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Getting Rid of the Budget Deficit the Clinton/Gingrich Way Print
Written by Dean Baker and Sairah Husain   
Friday, 29 April 2011 15:58

There is an incredible amount of sanctimonious garbage going around Washington about the horrors of the deficit and the debt. In fact, there is so much nonsense that it would be impossible to ever run out of frequently repeated assertions to ridicule.

One assertion that has gotten insufficient derision is that Clinton and/or the Gingrich Congress (pick your "hero") took the tough steps needed to balance the budget. Some of us are old enough to remember the 90s. That isn't quite what happened.

If we go back in 1996, we see that the Congressional Budget Office (CBO) was still projecting a large deficit for the year 2000. In May of 1996 CBO projected that the deficit in 2000 would be $244 billion or 2.7 percent of GDP. It turned out that we actually ran a surplus in 2000 of $232 billion, or roughly 2.4 percent of GDP. This involves a shift from deficit to surplus of $476 billion or 5.1 percentage points of GDP. This would be equivalent to reducing the annual deficit by $750 billion in 2011.

The reason for picking 1996 as the year to look at projections is that the Clinton tax increases were already law, and therefore included in the baseline projections at that point. The same is true of most of the spending cuts demanded by the Gingrich Congress. Here's CBO's assessment of the changes that moved us from large projected deficits to a large budget surplus.


Source: Congressional Budget Office and authors' calculations.

As the chart shows, all of the improvement in the budget between 1996 and 2000 was due to the fact that the economy performed much better than expected and that CBO had been overly pessimistic about trends in government spending and tax collections. The legislative changes added by Congress in this period actually went the wrong way. So, we did not actually move from large deficits to surpluses by tax increases and/or spending cuts, we did it through a strong economy and some good luck with the cost of government programs and tax collections. (The biggest part of this picture is that Alan Greenspan ignored the orthodoxy in the economics profession and allowed the unemployment rate to decline by almost 2 percentage points below the conventionally accepted estimates of the NAIRU*, but we won't talk about that.)

*Non-Accelerating Inflation Rate of Unemployment

Labor Market Policy Research Reports, April 18-29,2011 Print
Written by Sairah Husain   
Friday, 29 April 2011 15:45

In this update, we post links to recent reports from the Center for American Progress, Center for Law and Social Policy, Economic Policy Institute, Employment Policy Research Network, Institute for Women's Policy Research, and Political Economy Research Institute.

Center for American Progress

Revitalizing the Golden State: Why Legalization over Deportation Could Mean to California and Los Angeles County
Dr. Raul Hinojosa-Ojeda and Marshall Fitz

Center for Law and Social Policy

Giving Credit Where Credit is Due: Creating a Competency-Based Qualifications Framework for Postsecondary Education and Training
Evelyn Ganzglass. Keith Bird, and Heath Prince

Economic Policy Institute

Depressed States: Unemployment Rate Near 20% for Some Groups
Algernon Austin

The Class of 2011: Young Workers Face a Dire Labor Market Without a Safety Net
Heidi Shierholz and Kathryn Anne Edwards

Employment Policy Research Network

High-Performance Work Practices and Sustainable Economic Growth
Eileen Appelbaum, Jody Hoffer Gittell, Carrie Leana

Institute for Women's Policy Research

Women, Poverty, and Economic Insecurity in Wisconsin and the Milwaukee-Waukesha-West Allis MSA
Claudia Williams and Ariane Hegewisch

Political Economy Research Institute

Searching for the Supposed Benefits of Higher Inequality: Impacts of Rising Top Shares on the Standard of Living of Low and Middle-Income Families
Jeff Thompson and Elias Leight

CEPR News April 2011 Print
Written by Dawn Lobell   
Friday, 29 April 2011 14:45

The following highlights CEPR's latest research, publications, events and much more.

CEPR on Budgets, Compromises and Cuts
With the budget talks dominating the media this past month, CEPR worked overtime to counter misleading claims from the deficit hawk crowd. As CEPR Co-Director Dean Baker said in this op-ed on CNN.com, the focus should be on jobs, not the deficit. Dean took particular issue with the “courageous” Paul Ryan’s budget plan. CEPR published two papers on the Ryan plan.  The first clearly demonstrates how the Medicare portion of the plan shifts rising costs to beneficiaries. According to Dean, “Ballooning health care costs continue to be the main source of the rise in future deficits. The Ryan plan does nothing to address the projected explosion in health care costs. Instead it just shifts the burden of these costs more squarely on the shoulders of seniors.”

