Tag Archives: Republican campaign

Red States vs. Blue States: Lower Incomes and Less Growth in Texas

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State-Level Real GDP per Capita as Ratio to US, 1997-2012

A.  Introduction

Texas Governor Rick Perry’s speech on March 7 to the annual CPAC (Conservative Political Action Conference) meetings was described by various news web sites as “a barn burner address” that wowed the conservatives, as “a rousing speech that was one of the best-received of the conference so far”, as a “fiery speech that ignites CPAC”, as a speech that brought “the audience to its feet and eliciting loud cheers”, and that “received huge applause throughout his rousing speech”.

Rick Perry has been Governor of Texas for more years than any other governor in Texas history.  He was elected Lieutenant Governor in 1998, and became governor in December 2000 when George W. Bush resigned to become President of the US.  Perry was then elected governor in his own right three times (in 2002, 2006, and 2010), the first Texas governor to be elected to three four-year terms.  He is not now running for a further term, and thus will step down following the election later this year.  It is widely assumed he will once again seek the Republican nomination for the Presidency in 2016, and many interpret his CPAC address as confirming this.  He is well known for the failure of his 2012 campaign seeking the Republican nomination, when he quickly went from front-runner to quitting following a series of goofs.  The best known was in one of the debates with the other Republican contenders, when he said he would close three cabinet level departments in the federal government but could only remember two, in his famous “oops” moment.

Perry’s speech at CPAC set forth what will likely be a major theme of his upcoming presidential campaign:  the contrast between the great performance (in his view) of red states (conservative states that generally vote Republican) and the terrible performance of blue states (liberal states that generally vote Democratic).  As the longest-serving governor of the premier red state of Texas, it is not surprising that Perry would say this.  But what has the performance actually been?

B.  Real GDP per Capita

The graph at the top of this post presents one key measure:  real GDP per capita, presented as a ratio to the US average.  Texas is shown (in red), along with two of the top blue states:  Massachusetts (in blue) and New York (in green).  The figures are calculated from data issued as part of the GDP accounts by the Bureau of Economic Analysis (BEA), which provides such data at the state level GDP on an annual basis (with 2012 the most recent available).  The current series goes back only to 1997, before which the state-level figures were calculated on a different basis, and thus are not directly comparable to the later figures.  But 1997 is also the year before Perry was elected Lieutenant Governor, so it provides a suitable starting point.

As the graph shows, real per capita GDP was substantially higher in Massachusetts and New York than in Texas in all of these years.  Indeed, per capita GDP in Texas actually fell relative to that for the US as a whole from 1998 to 2005 (meaning growth in Texas was slower than in all of the US over this period), after which it started to recover.  The oil boom resulting from the sharp escalation in oil prices from the middle of the last decade was certainly a factor helping Texas in recent years.

And it is not only in terms of real income levels where Texas has lagged.  Texas has also lagged Massachusetts and New York in terms of overall growth since 1997.  Real per capita GDP rose by 30.4% in Massachusetts over 1997 to 2012 and by 28.9% in New York, but only by 21.7% in Texas:

State-Level Growth of GDP per Capita, 1997 - 2012

C.  Personal Income per Capita

GDP per capita is the broadest measure of income generating activities in a state, but not all of GDP goes to households.  Part will go to corporations (and not distributed to households via dividends).  It therefore is also of interest to look at per capita personal income by state, again relative to that for the US  as a whole:

State-Level Personal Income as Ratio to US, 1997-2012

Once again one finds this measure of income to be far higher in the blue states Massachusetts and New York than in the red state of Texas.  But what is different and interesting is that personal income per capita in Texas is seen to be also below personal income per capita for the US as a whole.  A higher share of GDP generated in Texas goes to corporations than is the case for the US as a whole.  GDP per capita in Texas is somewhat above the US average (although not as much above as in Massachusetts or New York), but personal income per capita, once one subtracts the share going to corporations, is lower in Texas than for the US as a whole.

