jobs after 10 years of stagnation. And Robert Borosage at Truthout.com two days ago for the second. In 2000 the portion of GDP converted into federal revenues was 20.4% and today it's 14.2%. And the private sector employed 110 million in 2000, 107 million today, in spite of a larger labor pool. The labor participation rate in 2000 was much higher than today, and if added onto the unemployment rate, today's U3 unemployment would be at 13%. Taxes --- raise them on the top one percent whose pre-tax income is approximately equal to the bottom 60% of households (!! Yes, see UC Berkeley professor Emmanuel Saez, Striking It Richer), and create public jobs with them. Thanks Joshua H. (I left this comment at Alternet, July 16, 2011)
John Miller, November 2009, Dollars and Sense Magazine,
How I Learned to Stop Worrying and Love the Deficit
Robert Borosage, July 15, 2011, Truthout.com
Robert Reich, July 15, Truthout.com
The economy expanded by 76% over the six years between 1939 and 1944, the years of World War II. In 1939 it stood at 100, at the end of 1945 it stood at 176. This is a growth rate of 10% a year compounded. The workforce expanded by 42% (including the expansion of the military and the civilian workforce, "19.2 million additional people were either working or in the Armed Forces"), and even with additional workers, the unemployment rate dropped to 1.2% and below 2% during 1943 and 1944, proving that full employment is possible, not just a dream. This comes from American Economic Development Since 1945 by Samuel Rosenberg, page 20, 21. One can ask, How much of that growth was due to private sector investment and hiring? "Federal government purchases of goods and services, mainly military related, grew from $22.8 billion in 1939 to $269.7 billion in 1944. This increase is virtually identical to the overall increase in real GDP"
Today, 2011, there's a strong case to re-allocate federal resources. Congresswoman Jan Schakowsky has presented an alternative budget that reduces spending by $400 billion and provides for a $200 billion jobs program. The People's Budget also has a similar program. The war period, 1939 to 1945, demonstrates conclusively that government can influence the economy in a positive way. No one in 2011 would advise such huge stimulus spending, but the point is --- stimulus works. Military Keynesianism is the term for the Reagan stimulus of the 1980s. As shown above, he increased the public debt from 26% to 48% of GDP.
Since July, 2009, the depth of the recession, corporate profits have accounted for 92% of the economic rebound in the GDP gross amount, while in contrast aggregate wage income is still what it was in July 2009, and job growth has yet to happen. The private sector is sitting on almost $2 trillion and not hiring. The tax/GDP rate stood at 20.4% in 2000, Clinton's last years, while today -- as the graph shows in the Borosage article --- it stands at 14.2%, a drop of 6% of GDP less, which in today's economy is $900 billion. The entire debt this year is about 9% of GDP. Raising taxes to the 2000 level would almost eliminate the deficit. Creating public jobs would compensate for the private sector's inability to hire during a depression. About 30% of all workers, 45 million, are either unemployed, not fully employed, or working full-time and year-round for below poverty level wages. Two of eight Americans are connected to a family with absolutely no savings, and another one in eight is in a family with less than $12,000 in savings. That is a depression. The upshot would be a self-expanding economy, and corporations would begin to sell to paying customers again and could begin to hire and invest again. That's the case against freezing taxation.
Increase in military spending
Clinton era --- 1994 --- $282 billion or 4.0% of GDP
2001 --- $306 billion or 3.0% of GDP
Bush era: -----2002 --- $349 billion or 3.3% of GDP
2009 --- $657 billion or 4.7% of GDP Clinton decreases military spending by 25%, Bush increases it by 42%.
I used inclusive dates for my calculations. The years 1994 to 2001 inclusive are 8 full years, as are 2002 to 2009 inclusive. The president’s budget begins October of the year he is sworn in, for Clinton October 1993, for Bush October 2001. Therefore the 1994 budget begins the Clinton years, 2002 begins the Bush years.
________________________________________________________________Growth in National Debt as a % of GDP
Clinton era: down by 16.7% ---- from 49.2% to 32.5%
Bush era: up by 19.9%% ---- from 33.6% to 53.5%
In 1994 the federal debt stood at $3.433 trillion, or 49.2% of the size of the GDP.
