Common economic misconceptions about the US

I frequently read fiscal news articles on Yahoo Finance and MSN.  While the financial reporting is often hit or miss, the comments on said articles are downright scary!  On both sides of the aisle, the commenters generally either don't know what the hell they're talking about, straight up making stuff up, are seriously deluded in their thinking, or are just posting stuff to antagonize everyone else.

So, with that in mind, here are my rebuttals to some of the most common erroneous comments I see day in and day out that tick me off.

Comment #1: The US defense budget is the source of all the US' fiscal woes.  If we dropped it down to pre-Dubya levels, there would be no deficit!


Rebuttal: Come on, people, do some simple freaking math!  In 2011, the US had total (on and off budget) expenditures of $3.603 trillion, with total revenue of $2.303 trillion, for a total deficit of $1.3 trillion.  Also in 2011, the Department of Defense had a budget of $678 billion.  That's for the entire DoD, not just for military action.  If we could go back and entirely erase the DoD from existence in 2011, that still leaves an approximately $622 billion deficit for 2011.  To check those numbers, here's the official website of the Office of Management and Budget (check tables 1.1 and 4.1).

Comment #2: Iraq and Afghanistan are the main drivers of the US' debt, and are the reason that Dubya spent $X (any random number) trillion while in office!


Rebuttal: This is usually closely tied in with the previous comment.  However, it concerns two separate fallacies.  The first is that the two wars are the main drivers of the US' debt.  Going by costofwar.com, Iraq and Afghanistan have cost a total of $1.347 trillion since they began, with Iraq costing $804 billion and Afghanistan costing $542 billion.  Last I checked, the total US debt is at $15.7 trillion.  While they accounted for approximately 9% of the total accumulated national debt at the end of Bush's tenure, Bush left office having racked up approximately $4.93 trillion in debt during his eight years in office.  (On a side note, to make the accounting period a bit easier to calculate, I'm counting the debt accrued from the February 1st after a President entered office to the January 31st after the new President is sworn in, to give a full calendar month accounting period).  The wars account for about 20% of those eight years of debt, so how could they account for the other $4 trillion above and beyond the approximate $1 trillion they had cost through the beginning of 2009?
The second issue is that people seem to generally pull out totally random numbers out of the air when they talk about how much a President has added to the debt.  I've seen people say that Bush added the entire $10.6 trillion in debt that was outstanding at the end of his term (never mind all the Presidents who added to the debt ahead of him), that he added $25 trillion in debt, that he added $1 trillion in debt, and everything in between.  As soon as he took office in late January 2001, he assumed ownership of the FY01 budget, and like most, if not all, Presidents before him, made immediate changes to the fiscal outlays.  Obama did the same thing when he took office in late January 2009.  Since the incoming Presidents normally change the budgetary structure for the remaining 9 months of the fiscal year, I consider them to solely own all spending from the time they're sworn in.  Getting back on track, those outlandish claims of spending haven't been only aimed at Dubya.  I've seen claims that Obama has increased the debt to the current $15.79 trillion from the *total* outstanding debt of $5 trillion after Bush left office, claims that he's only added $2 trillion to the debt, that he hasn't added any, to everything in between.  More on this topic later on.

Comment #3: If it wasn't for the interest that we're paying on the debt racked up by Bush, Obama would be running a deficit neutral budget or a surplus.

Rebuttal: Uh, what?  Unlike the first two comments, this comment is new to me, just having started cropping up on articles (at least articles I've read) in the past month or so, so I haven't seen enough of them to determine if there's actually a train of (fallacious) logic behind the comments.  Anyways, the math doesn't back up this point at all.  Total interest expense in 2011 was $454 billion.  In 2000, the total interest expense was just under $362 billion.  The interest that the US pays on its total outstanding debt is determined by the market rate, so the interest expense can fluctuate on a year to year basis.  For example, the interest expense had declined to $318 billion in 2003 from the 2000 rate, despite the total debt having gone up in the years between.  The interest expense climbed from there to $451 billion in 2008, then dropped sharply to $383 billion in 2009.  While that is a very significant chunk of change, it only accounts for approximately 1/3 of the deficits that were wrung up in 2009, 2010, and 2011.  Even adding the annual war cost to this annual interest expense, that accounts for less than half of the deficits each of these last three years.

