Barack Obama has been president for just under 10 months but he’s added two trillion to the national debt and will double it by the end of the decade.  CBS’ Mark Knoller:

This latest milestone in the ever-rising journey of the National Debt comes less than eight months after it hit $11 trillion for the first time. The latest high-point is not unexpected, considering the federal deficit for the just-ended 2009 fiscal year hit an all-time high at $1.42-trillion – more than triple the previous year’s record high.

Much of the increase in the deficit and debt is attributed to government spending outpacing revenue – both exacerbated by the recession and the government response to it – including hundreds of billions in bailouts and stimulus spending and tax cuts along with decreased tax revenues due to rising unemployment.

[...]

The National Debt has increased about $1.6 trillion on Mr. Obama’s watch, though less than $4.9 trillion run up during the presidency of George W. Bush.

But the White House budget review issued in August projects that by the end of the current fiscal year on Sept 30th, the National Debt could top $14 trillion.  It gets worse. The same document projects that by the end of the decade, the National Debt will hit $24.5 trillion — exceeding the Gross Domestic Product projected for 2019 of $22.8 trillion.

According to the Treasury Department, the debt stood at $5.727 trillion on January 19, 2001, Bill Clinton’s last day in office, and $10.627 trillion when Bush left office eight years later.  That’s $612.5 billion (or $0.6125 trillion) a year, during which we fought two major wars, had the 9/11 attacks, and at least two major bailouts to deal with a global financial crisis.

We’re thus far averaging $1.92 trillion a year under Obama, or a factor of 3.146 more.   And the government is projecting that we’ll continue spending at this crisis rate for the next decade, more than doubling the current record level?

That ain’t good.

Presumably, we’d have had another major bailout had Bush stayed in office for a third term (were that Constitutionally or politically possible) or had John McCain been elected.  So spending and thus the debt would have escalated substantially regardless.  But we likely wouldn’t be talking about adding a massive health care payment on top of the pile.

Via Jonathan Adler, I see that world-renowned economist Robert Barro and his student, Charles Redlick, takes to WSJ to summarize their research report showing that stimulus spending doesn’t work. Oddly, take cuts do.

The bottom line is this: The available empirical evidence does not support the idea that spending multipliers typically exceed one, and thus spending stimulus programs will likely raise GDP by less than the increase in government spending. Defense-spending multipliers exceeding one likely apply only at very high unemployment rates, and nondefense multipliers are probably smaller. However, there is empirical support for the proposition that tax rate reductions will increase real GDP.

Given that this comports with my own sense of how things work — and that Barro is sufficiently important that I was aware of him as a political science graduate student in the early 1990s — makes me somewhat confident in the results.  That they mostly relied on massive increases in defense spending during wartime, for reasons that are empirically sound but nonetheless muddy the research finding — detracts somewhat.

What’s interesting, though, is that public opinion seems to match up well with Barro and Redlick’s findings.  Kevin Drum points me to this chart from John Judis showing that most people think the stimulus helped large banks and Wall Street investment companies but not the little guy:

I’m generally skeptical of asking ordinary people questions of this sort since they don’t have the training to make useful evaluations.  (Full disclosure:  Neither do I.)  Nonetheless, I both think they’re right in this case and, regardless, what they think will influence how they vote.

Conor Clarke has devised the following chart of the federal effective tax rate paid by the wealthiest 1% over the last 15 years:

While he doesn’t “love the idea,” he think it justifies paying for health care for the poor by taxing the rich.  Kevin Drum agrees, adding,

The basic story is simple: As their incomes have gotten ever higher, their tax rates have gotten ever lower.  So if tax rates on the rich are raised to help pay for healthcare reform, as some Democrats are proposing, it would just return us to the rates of the early 90s, not some hellish confiscatory dystopia.

I’d note that the curve is wildly exaggerated because the Y axis starts at 28 percent. All the variation is between 31.5 percent and 36.1 percent or so; the drop has hardly been precipitous. In addition to the Bush tax cuts, most of the difference is lowered capital gains taxes.

E.D. Kain agrees and actually took the time to replot it:

Quite the difference, no?

Via Catherine Campbell, here are the effective rates by quintile over time as calculated by CBO and plotted using a more conventional starting point of zero:

Not only are those in the top 1% paying more than twice the effective rate of the middle quintile but they’re paying substantially more than those in the top quintile.  And, of course, they’d get zero benefit from the new health care plan whereas those in the bottom quintile.