By 2001 it had shrunk from 49.2% to 32.5% of the GDP, a reduction of 16.7%.
Bush’s debt began in 2002 at 33.6% of GDP and ended in 2009 at 53.5% of GDP, which was over $9 trillion.Clinton knocked the debt down, Bush ran it up. The differential between the two presidents is 36.6% of GDP, that is $5.307 trillion, a very big number. If we had continued the Clinton momentum for another 8 years, instead of $9 trillion in publicly held debt we would have less than $3 trillion, or approximately 20% of GDP as a debt level, instead of 2010’s 60% level. Obama did not run up the debt, he inherited from his predecessor the greatest recession in almost 80 years. The forward momentum of the recession ratcheted up the debt from 53.5% of GDP to 60% in Obama’s first year.
_______________________________________________________________Tax Revenue as a percentage of GDP
Clinton era: 19.2%
Bush era: 17.0%
Bush inherited a short 6 month recession, March 2001 to September 2001. But the tax cuts lasted more than ten years. He used the 2001 recession as a justification for decreasing taxes, a Keynesian rationale that federal government should borrow money in a recession and run up the debt. Thereby the saved tax dollars are spent as investment or consumer demand, making up for the lost demand due to the economic downturn. But Bush’s taxes were generous to the highest earners and did little to stimulate widespread demand, and job creation was very weak taking four years to return to their former level, and the median household never recovered it’s lost income to pre-recession levels.
________________________________________________________________Income Tax as a percentage of GDP
Clinton era: 9.05%
Bush era: 7.56%
The Economic Policy Institute claims that the Bush tax cuts cost $2.5 trillion in lost tax revenue over ten years. But these data show it to be $2.08 trillion less than the income tax level of the Clinton’s tax level spread over ten years.
_______________________________________________________________Average Budget Deficit as % of GDP
Clinton era: -2.0% per year
Bush era: -4.76% per year
In today’s dollars, 4.76% of GDP comes to $690 billion of federal expenditures. Coincidentally, this is almost identical to our present military budget. For eight years, this was the Bush II level of deficit spending. The military budget for 2010, which was $689.1 billion, which is also 20% of all federal expenditures. But the true cost of the military is nearly double that amount yearly, $1.2 trillion.
Clinton inherited the legacy of Ronald Reagan and G.H.W. Bush of excessive budget deficits. In 1980 when Ronald Reagan assumed the presidency, the publicly held debt as a % of GDP was 26.1%. Twelve years later after G.H.W. Bush (Bush I) it stood at 48.1%, an 84% jump in the size of the debt. At the last year of Clinton’s term the debt was down to 34.7% of GDP, a decrease of 28%. In 2009 the debt was back up to 53.5%, and increase of 54% relative to the size since 2001. It was more than double the size of 1980. “Deficits don’t matter,” is the advice of former vice-president Dick Cheney. “Reagan proved it.” Politically they don’t matter if your party is in power, when out of power deficits are the only thing that matters.
Franklin Roosevelt ran up huge debts, fortunately, or else we would still be in the Great Depression. See the Marshall Auerback essay that demonstrates the effect of the WPA spending that lowered the unemployment rate from 25% to 9.6% in four years, 1933 to 1937. It depends on how you spend or invest the borrowed money. (See this other excellent report by Auerback, February 2009.)
Roosevelt put workers back to work. Reagan and Bush I and Bush II spent it on the military while cutting taxes. Some call this “military Keynesianism”. The principle that Keynes advocated, increasing purchasing demand through government spending on jobs, was observed. Enlarging the military is not a great investment; better is to create things that do not explode, that improve the quality of life for decades to come. Sidewalks on the streets in my town of San Leandro still bear the inscription, “WPA 1940”.
The Historical Budget Data is non-controversial. The Congressional Budget Office presents basic numbers. It’s without argument that the budget is in deficit. I hope readers will consider the numbers, and draw their own conclusions.
I love being brief, but there is always more in my writing.
***!!!! --- Back to 1976 ---- !!!!***
I'm going to restore the national income distribution of 1976 by transferring 15% of the nation's income to the lower 90% of households. It's an exercise in re-distribution of income.
