Private Job Growth Under Obama: Recovery, in Contrast to the Fall Under Bush

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Cumulative Private sector employment growth by months from inaugurations, Obama, Bush II, Clinton, Bush I

Cumulative Government sector employment growth by months from inaugurations, Obama, Bush II, Clinton, Bush I

[Update on February 2, 2013:  A more recent analysis of these issues, with these charts now covering the full first term of Obama, is available here.]

A.  Introduction

Mitt Romney and Republican Party leaders have repeatedly and emphatically asserted that Obama and the policies of his administration have been terrible for private sector job growth, and that voters should therefore bring back the Republicans and their policies.  Indeed, Romney has said his campaign is all about jobs.  At the same time, they’ve asserted that government and its bureaucrats have exploded during the Obama years, with this holding back private sector job growth.

But as the figures above show, private sector jobs have recovered under Obama, reversing the freefall that was underway as he was taking the oath of office, while government employment has contracted sharply.  In contrast, private jobs were stable when George W. Bush took office, but then started to fall and fall sharply, while government jobs rose.  By 38 months into his first term, there were 2.4 million fewer private sector jobs in the US economy than on the day Bush was inaugurated.  Yet Romney repeatedly lambasts Obama for his jobs record, while he argues for bringing back the policies of Bush.

They figures show the cumulative change in private and in government jobs between January of the year the Presidents were inaugurated, to the March that was 38 months (a little over three years) later.  The March date 38 months later was chosen as that is the most recent date for which data is available for Obama.  The data all come from the Bureau of Labor Statistics.  The graph on government jobs is similar in presentation to that used by Paul Krugman in a posting on his blog yesterday.  The government jobs issue was also reviewed in a posting on this blog site over four months ago, which noted the collapse in government jobs during the Obama years (while they grew under Bush), and discussed how this has hurt overall job growth in the economy.

B.  Private Sector Jobs

Private sector jobs were falling rapidly in the period leading up to Obama’s inauguration in January 2009, as has been discussed before in this blog (see in particular the figure at this posting).  While the pace of decline was turned around almost immediately (within three months of Obama taking office), the number of private sector jobs continued to decline in Obama’s first year.  But jobs in the private sector then began to grow, and by March 2012 (the most recent figure available) they are almost back to where they were when he took office.  While this represents a growth of over 4 million private jobs over the past two years, the hole was a deep one.  The economy was hemorrhaging 800,000 jobs per month at the end of the Bush administration.  One would have of course wanted a more rapid recovery from this deep hole, but Republican opposition in Congress has blocked the measures that would have been needed to get this done (such as further stimulus).

But while one would have wanted a more rapid recovery from the 2008 economic collapse, contrast the record of Obama with that of George W. Bush in the first term of his administration.  Private jobs were growing in the final months of the Clinton administration, and were flat in the first two months of the Bush administration.   But they then began to fall (with the fall well underway before the September 11 attacks, so one cannot blame them).  The steady decline in private sector jobs continued for two and a half years, and at the trough there were 3.4 million fewer private jobs than when Bush took office.  They then began a slow recovery, but by 38 months into his term there were still 2.4 million fewer private jobs than when Bush took the oath of office.   Yet Romney and his economic advisors (most of whom held high positions in the Bush administration) advocate bringing back the policies of Bush.

The graph also shows private job growth for similar periods in the Clinton administration and in the administration of the elder George Bush.  Under the Democratic administration of Clinton, there was steady and strong private sector job growth throughout the period being followed here (and indeed throughout his two terms).  Under the Republican administration of the elder George Bush, there was some, but weak, private job growth in his first year and a half in office, but then private jobs fell, so that by 38 months into his term they were close to where they had been when he started.  Put another way, after one year in office up to the point 38 months into their respective terms, private jobs rose by over 4 million under Obama, but fell by 1.4 million under the elder Bush.

C.  Government Jobs

The story commonly told about growth in government jobs under the different Democratic and Republican administrations is also a false one.  Total government jobs have fallen during the Obama term, but grew sharply during the terms of both Bush administrations.  They also grew during the Clinton period, although by less than in either of the two Bush terms.  (Note that the sharp spike, and then after a few months a reversion to the previous trend, at a little over a year into both the Obama and first Bush administrations, is due to temporary hiring for the decennial census.)  Keep in mind that government employment in the US is mostly state and local government employment, with federal employment only a small share (13% currently).  But under Obama, non-defense federal employment has fallen as well (discussed in this blog posting).