Comment #4: Bush/Obama has increased the debt or deficit by X amount.  He's eeeevil!

Rebuttal: To start with, here's my post from February on the difference between the debt and the deficit, since most folks use the terms interchangeably and don't seem to know the difference between the two.  To sum it up, the deficit is the published figure the government produces that is equal to all on-the-books receipts minus all on-the-books expenditures.  Unfortunately, the government does a lot of off the books spending, so the published deficit amount never tells the whole story.  That's where the debt comes in--it accounts for all on and off budget spending that is in excess of revenue.  For example, the government could say it *only* has an annual deficit of $800 billion one year, but actually increases the debt that year by $1.1 trillion, with the remaining $300 billion having been off budget spending.
I'm not gonna go too in depth into this one, due to having gone over this issue in February and also touching on it in the rebuttal to Comment #2 above.  Anyways, Bush added $4.93 trillion to the US debt from 2/1/01 to 1/31/09.  That comes out to an average of ~$51.4 billion a month in new debt.  Since 2/1/09, $5.16 trillion has been added to the debt (as of 6/26/12, per the US Treasury).  That comes out an average of ~$129 billion a month in new debt.

Comment #5: There were no jobs added during Bush's tenure and Obama's added millions upon millions more jobs that Bush did.

Rebuttal: Again, where on earth are people getting their figures?
Here's what the Bureau of Labor Statistics says (you can manipulate the data in the Historical News Releases Table A section).  I'm listing the unadjusted figures for civilian labor force participation and employment.

February 2001

• Employment: 136.577 million
• Labor force participation rate: 66.8%

January 2009

• Employment: 140.436 million.  On a side note, BLS says they changed the calculation for January 2009, as the figures for December 2008 were 143.350 million.
• LFPR: 65.4%

Ignoring everything between the start and end points of his tenure, 3.859 million jobs were added during Bush's reign.  The labor force participation rate ticked down 1.4% during that time, too.  If we look at the high points of his tenure, employment peaked in July 2007 at 147.315 million, an increase of 10.738 million since February 2001.  The labor force participation rate peaked at 66.9% in July 2006, an increase of .1% since February 2001.  The LFPR stayed in the 66% range for the vast majority of Bush's administration.

February 2009

• Employment: 140.105 million 
• LFPR: 65.5% 

May 2012

• Employment: 142.727 million 
• LFPR: 63.8% 

Ignoring everything between February 2009 and May 2012, 2.622 million jobs have been added during Obama's tenure.  The LFPR has ticked down 1.7% during that time, too.  If we look from the lowest points of his tenure to today, employment bottomed in January 2010 at 136.809 million, giving an increase of 5.918 million jobs since then.  The LFPR bottomed in January and April 2012 at 63.4%, giving an increase of .4% since then.  The LFPR has stayed mostly in the 63/64% range during Obama's administration.

Put all that together, and looking at the peak of employment in both administrations, Bush added far more jobs that Obama has.

Comment #6: All of the jobs that were added during Bush's tenure were in the public sector, while Obama has cut the public sector.

Rebuttal: First, I need to clarify what exactly entails the public sector.  The public sector is all government employees, local, state, or federal.  Given that the President has zero influence over whether the town of Pawnee, IN hires a new gofer in it Parks and Recreation department, it only makes sense to look at the federal government section of the public sector employees.  Going back to the BLS (same place as above, this time Table B), here are the unadjusted numbers for the federal government, excluding military.

February 2001

• Total federal employment: 2.733 million 
• Total federal non-USPS employment: 1.855 million 
• Total USPS employment: 878,000 

January 2009

• Total federal employment: 2.772 million 
• Total federal non-USPS employment: 2.035 million 
• Total USPS employment: 736,300 

During Bush's tenure, the federal government grew by 39,000 total jobs .  That comes out to an increase of approximately 400 federal jobs a month.  The non-USPS jobs increased by 180,000.  That comes out to approximately 1,875 new federal non-USPS jobs per month.  The USPS cut approximately 150,000 jobs over the same time period.