You can reference two sources that show the percentage of all personal income going to the top ten percent, U.C. Berkeley professor Emmanuel Saez' report "Striking It Richer" page 7, or the Tax Foundation, Table 5 in their report. The share of personal income going to the top ten percent remained below 35% between the years 1940 to 1980, and today it approaches 50%. I've reported this over and over on this blog. That's my central goal for reform: to restore an appropriate income distribution. This morning I calculated that restoring the previous distribution ratios, 1940 to 1980, transferring 15% of all income that the top ten percent now receives, up from 35% between 1942 to 1982 to almost 50% in 2007, would entail a transfer of $1.319.7 trillion from the top ten percent to the lower 90%. In summary, if the distribution ratio of of 1980 remained the same in 2007, then $1.319.7 trillion would go to the lower 90% of households.
Divided evenly between all households in the lower 90%, each household would have an average increase of annual income of $12,569. The median would rise from around $50,000 to $62,000, and since the average income for the bottom 20% of households is $13,000 according to a Citizens for Tax Justice report, the lower income families would in some instances double their incomes. It's just a fantasy towards which the nation could aspire. I'm not an economist, I'm a dreamer. Dream along with me.
Certain analysts claim that the top income earners pay too much of the federal income tax, which is just 45% of all federal revenue. They never complain about how much more of the nation's income the top income group now receives. To find the overall effective tax rates for all income groups, go to the Citizens for Tax Justice report here, and discover that most households pay taxes in a close range of their total incomes, contrary to the alarmists for the wealthy group.
(Using the Tax Foundation report, Table 3, we see that the Adjusted Gross Income amount for the bottom 50% of taxpayers came to $1,078 billion in 2007, and the top 50% received $7,720 billion, roughly a 1 to 8 ratio, arriving at a total AGI for the nation of $8,798 billion. To $8,798 billion I take out 15%, or $1,319.7 billion, and divide that amount among 105 million households or 90% of the nation's households. This yields an income increase of $12,569 for each household.)
Let’s cut to the chase: the federal government needs to raise taxes by about 30%. But before it destroys the economy by raising taxes it should create public jobs and get everyone working as we did in the 1930s and 1940s. Then we, the shapers of government policy, should aim to restore the income distribution to the ratios of 1976 when the top ten percent of households received less than 35% of all income, not the 49% it presently receives. “Back to 1976” is my radical cry. Then we can raise the taxes by 30% and have a balanced budget.Imagine three large pizza pie plates, because I cannot graphically create them. Or imagine three clock faces. The first contains all the GDP with one slice representing the federal government’s expenses. That one slice is about 14 minutes on the clock face. Most advanced nations have a larger slice. The federal government was 19% during the Clinton years, and then it expanded to 24%.
Now, imagine the second clock face. This represents all federal spending, and the slice portion, 12 minutes (or 20% of spending) of the clock face, represents the portion not paid for, the deficit during the Bush II years. Clinton eliminated this slice.
Now, the third clock face, it is 17 minutes (or 28% of spending) as a slice size। When you take out all the federal expenses that are paid for by payroll taxes, the Social Security and Medicare parts, you have a smaller pie. Instead of $3.5 trillion, the pie is now $2.4 trillion, and the unpaid part, 17 minutes ---which amounts to 28%---is the part that the Bush II government neglected to collect, its real deficit. To balance the budget G.W. Bush would have had to raise income and corporate taxes by 28% for all the eight years of his presidency.
Three clock faces: 14 minutes, 12 minutes, and 17 minutes.
24% ------20% ------------28%
The People’s Budget and the budget proposed by Representative Jan Schakowsky are responsible alternatives to what either the Republican Representative Paul Ryan presents or to what the Obama administration proposes. Both do damage to our nation, in my opinion. We should look for a responsible plan. Opinions of course vary, and intelligent people often disagree. Let’s be intelligent and disagree intelligently.
The Tax Policy Center, part of the Urban Institute, has a Briefing Book that explains much of the pie chart business. The President’s Budget and the Congressional Budget Office also explain the various expenses, for those who wish to explore at the source.
June 27, 2011