D.  Conclusion, and Re-Nationalizing the Postal Service

Conservatives, including not surprisingly Governor Perry, hold up Texas as the ideal which they want the nation to emulate.  But GDP per capita is lower in Texas than in the blue states of Massachusetts and New York, and has grown by less in Texas than in Massachusetts or New York over at least the last fifteen years.  In addition, personal income per capita is not only lower in Texas than in Massachusetts or New York (and very much lower), it is even lower than the US average.  Corporations account for a disproportionate share of incomes earned in Texas.

Perry closed his speech to CPAC, to cheers and loud rounds of applause, by declaring that the federal government should “Get out of the health care business, get out of the education business”.  Presumably this means Perry wishes to end Medicare, and that federal government assistance to students and schools up to and including universities should also end.  It is not clear, however, he has thought this far ahead on the implications of what he is calling for.  Calling for the end of Medicare, as conservatives have in the past, is not currently a popular position.

But while Perry said the federal government should “get out” of health and education, one area where he appeared to call for expanded federal responsibility was in the running of the postal system.  The proper federal focus, as established in his reading of the constitution, should be on defense, foreign policy, and to “deliver the mail, preferably on time and on Saturdays”.

The constitution does indeed call on the federal government to ensure postal services are made available.  But while this was done through a cabinet level department under the US President for many years, since 1971 the postal service has been run as a government-owned but independent establishment, run like a private corporation with its own board.  It is not fully clear what Perry means by arguing the federal government should return to its original mission vis-a-vis postal services, but the implication appears to a be reversal of its 1971 conversion from a cabinet level department to an independent agency run along private lines.  That would be an odd position for a conservative.  But I suspect he has not really thought this through.

Virginia’s Falling Tax Revenues: Cuccinelli Would Cut Them Further

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Virginia State Taxes as share of Virginia GDP, FY 1972-2012

A.  Virginia’s Falling State Tax Share

Virginia state tax revenues have been falling as a share of Virginia GDP for decades, as the graph above shows.  Yet predictably, a major plank in the proposals of the Republican candidate for governor, Ken Cuccinelli, is that Virginia state taxes should be cut further.

The line in the graph was calculated from figures on state tax revenues from the US Census Bureau (which collects such data on a consistent basis for all fifty states), with the figures on Virginia state GDP from the Bureau of Economic Analysis (which publishes state figures with its regular GDP accounts).  The downward trend is clear, and a regression line fitted to those figures (in red) confirms it.

With Virginia taxes lower now as a share of income than they were before, it is hard to see how one can argue, as Cuccinelli does, that they are too high and act as a hindrance to economic performance.  The taxes were higher as a share on income in the past, and economic performance then was good.

But the lower share of state taxes in income, coupled with the implications of Baumol’s Cost Disease (discussed in a previous post on this blog), does explain why Virginia state government services are so much worse now than they used to be.  Sub-national governments must over time limit their public expenditures to what they raise in tax revenues (with a limited ability to shift some of these across time through issuance of state bonds), and Virginia has been a particularly strict adherent to such budgetary rules.  With lower revenues, the state government has no longer been able to provide the public services it once had.

I grew up in Virginia in the 1960s, and at that time Virginia took pride in the quality of its public services.  The state highway system was one of the best in the nation.  State universities such as the University of Virginia and William and Mary were among the best state schools in the country, and also ones where good students graduating from high schools in Virginia could reasonably aspire to getting in as spaces were adequate.  This is no longer true.

B.  The Cuccinelli Tax Plan

Virginia is one of only two states holding gubernatorial elections in this off-year (New Jersey is the other).  The Republicans nominated Ken Cuccinelli, the current Attorney General, as their candidate.  Cuccinelli is best known for his support of a radically conservative social agenda.  His tax plan is similarly a radically conservative proposal which would cut revenues drastically.

The key elements of Cuccinelli’s plan are to:

1)  Eliminate the current top individual income tax bracket in Virginia of 5.75%, replacing it by extending the current 5% second highest bracket;

2)  Cut the Virginia corporate income tax rate from 6% to 4%;

3)  Establish a commission to propose further tax cuts;

4)  Close “loopholes” to raise as much in revenue as would be lost through the cuts in the tax rates;

5)  Cap growth in Virginia state government expenditures to the rate of inflation plus population growth.