UPDATE: To be clear, I don’t think that a return to Clinton-level rates wreck the economy or that doing so would be tantamount to socialism.  (See, “Class Warfare: Framing the Debate” for a much longer distillation of my views on that.)   I’m just pointing out that the top 1% has had only a modest cut and still pays a disproportionate share.  It’s one thing to argue that the rich have an ability to pay more and another entirely to argue they have a duty.

In a sidebar discussion via email, Bernard Finel reminds me of a quotation from the fictional Sam on “West Wing” that I’ve used before (See, “Tax Burdens by Quintile” and “Middle Class Tax Cuts“):

Henry, last fall, every time your boss got on the stump, and said, ‘It’s time for the rich to pay their fair share,’ I hid under a couch and changed my name. I left Gage Whitney making $400,000 a year, which means I paid twenty-seven times the national average in income tax. I paid my fair share, and the fair share of twenty-six other people. And, I’m happy to, ’cause that’s the only way it’s gonna work, and it’s in my best interest that everybody be able to go to schools and drive on roads, but I don’t get twenty-seven votes on election day. The fire department doesn’t come to my house twenty-seven times faster and the water doesn’t come out of my faucet twenty-seven times hotter. The top one percent of wage earners in this country pay for twenty-two percent of this country. Let’s not call them names while they’re doing it, is all I’m saying.

While the fictional Sam is more liberal than the actual James, that’s pretty close to where I am as well.  I’d demur on the “happy to” but concede “that’s the only way it’s gonna work, and it’s in my best interest that everybody be able to go to schools and drive on roads.”

Willie Sutton famously remarked that he robbed banks because “that’s where the money is.”  I much prefer that rationale to one dressed up in moral obligation.

NOTE: The addition of E.D. Kain’s chart was momentarily UPDATE 2 but I thought it made better sense to insert it directly into the narrative.

Isn’t true if you engage in a lifestyle that most people find icky. You know that pledge that if you make less than $250,000/year you won’t see an increase in your taxes? Yeah, well not if you smoke.

One of President Barack Obama’s campaign pledges on taxes went up in puffs of smoke Wednesday.

The largest increase in tobacco taxes took effect despite Obama’s promise not to raise taxes of any kind on families earning under $250,000 or individuals under $200,000.

This is one tax that disproportionately affects the poor, who are more likely to smoke than the rich.

To be sure, Obama’s tax promises in last year’s campaign were most often made in the context of income taxes. Not always.

“I can make a firm pledge,” he said in Dover, N.H., on Sept. 12. “Under my plan, no family making less than $250,000 a year will see any form of tax increase. Not your income tax, not your payroll tax, not your capital gains taxes, not any of your taxes.” He repeatedly vowed “you will not see any of your taxes increase one single dime.”[emphasis added]

Ho hum, another politician another lie.

The extra money will be used to finance a major expansion of health insurance for children.

It’s for the children? Well okay then.

That represents a step toward achieving another promise, to make sure all kids are covered.

What? He isn’t going to try and claim that such a program will provide an economic stimulus therefore we should spend the money absent any tax increases? And I thought he could do all this without increasing taxes. Didn’t he said, he’d cut waste, fraud and abuse? Oh, wait they always say that. The Obamassiah…just like any other lying politician.

His detailed campaign plan stated that his proposed improvement in health insurance and health technology “is more than covered” by raising taxes on the wealthy alone. It was not based on raising the tobacco tax.

Somebody is not drinking the kool-aid.

“Listen now,” he said in his widely watched nomination acceptance speech, “I will cut taxes—cut taxes—for 95 percent of all working families, because, in an economy like this, the last thing we should do is raise taxes on the middle class.”

Yeah, well that was a lie too, or at least it was a statement with enough weasel words in it so that it doesn’t mean what one’s first impression would be. According to the Tax Policy Center, only about 75.5% of households will get a tax cut under Obama’s plan. And factoring in the new tax on cigarettes that number is likely to be smaller.

This exchange between Peter Singer and Tyler Cowen on BloggingHeadsTV is priceless.

Singer has written a book, The Life You Can Save, that argues from a very Leftist perspective that those of us in the West enjoying a decent life should give much more to the poor. Cowen, arguing from a Libertarian Right perspective, agrees wholeheartedly but thinks that the way to accomplish that outcome is by such mechanisms as freer immigration and tax cuts for the wealthy which haven’t even occurred to Singer.

Despite very divergent philosophies, the two have a very cordial, informative discussion of the issues and actually take seriously the other’s ideas.  It’s a novel approach, to be sure, but one that perhaps ought to be explored further.