The most recent paper, “Representative Ryan’s $30 Trillion Medicare Waste Tax”, takes the analysis one step further to show that the Ryan proposal will increase health care costs for seniors by more than seven dollars for every dollar it saves the government, a point missing from much of the debate over the plan. The paper was mentioned in this article in The Progressive and in this post on Talking Points Memo.

Dean discussed the Ryan plan with Rachel Maddow and the Real News, authoredseveral columns on the plan, and was quoted in several news articles and blogs, including this one by Paul Krugman.

Dean also weighed in on President Obama’s budget plan, here in a CEPR press release, here in the New York Times’ Op-Ed section “Room for Debate”, here in the Wall Street Journal online and here on the Rachel Maddow show, where Dean re-iterated that all the talk of deficit reduction ignores the current problem of 25 million people under- or unemployed. Dean also appeared on the Diane Rehm Show where he discussed these issues as well as the debate over raising the debt ceiling.



The Town Hall Rage Over Ryan's Medicare Plan Print
Written by Dean Baker   
Friday, 29 April 2011 09:46
The facts are very clear on this: The public would hate Rep. Ryan's Medicare plan, if they realized what it is. Every poll shows that the public overwhelmingly supports the Medicare program in its current form. This is true across the board. Even the overwhelming majority of Republicans support keeping Medicare in its current form.

The Ryan plan is quite explicitly designed to end Medicare as we know it in the same way that Jonas Salk designed a vaccine to eliminate polio. There is no real question here, it gets rid of the Medicare system for anyone under age 55 today and replaces it with a voucher.

The projections from the Congressional Budget Office show that the Ryan plan would raise the cost of buying Medicare equivalent policies by $34 trillion over Medicare's 75-year planning period. This sum comes to $110,000 for every man, woman, and child in the country. It is almost seven times as large as the projected Social Security shortfall that makes the Washington pundits so excited.

This $34 trillion is pure waste. It is the Congressional Budget Office's projection of the additional payments to insurers, drug companies, hospitals and other health care providers that would result from relying on private insurers instead of the traditional Medicare program. In addition, Ryan's plan would also transfer about $4 trillion in costs from the government to beneficiaries.

Unfortunately, very few media outlets believe it is their responsibility to provide information about government policies. They obviously believe that the typical person has more time and ability to analyze budget proposals than their reporters. As a result, most of the public still doesn't realize that the Republican majority in the House of Representatives voted to end Medicare.

So the question is whether a group of activists can go around the media and explain the general public what their representatives in Congress are trying to do. In the pre-Internet Age, they wouldn't have a chance. However, with the vast majority of families now on the web, it is possible that these protests will be successful in calling attention to the Republicans' plan to end Medicare. With luck, the media may even pull a reporter or two from Trump-birther beat and have them analyze the Ryan plan.

This post originally appeared on POLITICO's The Arena.

Declining Car Sales Cause GDP Growth to Sputter in Q1 Print
Written by Dean Baker   
Thursday, 28 April 2011 10:31

In the first quarter of 2011 car sales advanced at a slower pace, causing GDP growth to fall from 3.1 percent in the fourth quarter of 2010 to 1.8 percent, according to the latest Bureau of Economic Analysis' report on the Gross Domestic Product. Declining sales slowed the rate of consumption growth from 4.0 to 2.7 percent. In addition, unusually bad weather had an effect on construction, subtracting 0.72 percentage points from growth in the quarter.

Investment in equipment and software, however, maintained strong growth, rising at an 11.6 percent annual rate. Equipment and software investment were equal to 7.4 percent of GDP in the quarter, just 0.5 percentage points below the pre-recession level. This is remarkably strong given the amount of excess capacity in most sectors of the economy. While it might not sustain its double-digit growth rate, it is likely to remain healthy throughout the year as the investment tax credit pulls investment forward.

For more information, read our latest GDP Byte.

