Friday, June 26, 2009
The Alternative Math of Lori Montgomery
Previously, I’ve taken note of some sloppy, biased reporting by Washington Post reporter, Lori Montgomery. So when I set out to read an article with her byline, I know additional research is probably in order
CBO Calls Long-Term Revenue, Spending Outlook Dire
According to Ms. Montgomery, here’s why it's so dire:
“The nation's long-term budget outlook has darkened considerably over the past six months, and President Obama's plan to extend an array of tax cuts and other policies adopted during the Bush administration has the potential to "create an explosive fiscal situation," congressional budget analysts reported yesterday.
In a new report, the Congressional Budget Office found that extending the Bush administration tax cuts, reining in the alternative minimum tax and canceling a scheduled reduction in payments to Medicare doctors would dramatically slash tax collections at a time when federal spending would be "sharply rising."
(Ed. Note. Not sure why Ms. Montgomery believes not-reducing payments to doctors will contribute to reduced tax revenue. If anything, it will increase the revenue side by adding more taxable income.)
Ms. Montgomery doesn’t actually tell us which CBO report she is describing but I believe it is this one: The Long-Term Budget Outlook.
I’m also guessing Ms. Montgomery never got around to reading it. For instance, whereas Ms. Montgomery says the proposed plan “would dramatically slash tax collections”, the CBO notes:
“Federal revenues totaled 17.7 percent of GDP in fiscal year 2008. Because of the recession and the tax reductions provided in stimulus legislation, CBO expects revenues to decline sharply in fiscal year 2009, to 15.5 percent of GDP… Under the alternative fiscal scenario, the [Bush tax cuts] would be extended, and the parameters of the AMT would be indexed to inflation after 2009. Consequently, revenues would grow more slowly over the long term than in the other scenario, but they would still increase gradually relative to GDP because of the effects of real income growth. The effective marginal tax rate on labor income would rise to about 30 percent in 2035 and to 33 percent in 2080. Tax receipts would reach only 18 percent of GDP in 2012 and then gradually rise to 22 percent of GDP by 2080, 4 percentage points lower than in the extended-baseline scenario.” (Pg.11 of the report, Pg. 25 of the pdf.)
In what math universe does 18-22% of a larger number represent a drop in tax collections over 15-17.7% of a smaller number?
Is Ms. Montgomery so obtuse she doesn't understand her own reporting?
“The news is not particularly good even if the government were to collect the extra money, primarily because of the rapidly rising cost of Social Security and federal health programs for the elderly and the poor.”
...which should tell her something. She notes the effects of Social Security and federal health programs spending without noting that a large chunk of these programs (Social Security and Medicare) are financed by FICA taxes – not income taxes. So the Bush tax cuts aren’t completely on point here. And her reference to the AMT is completely without context. As the report also spells out, left unchanged, “…the cumulative effects of inflation would make almost half of all households subject to the AMT by 2035 and nearly three-quarters subject to it by 2080. Currently, only 3 percent of households are subject to the AMT.”
But hey – she managed to get in some negative Bush references so maybe she got a going away fist bump from Dan Froomkin.
CBO Calls Long-Term Revenue, Spending Outlook Dire
According to Ms. Montgomery, here’s why it's so dire:
“The nation's long-term budget outlook has darkened considerably over the past six months, and President Obama's plan to extend an array of tax cuts and other policies adopted during the Bush administration has the potential to "create an explosive fiscal situation," congressional budget analysts reported yesterday.
In a new report, the Congressional Budget Office found that extending the Bush administration tax cuts, reining in the alternative minimum tax and canceling a scheduled reduction in payments to Medicare doctors would dramatically slash tax collections at a time when federal spending would be "sharply rising."
(Ed. Note. Not sure why Ms. Montgomery believes not-reducing payments to doctors will contribute to reduced tax revenue. If anything, it will increase the revenue side by adding more taxable income.)
Ms. Montgomery doesn’t actually tell us which CBO report she is describing but I believe it is this one: The Long-Term Budget Outlook.
I’m also guessing Ms. Montgomery never got around to reading it. For instance, whereas Ms. Montgomery says the proposed plan “would dramatically slash tax collections”, the CBO notes:
“Federal revenues totaled 17.7 percent of GDP in fiscal year 2008. Because of the recession and the tax reductions provided in stimulus legislation, CBO expects revenues to decline sharply in fiscal year 2009, to 15.5 percent of GDP… Under the alternative fiscal scenario, the [Bush tax cuts] would be extended, and the parameters of the AMT would be indexed to inflation after 2009. Consequently, revenues would grow more slowly over the long term than in the other scenario, but they would still increase gradually relative to GDP because of the effects of real income growth. The effective marginal tax rate on labor income would rise to about 30 percent in 2035 and to 33 percent in 2080. Tax receipts would reach only 18 percent of GDP in 2012 and then gradually rise to 22 percent of GDP by 2080, 4 percentage points lower than in the extended-baseline scenario.” (Pg.11 of the report, Pg. 25 of the pdf.)
In what math universe does 18-22% of a larger number represent a drop in tax collections over 15-17.7% of a smaller number?
Is Ms. Montgomery so obtuse she doesn't understand her own reporting?
“The news is not particularly good even if the government were to collect the extra money, primarily because of the rapidly rising cost of Social Security and federal health programs for the elderly and the poor.”
...which should tell her something. She notes the effects of Social Security and federal health programs spending without noting that a large chunk of these programs (Social Security and Medicare) are financed by FICA taxes – not income taxes. So the Bush tax cuts aren’t completely on point here. And her reference to the AMT is completely without context. As the report also spells out, left unchanged, “…the cumulative effects of inflation would make almost half of all households subject to the AMT by 2035 and nearly three-quarters subject to it by 2080. Currently, only 3 percent of households are subject to the AMT.”
But hey – she managed to get in some negative Bush references so maybe she got a going away fist bump from Dan Froomkin.