Ross Douthat has discovered Barack Obama’s evil genius:

What Obama does have, though, is an atmosphere of crisis and a massively-unpopular opposition party, which grants him an unparalleled political opportunity to pass whatever spending the Democratic Party likes, and damn the short-term cost. And what you see in his budgeting proposals, I think, is the liberal equivalent of the conservative attempt to “starve the beast.” In both the Reagan and Bush eras, Republicans passed tax cuts and ran up large deficits while hoping that by starving the federal government of revenue they would curb its long-run growth. Obama’s spending proposals would effectively reverse that dynamic – they would create new spending commitments and run up large deficits, in the hopes that the dollars poured into health care and education will create a new baseline for government’s obligations, which in turn will create the political space for tax increases on the middle class. Like the starve-the-beast approach, the Obama strategy puts off the hard part till tomorrow: Give them tax cuts today, conservatives said, and they’ll swallow spending cuts tomorrow; give them universal health care, universal pre-K, subsidies for green industry and all the rest of it today, liberals seem to be thinking, and they’ll be willing to pay for it tomorrow.

Kevin Drum agrees:

As Bill Kristol knows all too well, social spending programs, once they get started, tend to be pretty popular.  The odds of deep sixing, for example, national healthcare after it’s up and running is essentially zero.  And once it’s up and running, taxes will follow because most Americans would rather see their taxes go up than their healthcare services go down.

Of course, this mostly applies to broad-based programs.  Smaller ones are still hard to get rid of, but not impossible.  It’s the bigger ones that become third rails.  Both Obama and the GOP are smart enough to know this, which is why Obama wants to swing for the fences and congressional Republicans want to become the Party of Nyet.  If they don’t stop him now, they never will.

Well . . . yeah.  There’s a reason people get so excited about politics: elections have major consequences.

It’s hard to undo tax cuts because people like keeping their money.  Even “temporary” tax cuts become the baseline so restoration to normal rightly gets called a “tax increase.”

Ditto spending.  People don’t like to pay for government programs and they often don’t like the administration of said programs.  But they love free stuff.  Moreover, when they’ve been conditioned to count on said free stuff and planned for the long term accordingly, then they’re really hooked on the free stuff.

It’s government as crack dealer.  You get the first taste for free.  After that . . .

Photo by Flickr user Hryck., used under Creative Commons license.

Jeffery Miron, Harvard Senior Lecturer in economics at Harvard University, on the stimulus package,

CAMBRIDGE, Massachusetts (CNN) — When libertarians question the merit of President Obama’s stimulus package, a frequent rejoinder is, “Well, we have to do something.” This is hardly a persuasive response. If the cure is worse than the disease, it is better to live with the disease.

[...]

Repeal the Corporate Income Tax: Repeal would spur investment, improve the transparency of corporate accounting, slash compliance costs, and avoid the distortions caused by the special-interest provisions in the tax code. Repeal can work fast, by raising companies’ share prices, increasing cash flow, and allowing corporations to lessen their need for bank lending.

Thus repeal provides short-run stimulus and enhances long-run efficiency. Recent estimates suggest that tax cuts are at least as effective as spending increases in raising GDP. The adverse impact on the deficit is likely to be less than the $300-$350 billion in revenue the corporate tax takes in per year, since repeal spurs growth and therefore the revenue from other taxes.

Increase Carbon Taxes While Lowering Marginal Tax Rates: Reasonable people disagree about how much the U.S. should reduce its use of fossil fuels, but crowded highways, air pollution, and global warming all suggest that some reduction is desirable.

The effective way to accomplish this is higher gasoline or other carbon taxes, not the messy, complicated green spending in the Obama plan that will morph into pork in many cases. If higher carbon taxes are combined with lower marginal tax rates, the private sector faces better incentives on both counts. This approach avoids the higher deficits implied by Obama’s green initiatives.

Moderate the Growth of Entitlements: The elephant in the room amidst the stimulus debate is the impending imbalance in Social Security and Medicare as the baby boom generation moves into retirement. Without reductions in benefits, taxes will have to increase substantially, generating a major drag on the U.S. economy.

A reasonable response is to raise the age of eligibility for Social Security and Medicare, consistent with the increases in life expectancy and health that have occurred in past decades.

Eliminate Wasteful Spending: Most discussion of the stimulus focuses on areas where, according to proponents, government spending should be higher. Much current expenditure, however, is wasteful.

Examples include agricultural subsidies, bloated transportation projects like the Big Dig in Boston, misguided infrastructure projects like the New Orleans levees (why encourage people to live below sea level?), ineffective weapons systems, pork barrel spending, and subsidies for Amtrak and the Post Office (buses are more efficient than railways, and Fedex is more efficient than the Post Office).