Questions for Bernanke Print
Written by Nicole Woo   
Tuesday, 26 April 2011 17:54

On Wednesday, Federal Reserve Chairman Ben Bernanke will hold a rare and highly-anticipated press conference.  A timely report by the Congressional Research Service at the request of Sen. Bernie Sanders may provide some helpful background, as Sanders states:

This report confirms that ultra-low interest loans provided by the Federal Reserve during the financial crisis turned out to be direct corporate welfare to big banks. Instead of using the Fed loans to reinvest in the economy, some of the largest financial institutions in this country appear to have lent this money back to the federal government at a higher rate of interest by purchasing U.S. government securities.

In advance of Bernanke's press conference, many media outlets (here, here and here) and financial bloggers (here and here) have been collecting and posing questions for him.  Adding to the mix, here are some from CEPR:

  1. Last month, you testified that the House 2011 budget plan, which would have cut $60 billion in spending, would cost the nation about 200,000 jobs over two years. In your opinion, how would the recently-passed House 2012 budget, which cuts trillions in spending, affect the economy and unemployment rate?
  2. The Federal Reserve Act states that the Fed's goals are to both promote "maximum employment" and "stable prices."  Currently inflation is exceptionally low, while unemployment is painfully high and projected not to return to pre-recession levels for a decade.  Do you believe  that the Fed's goal of maximum employment is as important as price stability, and if so, what more aggressive actions should the Fed take to reduce unemployment?
  3. Prominent economists, including the chief economist at the International Monetary Fund, suggested that central banks should target an inflation rate of between 3-4 percent. The current policy of targeted 2 percent inflation had proven incredibly costly to the country's workers. Has the Open Market Committee discussed these recommendations, and if not, why not?
  4. In the current downturn, the Fed bought hundreds of billions of dollars of long-term government bonds and more than $1 trillion of mortgage backed securities in order to help keep long-term interest rates low and to support the economy.  Instead of selling this debt back to the public, as currently intended, if the Fed were to hold this debt indefinitely, and as Japan has done without sparking any inflation, it would keep the flow of interest on this debt going to the Fed and therefore back to the Treasury. This way the debt issued to support the economy in the downturn does not become a burden on the government in the future. Would you support such a move by the Federal Reserve?
  5. One week later after Secretary Paulson proposed the TARP in Sept. 2008, you testified before Congress that "deteriorating financial market conditions have disrupted the commercial paper market and other forms of financing for a wide range of firms... I urge the Congress to act quickly to address the grave threats to financial stability that we currently face."  On Oct. 3, the TARP became law.  Four days later on Oct. 7, the Fed announced the creation of the Commercial Paper Funding Facility (CPFF) to "encourage investors to once again engage in term lending in the commercial paper market."  If you knew in Sept.that the slowdown in the commercial paper market was a grave threat to our economy, why did you wait two weeks before announcing the creation of the CPFF?  Shouldn't you have told Congress of your plans to create the CPFF before it voted on the TARP?
Third Time's the Charm? Right to Rent Reintroduced in Congress Print
Written by Nicole Woo   
Friday, 22 April 2011 17:51

Rep. Grijalva of Arizona announced today his introduction, with 13 co-sponsors, of the Right to Rent Act of 2011 (H.R. 1548), which would allow families facing foreclosure to remain in their homes as renters paying the fair market rent.

Mr. Grijalva states:

Housing shouldn't be a politically charged issue -- this is a basic question of fixing a problem we can't ignore.  Democrat, Republican or independent, we’re all here in Congress to represent our constituents and make sure the federal government is acting in their best interests. Right now, we can’t afford to pretend those interests are served by us doing nothing.

This closely follows a commentary in the Wall Street Journal by CEPR co-director Dean Baker, on how Right to Rent would ease the foreclosure mess.  He points out that R2R would help struggling homeowners in 4 important ways:

First and foremost it provides housing security for homeowners who got caught up in the middle of the bubble... We were willing to give these banks trillions of dollars of loans at below market rates. Allowing foreclosed homeowners to stay in their homes as renters seems a rather small concession in comparison...

By changing the balance of power between lenders and homeowners, the right to rent provision would give lenders more incentive to voluntarily arrange modifications that allow homeowners to stay in their house as owners...

The fact that foreclosed homes remain occupied will prevent the sort of neighborhood blight that has devastated many communities across the country...

Finally, the right to rent could free up money that is currently going to mortgage payments on homes where owners never accrue any equity... The money saved by former homeowners is money they will spend in the communities where they live.

