The American Recovery and Reinvestment Act ended the 2009 Fiscal Year for the Federal Government with $106.9B in money spent (21.4% of the $499B total in the bill) and $250.6B authorized (50.2% of the bill's total.)
This is more or less on track with the projections from when the bill passed -- a sizable, but not overwhelming chunk spent in Fiscal 2009, the bulk of the money spent in Fiscal 2010 and some trailing expenses in Fiscal 2011. This structure, as you will recall, was the subject of a lot of debate while the bill was moving through congress, with Republicans claiming the impact wasn't nearly fast enough to be truly stimulative.
So the bigger question for this large investment is, is it working?
It's a tough question to answer, since we will never know what the economy would have looked like without the bill. On the one hand, we have obviously seen a stabilization in the economy. The GDP shrunk at only a 0.7% in the second quarter (after crashing around 6% in the prior two quarters), and is expected to have grown in the third quarter "officially" ending the recession. However, unemployment (as it often does in a recession), continues to raise, climbing to 9.8% in September, a new high-water mark for the past 25 years. And wasn't this supposed to be a jobs bill, after all?
I don't know the ultimate verdict on the stimulus, but when I look back to where we were earlier this year, I know action was necessary. And I know a lot of the structural projects funded were very necessary. While I would have liked to see less temporary tax cuts, which are of marginal effectiveness at stimulating the economy in my experience, and more of the programs that seemed to work very effectively, like cash for clunkers and infrastructure spending, on balance, I still believe the stimulus as it happened is far superior to having done nothing.
But it will be all for naught if employment doesn't improve eventually. People are still suffering a lot and not too many feel a lot of "recovery" yet.
President Obama -- A Narrative by the Numbers
Looking at President Obama's monthly averages for his approve minus disapprove.
I. The Honeymoon Wears Off
Almost all Presidents are very popular when they start. It's a natural thing -- we want to root for the new guy to be successful. But, generally in the first few months of the Presidency, as the new President starts to take action, those on the opposite side of the aisle remember why they voted against him. This happened to President Obama as he dropped from +48% his first month in office to +33% in March. Still very popular, but not the near-unanimous support he enjoyed upon taking office.
II. The Stable Spring
President Obama appeared to be holding his own. His numbers slipped slightly during this time period that saw the economy bottom out, but largely people continued to like the new President and believe that he was doing the right and necessary things to fix the economy and country for the long term. He averaged +31% from March-May.
III. Wheel Come Off Health Care
Tea parties, town hall protests and a White House under fire. President Obama had a very bad summer. His numbers went into free-fall, crashing all the way to +12% in August.
IV. Back to November 2008
In a theme, I've been following, President Obama's numbers appear to have stabilized at near his November vote margin. He was +12.3% in August, an identical +12.3% in September. He is showing better in October at +15.0%, but this is a very small data set, based upon two days (although all of the averaging and weighting techniques give that number some credence.)
These phases are illustrated on the chart below.
The President's daily average as of today stands at +14.8%, still comfortably ahead of his margin in November. In fact, at this margin, if an election where held today, he would win all the states that he won then, plus Georgia and Montana.Of course, the election is not being held today or anytime soon. But the point is simply that the President's political capital has stabilized.
Where it goes from here depends a whole lot on the economy and the fate of health care reform.
47% Pay No Taxes?
CNN / Fortune report recently showed that 47% of American households will have either a zero or negative (due to refundable tax credits) total income tax liability in 2009. That is a staggering number on face and has led many conservatives to question a tax system that does not require contribution from almost half the population.
There is some merit to the conservative argument, but let's first heavily caveat the situation. Saying that 47% of Americans pay no taxes is not an accurate statement. Everyone who has made a dollar of income will pay payroll taxes. Social Security taxes stand at 6.2%, Medicare taxes at just over 1% and both of those have an equal "employer side" tax, which effectively means that a workers pay is reduced by twice that amount. So, let's start by agreeing that everyone who is working, is actually being taxed at close to 15% right off the bat.
In addition, we all pay federal taxes on all sorts of federally taxed goods, from gasoline to alocohol to cigrettes (okay, non-smokers and non-drinkers that don't own cars don't pay these, but you get the point.)
Having said this, I find this trend disturbing. Income taxes are still the federal government's largest source of revenue. The middle and upper middle class are the ones who are most scorched by our tax burden -- people rich enough to pay a 28% marginal income tax rate, but not rich enough to hit the caps on Social Security taxes. In total taxation terms, the bottom quarter pays the smallest percentage of their income, then the top quarter the next smallest and the middle half the greatest.
I propose we fix both problems. Let's establish a good, progressive tax structure that is all encompassing. There are several ways to do this. One would be to reform income and payroll taxes so that we have one all-encompassing income tax that has fewer write-offs and a clear structure (say 0% of poverty-level income, 25% of income above poverty level and 40% of income about $250K.) Another alternative would be to use a VAT or National Sales Tax as a substitute for the income/payroll tax structure, but exempt essentials such as food and clothing from the tax to prevent if from being regressive.
Neither of these options are politically likely, so let me propose one that might actually fly:
(1) Eliminate the cap on social security and roll back the Bush tax cuts on upper-income individuals (fixes the upper-income problem)
(2) Slowly unwind the refundable tax credits for those making more than poverty level income
(3) Raise the minimum wage so that fewer people operate below the poverty level
I realize raising the minimum wage while unemployment is still high is dicey. But there is no credible emperical evidence that minimum wage hikes in the past have led to conservatives' worst fears, increased unemployment and lower hiring. I'd actually argue that a deflationary cycle such as the one we are in now is the IDEAL time to raise the minimum wage, since the primary risk of rising wages is inflation.
At any rate, whether these options or others are taken up, eventually congress will have to tackle the mess of our tax code. President Bush appointed a blue-ribbon commission, whose findings where promptly ignored. Perhaps President Obama can do better. Although recent experience with Health Care doesn't inspire much confidence.
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