Massive Federal Revenues Saved by Response to Economic Crisis

For all the Republican huffing and puffing about having to pay for unemployment benefits extension and state aid by the federal government in these hard economic times, as well as the right's ridiculous and debunk Laissez Faire economic ideas of doing nothing and "let the market handle it," there's one thing no one is telling you. Federal action on the economy saved at least enough revenue to pay for a good chunk of federal aid provided to the states.

In a recently published study on the impacts of federal intervention to rescue the economy from a second great depression, economists Mark Zandy and Alan Blinder estimated that those actions saved over 8 million jobs. But it's not just the saving of over 8 million jobs, but also how it happened overtime.  Have a look at this chart to see the aggregate of jobs saved with each quarter:

Jobs saved due to federal response

So what does this have to do with federal revenue? A few things. First, it's pretty clear cut that every job saved means direct additional revenue to the federal government in form of taxes (income or payroll). But saved jobs keep spending money in people's pockets, which means less businesses go bankrupt and thus a smaller loss in corporate tax revenues to the federal government. Spending also raises sales taxes for states and local government, reducing the need for additional federal aid.

So can a dollar figure be quantified from the number of jobs saved to see approximately how much federal revenue may have been saved from the response? I think so. If you take all the federal revenue (coming from all sources: individuals and businesses) and distribute it among the total population, you get something called a per capita federal revenue. Because loss of jobs, as we have seen above, not only affects the collection of individual but also business taxes, we will form our estimate by deducting from the per capita revenue a per taxpayer revenue - this would be the estimated loss of federal revenue due to the loss of a taxpayer (or a job). Every job saved is one taxpayer revenue unit saved.

Revenue per taxpayer can estimated from the percent of total US population that is 16 and over and not institutionalized (77% or about 237 million out of about 307 million total US population), the rough average percentage of of non-institutionalized population employed (60%), provided by US  Bureau of Labor Statistics, and factoring those into IRS data on per capita federal tax collected in 2007.

From Wikipedia according to the IRS, the 2007 tax collection per capita (as opposed to per taxpayer) in the US was $8528.22. For the purposes of this analysis, that is assumed to be the yearly average tax collected per capita.  That brings the quarterly tax collected per capita to $2132.06.  But since only 46% (this number is derived from the two above percentages, i.e. 60% of the over-16 non-institutionalized population) of the total population are employed and paying taxes (others are not either because they are under 16 or institutionalized) , the average federal revenue per taxpayer is roughly $4607.42 per quarter.

From this, we can use the jobs-saved data provided (quarter by quarter) by the Blinder and Zandy study, and find the total federal revenue saved over the response period (or since 2008): $135 billion. As is true for the vast majority of the jobs saved, the vast majority of this revenue was saved since after President Obama took office. This is not simply because he's been in office for most of the time of the response, but if you look at the chart above, you will notice that the job savings due to federal action (and thus the revenue savings) have accelerated rapidly since he beginning of Obama's term.

For the full calculations and numbers, you can review this spreadsheet/research document:

How much is $135 billion saved? Consider this: the most recent unemployment insurance extension costs the federal government only $34 billion. Federal aid to states in 2009 and 2010 combined cost the federal government $200 billion. The American Recovery and Reinvestment Act of 2009 committed $147 billion to building infrastructure. In other words, the money saved from the response alone could have paid for 65% of the total assistance to states, nearly all of the infrastructure spending the stimulus bill from last year, or paid for unemployment extensions the size passed last month almost 4 times over. Or, if you'd like, you can think of $135 billion as reducing the total estimated cost of the federal response by almost 10% (Blinder and Zandy put the total price tag of the crisis response at $1.59 trillion).

As the President likes to say, it's real money even in Washington.