And last month, James Carr and Katherine Lucas-Smith of the National Community Reinvestment Coalition, an association of more than 600 community-based organizations that is a leading voice on housing issues, wrote in the Suffolk Law Review:

Finally, foreclosure must be eliminated as a trigger for eviction. This includes developing more extensive options for families who are unable to avoid foreclosures, such as enhanced rental option programs that allow struggling families to remain in their homes for at least a year as tenants rather than homeowners.

Dean Baker first introduced the concept of R2R in 2007, and Andrew Samwick (former Council of Economic Advisers chair for George W. Bush) quickly joined him in a joint op-ed.  A year and a half ago, R2R got a flurry of attention from bloggers such as Ezra Klein and Felix Salmon when the Obama Administration, as well as Sen. Schumer and Sen. Durbin, indicated some support for the idea

Could the third time be the charm for Right to Rent?

S&P Warns Treasury About Debt Burden: Fun With Debt Downgrades Print
Written by Dean Baker   
Wednesday, 20 April 2011 15:27

I finally got a break from laughing over S&P’s threat of downgrade of U.S. debt. You may remember S&P as the credit rating agency that would rate a security: “structured by cows,” which was said by one of its analysts in reference to S&P’s proclivity for stamping subprime mortgage backed securities with investment grades.

But now S&P is warning us all that we better get very concerned about the budget deficits or else they will downgrade the government’s debt. I have to say that this is hard to take seriously from almost every angle.

First, what does it mean that the U.S. government’s credit rating is impaired? We borrow in dollars. Guess who makes dollars?

Imagine if I printed up IOU’s that were payable with my IOU’s. Would S&P think that I might default? This makes no sense. Countries that borrow in a currency they issue will not default unless we get an absurd situation where politicians try to make a point by forcing a default (as in not raising the debt ceiling). It will not happen as a result of budget finances.

There is a potential issue about inflation and higher future interest rates (and therefore lower bond prices). However, if this is the event that S&P is warning against, then the warning should have been applied to all debt that is denominated in dollars, both public and private. If inflation erodes the real value of U.S. government debt, it will also erode the real value of the dollar denominated debt issued by Goldman Sachs and General Electric.

Are these two companies now on the watch list for downgrades along with the rest of corporate America? I don’t think so.

A friend sent over a Moody’s publication on how they gage sovereign default risk. It actually was quite interesting. First of all, their key variable is the ratio of interest payments to revenue.

This must have the tax and spend crowd partying in the street. Suppose that we raise the amount of revenue we take in by 1 percent of GDP (roughly $150 billion a year). If we use Moody’s 18 percent interest to revenue warning line, this additional tax revenue will allow us to accumulate an amount of debt equal to 3.6 percentage points of GDP ($540 billion) before enter the trouble zone.

By contrast, cutting $150 billion in annual spending doesn’t buy us anything in terms of raising the amount of debt that we can safely hold. So the Moody’s story is pretty clear: deal with your deficits by raising taxes rather than cutting spending, if the point is to preserve that golden Aaa rating.

The other item that is striking in this picture is that we have been here before and then some back during the Bush presidency. The ratio of interest to revenue peaked at 18.2 percent in 1992. After falling back slightly with the recovery, the Congressional Budget Office (CBO) projected (Table 4-1) that it would cross 20 percent by 2000 and would exceed 24 percent by the end of projection period in 2003.

By comparison, the current projections look very mild. In the CBO baseline (Table 1-4) the interest to revenue ratio would be just 16.0 percent in 2021. Arguably the baseline is an overly optimistic budget picture, but the budget story would have to turn far more negative to come close to the projections that CBO made in January of 1993.


Source: CBO 1993 and 2011 and author's calculations.


The question that we have to ask is, “where were the warnings of debt downgrades during the first Bush presidency?”

The other question for the fun-seeking among us, is what happens to this picture if the Fed decides to buy and hold an amount of debt equal to 20 percent of GDP ($3 trillion). The Fed is pretty much there now with its quantitative easing (QE) policy. The difference between this policy and the current baseline is that the Fed is expected to sell off most of the assets it has acquired under it QE policy.

However suppose instead that it continued to hold them over the next decade. The Fed could raise reserve requirements to offset the impact that this action would have on the money supply, thereby preventing inflation. If the Fed continued to hold this debt, then the interest paid on this debt would be refunded right back to the Treasury, creating no net interest burden for the government.

