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On How the First Segment of the Debate Should Have Gone

October 4, 2012 Leave a comment

If you watched the debate tonight, you’ll know that for what seemed like forever, Mitt Romney and Barack Obama talked in circles mostly about Romney’s tax plan and what it would or wouldn’t do to various groups of people. It started out with Barack Obama mentioning some numbers that various independent analyses have estimated based on the general premises put forward by Mitt Romney. It went on into what looked like Obama endlessly harping on numbers and facts that Romney had already shot down quickly and with acuity. Without regard as to who was right and who was wrong, the segment (and many others) clearly looked to be “won” by Romney. But before we dig into what happened/should have happened tonight, a little background is in order.

Background

The general premises of Romney’s tax plan as it has been previously outlined are as follows: he will cut rates 20% across the board (that is lower each bracket to 4/5s of its current rate); he will close loopholes and eliminate/limit deductions in order to make up for lost revenue; he will promote growth through benefits to job creators; he will not raise taxes on the middle class.

The primary independent analysis of this generalized plan found the following: that the plan would cost $5 trillion in revenue over the next ten years; that you could not eliminate enough deductions to prevent this from resulting in a tax cut for the upper class; and that the plan would either result in increases in taxes to the middle class (through deduction eliminations that exceed their rate cuts) or abandon the goal of revenue neutrality, thus expanding the deficit.

A refute of that analysis stated that the math could be made to work… if you define upper income as $100,000 or more, then those below it will see no tax increase, and those above it will be revenue neutral; of course that would be accomplished by increases for many of those making between $100,000 and $200,000 and decreases beyond that point.

It’s all complicated and full of assumptions and guesses, mostly because the plan has not been made specific enough to be accurately scored.

The Debates

Again, Barack Obama referenced the numbers from the analysis, especially the $5 trillion in lost revenue going mainly to the rich and the potential for an increase on middle class taxes. Then, Mitt Romney claimed that he would do no such thing. Romney claimed that he would not create a net reduction for upper income tax payers, and he would not enact any plan that would lose revenue once accounting for growth (I have a feeling that his growth assumptions are likely a bit fudged, but everyone gets to make assumptions). What followed was a mercilessly long back-and-forth during which Obama said “$5 trillion” at least three more times, and Romney cleverly and repeatedly made the case that no one can say what his tax plan will or will not do because it’s his plan and he will only enact a plan that does none of those things. It was difficult to watch and it should have exposed some gigantic holes through which Obama could have jumped, but didn’t.

What Should Have Happened

Let’s pick up after Romney said that any tax plan he enacted would not reduce taxes on the wealthy, would not increase taxes on the middle class and would remain revenue neutral (not cost any money). Here’s a potential Obama response:

“Ah, this is one of those etch-a-sketch moments. Look, it’s easy to look good in a debate when you argue for a plan that is completely different than the one you’ve been proposing all along. For months, we have heard you talk about helping the wealthy–you call them ‘job creators,’ and many of them are. But we know what you mean: you mean the wealthy, and you have always touted that your plan would give back to them. For months, you have stated that your plan was to cut tax rates across the board by twenty percent and make up for the lost revenue through undisclosed loophole and deduction elimination. Well, that math didn’t work out very well–it couldn’t be done. Now, you are telling us that whatever plan you enact will be one in which the math works. So let’s hear it. You’ve had more than enough time, Governor, to come up with a plan that adds up and to share it with the American people. If you want to change your plan now, for this debate, on national television, why not give us the details, and I’ll debate them.”

Romney’s response likely would have involved several of the things that he actually did say during the circular clusterfudge of dialogue. They probably would have included that many papers came out to dispute those studies, that the math did work, and that he isn’t changing his tune. In the name of specifics, he likely would have trotted out exactly what he said in the real-world debate: “one way, for instance, would be to have a single number. Make up a number — 25,000, $50,000. Anybody can have deductions up to that amount. And then that number disappears for high-income people. That’s one way one could do it. One could follow Bowles-Simpson as a model and take deduction by deduction and make differences that way.”

And then Obama could respond: “I understand that there are various reports that say various different things about Governor Romney’s tax plan and the numbers. I’ve read them, too. The ones that make Governor Romney’s math work do so by declaring those who make over $100,000 as part of the upper class, not the middle class. Now I don’t know about you, but I think that a lot of Americans making $100,000 would still consider themselves part of the middle class. A lot of them are stretched a little thin.