But note on each of these proposals:

1)  Eliminating the top tax bracket, and only the top tax bracket, of 5.75%, means that only those households paying the top tax bracket will benefit from lower rates.  By construction, only the richest households will benefit.  The Commonwealth Institute for Fiscal Analysis, a nonpartisan institute based in Richmond, has estimated that fully three-quarters of the benefits from this lower tax rate will accrue to households earning more than $108,000 a year, and that 25% will go to the richest 1%.

2)  The corporate tax rate would be cut by a third, a huge cut, and would bring Virginia’s rate to the lowest of any of the 44 states in the US that have a corporate income tax.  The other six states follow a different tax structure.

3)  The mandate of the proposed commission would be to make even further tax cuts.

4)  It has now become the norm in Republican tax plans that while there is great specificity in the taxes that would be cut, there is no specificity at all on what taxes would be raised (other than that they are all “loopholes”) so that overall tax collections will remain unchanged.  Mitt Romney did this for his presidential campaign last year, and independent analysis showed that his plan was simply not mathematically possible.  Paul Ryan has similarly left undefined what loopholes he would close to raise sufficient revenues to offset his proposed cuts in tax rates, in the budget plans he has set out for the Republicans in Congress.

It would probably not be correct to say that Cuccinelli is keeping secret what tax loopholes he would close.  Keeping them secret would imply that he has looked at the issue and has a plan that he refuses to disclose.  There is no evidence that any such plan exists, much less any assessment of whether the revenues thus raised would offset the losses.  But it may be astute politically to propose sharp reductions in tax rates, while asserting that he will come up with the same in revenues by closing unspecified loopholes that one can believe only others benefit from, and not yourself.

5)  Capping growth in Virginia government expenditures at inflation plus population growth implies absolutely zero growth in real per capita terms.  But for an economy to grow, you need to grow supportive public services.  Hindrances such as a totally inadequate road and public transportation network result when you do not.

Cuccinelli’s tax plan is radically right wing, with sharp cuts in tax rates focussed on the rich and the corporate sector, while asserting with no evidence that it will be made revenue neutral by closing unspecified “loopholes”.  But this is consistent with Cuccinelli’s history of radically right wing policies, although in the past on social issues.  Cuccinelli has been strongly opposed to equal rights for homosexuals; believes that the police powers of the state should be used against couples for engaging in certain sexual acts in what most thought would be the privacy of their bedrooms; has insisted, as Attorney General, that new regulations be applied retroactively to shut down clinics providing health care services to women, in particular poor and minority women, since these clinics have provided also fully legal (and constitutionally protected) abortion services to women in need; has attacked basic academic freedoms by insisting that the University of Virginia turn over to him materials, including private emails, of a scientist doing research on global warming (he lost the case); co-sponsored a bill which would have declared that human life begins at the moment of conception under Virginia law, and hence women using certain forms of birth control (and presumably also their doctors) would be guilty of murder; within five minutes of Obama signing into law the Affordable Care Act to extend health care to the currently uninsured, Cuccinelli filed a case in court to block the act (he lost the case, and well before the Supreme Court ruling on the law); sponsored legislation which would not allow children of undocumented immigrants to become citizens, despite the US Constitution saying that they are; and more.

The one point on which all agree, liberal and conservative, is that Cuccinelli would radically change Virginia, if he has the chance.

The Republican Campaign to Shift the Blame for the Sequester To Obama: If You Don’t Want It, Pass a Simple Bill To End It

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John Boehner Obamaquester

It appears increasingly likely that the Congressionally mandated severe and across-the-board budget cuts, known as the sequester, will begin on March 1.  Serious negotiations are not underway, Congress is only back in session now after having been gone for most of the past two weeks, and public statements are not focused on negotiating an agreement but rather on shifting blame.  Should the sequestration budget cuts go into effect, not only will critical federal functions be suspended, but the sudden cuts in spending levels will likely push the country back into recession.  As was noted in an earlier posting on this blog, cuts in Government spending were already the primary cause for a fall in GDP in the fourth quarter of 2012 (according to the initial estimate, which may be revised).  More broadly, had government spending been allowed to rise following the 2008 downturn as it had during the Reagan presidency following the 1981 downturn, we would now likely be at full employment.