If Moody’s definition of net interest meant interest actually paid out by the government, then our CBO baseline would look even more benign after being adjusted in this manner as shown above. In this case, the ratio of interest payments to revenue stays under 13 percent over the 10-year projection period. It is hard to see any good reason why the buy and hold policy would not be on the agenda – except of course that it is likely to reduce bank profits.

Of course this whole discussion of the federal government defaulting is just silly – presumably it is designed to push political ends. It is hard to believe that there is not more outrage over being lectured on responsible fiscal policy by the bond-rating agencies whose irresponsibility contributed so much to this crisis in the first place.

There would not be 25 million people unemployed, underemployed, or out of the workforce altogether if the bond rating agencies had actually used some judgment in rating the securities issued by the Wall Street investment banks. We would also have much lower budget deficits.

Trapped? Print
Written by John Schmitt   
Tuesday, 19 April 2011 10:45

In his most recent column, “Middle-Class Tax Trap,” Ross Douthat laments what he sees as the unconscionable tax burden that a new CBO report projects for middle-class families in 2035. But, Douthat misses the most important part of the CBO projection: Even after the big tax increase, CBO projects that middle-class families will be much better off in 2035 than they are today.

Here’s Douthat:

“Today … a family of four making the median income –$94,900– pays 15 percent in federal [income and payroll] taxes. By 2035, under the C.B.O. projection, payroll and income taxes would claim 25 percent of that family’s paycheck. … Federal tax revenue, which has averaged 18 percent of G.D.P. since World War II, would hit 23 percent by the 2030s and climb even higher after that.”

But, let’s look at the CBO report (pdf) he cites. In that document (see Table 4-4), the median income for a “married couple with two children filing a joint return” in 2010 was $94,900. According to CBO projections, by 2035, the median income for the same family type –also in 2010 dollars– will be $145,200!



Questions for S&P on Its Potential Downgrade of U.S. Debt Print
Written by Dean Baker   
Tuesday, 19 April 2011 05:30

S&P managed to capture the headlines yesterday when it announced that it had a negative outlook for the credit rating of the United States. After all, an actual credit downgrade for the United States government would be big news. While the immediate response was a boost to the deficit hawks’ efforts to cut programs like Social Security and Medicare, it is worth asking a few questions before we surrender these programs to the Wall Street numbers mavens.

The last time S&P was in the headlines it was for giving investment grade ratings to hundreds of billions of dollars of securities that were backed by subprime and ALT-A mortgages. These mortgages were used to buy over-priced homes at the peak of the housing bubble. Many of these mortgages not only carried high risks, but were fraudulent, with lenders having filled in false information to allow homebuyers to qualify for loans that their assets and income would not justify.

Serious people should ask what S&P has done to improve its ratings systems. Have they changed their procedures? Did the S&P analysts who gave AAA or other investment grade ratings to toxic junk get fired or at least get demoted? If not, should we assume that S&P used the same care in assigning a negative outlook to U.S. government debt as it did in assigning investment grade ratings to toxic assets?

Of course it was not just bad mortgage debt that stumped the S&P gang. It gave top quality investment grade ratings to Lehman until just before it imploded in the largest bankruptcy in history. The same was true of AIG, which would have faced a similar fate without a government rescue. Bear Stearns also had a top rating until the very end, as did Enron. In short, S&P has a quite a track record in missing the boat when it comes to assessing creditworthiness.



Labor Market Policy Research Reports, April 11 - 15, 2011 Print
Written by Sairah Husain   
Friday, 15 April 2011 14:00

This week, we post links to reports from Center on Budget and Policy Priorities, Drum Major Institute for Public Policy, Economic Policy Institute, Institute for Research on Labor and Employment UC Berkeley, and Political Economy Research Institute.