“I also want to point something out, and it’s important. I’ve noticed that Governor Romney talks a lot about the things that he will do or he won’t do. He says unequivocally that he will not raise taxes on the middle class. That he will repeal Obamacare ‘on day one.’ However, whenever he is asked for specifics, he doesn’t talk about himself anymore, and he doesn’t talk in absolutes. On taxes, he says ‘one could create a cap on deductions,’ and ‘one could follow Simpson-Bowles.’ He never commits himself to doing anything. He never reveals his true intentions. He doesn’t state that something should happen or will happen, but just that it could happen. Again, Governor Romney, you’ve had more than enough time to come clean with the American people on your tax plan. Do you keep the details of your plans secret because they’re too good? Is — is it because that somehow middle-class families are going to benefit too much from them?”

That last piece of sarcasm was actually an Obama quote, but I felt like when he used it nearly two-thirds of the way through the debate and mired in a rambling health care answer, it lost some of its punch. If it was a closing line in the opening segment, maybe it carries a little more weight. But what do I know?

Anyway, I was frustrated with this exchange. I thought Romney basically equivocated his way around the tax discussion and turned it into a debate about whose numbers you believe. I think that Obama should have made it about the lack of specifics and played on the tendency of Romney to say different things about his plan to different people, making him seem wishy-washy at best, pandering and dishonest at worst. That wasn’t the only part of the debate that went poorly for Barack Obama. Hopefully soon, I’ll discuss what a failure his answer about the role of government was, and lay out my own.

On Why I am Voting for Barack Obama

October 3, 2012 4 comments

This is part 3 of a 3-post, pre-debate series on my feelings about each candidate and why I am voting the way that I am voting this November. Part 1, “On What I Don’t Like About Barack Obama,” can be seen here, and part 2, “On Why I am Not Voting for Mitt Romney,” can be seen here.

Before I really dive into why I’m voting for Barack Obama, I want to comment a bit on the decision-making process in general. I’m going into my third post on the candidates and my voting decision, and I have not mentioned Bain Capital, tax returns, or dogs on cars; I have also not mentioned hope, change, great speeches, dog eating, socialism, or birth certificates. I do not mention this to say that I’m better or above the typical voter, but because I think that most people feel this way. Most people do not want to make decisions based upon rhetoric and superfluous controversies, but it’s the bulk of what they’re fed and hey, they want to eat. I’m trying an alternative diet.

So I’ve already listed why I have some qualms about Barack Obama. And I’ve also explained why I would cast my vote against Mitt Romney. But I also greatly prefer to be voting for something, not just against other things. Despite the rhetoric that Barack Obama cannot run on his record, I actually think he offers a great deal for which I want to cast my vote.

Race to the Top

If someone were to tell you that they wanted to get a large number of schools to improve by only providing funding to a select few schools and they would do so by providing competition among schools and school systems, you’d probably say “that sounds like a pretty good idea, Mr. Republican,” and Barack Obama would say “Thanks, but I’m not a Republican.” I think that education needs to improve, but that we already spend a great deal of money on it–enough to have a much better education system than we currently have in this country. I believe that reforms should be more locally-focused, as different solutions work for different environments. Race to the Top takes all of these things into consideration and lets school systems use their own methodology to reach improvement standards in a competition for national funds to go farther. I like this program so much and I feel that Obama doesn’t get nearly enough credit for it.

The Stimulus/Bailout

This is a strange topic for me because I actually agree that the stimulus didn’t work. If you got an air conditioning system in the summer and set the temperature to 70 degrees and it cooled the house to 80 degrees, you would probably have to call for maintenance and certainly wouldn’t consider it to be a properly-operating machine. Normally, this level of disappointment would be considered a negative for me. However, the difference here is that there were very real calls for each of the following: a) do nothing, b) stimulate only through tax cuts, and/or c) simply take the amount of the stimulus bill and divide it up to American taxpayers and send them each a check. To return to the air conditioning analogy, it’s 110 degrees outside and humid and grandma’s going to die if we don’t get air conditioning, so I’ll take the one that doesn’t do the job as well as it could have or is supposed to. It’s annoying to rely on a counterfactual, but I have no doubt that the economy and the depth of the crisis would be much worse off without the actions taken by Obama.

Centrism

This one may be surprising, but I think that Obama is an ideological liberal who chooses to govern as a centrist. I think that he wants (or wanted) to work with Republicans and find common ground, but the fact is that there really isn’t that much on which they agree. That doesn’t mean that Obama hasn’t tried, though. If you don’t believe me, you should watch his 2011 State of the Union Address or his “pass this jobs bill now” speech. You can’t help but notice a number of times that he touts ideas that are or at some recent point were popular with Republicans, with many of them being Republican proposals.

Gay Rights

Mostly, I’m referring here to the repeal of Don’t Ask Don’t Tell. I was in the Army when the repeal was announced and when it was made official, and maybe my unit was a little different, but no one seemed to care at all. Not a single work day was affected. This change was long past due. Standing up to support gay marriage was a nice gesture and many of my friends in the LGBTQ community appreciated it immensely, but I think the accomplishment of making a change to a stubborn institution like the military was incredibly significant. In a second term, I would hope for a continued expansion of rights for this community, and have reason to believe that it will happen.