Positive government job growth during the Obama period, similar to that seen during the two Bush administrations, would have helped spur the recovery.  But federal support which would have saved the jobs of teachers, police, and others has been blocked by Republican opposition, while cuts at the state and local level have been driven not only by deficit concerns but also by ideology.  Indeed, prominent Republican governors such as Scott Walker in Wisconsin, Chris Christie in New Jersey, John Kasich of Ohio, Rick Perry of Texas, Rick Scott of Florida, and others, have celebrated their slashing of state and local government employment, often while cutting taxes at the same time.  The job cuts have been unprecedented.

D.  Conclusion

The Republican stories on jobs are myths, and not consistent with the facts.  Private sector jobs have recovered under Obama, and have grown by over 4 million jobs once the downturn Obama inherited was stopped.  One would have hoped for a faster recovery, but further efforts to spur the recovery have been blocked by Republican opposition in Congress.  And the story should be compared to that in the first term of George W. Bush, where there were 2.4 million fewer private sector jobs than when he took office, at the comparable point in his term.

The story told about government job growth under the different administrations is also false.  Government jobs have been slashed sharply (mostly at the state and local level) during the Obama period, which has hurt the economic recovery.  In contrast, government jobs grew significantly under both Bush administrations, and grew but by somewhat less during the comparable Clinton period.  Positive government job growth during the Obama period, had it happened, would have helped spur the economic recovery.

Taxes are the Lowest in Over a Half Century: But Low Taxes Have Spurred Neither Growth nor Jobs

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US Federal Government Revenues as Share of GDP, 1960-2011, Federal Taxes, Federal Receipts

A.  Introduction

Personal income tax returns in the US were due last week.  With taxes on most people’s mind, blog postings on taxes in the US are perhaps timely.  This initial post will focus on how much has been paid in taxes in recent years, and whether there is any evidence for the assertion that high taxes have slowed economic growth and job creation.  Although it may not feel like it to those have just paid their taxes, the share of taxes in GDP has been at record lows during the Obama administration.  Subsequent posts will look at some of the idiocies in the tax code that we as filers face each year, and then at reforms to the tax code, both relatively straightforward (within the current basic structure) and more fundamental.

B.  Taxes Have Been at Historic Lows

As noted in a recent posting on this blog, Mitt Romney has repeatedly asserted that high taxes under Obama, due to tax increases under Obama, have led to the disappointing recovery from the 2008 economic collapse.  Mitch McConnell, the Republican leader in the Senate, has stated repeatedly in recent years (here is one example) that the US fiscal problem is “because we spend too much, not because we tax too little”.  And the new Republican term for the super-rich is that they are the “job creators”, and that therefore taxes on them need to be kept low and cut even further so that they will then “create” new jobs through some kind of trickle-down process.

Yet taxes as a share of GDP are the lowest in over a half century in the US (and in fact since 1950).  The graph at the top above shows total federal government revenues as a share of GDP, going back a half century to 1960.  Taxes (from all sources, not just individual income taxes) averaged almost 18% of GDP over this period, but began a clear downward trend from 2001.  The data is from the historical tables made available by the Office of Management and Budget, with data that goes all the way back to the founding of the republic in 1789.

The Bush tax cuts of 2001 and 2003 account for the change in trend.  With this change in trend, coupled with the effects of the 2008 economic collapse and then the further tax cuts (not tax increases) signed into law by Obama (discussed below), taxes as a share of GDP reached a low of just 15.1% of GDP in FY2009.  And with the tax cuts under Obama, taxes as a share of GDP remained at just 15.1% in FY2010, at 15.4% in FY2011, and are projected to be just 15.8% of GDP in FY2012.

Such a low tax take is unprecedented in the post-World War II United States.  Since 1950, taxes were never below 16% of GDP for any individual yearn prior to 2009, despite a number of economic downturns, much less so low for four years straight.  It is hard to see how our problems are from taxing “too much” when taxes are the lowest they have been in over 60 years.

Taxes collected in FY09 were low in part due to the 2008 economic collapse.  But the economy has been in recovery since the middle of CY2009, albeit weakly.  Despite this recovery, and in contrast to the experience in previous cyclical downturns, fiscal revenues have remained at record lows.  Average fiscal revenues over the three year period of the year of the economic trough plus the following two years were only 15.2% of GDP in the current downturn.  The similar average fiscal revenues over such three year periods in the other five economic downturns of the past four decades were 17.9% of GDP.  Cyclical factors cannot explain the current extremely low levels of taxes as a share of GDP.  Rather, taxes have been so low due to the downward structural trend that began with the Bush tax cuts, compounded then by further tax cuts signed by Obama.