Center on Budget and Policy Priorities

Proposed Cap on Federal Spending Would Force Deep Cuts in Medicare, Medicaid, and Social Security Would Likely Require Radical Changes Such As Medicare Privatization, a Medicaid Block Grant, and Repeal of Health Reform
Edwin Park, Kathy Ruffing, and Paul N. Van de Water

Drum Major Institute for Public Policy

The Cost of Failure: The Burden of Immigration Enforcement in America's Cities
Afton Branche

Economic Policy Institute

Regulation, Employment, and the Economy: Fears of Job Loss are Overblown
Isaac Shapiro and John S. Irons

Institute for Research on Labor and Employment UC Berkeley

Do Minimum Wages Really Reduce Teen Employment? Accounting for Heterogeneity and Selectivity in State Panel Data
Sylvia Allegretto, Arindrajit Dube, and Michael Reich

Political Economy Research Institute

The Impact of Taxes on Migration in New England
Jeff Thompson

Turning the Page: Are Developing Countries Bouncing Back from 20 Years of Stagnation? Print
Written by Rebecca Ray   
Friday, 15 April 2011 12:23

CEPR often mentions the long-term economic slowdown that hit low- and middle-income countries beginning in the 1980s. But as our recent Scorecard shows, over the last 10 years something remarkable has happened: low- and middle-income countries have begun growing again, at rates rivaling those they had before 1980.


This collection of “V” shapes shows economic growth for 191 countries, divided into quintiles from poorest to richest.i Every quintile saw its GDP slow by about half – or more – between 1980 and 2000. Quintile 2 (low-income countries with between $1,429 and $3,103 in per-capita GDP) actually saw GDP slow by two-thirds. But after 2000, the low- and middle-income groups saw their growth rebound to at least as high as it was before 1980. Only the fifth quintile (rich countries with at least $12,829 in per-capita GDP) saw continued stagnation: their GDP inched up from an average of 1.1% per year to 1.3%.

Why did progress slow so dramatically for 20 years and then speed up again? Those two decades saw widespread adoption of neoliberal economic policies: tighter fiscal and monetary policies; reduced tariffs and non-tariff barriers to trade; financial deregulation; privatization of state-owned enterprises; increased protectionism in the area of intellectual property; and the general abandonment of state-led industrialization or development strategies. It would be nearly impossible to econometrically identify the contributions of various reforms to the slowdown, but the fact that these reforms coincided with such a sharp, long-term decline for the vast majority of low- and middle-income countries is at least prima facie evidence that on the whole, these reforms contributed to the failure.



Ignoring the Real Problem Print
Written by Dean Baker   
Thursday, 14 April 2011 15:15
As usual, the economic debate in Washington is ignoring the country's main problem. We are debating taxes and spending cuts when the real problem is boosting demand.

Unemployment is the most immediate problem facing the country. We still have 8.8 percent of the labor force unemployed. And in spite of the happy talk about the economy being on the right path and the recent pace of job growth, the entire decline in the unemployment rate over the last year was the result of people dropping out of the labor force. The share of the work force that is employed remains near its low-point for the downturn.

This is the economic reality and if we had an honest debate in Washington, the two parties would be putting forward competing plans to create jobs, not reduce the deficit. The current deficit is not a problem. If the deficit were smaller, then we would simply have less spending in the economy and more people unemployed. There is not some magic wand that will make the private sector increase spending and add jobs just because the government lays people off.



Prices Do Actually Matter, 1984 Edition Print
Written by David Rosnick   
Thursday, 14 April 2011 14:15

Last month, the real of the dollar against other currencies hit a new record low.  Aside from a brief spike in late 2008 — the result of a crisis-induced "flight to safety" — the dollar has undergone a steady decline since early 2002.  Over the last nine years, the dollar has fallen 27 percent relative to those of major trading partners.

What happens to the economy as the dollar falls?  At first, U.S. importers of (say) British goods trade more dollars to get the pounds they need to purchase British goods.  This means that the cost of imports measured in dollars rises, increasing the size of the trade deficit (imports minus exports).  Similarly, British importers of American goods find they require fewer pounds to get the dollars they need to buy American goods.

Over time, Americans notice that British goods have become more expensive in comparison to domestically produced goods. In other words, the price of U.S.-made sweaters becomes cheaper relative to the price of sweaters imported from Britain. This will lead us to buy fewer sweaters from Britain and more domestically manufactured sweaters.



Mad Men, Then or Now? Print
Written by John Schmitt   
Monday, 11 April 2011 16:30

The fictional television series "Mad Men"” does a great job dramatizing the astonishing cultural, social, and political transformation of the United States since the early 1960s. A new report (pdf) from the Institute for Policy Studies now adds some insight into one of the key economic differences between then and now.