February 2009

• Total federal employment: 2.772 million 
• Total federal non-USPS employment: 2.051 million 
• Total USPS employment: 721,800 

May 2012

• Total federal employment: 2.823 million 
• Total federal non-USPS employment: 2.211 million 
• Total USPS employment: 612,200

During Obama's tenure, the federal government has grown by 51,000 total jobs, which comes out to an increase of ~1,275 federal jobs a month.  The non-USPS jobs have increased by 160,000, which comes out to an increase of ~4,000 federal non-USPS jobs per month.  The USPS has cut approximately 110,000 jobs over the same time period.

Comparing the two, the federal government as a whole, and the non-USPS portion of the government in specific, has grown at well more than double the rate it did during Bush's tenure.  On a side note, Bush actually had shrunk the size of the federal government through mid 2008, then it began to increase in size, and that increase continues today.

The difference between the Debt and the Deficit: A Primer

Over the last year or so, there has been a lot of debate in Washington, among the public, and among the media regarding the US debt and the US deficit.  Unfortunately, many members of the public, and sad to say, the media, confuse the debt and the deficit, or have incorrect assumptions about either or both.  Some of my friends have gotten caught up in all the misinformation regarding both, as well.  So, not that this is a national publication or anything of the sort (duh), but here's a primer explaining the difference between the debt and the deficit, and also some recent history of both.

Deficit: This is the negative difference between the total on-budget receipts and on-budget outlays for the US in any given year.  For example, not counting off-budget receipts/outlays, if the US takes in $2.5 trillion in on-budget receipts in 2012 but has $3.5 trillion in on-budget outlays, then the US will have a deficit of $1 trillion for 2012.  Off-budget items include such things as the majority of Social Security and the other entitlements, along with a whole slew of smaller programs.  Most off-budget programs are considered "mandatory" spending, untouchable by the yearly Congressional appropriations process.  In 2010, the US had a total of $2.162 trillion in on-budget receipts and $3.456 trillion in on-budget outlays, and had $631.687 billion in off-budget receipts along with $554.682 in off-budget outlays.  The off-budget items do not affect the yearly deficit or surplus, but affect the yearly total debt figure.

Debt: This is the total amount of money that the US owes to creditors, composed of intragovernmental debt, debt owed to the public, and debt owed to foreign creditors.  Unlike the yearly deficit, this debt accounts for ALL spending/income, both on and off budget.  For example, the published deficit for 2007 was $160.7 billion. However, between January 1, 2007 and January 1, 2008, the US debt increased by $550.9 billion. The difference between the deficit and the debt for 2007 is the result of off budget spending.

Lately, the whole argument over debt/deficit has come up in regards to the past few Presidents' spending legacies.  Due to the rather shady practice of off-budget spending (which began in 1937) the published annual deficits don't mean much more than the electronic "ink" that you're reading right now.  Instead, to look at their legacies, it is much more important to check out the total US debt increase during their terms in office, as that accounts for ALL spending that occured during their administrations.

All debt figures come from the US Debt to the Penny website run by the US Treasury: http://www.savingsbonds.gov/NP/BPDLogin?application=np  Unfortunately, it only tracks back to Clinton, so I can't directly compare Daddy Bush and Reagan with the last three Presidents.  My methodology for determing the amount of debt each President added is to determine what the US debt was during their first day in office, and subtracting that from the US debt during their last day in office.

• Clinton: added $1,539,684,631,121.04 to the US debt from 1/20/93 to 1/19/01
• Compared to the two Presidents after him, a noted "fiscal conservative"
• Dubya: added $4,901,104,747,205.59 to the US debt from 1/20/01 to 1/19/09
• Considered a reckless spender by pretty much everyone, including myself
• Noted for keeping the cost of the wars off budget, which means they were not accounted for in the yearly deficits, but are tallied up in that $4.9 trillion addition to the debt over his eight years
• Obama: added $4,703,901,070,937.52 to the US debt from 1/20/09 to 2/1/12
• Makes Bush Jr look like an avowed fiscal hawk
• Noted for adding the wars to the budget, which helped increase the yearly deficits during his first three years in office

Looking at the total US debt picture under the last three Presidents, each has gotten consecutively worse on the spending front.  Clinton was the closest to a fiscal conservative (helped in a large part by the Republicans, who at the time actually were more or less fiscally conservative), but still increased the US debt by quite a bit during his eight years in office.  The Bush administration spent like a drunken sailor during its eight years, and was justly lambasted for it.  The current administration, however, has spent like a fleet full of drunken sailors, and has nearly added as much debt as the previous administration in less than half of the time.

