CBO reports provide an interesting glimpse of economic activity that we should all be more familiar with as we discuss tax policies--especially tax policies that tend to favor particular industries or income distributions.
Consider, for example, the CBO's January 1, 2009 report. issued after the financial crisis had hit and in the midst of a beginning debate about economic stimulus. The CBO foresaw a contracting economy (GDP falling by 2.2% in 2009, gorwing by only 1.5% in 2010); increasing unemployment (exceeding 9% in 2010--we're already there); drop in housing prices; a 1% drop in consumption; a "strained" financial system; deficits for 2009 of $1.2 trillion or 8.3% of GDP; a decline in federal revfenues by 6.6% from 2008; and the longest and possibly deepest recession since WWII. The report noted the significant uncertainty in its outlook due to "the degree and persistence of turmoil in financial markets" where new financial instruments and practices and worldwide linkages made it diffficult to use historical patterns as the basis for predictions about future trends. That uncertainty is heightened by the Fedearl Reserve's unprecedented interventions, and the Treasury's attempts to improve the solvency of financial institutions (and other industries) through TARP funds.
Then there's the CBO October 2009 documentation of changes in the distribution of earnings for male and female workers between 1979 and 2007, including a look at the annual earnings of workers between the ages of 25 and 54 (without counting defined benefit retirement, 401(k) contributions by employers, or health care).
- men earned more than women at every position (10th, 50th and 90th percentiles of their earnings distributions) but the differences did decrease some in 2007 compared to 1979
- Even within the high end, earnings of the 99th percentile were increasing more than earnings for those at the 95th percentile, just between 1989 and 2005.
- About 50% of the men and women remained in the same distributional grouping in 2005 that they had been in in 2000.
- Real earnings (inflation adjusted) for the 10th, 50th, and 90th percentiles declined between 2007 and 2008: men in the 10th percentile made 14% less in 2008 than their counterparts in 2007--the largest year-to-year decline for that group since 1979--while men at the median and 90th percentile groups earned 3% less than their counterparts in 2007. (Not surprisingly, hourly wages for men near the 10th percentil were lower in 2007 than in 1979 even while they worked longer hours--1790 rather than 1700.) For women, the respective figures are 4%, 3% and 2% (their earnings were, of course, lower to start with).
- Men and women in the top percentiles, however, earned much more--with men in the 95th earning $123,400 in 2005, in increase of 24% over 1989 (in inflation adjusted numbers) and men in the 99th percentile earnings $278,100, and increase of 30% over their 1989 counterparts. For women, the numbers are $79,400 (37% increase) for the 95th percentile and $139,100 (60% increase) for the 99th percentile.
- And, not surprisingly, the share of earnings going to those at the top is increasing--the top 1% of working men got 13% of all earnings in 2005, up from 10% in 1989.
- We are jailing more and more of our population--in 1979, .26% of male U.S. residents were in prison, but in 2007 that figure had more than tripled, to almost 1%.
So how should we use this information in thinking about tax policies? One of the proposals on the table over the last couple of weeks has been a proposed extension of the $8000 new home buyer credit. The original credit seemed oxymoronic to me. We already had a financial crisis caused in part by overinvestment in housing by people who couldn't afford their loans, and inflated pricing reflecting the various subsidies for housing and the construction industry that are especially beneficial to the wealthiest taxpayers (home mortgage interest deduction (for both primary residences and vacation homes) on up to $1 million dollars of acquisition debt; home equity interest deduction on up to an additional $100,000 of home-secured debt; property tax deductions; exclusion of up to half a million in GAIN on sales of residences). Then we added had a financial crisis caused by runaway banks' ability to shift securitization losses to investors and give wacky loans to people at usurious rates while speculating on everything from corproate debt to securitizations with credit default swaps and other exotic derivatives. So of course we decided to add to the pile of tax benefits to home ownership with the $8000 new buyer credit (with no repayment necessary for 2009 purchases, assuming used as a home for three years). At least that temporary credit was for those who had never owned a home before and had an income restriction that limited its benefit to the lower four quintiles (credit began to be phased out for couples with $150,000 and phased out entirely at $170,000). But Congress is said to be considering extending that to those who already own homes, and no matter what their income. The current program costs about $1 billion a month, and the extension would cost significantly more (especially if it also included an increase in the amount to $15,000, the industry's preference). See Industry Makes Case for Home Buyer Tax-Credit Extenision, Wall St. Journal (Oct. 7, 2009); Homebuyer Tax-Credit Extension gains Lawmaker Support, Bloomberg.com, Sept. 16, 2009; teamJodi (July 2009), with a rundown of bills under consideration already in July for expanding the credit. What can they be thinking? How to add to an already worrisome income inequality problem while exacerbating the crisis that started it all? Again, if you look at the income data, it seems to shout for another solution--allowing modification of home mortgage loans in bankruptcy, and ending the artificial lifeboat for the real estate industry.
What these pushes by the realtors and builders for a tax break that mostly benefits their industry confirms is that we have too much lobbying going on. From health reform to giving money away to rich people who buy houses, our policies seem to be shaped much more by the influence of paid lobbyists than by what the people want. (65% of Americans want a strong public option, but it is not even on the table for some in Congress. Probably the views on the home tax credit is more of a mixed bag--if you expect to buy or sell, you might support it; if you think we need to end favoritism for the home building industry, you might oppose it.) Put simply, though, we have too little real deliberation among our representatives about the long-term good of the country, rather than the short-term benefit for some industry group or another. These CBO statistics need to be more widely shared, reported in the media, and commented upon by bloggers and others so that we understand the way the economy has been working under the policies we have put in place over the last few decades, to disfavor those in the middle and lower distributions.