This graph from the report compares the actual income taxes paid by the rich in 1961 and 2011. As it happens, 1961 falls right between the time covered by seasons one (March to November, 1960) and two (February to October 1962) of "Mad Men."


Source: Institute for Policy Studies

Back in 1961, Don Draper and his partners at Sterling Cooper paid somewhere between 27 and 43 percent of their income in federal income taxes. Their counterparts today pay somewhere between 20 and 24 percent. As the IPS report argues, we don’t need austerity, we need tax increases at the top.

This post originally appeared on John Schmitt's blog, No Apparent Motive.

Right-to-Rent Would Ease Foreclosure Mess Print
Written by Dean Baker   
Monday, 11 April 2011 15:45

While the rate of foreclosures may have finally peaked, it is not going to come down quickly. We are virtually certain to see at least a million foreclosures in 2011 and comparable numbers in 2012 and 2013. Many more homeowners will lose their homes through distressed sales.

This is a crisis for both the homeowners themselves and also for the communities where these foreclosures are concentrated. There is considerable research showing that foreclosed properties are a blight on neighborhoods, bringing down property values and creating eyesores and safety risks. For these reasons, there is a strong argument for taking measures to reduce the pace of foreclosures.

However, few would argue for yet another round of the federal Home Affordable Modification Program. HAMP has proven bureaucratic and ineffective. Only a small share of threatened homeowners have received permanent modifications and a large portion of this select group is expected to re-default.

I've said it before, and I'll say it again: There is a simple alternative that involves no government money and no new bureaucracy. We could temporarily change the rules on foreclosure to allow homeowners the right to stay in their home as renters for a substantial period of time (e.g., 5 years) following a foreclosure.



Ryan In Your Pocket: # 3217 Print
Written by Dean Baker   
Sunday, 10 April 2011 13:31

House Budget Committee Chairman Paul Ryan proposed a 2012 budget that would essentially end Medicare as we know it and replace it with a voucher system. The payments proposed under this plan would be far less than the payments Medicare is projected to pay, leading to large savings for the government.

However the Congressional Budget Office projects that costs to retirees would rise by far more than just the cutbacks in spending by the federal government. In addition to shifting the burden onto retirees, the Congressional Budget Office (CBO) projects that the Ryan plan will make the Medicare system much less efficient.

The CBO analysis projects that a Medicare equivalent plan will cost much more under the Ryan plan than if purchased through Medicare both because private insurers have much greater administrative costs and they would be less effective in constraining costs. (We know this, we have tried privatization before.) This additional cost is a pure waste from the standpoint of the economy as a whole.

The additional expense resulting from the Ryan plan is real money. Over the next 75-years (the planning period for Medicare and Social Security) the projections imply that the extra payments to the insurance and health care industry would come to $20.3 triliion if everyone purchased a Medicare equivalent policy. This is almost 4 times the size of the projected Social Security shortfall. That is equal to almost $70,000 for every man, women and child in the country.


Source: CBO, Social Security Trustees, and author's calculations.

Note that this $20.3 trillion figure does not count the savings to the government from the lower Medicare payments. It is the pure waste that results from a having less efficient health care system in place for the Medicare population. We can think of this money as being equivalent to a tax since from an economic standpoint it has roughly the same impact on the economy if the government imposes taxes on the health care sector equal to $20.3 trillion, as if the inefficiency in the sector raises the cost of cost by care by $20.3 trillion. So we can view this $20.3 trillion as the Paul Ryan Medicare tax.

Labor Market Policy Research Reports, April 4-8, 2011 Print
Written by Sairah Husain   
Friday, 08 April 2011 11:15

This week, we post links to reports from Center for American Progress, Center for Economic and Policy Research, Center on Budget and Policy Priorities, and Economic Policy Institute.

