Tracking the Stimulus: Update

Good news: The Recovery.gov website now includes information about the tax components of the stimulus, not just the spending components:

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According to the chart, an estimated $62.5 billion made its way out the door in tax reductions through the end of August. The corresponding spending data indicate that $88.8 billion in federal spending made its way out the door by August 28.

Putting these together, you get an estimated $151.3 billion in combined tax reductions and spending increases through the end of August.

Continue reading “Tracking the Stimulus: Update”

More Stimulus Spending Than Originally Projected

Lots of budget news this morning, with the release of the newest projections from the Office of Management and Budget and the Congressional Budget Office.

One headline is that spending on the stimulus will be higher than expected. As reported by Lori Montgomery at the Washington Post (ht EconomistMom):

The $787 billion economic stimulus package President Obama signed earlier this year is likely to cost “tens of billions of dollars” more than expected, helping to drive projections for next year’s budget deficit to $1.5 trillion, White House budget director Peter Orszag told reporters.

With unemployment climbing, costs for a variety of stimulus programs are running higher than anticipated, Orszag said, including expanded unemployment benefits, food stamps and energy grants. In an interview embargoed for release Tuesday morning, Orszag said he could not estimate the overall cost of the package, but he called Republican estimates of $900 billion “slightly high.”

The $900 billion estimate that Peter mentions is reported in this letter from former CBO Director Doug Holtz-Eakin to Republican House Leader John Boehner.

The CBO also addresses this issue in its report (box on pp. 10-11). The box discusses lots of pesky nuances about budget accounting and the timing of payments. Perhaps the most interesting observation, consistent with the OMB quote above, is that:

The higher-than-expected unemployment rate has led CBO to raise its estimates of spending in 2009 for ARRA [i.e., stimulus] provisions that affect unemployment compensation (by $7 billion) and Medicaid (by $1 billion).

In other words, the weaker economy has added $8 billion to stimulus spending in fiscal 2009 alone with, presumably, more to come in fiscal 2010.

These developments further complicate the challenging task of tracking the stimulus.

Tracking the Stimulus

In her recent speech about the impact of the stimulus effort, Christina Romer, Chair of the President’s Council of Economic Advisers, noted that “as of the end of June, more than $100 billion had been spent.”

If you visit the government web site tracking the stimulus (Recovery.gov), however, it will tell you that the government had paid out only about $60 billion by July 3. (You can find this figure in the chart at the lower right hand corner of the home page.)

Why does Christi report a figure so much larger than the one reported on the official website? Because Recovery.gov isn’t tracking all of the budget effects of the stimulus.

Christi’s figure includes the $60 billion of spending reported on Recovery.gov plus an internal estimate, prepared by Treasury, of the tax reductions resulting from the stimulus effort through June 24. Those tax reductions are obviously a big deal, totaling $40 billion or slightly more through the end of June.

Based on conversations with friends and journalists, I get the sense that some users of Recovery.gov do not realize that its figures cover only the spending side of the stimulus story, not the tax side.

As a result, I think Recovery.gov is (unintentionally) confusing people into thinking that the stimulus effort to date is smaller than it has actually been.

I have two suggestions for how to fix this:

Step 1: Reduce Confusion: Recovery.gov should slap a warning label on the home page chart (and everywhere else it reports aggregate figures) that says something like: “These figures reflect only the new Federal spending that has resulted from the recovery act. The act also included significant tax reductions that aren’t reflected here.” 

Step 2: Provide the Information: Of course, it would be even better if Treasury would release official estimates of the week-by-week or month-by-month tax reductions flowing from the recovery act. These figures would obviously be estimates — and thus not able to be audited to the same degree as the spending programs — but would be invaluable to analysts trying to track the impact of the stimulus effort.

P.S. As I noted last week, the Congressional Budget Office recently estimated that the total budget impact of the stimulus effort reached about $125 billion through the end of July.

Latest Data on Transfers and Income

In a series of posts (most recent here), I’ve documented that Americans are getting an increasing portion of their income from the government.

BEA released new data on incomes a couple weeks ago, including revisions back to 1995. These data reinforce the story I’ve described in my previous posts:

  • Transfers accounted for 17.3% of personal income in June. That’s the second highest in history, topped only by the 18.2% recorded in May, when transfers were boosted by one-time payments from this year’s stimulus act:

Transfers June 2009

  • The increasing importance of transfers reflects both short-run developments and long-run trends. In the past year, the importance of transfers has grown because of (a) weakness in other forms of income, (b) the natural expansion of transfers due to economic weakness (e.g., increases in unemployment insurance payments), and (c) policies to expand benefits (e.g., as an attempt at stimulus). Over the longer run, however, the growth of transfers has been driven by the expansion of entitlement programs.

Continue reading “Latest Data on Transfers and Income”

Counting Stimulus Efforts

Today, the Washington Post has a letter to the editor about counting stimulus efforts. I think the letter is pithy and on-point, but that might be because I wrote it. Anyway, my conclusion is:

[T]here have already been two rounds of stimulus since the recession started in December 2007. The first, enacted in February 2008 (when I served at the President’s Council of Economic Advisers), provided $168 billion in tax cuts for families and businesses. The second, enacted in February of this year, provided $787 billion in various spending programs and tax cuts. The question we face today is whether to enact a third stimulus, not a second one.

The letter was a response to an editorial the Post ran last Friday.

Stimulus aficionados will recognize that, in the interest of brevity, I used dollar amounts that aren’t completely apples-to-oranges. As noted in my previous post on this topic, the $168 billion amount for the first stimulus reflects the gross amount of stimulus in the first couple of years; the long-run, net cost budget cost of the bill is lower. The $787 billion amount for the second stimulus is the ten-year net cost; the initial stimulus is a bit larger. I think the gross impact is a better way to characterize the stimulus effort, but I didn’t want to confuse anyone by referring to an $800+ billion stimulus, when everyone knows it as $787 billion.

We Already Did a Second Stimulus

Much ink, both physical and electronic, has recently been spilled on the question of whether the United States should undertake a second stimulus.

To which there is only one possible answer: we already did a second stimulus.

The first stimulus — the Economic Stimulus Act of 2008 — was signed by President Bush in February 2008. That Act gave families $115 billion in tax rebates and allowed companies to depreciate business investment more rapidly. Overall, the Act reduced taxes and increased spending by $168 billion in 2008 and 2009 (the long-term budget hit from the Act is smaller — about $124 billion over ten years — because the corporate tax reductions deferred tax payments rather than eliminating them.)

Those were the days before the collapse of Lehman (heck, it was even before the collapse of Bear Stearns) when policymakers were rightly worried about a weak economy, but $168 billion seemed like a lot of money.

The second stimulus — the American Recovery and Reinvestment Act of 2009 –was signed by President Obama in February 2009. That Act increases spending on a host of programs, including infrastructure, state assistance, and extended unemployment insurance. It also created the Making Work Pay tax credit, among other tax reductions. The Act is usually described as a $787 billion stimulus, with ten-year spending increases of $575 billion and tax reductions of $212 billion. The reality is a bit more complex, however. On the one hand, the Act provides somewhat more stimulus than the headline figure; for example, there are about $810 billion in spending increases and tax reductions during the first seven years. On the other hand, the stimulus takes time to phase in; during fiscal 2009, for example, the estimated stimulus is about $185 billion.

The question we face today is whether to enact a third stimulus, not a second one. I will have more to say on this in the future. For now, I think the Obama administration has it exactly right, indicating that it’s premature to enact a third stimulus, but their economic team is closely monitoring the situation.