Military Strategy

Another strange one. Things are not going particularly well in Afghanistan, I know. I have previously written that it is time for the troops to come home, and I wrote just two days ago about my mixed feelings about unmanned drone strikes. However, suffice it to say that I saw real changes made in Afghanistan that I think would have possibly sent the conflict in a different direction if they had been enacted earlier in the process, primarily rules of engagement that addressed the problem of creating new enemies with each attack, the embedding of Special Forces units into Afghan villages, and outreach to the female population who had been completely ignored for the first 9 years of the conflict. It was far too little far too late, but I thought them worth mentioning.

Completion

I will conclude my comments by stating that I want to see Obama’s policies played out through their completion. The rhetoric from the opposition that the president is running this country into the ground ignores the reality that the country had been run into the ground when Obama arrived. In the eight previous years, the country went from peace, surplus, and a dipping but still strong economy to two wars, doubled debt, massive deficits, and a financial crisis. These things may have been part of a broader trend over the past 30-40 years, but nothing was done in those eight years to stop the coming destruction. Barack Obama is moving incrementally in a different direction from the previous eight years–or at least attempting to do so. Before judging or cutting bait, I want to see where these policies lead, and I think that Obama has had enough successes in other arenas to earn the allowance of letting these policies play out.

On the Monthly Jobs Report

I don’t remember exactly when it happened. I think it was some time while I was in Afghanistan. Maybe having a regular piece of news from the states helped count down the months until I returned. Or maybe it was because each month, you have this little piece of hope and optimism begging for tangible evidence that the U.S. economy will, in fact, get better. Maybe it’s something a little wonkier than that and was just part of my growing appreciation for economics. Whatever the reason, sometime within the past 18 months, I’ve become obsessed with the monthly jobs reports.

It’s a little embarrassing, really. I have on at least two occasions declined the chance to stay out late on Thursday nights because I didn’t want to sleep through the Friday 9:00 am release of the numbers. This past semester, I was lucky enough to have one early Friday class that forced me to be awake, and then a clear day behind it so I got to devote plenty of time to jobs coverage. My normal routine is to start on Fox News. I know enough myself to be able to digest and interpret most of the numbers, but part of the fun of the monthly job report is watching all the spin, and nobody spins like Fox News. After getting a healthy (often infuriating) 30-45 minutes on Fox News, I’ll hop around from CNN to MSNBC and if I happen to be in a car that day at the right time, I of course tune into NPR (and yes, I know that radio is available outside of cars).

Having said all of that, the next part might come as a bit of a surprise coming from me: We have to calm down about the monthly jobs report. I guess this is mainly a media/political pundit problem. I’m sure telling casual readers of my blog to calm down about the jobs report may count as preaching to the choir, but I hope that this post might serve as a sort of viewers’ guide as far as how NOT to interpret the monthly jobs report… or at least its coverage.

The most important thing I have to say here is that each month is not an isolated event. Remember in December, January and February, when the monthly jobs reports were beating expectations and the Obama administration and many Democrats greeted each new report with an accompanying statement that this was proof that the economy was on the right track? And here we are this week after the job growth numbers have failed to meet expectations for 2-3 consecutive months and now Mitt Romney has repeatedly stated that this is clearly proof that Obama’s policies have failed. Of course, if June’s numbers prove that Obama’s policies have failed, what did February’s numbers tell us?

You see, one month cannot “prove” anything. And if anyone uses one month as “proof,” they set themselves up to be proved wrong a month or two later when the report goes a different direction.  When the Obama administration claimed that a monthly jobs report, on its own, could prove their point, they left themselves open to the counter attack when the bad news came… and the funny thing is that we knew it was coming.

When seeking out the most objective economists’ opinions, it becomes a lot easier to keep things in perspective. When those higher-than-expected numbers were flowing at the beginning of 2012, many economists theorized that the unseasonably warm weather was causing some hiring to “borrow” from the Spring by hiring workers earlier than they normally would. Those economists predicted lower-than-expected numbers for Spring, just as we have been seeing.

Furthermore, you may have heard a lot of Republicans claiming that the unemployment number was dropping only because the labor force was shrinking (a claim that was often true for individual months, but is untrue when looking at the broader trend over the past 6-8 months). Because the labor force participation rate has been low coming out of the recession, many economists suggested that as the unemployment number fell, many people would see signs of improvement and resume their job search, thus pushing the unemployment number back up a little, something like what just happened in going from 8.1% to 8.2% this month.