EDIT: On a side note, to clarify--the US debt accumulated by each President includes ALL spending, so for Bush, it includes the cost of the wars, the Part D benefit, the "cost" of the tax rate decreases, etc.

Any thoughts?

The current crop of political candidates

Well, with the new year now upon us, the 2012 election campaign has been in full swing for the better part of a year already, and the field of candidates has started to clear up.  Here's my breakdown of the main candidates (I'm disregarding any third party or non-mainstream candidates):

Barack Obama: I'm totally not a fan.  I could write a book on the reasons why I'm not a fan, but I'll leave it at that for now.

Michelle Bachmann: I think she's a kook.  Sarah Palin 2.0?  I agree with many of her principles, but good lord, the woman is scary.  In addition, from what I've seen of her (research into her background and stuff), she's one of those "do as I say, not as I do" folks.  In other words, the type of person I view as the lowest form of life in DC.  She's a no-go for me.

Rick Santorum: Another kook.  I agree with some of his viewpoints, but some of his others (such as his views regarding Iran) are out there.  I will give him props, though, in regards to the consistency of his message.  Umm, that's about the only thing I can commend him on.  Not a fan.

Jon Huntsman: Is he still running?  If he is, I think he's running in the wrong party.  'Nuff said.

Rick Perry: I had high hopes when he announced his candidacy, but he's totally bombed since then.  He's got the debate/public elocution IQ of a rock (no offense to rocks) and seems to be a flip flopper on some big issues.  He also seems to be one of the bottom feeders like Bachmann, on the "do as I say, not as I do" front for some issues.  All that aside, I still do agree with many of his principles. 

Herman Cain: The Tiger Woods of the business world?  'Nuff said.

Ron Paul: This dude terrifies me.  Many of his viewpoints make the other loons in the running, Bachmann and Perry, look like Mr. Spock at his most boring and logical.  While I generally like libertarianism in principle, I think he's gone way off the reservation when it comes to most issues.  Way, WAY off the reservation.  As in, he's in an area where the word "reservation" isn't even in the local lingo.  Total no-go for me.

Newt Gingrich: He's as crooked as they come.  Total personal morality failure, his political record is marred with controversy, and he's a flip flopper.  He just rubs me the wrong way, too.  No-go.

Mitt Romney: Sigh.  Almost certainly the most electable of the bunch.  Sadly, "most electable" does not make a desired candidate make.  He is a moderate, but I can tolerate that.  He's got pretty good business acumen, which is a big plus in my book.  He's got some pretty big flip flops in his baggage, which is a big fat red X on his candidacy.  Unfortunately, I view him as the least of the evils in this batch.  I won't complain too much if he gets the Republican nomination, but I wish there was a better candidate out there.

Who would I pick for the ticket, if I could have my pick of potential candidates?

I've got three in mind, so it wouldn't be the Pres/Veep ticket. Just my top three wish listees:

Chris Christie: The guy is a economic genius.  I think he'd make a fantastic VP, but some of his social views are too moderate for me to wish he was running for president, at least this time around.

Paul Ryan: This guy is a rock star.  Very intelligent, conservative, and I haven't been able to find any dirt on him.

Marco Rubio: Pretty much a younger version of Paul Ryan.

What is fair?

The political slogan of the day seems to be that certain folks need to "pay their fair share."  What exactly is the fair share?  As far as I can tell, it is an ephemeral quantity that is not quantified by anyone.  If that is the case, you might have a definition of a fair share that is diametrically opposed to my definition of fair share.

As you are most likely aware, this conundrum arises in reference to the amount of tax that people and corporations pay.  Disregarding the corporation component (for the sake of this argument), I'd like to focus your attention on the personal income tax component.

So, what is the fair share of taxes that someone should pay?  There was a recent article on Yahoo! Finance regarding the "Top Five Facts About the Top 1%" or something to that effect.  I can't find the article now, so unless you read it yourself, you'll have to take my word for it.  Anyways, one of the bulletpoints in the article was that the top 1% earns 24% of the national income.  The article neglected to mention how much of the national taxes that 1% pays.