As was noted in the earlier posting on this blog on Romney’s economic policy address, between February 2009 and February 2012 Obama signed into law almost $1.5 trillion of tax cuts.  For convenience, here is the table shown in that post, although with the Payroll Tax cuts now consolidated into one line:

 

Tax Cuts Signed Into Law by Obama    
  Date Signed Amount ($b)
A.  Tax Provisions in 2009 Stimulus Package 2/17/09 $420.0
B.  2010 Tax Cut Package, excl Payroll Tax Cut 12/17/10 $769.3
C.  2011 and 2012 Payroll Tax Cuts 12/17/10, 12/23/11, and 2/22/12 $227.1
D.  Other – Various Dates in 2009 and 2010 various $64.2
TOTAL   $1,480.6

The $1.5 trillion cost estimate is from figures posted by the bipartisan Committee for a Responsible Federal Budget, which in turn came from estimates obtained from either the Congressional Budget Office or the Joint Committee on Taxation of the US Congress.  One can also obtain from these sources estimates of how much of the tax cuts would occur by fiscal year, and the estimate, when added up, is that $1.4 of the $1.5 trillion in cuts were in fiscal years 2009 to 2012.  These are estimates, made before the fact and subject to uncertainty, but suffice for the basic point here.

Taking these tax cuts as estimated by fiscal year, expressed as a share of GDP, one finds:

      Impact of 2009-2012 Obama Tax Cuts
Taxes/GDP:  Actual 2009-2012 Tax Cuts Enacted Taxes/GDP If No Tax Cuts
FY09 15.1% 0.8% 15.8%
FY10 15.1% 2.1% 17.2%
FY11 15.4% 2.9% 18.3%
FY12 proj. 15.8% 3.2% 19.1%

The tax cuts were large, especially from FY2010 onwards.  While taxes as a share of GDP would still have been a relatively low 15.8% of GDP in FY2009 (reflecting the downturn which reached its trough that year), taxes in the subsequent years would have been close to what they have normally been since 1960 (an average of almost 18% of GDP).  That is, while taxes as a share of GDP were low in FY2009 largely due to the downturn, they have since remained at historically low levels largely due to the tax cuts signed by Obama.

Critics will of course state immediately that without the tax cuts signed by Obama, GDP recovery would have been even slower.  This is true, given the recession.  But a reduction of GDP of two or three percent or more, while of course not to be welcomed, would not have had a major impact on these figures on GDP shares of taxes.  The denominator would have just been reduced from 100% to 98 or 97%.  Furthermore, a reduction in the denominator would (by simple arithmetic) have raised, not lowered, the GDP shares of taxes.

While a more complete modeling exercise would have been desirable, it would still have been a model and subject to all the limitations and criticisms any model will have.  The point being made here is just the simple one that the tax cuts signed by Obama were big, and that they were the primary factor leading to the historically record low shares of taxes in GDP during Obama’s term, especially from FY2010 onwards.

C.  Do Lower Taxes Lead to Faster Growth in GDP or Jobs?

Mitt Romney and the Republican Party leaders also repeatedly assert that cuts in taxes, including on the rich, will lead to faster growth in both output (GDP) and jobs.  The super-rich now have the new name of “job creators”.  But is there any historical evidence to support this?

The following table shows for the US by decade, since the 1960s, the average collection of taxes as a share of GDP, growth in GDP and in jobs over the decade, and the average highest tax bracket on ordinary income in the tax code (the rate the super-rich will pay on ordinary income) in the decade:

Taxes/GDP Period Avg GDP Growth Rate Jobs Growth Rate Highest Tax Bracket – Period Avg
1961-1970 18.0% 4.3% 2.8% 78.4%
1971-1980 17.9% 3.2% 2.5% 70.0%
1981-1990 18.2% 3.2% 1.8% 44.2%
1991-2000 18.8% 3.3% 2.0% 37.9%
2001-2010 17.1% 1.6% -0.2% 35.8%
Bush term:
2001-08 17.6% 2.2% 0.2% 36.0%

Sources:  Taxes/GDP and GDP growth calculated from OMB Historical Tables; Job growth from Bureau of Labor Statistics; and Highest tax bracket from Tax Policy Center.

Taxes as a share of GDP did come down, and were at their lowest of any decade, in the 2001-2010 period.  The decade average for the highest tax bracket was also the lowest.  But while GDP grew by between 3.2% and 4.3% a year in the preceding four decades, growth fell to just 1.6% a year in the decade with the lowest taxes.  Job growth was between 1.8% and 2.8% a year in the preceding four decades, but fell to a negative 0.2% when taxes on the “job creators” were at their lowest.  The bottom line of the table also shows the figures for just the Bush term of 2001 to 2008, before the full effects of the 2008 downturn were felt, to show that these results are not simply a consequence of the downturn in the final years of the decade, weighing down the decade long results.