The situation is serious, but the new assertion by the Republican leadership that the sequester is there only at the insistence of Obama is almost farcical.  As part of this campaign, Speaker Boehner has staged events for the cameras such as that pictured above, behind a podium labeled with the hashtag “#Obamaquester”, and in front of a clock marked as “Countdown to #Obamaquester”.  Boehner is now asserting that the sequester is only there due to “the president’s demand”, and he refers to the cuts as “the president’s sequester”.

Even some of Boehner’s Republican colleagues find it absurd to try to blame Obama for the sequester.  For example, Representative Justin Amash, a conservative Republican from Michigan (who voted against the bill that set up the sequester mechanism) said:  “I think it’s a mistake on the part of Republicans to try to pin the sequester on Obama.  It’s totally disingenuous.  The debt ceiling deal in 2011 was agreed to by Republicans and Democrats, and regardless of who came up with the sequester, they all voted for it.  So, you can’t vote for something and, with a straight face, go blame the other guy for its existence in law.”

With these new assertions from Boehner and similar assertions from colleagues such as Congressman Paul Ryan (the Republican Chair of the Budget Committee in the House), it may be of interest to review briefly the history of how the sequester mechanism came to be:

  1. The sequester’s origin came from the strategic decision by the key Republicans in Congress in early 2011 to use the routinely required authorization to raise the public debt ceiling as leverage to force through drastic cuts in the budget.  Eric Cantor, the then new Republican House Majority Leader, was the principal architect and proponent of the strategy, which he proposed in January 2011 at a closed-door retreat of Republican congressional members in Baltimore.  He was soon stating publicly that the Republican controlled Congress should not approve an increase in the debt ceiling without drastic spending cuts.  
  2. What this meant was that they would hold the economy hostage to their budget demands, as a refusal to raise the debt ceiling would force the US to default on its debt.  While speeches and pontificating are routine whenever Congress has had to approve an increase in the nominal public debt ceiling, never before had such demands been attached to this approval.
  3. And default on the US public debt would be serious.  US Treasury Bonds are held as risk-free assets both in the US and around the world, and are indeed the foundation of the modern international monetary system.  The impact of default on such assets cannot be predicted with certainty, as it has never happened before, but the consequences could quite possibly throw the global economy into a downturn that would make the 2008 collapse look mild. 
  4. [As an aside:  While I am not a lawyer, the constitutionality of a refusal by Congress to raise the debt ceiling (and hence force a default on the public debt) looks to me to be questionable.  The Fourteenth Amendment to the Constitution (passed in 1866, following the American Civil War) reads in its Section 4:  “The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.”  In their oath of office, Congressmen pledge to uphold the Constitution.  They cannot then take actions (or defer taking action) which would violate the Constitution by forcing a direct default on the public debt.  However, as noted above, I am not a lawyer, and obtaining such Congressional approval for increases in the debt ceiling has been customary since substantial borrowing needs developed during World War I.]
  5. As the country was coming increasingly close to breaching the existing debt ceiling in July 2011, negotiations were underway at many levels in Washington.  I will not try to review them all here, but the most senior were direct negotiations between Obama and Speaker Boehner.  These talks broke up when Boehner was not able to convince his Republican congressional colleagues to support an approach that included even a relatively small share of revenue increases along with larger expenditure cuts.  In fact, Boehner had to reverse himself twice from tentative agreements he had reached with the President, as he could not get backing from sufficient numbers of his Republican colleagues in Congress.  At the time, Boehner stated publicly that the President had negotiated in good faith.  But in his op-ed piece in the Wall Street Journal this month, Boehner now says the opposite, and asserts the talks failed because the President had reversed his position.