Like I said, looking at the broader trend and the numbers through a long-term scope, we all should have known what kind of jobs reports to expect this Spring. When the unemployment rate unexpectedly fell from 8.5% to 8.3% in a single month, my first thought was, “That’s probably going to start to tick back up soon.” When new jobs were far outpacing expectations, I thought, “This won’t last.” The numbers told us to think that. Honest economists told us to think that.

But when each individual month is looked at in a vacuum and politicized to the maximum degree, a bad jobs report seems like the end of the world, and a good jobs report seems like cause for a national celebration. Clearly, neither is true. And I think that I would enjoy my little ritual on the first Friday of every month a lot more if the people covering the numbers were honest enough to admit that.

On Taxes and Theories

April 16, 2012 1 comment

There’s a popular theory about taxes and economic policy that has been so effectively espoused (primarily by Republicans) since the early 1980s that it has been accepted as fact to many in America. It’s a pretty simple theory: lower taxes equal higher growth; higher taxes equal slower growth.  It’s a pretty common sense theory.  It’s based on sound mathematics.  I’m an economics major, myself. I’ve personally done multiple calculus problems that indicate that higher taxes are bad and lower taxes are good.

However, those math problems are extremely limited, and their results are theory, not fact.  You see, in basic economics, incomplete models are used. Models that are based on a lot of assumptions about reality that rarely hold true. I’m not saying that economists are hacks. Heck, I’m spending thousands of dollars in order to become a bit of one, myself.  What I am saying, however, is that math problems give you models and theory. Observations give you evidence and facts.  And it doesn’t take a very thorough examination of the evidence to see that this theory is not even close to a universal truth.

Take a look at this chart for instance.


I’m sorry if you have to click on it or zoom in for clarity, but it’s pretty simple. The top line is the top tax rate at the time.  The bottom line is the economic growth in terms of GDP adjusted for inflation. The GDP data comes from the World Bank and the historic tax rates come from the Tax Policy Center.

What you’re looking for here is how changes in the tax rate–the top line–affect changes in the growth rate–the bottom line. Anything above zero on the lower line represents economic growth. You’ll see that in the 1960s, the tax rate was anywhere between 70 and 91%. That’s astromonically high, and yet throughout the 1960s, there was positive economic growth.  The 1970s are a bit trickier, as the energy crisis hit in the middle of the decade.  But aside from that, you’ll see that on either side of the energy crisis downturn, growth was positive and high, despite high tax rates.  The 1980s are interesting. The first round of massive tax cuts under President Ronald Reagan did indeed fuel a jump in economic growth.  The second round, in 1986, however, seemed to have the opposite impact, as they were followed almost immediately by an economic slowdown.  In the 1990s, the tax rate went up, and so did economic growth. And finally, in the 2000’s, tax rates were again lowered, and the economy did not experience growth.

Here’s a quick and easy breakdown by decade. Notice that despite MUCH higher taxes, the average annual growth rate was higher in the 1950s and 1960s than it has been since.

Of course, there are other factors at play than just tax rate. But it’s pretty clear that the cut-and-dry relationship of “high taxes: bad, low taxes: good” simply does not exist. My own theory is that the idea of lower taxes and higher growth applies at some levels and then reaches a point of diminishing returns (economists love diminishing returns). This just means that when the tax rate was very high, a drop in taxes did, in fact, spur growth.  However, as the rate was lower, you could achieve less growth via a cut–and it possibly could get to the point at which lowering taxes actually inhibits growth (this is because it leads to higher deficits, but I won’t get into all of that). This might explain why, in the 1960s and 1970s, tax cuts and tax hikes do indeed appear to match up with growth spikes or growth slow-downs, but after the 1980s, when the tax rate had already been lowered beyond its useful level, the correlation between tax rate and growth rate seems to evaporate.

I don’t want this to get too wonky or bore readers with charts and numbers like an old Ross Perot campaign video. But I do want to present this simple economic history as a counter to the prevailing belief in the aforementioned economic tax theory. While my data does not conclusively prove any specific relationship between tax rate and growth rate, it does conclusively disprove the rhetoric that economic growth will be slow or negative if tax rates are high and that lowering tax rates will automatically lead to greater economic growth.

I’m not suggesting that the tax rates should go back up to 70% or anything. But when a country is experiencing this amount of debt and deficit while collecting a historically low amount of tax revenue (as a percentage of GDP), I think it is worth putting out there that the benefits of lower taxes are not as advertised, and the detriments of higher taxes may be incorrect or exaggerated, as well.

So the next time you hear a Republican tell you that evolution is “just a theory,” make sure he or she knows that their party’s tax policy is just a theory, as well–and unlike evolution, the tax policy theory is defied by the facts rather than supported by them.

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