Here's a bit of background info.  For Tax Year 2008 (TY08), the IRS classified the top 1% of earners as those with income of $380,354 or more.  The top 10% were those with income of at least $113,799.  To contrast, the bottom 10% of earners made less than $5,942.  I don't have the numbers for TY09 on hand, but I'd presume they are much the same.

So how much should each income bracket pay in taxes to be considered fair?  Would it be considered fair for the top 1%, which brings in 24% of the income, to pay 24% of the income tax?  Would it be fair for each income bracket to pay the same percentage of the income tax as the percentage of the income they bring in?

With that 1:1 ratio in mind, let's look at the stats for TY09.  Here's a modified spreadsheet from the IRS (I've added the two columns on the right.  From left to right, you've got a column with the income brackets, a column showing how many tax returns were filed for those income brackets, the total taxable income for each bracket, the modified taxable income, and the income tax generated by each bracket.  Then you've got another column that shows what percentage of the total modified taxable income each bracket earned, and then the percentage of the total income tax that each bracket paid.

Size of adjusted gross income	Number of returns	Taxable income	Modified taxable income	Tax generated at all rates	Percent of total modified taxable income	Percent of total tax paid
Total	104,164,970	5,088,382,848	5,091,769,819	953,407,786	100.0000%	100.0000%
Under $2,000	181,356	75,075	77,733	4,524	0.0015%	0.0005%
$2,000 under $4,000	190,888	230,239	230,715	19,831	0.0045%	0.0021%
$4,000 under $6,000	308,951	268,516	278,086	28,075	0.0055%	0.0029%
$6,000 under $8,000	963,247	1,336,270	1,341,903	135,492	0.0264%	0.0142%
$8,000 under $10,000	1,189,777	2,441,332	2,444,341	250,784	0.0480%	0.0263%
$10,000 under $12,000	2,382,086	5,186,297	5,185,635	515,072	0.1018%	0.0540%
$12,000 under $14,000	2,585,795	9,241,543	9,257,844	912,967	0.1818%	0.0958%
$14,000 under $16,000	2,577,008	13,218,905	13,234,727	1,302,551	0.2599%	0.1366%
$16,000 under $18,000	2,940,938	17,928,879	17,949,972	1,794,176	0.3525%	0.1882%
$18,000 under $20,000	3,033,397	22,253,926	22,277,907	2,321,501	0.4375%	0.2435%
$20,000 under $25,000	8,136,648	72,337,063	72,410,672	8,114,059	1.4221%	0.8511%
$25,000 under $30,000	7,850,131	96,902,694	97,042,104	11,367,853	1.9059%	1.1923%
$30,000 under $40,000	13,831,865	249,325,246	249,529,074	30,417,297	4.9006%	3.1904%
$40,000 under $50,000	10,614,939	275,258,806	275,440,359	35,370,888	5.4095%	3.7099%
$50,000 under $75,000	18,548,852	720,889,704	721,562,064	102,122,545	14.1711%	10.7113%
$75,000 under $100,000	11,423,685	669,533,805	670,059,124	99,114,419	13.1597%	10.3958%
$100,000 under $200,000	13,492,427	1,306,332,425	1,307,382,876	230,634,470	25.6764%	24.1905%
$200,000 under $500,000	3,186,977	718,620,471	719,705,758	167,171,797	14.1347%	17.5341%
$500,000 under $1,000,000	490,338	280,537,174	280,826,943	79,439,735	5.5153%	8.3322%
$1,000,000 under $1,500,000	107,529	111,652,589	111,663,222	33,239,025	2.1930%	3.4863%
$1,500,000 under $2,000,000	44,060	65,749,557	65,708,338	19,831,986	1.2905%	2.0801%
$2,000,000 under $5,000,000	61,602	158,702,289	158,544,959	48,168,647	3.1137%	5.0523%
$5,000,000 under $10,000,000	14,249	84,805,917	84,578,708	25,254,588	1.6611%	2.6489%
$10,000,000 or more	8,225	205,554,127	205,036,755	55,875,503	4.0268%	5.8606%

Going by the 1:1 "fair" ratio described above, it appears that if you make below $200,000, you pay less than your fair share.  And those who make more than $200,000 pay a good deal more than their fair share.

So, if 1:1 is fair, should it then be everyone who makes less than $200,00 who should pay more taxes in order to pay their fair share?

If the 1:1 ratio is not a proper indication of a fair share, what is?