Center for American Progress

The Importance and Promise of American Manufacturing: Why it Matters if We Make it in America and Where We Stand Today
Michael Ettlinger and Kate Gordon

Center for Economic and Policy Research

The Ryan Medicare Plan: Winners and Losers
Dean Baker and David Rosnick

Center on Budget and Policy Priorities

Earned Income Tax Credit Overpayment and Error Issues
Robert Greenstein and John Wancheck

Chairman Ryan’s Proposal to Block Grant SNAP (Food Stamps) Rests on False Claims about Program Growth: Recent Increases in SNAP Spending Largely Reflect the Recession; Program Does Not Contribute to Nation’s Long-Term Budget Problems
Dottie Rosenbaum

Tax Holiday for Overseas Corporate Profits Would Increase Deficits, Fail to Boost the Economy, and Ultimately Shift More Investment and Jobs Overseas
Chuck Marr and Brian Highsmith

Economic Policy Institute

'Right-to-Work Wrong for New Hampshire'
Gordon Lafer

Medicare Vouchers: Ryan Versus Baker Print
Written by Dean Baker   
Tuesday, 05 April 2011 21:12

Since Representative Ryan is running around pushing his Medicare vouchers I might as well take the opportunity to push my own. It seems that Mr. Ryan and I have something in common, we both like Medicare vouchers.

Of course there are big differences between our systems. Ryan's voucher system would deny seniors the option to stay in the existing Medicare system. It would give them a lump sum which they could then apply towards the cost of an insurance premium. There is no guarantee that either the insurance they bought would be as good as Medicare, nor that the voucher would cover the full cost of the insurance.

By contrast, the Baker voucher leaves the current Medicare system intact, seniors would always have the option to be in the Medicare system just as they do today. The change created by the Baker voucher is that seniors would also be able to buy into the health care systems of any of the countries with longer life expectancies than the United States.

The big advantage to seniors is that they would be able to pocket half of the savings. The government gets the other half. Because our health care system is so inefficient, this is big money.

The cost to the government per beneficiary is projected to be nearly $13,000 (in 2008 dollars) by 2020. The average cost of treating a person over age 65 in the countries with longer life expectancy is projected $9,600 (also in 2008 dollars). If we allow the receiving country a 10 percent premium (this ensures that they share in the savings) and split the difference, the value of the voucher would be $11,300, allowing the federal government to save $1,700 for every beneficiary that took advantage of the voucher.

The gains to seniors will depend on which country they chose. Since they also would have substantial out of pocket medical expenses if they stayed in the United States (including their Medicare premiums) their savings from moving to another country to get care would be considerably larger than just the difference between the value of the premium and cost of care in the receiving country.

Seniors that moved to Canada would be able to pocket $5,600 a year. Those that moved to Spain could pocket $10.900, and those that went to New Zealand could pocket $11,200. These numbers get much larger through time. By 2045, the annual savings to a senior moving to Canada, Spain, and New Zealand would be $22,600, $26,700 and $29,400, respectively. This would more than double the income of many retirees. The savings to the government would rise accordingly.

The deal gets even better for people who qualify for both Medicare and Medicaid. For these people, the government would just split the savings, handing half to the beneficiary and pocketing the other half. This deal would allow dual beneficiaries going to Canada, Spain, and New Zealand in 2020 to pocket $13,500, $18,700, and $18,900, respectively in 2020. By 2045, the annual savings for seniors going to these countries would rise to $37,800, $41,700 and $41,900, respectively.

That's the Baker proposal. It doesn't require setting up a complex new domestic voucher system. It just requires some negotiations that would allow our retirees to buy into foreign health care systems. Hey, even a trade negotiator should be able to do that.

The big difference is that the Baker proposal is likely to take some money out of the hides of the domestic health care industry, while ensuring that seniors continue to get quality care. By contrast, Representative Ryan's plan takes money out of the hides of retirees while protecting the incomes of the health care industry. It's a matter of priorities.

Labor Market Policy Research Reports, March 28 – April 1, 2011 Print
Written by Sairah Husain   
Tuesday, 05 April 2011 15:30

This week, we post links to reports from Economic Policy Institute, UCLA Institute for Research on Labor and Employment, and National Employment Law Project.

Economic Policy Institute

The State of Working America's Wealth, 2011: Through Volatility and Turmoil, the Gap Widens
Sylvia A. Allegretto

Paid Sick Days: Measuring the Small Cost for Connecticut Businesses
Douglas Hall and Elise Gould

'Right-To-Work' Wrong for New Hampshire
Gordon Lafer

UCLA Institute for Research on Labor and Employment

An Opportunity Not Taken...Yet: U.S. Labor and the Current Economic Crisis
Chris Tilly

National Employment Law Project

Fair Pay for Home Care Workers: Reforming the U.S. Department of Labor's Companionship Rules Under the Fair Labor Standards Act
National Employment Law Project

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