Such a comparison across periods is simplistic, of course.  There is much else going on.  But there is no evidence here that the Bush tax cuts, and the recent tax cuts keeping taxes low, have led to a long-term structural rise in the growth rate of the economy, or of the jobs being generated.  The evidence that exists is completely inconsistent with this, and indeed by itself it consistent with the opposite.

D.  Conclusion

To summarize:

1)  Taxes as a share of GDP are now at record lows, and have been since Obama took office.

2)  Other than in FY2009, when the economy was at its trough following the 2008 collapse, the record low share of taxes as a share of GDP has been largely due to a series of very large tax cuts signed by Obama.  That is, the shares of taxes have remained at record lows largely due to policy, and not due to the weak economy.

3)  There is no evidence from US history of the past half century which would suggest that lower tax collections or a lower tax bracket for the super-rich will lead to a higher growth rate for the economy or for jobs.  In fact, the downward trend in taxes since the Bush tax cuts of 2001 and 2003 has been associated with the lowest decade long growth rates of GDP or jobs of the past half century.

A previous posting on this blog showed that the US public debt problem (with a rising public debt to GDP ratio) is fully due to the impact of the Bush tax cuts.  That blog posting showed that simply be phasing out the Bush tax cuts from 2014 onwards, the public debt to GDP ratio would be brought back down over time, rather than grow explosively (if there is no change to current policy).  The Bush tax cuts by themselves account for the US fiscal problems of at least the next decade.

With record low tax collection as a share of GDP, with the downward trend in tax collection a consequence of the Bush tax cuts of 2001 and 2003, with subsequent extensions of these tax cuts signed by Obama along with other major tax cuts passed as part of the stimulus package and in payroll taxes leading to record low tax collections in the US as a share of GDP, and with no evidence that the lower taxes of the past decade have led to higher long term growth rates of the economy or of jobs, it is difficult to see how the current economic difficulties are due to taxes that are too high.  To deal with a problem, one must first recognize its origins.  The Bush tax cuts were a disaster for the economy, and restoring tax rates (over time, once the economy is in a more solid recovery) to what they were in the 1990s would solve America’s fiscal problems.

Mitt Romney’s Economic Policy Address: Full of Factual Errors

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On March 19, Mitt Romney presented at the University of Chicago a (mercifully short) policy address that laid out his criticisms of Obama’s economic policies (see here for a transcript).  The primary theme was that under Obama, high taxes and an overbearing regulatory burden have stifled “economic freedom” and that “The Obama administration’s assault on our economic freedom is the principal reason why the recovery has been so tepid”.

Romney’s address is interesting as it illustrates well how even such carefully prepared addresses in the current Republican campaign have been replete with factual errors.  A listener to such presentations will normally presume that the speaker will have gotten their facts right, and they will distinguish factual statements with statements of opinion.  The listners may or may not agree with the opinions, but they will normally give the speaker the benefit of the doubt on factual statements.  Unfortunately, political discourse in this Republican campaign has degenerated to the point where numerous statements, carefully prepared and presented as fact, are simply not true.  But by repetition, it is not surprising that many in the American public have become confused into thinking such statements are true when they are factually wrong.

Perhaps the most basic and glaring of the factual inaccuracies in Romney’s speech (and a cornerstone of his argument in the speech) is his statements that taxes (and tax rates) have risen under Obama.  But federal taxes have been repeatedly cut under Obama, at a total cost to the budget of close to $1.5 trillion (as estimated by the bipartisan Committee for a Responsible Federal Budget):

Tax Cuts Signed Into Law by Obama
Date Signed Amount ($b)
A.  Tax Provisions in 2009 Stimulus Package 2/17/09 $420.0
B.  2010 Tax Cut Package 12/17/10 $880.9
C.  2012 Payroll Tax Cut Extension 12/23/11 and 2/22/12 $115.5
D.  Other – Various Dates in 2009 and 2010 various $64.2
TOTAL $1,480.6

$1.5 trillion in tax cuts is not small, and one would think hard to ignore, yet Romney asserts that big tax increases under Obama have stifled the recovery.  And in addition to the $1.5 trillion in tax cuts, there has not been a single tax increase under Obama.