Withdraw from Iraq and Afghanistan: President Obama plans to withdraw U.S. forces from Iraq over the next eighteen months, while expanding U.S. involvement in Afghanistan. It is hard to see, however, that any good arises from dragging out our Iraq exit or from staying in Afghanistan. The government should move toward faster withdrawal, and from both countries. The U.S. can redeploy these troops where useful, or release the resources to civilian uses.

Limit Union Power: Later this year, Congress is likely to vote on the card check bill, a new law that facilitates unionization. The law eliminates the presumption of a secret ballot, which means union organizers can pressure employees into accepting representation.

Renew the U.S. Commitment to Free Trade: One crucial danger in the current environment is that the U.S. and other countries will embrace protectionist policies. The U.S. enacted prohibitive tariffs during the Great Depression, and many trading partners retaliated. World trade plummeted, contributing to the economic misery.

Expand Legal Immigration: Radical changes in immigration policy seem unlikely in the near future, but one specific change is compelling: an increased quota for H-1B visas, which go to workers with technical skills seeking employment in U.S. industry. The annual quota for such visas was 195,000 as recently as 2000, but it now stands at only 65,000.

Stop Bailing out Businesses that Took on Too Much Risk: Popular opinion blames deregulation and private sector greed for the financial meltdown, but the reality is more subtle.

Existing regulation was ineffective at preventing excessive risk-taking, and the private sector did its best to profit from the incentives that were in place. The extreme increase in risk-taking, however, would not have occurred absent policies that encouraged such risk (e.g., Fannie Mae or the Fed’s reassurances about housing bubbles) or past bailouts that cushioned the losses from private risk-taking.

One crucial response to any crisis is learning to avoid the next one. The lesson this time is that rewarding risk generates more risk. The U.S. should therefore stop bailing out banks, automakers, homeowners, or anyone else.

I’m not an expert on military matters so I don’t feel really comfortable commenting on the Iraq/Afghanistan portion of the recommendation. My only thought was that our rapid exit from Afghanistan shortly after the Soviet Union left may have created more problems for us, so I’m a bit wary of rapid withdrawal.

I think one of the most important aspects of this kind of stimulus is the moderation to Social Security and Medicare. Upping the age at which one can qualify for benefits is absolutely necessary. It is also likely to be a highly unpopular position so I don’t think Obama would even consider it (did I mention I think politicians are cowards?). Unfortunately this problem will likely fester and get worse and when we finally do get around to dealing with it the solution will constitute a major drag on the economy as payroll taxes are increased. Both in terms of the limit in income and the tax rates themselves.

I don’t think nearly enough attention is being paid to the issue of incentives here. All the focus is on spending lots of money in FDR style. Problem is the evidence for this solution is not all that great, IMO. Hoover was not the do-nothing free market president people like to make him out to be. So in reality we had quite a bit of government intervention in the economy during the early years of the Great Depression and while things got better the economy was still well below potential. Further, by bailing out institutions that take on risk you essentially remove a significant portion of the costs associated with risks. A good rule of thumb to take away from any study of economics is that when you reduce the cost of something you get more of it. By reducing the downsides to risk you encourage risk taking behavior. And the kind of risk taking is going to be imprudent. After all, the prudent risk taking was prudent even without the bailouts. All that is left is risk that was not prudent absent the bailouts. Bailout bad decision making in regards to risk will simply set us up for the next round. As harsh as it may sound, it is time for some serious regulation…the regulation of the market place where firms that make bad decisions often fail. The same goes for individuals and households that made imprudent decisions on home purchases. Bailing them out to try an prop up inflated housing prices and to pander to voters is a losing strategy for the long term, and we already have enough long term problems (see the paragraph on social security).

And I can’t believe that there was a “Buy American” provision in the stimulus bill. Wait, sorry these are politicians cravena and cowardly individuals. Yes I can believe it. Never mind that protectionism contributed to the severity of the recession during the 1930’s.

And the carbon tax is a very good idea. First off it is an actual real solution to whatever problems global warming entails. The idea of promoting green technologies is, in theory, not bad, but in practice it becomes nothing more than political favoritism, pork spending, and even counter productive. The counter productive part is that the government could end up funding projects that are nowhere near ready for implementation over programs that are due to lobbying and special interest group politics. By raising the costs of fossil fuels, namely gasoline, it makes the other solutions relatively more cost effective and puts the innovative power of the market to work in looking for a solution while at the same time reducing carbon output.

Overall the proposal isn’t a bad one and I’d like to see more like this in the stimulus bills, but instead we are going to get a stupid bill written by cowardly men where a significant portion of the “stimulus spending” will likely take effect when it is no longer really needed.