  6. As the deadlines approached and it became clear that agreement would not be possible on a specific set of spending cuts and revenue increases, Jack Lew, then the head of the Office of Management and Budget in the White House (and soon likely to be US Treasury Secretary), suggested consideration of a mechanism that had been used in the 1980s, in budgetary negotiations during the Reagan term.  In its final form and as passed by Congress, the mechanism established a Joint Committee made up of 12 members of the Senate and Congress (split evenly between Republicans and Democrats), who would by a certain date (November 21, 2011) develop a plan to achieve $1.2 trillion in deficit reduction (over 9 years) through a combination of spending cuts and revenue increases.  If the Joint Committee could not reach agreement, an automatic cut in spending of $109 billion per year over nine fiscal years (FY2013-21) would be required, split evenly between Defense and non-Defense programs.  These automatic across-the-board cuts were known as the “sequester”, and were deliberately crude and draconian to serve as an inducement to the Joint Committee to reach an agreement on more palatable means to achieve a similar reduction in the deficit.
  7. The mandate of the Joint Committee was to reach agreement on measures that would reduce the deficit by $1.2 trillion over ten years.  Such measures could include both spending reductions and revenue increases.  And the revenue increases could be achieved not only by raising tax rates, but also by closing tax loopholes, cutting expenditures that are implemented via tax subsidies, and/or broadening the tax base.  But the Joint Committee never reached an agreement, as Republicans refused to agree to any revenue measures at all.
  8. At the time, Boehner, Paul Ryan, and other Republicans praised the sequester mechanism as a means to force what they were seeking.  Boehner famously said in a CBS interview on August 1, 2011, that he had gotten “98%” of what he wanted.  Ryan emphasized and praised the sequester mechanism in an interview on Fox News on August 1.  Following his recent reversal now to criticize the sequester, a YouTube video was even put together showing a series of Ryan statements over the years in favor of sequester mechanisms (including this one specifically) and statutory spending caps.  And a Power Point presentation put together by Boehner when he made the case to his Republican colleagues to vote in favor of the bill that established the sequestration mechanism, makes clear his approval of it at the time.
  9. Obama, in sharp contrast, had always wanted a clean bill authorizing an increase in the public debt ceiling, without additional conditions added on.  It is indeed rather absurd to think that Obama would want to see a bill passed that would deliberately tie his hands.  Obama had proposed alternative approaches to reducing the deficit, including in his FY2013 budget (in great detail) and during the negotiations with Boehner.  Obama still stands by these proposals.  But while the Republicans assert that Obama has not offered any such plans, the issue is rather that the Republicans have rejected the plans Obama has offered.
  10. Jack Lew only suggested the option of the sequester mechanism as a fallback if no agreement is reached, late in the negotiations when it became clear that agreement on a specific set of spending cuts and revenue increases would not be possible.  But Obama and Lew would have greatly preferred a clean bill without any such conditions.  It is absurd to say, as Boehner now does, that the sequester mechanism is there only because it was something Obama “insisted upon in August 2011”.

The automatic sequester will cut government expenditures by $85.3 billion over the remainder of the fiscal year, from March 1 to September 30, 2013.  If nothing is done, there would be further cuts of $109.3 billion in each of the next eight fiscal years to FY2021.  The $85.3 billion cut over seven months would be equal to roughly 1% of the seven month GDP.  With a multiplier of two, this would by itself drive down GDP by 2% from what it would be otherwise.  The Congressional Budget Office estimates that the US economy is producing at about 5 1/2% below what it potentially could be producing at full employment.  An additional 2% reduction would be significant.

Agreement is difficult in Washington, particularly in the current political environment.  But if Boehner, Ryan, and others now hold to the view that the sequester is a bad idea, there is a simple solution.  All that they would need to do would be to pass a simple bill which revokes it.  Obama would certainly sign it.  The budgetary mechanism would then revert to the standard process, and that standard process could be followed to determine whether certain public expenditures should be cut and by how much, and whether revenues should be increased by closing loopholes, cutting tax subsidies, raising rates, or some other approach.

But there is nothing that requires the sequester mechanism.  If Boehner, Ryan, and the others do not want it, they can pass a simple bill to end it.