In large part because of these policy actions cutting taxes, federal government revenue during the Obama presidency has been the lowest of any presidency since 1950.  Between 1951 and 2008, government revenues varied between a low of 16.1% of GDP and a high of 20.6%, and averaged 18.0%.  Revenues were 17.6% of GDP in 2008, the last year of Bush.  During Obama’s term, the share was 15.1%, 15.1%, 15.4% and a projected 15.8% for 2009 to 2012, respectively.  Yet Romney condemns increases in taxes as stifling the recovery.  It would be more accurate to say that major cuts in taxes have not led to a strong recovery.

It may well be the case that Obama would have preferred a better balance in the extensive tax cuts, and it is true that Obama has proposed selected tax increases (e.g. on those making more than $250,000, and a minimum tax rate on those making more than $1 million a year).  But these have not been enacted.  Yet Romney asserts that as a result of Obama, businessmen are facing a higher tax (as well as regulatory) burden, and that “those taxes and costs add up.  Businesses shut down.  Jobs disappear.  Entrepreneurs decide it’s too risky and too costly to invest and to hire.”

The other half of the Romney assertion (in addition to big tax increases), is that Obama has burdened businesses with stifling regulations.  Yet as has been noted before in this blog, productivity growth has in fact been quite strong during the Obama term.  Stifling regulations would have hurt productivity, yet multifactor productivity rose in 2010 by more than it had in any other single year since the data series began in 1987 (see here); labor productivity has increased in the current recovery at a pace similar to the highest it has in any recovery in the past four decades in the US (see here); and the increase in labor productivity under Obama while wages have been flat have in fact led to a sharp rise in profits of American businesses (see here).  None of this is consistent with Romney’s assertion that burdensome regulations under Obama have held back businesses.  Rather, businesses are not producing and employing more because there is not a demand for what they can produce (and profitably produce; see here).  And demand has been deficient in large part due to the reduction (not increase, as Romney asserts) in government demand (see here).

Romney supports his assertion that overbearing regulations under Obama have led to the slow recovery simply through several anecdotes.  But his choices of anecdotes are interesting, as the specific ones cited stem from cases that arose during the Bush administration.  Specifically, he asserts that over-reaching regulators “would have banned Thomas Edison’s light bulb”.  And then immediately says “Oh yeah, Obama’s regulators actually did just that.”  But actually, Obama’s regulators are enforcing a law passed and signed by Bush in 2007.  I assume that Romney would have complained even more loudly if Obama had chosen to ignore a law that is on the books, despite his constitutional requirement to enforce the laws.

Another example is of a case where the EPA was enforcing a law against development of land in a wetlands area, with Romney saying the regulators would not even allow the individuals to pursue a case in court against it.  But the Supreme Court in fact issued a decision on the case the same week as Romney’s speech in Chicago.  And most relevant is that the EPA originally moved to protect this wetland in 2005, in the first year of Bush’s second term.  This was not a case brought under Obama.  But Romney did not blame over-zealous regulators under a Republican administration.

Romney also makes the claim that the federal government has exploded under Obama, with 140,000 new federal employees hired.  But the figures on federal government employment issued by the Bureau of Labor Statistics (as part of their statistics on employment in all of the main sectors) shows that federal government employment only rose by about 30,000 between January 2009 and February 2012 (a total increase of 0.9% over a period of more than three years, or 0.3% per year).  Furthermore, if one excludes an increase of 60,000 in civilian Defense Department workers, federal government employment in fact fell by 30,000 over this period.  It appears that Romney is quoting a figure on federal employment that excludes US Postal workers, even though the official statistics of the BLS includes them.  Even if one makes this selective choice of what statistics to cite, an increase of 140,000 federal workers (excluding postal workers), is an increase at a rate of only 2.2% per year.  This is not an explosion.  And Romney ignores the sharp reductions of state and local government workers in recent years.  Total government workers (state and local, as well as federal) have fallen by 580,000 over this period, contributing directly to a substantial share of the unemployed.

Romney also criticizes Obama on some more substantive points, on which differences of opinion are fair.  Specifically, he criticizes the Dodd-Frank bill that changes regulation of the financial sector, which Obama signed into law, and he criticizes changes in regulation of oil and gas drilling in the Gulf of Mexico.  On matters such as these, there can be substantive differences, and political campaigns should center on such issues.  However, I would have thought it would be clear that after the biggest financial meltdown in US history, caused by absence of regulation to control the risks that built up in the financial system in the housing bubble, that better and smarter financial regulation was needed.  And after the Deepwater Horizon off-shore oil platform blew up in 2010, with loss of life and almost 5 million barrels of oil released to the sea, that better regulation of such drilling activities was needed.  Romney and other political figures may disagree, but that is what elections are for.