Posts Tagged ‘tax’

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.


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 What I Don’t Like About Barack Obama

October 1, 2012 4 comments

This is part 1 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 2, “On Why I am Not Voting for Mitt Romney,” can be seen here. Part 3, “On Why I am Voting for Barack Obama,” can be seen here.

This post could actually be much longer than many would expect, so I’m going to try to limit it to some bullet points with a short explanatory paragraph (or three). I think these might be in order of importance, but if you were to ask me tomorrow, the order might be different.

Health Care

This is a common complaint about the President, but my issue here is not the reform law itself. Assuredly, I think it is a flawed piece of legislation but it will do much more good than harm, and my opinions on the legislation could fill an entire post (and probably will later). But what I take issue with is the timing of and decision to pursue this bill. In my opinion, that decision has tainted and derailed Obama’s entire presidency.

In short, the economy was bad and the stimulus was a step but it was not a jobs bill. The country was in crisis and the Democrats had a lot of political capital. They could have passed a bill very similar to Obama’s jobs bill that was deemed too little, too late before dying in Congress. They could have passed some proposals mentioned by Bill Clinton, as well as others, to reduce the friction between the unfilled jobs and unemployed workers. They could have passed any number of bills that would get the economy moving. And once the economy moved, they would have the political capital to do other things.

However, Obama and the Democrats passed a health care bill that doesn’t fully go into effect until 2014. They passed a health care bill that was a legislative battle played out in the public. And they spent every ounce of political capital that they had to do so. Even if it does well, the results will be too far down the line to re-earn any of that lost capital. If the biggest legislative achievement of 2009 led to a better economy in 2010, then the Democrats likely could have passed whatever health care bill they so chose when they continued to pick up seats. Instead, we have a controversial bill that is the rallying cry of the opposition and a slower-than-possible recovery.

The Treasury/Federal Reserve

I have now read enough about the financial crisis to know that there were, in fact, many credible economists, regulators, and even bankers who understood that the subprime mortgage bubble was going to be a problem, and who had been trying to get the attention of everyone they could to warn about it. In the wake of the crisis, Obama opted for continuity and insider knowledge in his Treasury and Federal Reserve appointments instead of for fresh faces who would bring a brand new philosophy. I cannot understand walking into a mess, finding out who watched over the mess being made and then asking them to watch over the clean up. I was very disappointed with this.

Indefinite Detention

I don’t think that I need much of an explanation here. Obama signed a law allowing indefinite detentions, along with a statement that he would not use them. A lot of good that will do when someone else is in charge and the law of the land now allows such great potential for abuse.

Leading from Behind

This oft-quoted and repeated phrase (I believe John McCain said it first) generally is considered nothing but a right-wing talking point. However, I sort of agree. My outsider observation is that especially in the first 2-2.5 years, Obama liked to stay “above the fray” on several controversial issues, allowing the fight to play out in Congress. Then, Obama would swoop in and try to reconcile what seemed to be irreconcilable differences. This allowed Obama to appear as the adult in a room full of children, but it also allowed for a heightened tone of division and tensions both in Congress and in the media. Eventually, as the grown up in a room, you want to get to the point where the kids are breaking up their own fights; that can only happen with superior leadership. I understand that the congressional Republicans are obstructionists. I understand that they announced in 2010 that the top priority was to make Obama a 1-term President. But I think there is a form of leadership that would have worked better over the past 3.5 years than the one Obama took. I think Obama too often let the fights go too far before stepping in.

Drone Strikes

I have mixed feelings about this. I applaud the ability to win on the battlefield with minimal risk to American troops. But if we’re going to make liberal use of such technology, we better be certain that we can keep our own skies 100% safe by the time our enemies get similar technology.

The Campaign

This campaign has been ugly. The Obama camp has been as grossly misleading as the opposition on several occasions, and therefore, lost the ability to more forcefully call out the similar ugly moves and out-of-context statements made by the Romney camp.

The Debt

I fall into the category of thinking that complaining about the deficit during a recession is akin to complaining about the water bill while putting out a fire (I think I got that line from Paul Krugman, but I can’t be sure). So I understand that the debt was going to rise through this time period. However, I cringe when I hear “deficit reduction,” because by definition, it does not go far enough. The deficit must be eliminated in order to reduce the debt, and that’s more where my heart is. I don’t think that’s even on the to-do list of an Obama administration. And so while I understand much of the failings in this regard during the first term, my inner debt hawk won’t let this issue go unmentioned.
Read part 2, “On Why I Will Not Vote for Mitt Romney,” here.

On Straw Men Turning Pinocchio

August 3, 2012 Leave a comment

One of the most annoying things about the polarized back-and-forth banter that dominates our civil discourse is the incredibly common use of “straw man” arguments. Analysts from both sides build up a fabricated opposition position and rip it down while few, if any, of their opponents actually prescribe to the extreme version of the debate that has just been defeated. This is fairly commonplace on both sides of most issues, but the right wing news (such as Fox News and the talk radio networks) is exceptionally good at this, which is one of the reasons that I often find myself getting so frustrated while watching or listening to those stations.

However, what I find far more annoying is when those straw men make like Pinocchio and turn real because people in leadership or prominent positions stand up and fit themselves into those seemingly ridiculous straw man arguments. More and more lately, I have found that happening, giving phony straw positions the shred of credibility that they need to survive. Usually in these cases, the straw man argument still holds little water. Usually, those who stand up to fill the voice of the straw man arguments represent the fringes, not the norm. But even a little bit of substantiating information, even from the vast minority, can make a ridiculous or misleading argument seem more real.

When being trained in Psychological Operations with the Army, we were told repeatedly that credibility is your most valuable asset in information dissemination. If you get caught lying to a population, then your credibility is shot for the future. Similarly, the converse can ring true: if you can demonstrate a lack of credibility in the opposing point of view or its source, then the entire argument or sometimes even its associated ideology will begin to ring hollow.

I first decided to write this blog because I was reading a somewhat scathing report about Mitt Romney’s tax plan by the Brookings Institution and the nonpartisan Tax Policy Center. Reading the methods of the report, I found that the numbers would probably stand up to close scrutiny, yet an assumption or two (particularly the assumed goal of revenue neutrality) might be debatable by the Romney campaign, if forced to address them.

However, the response from the Romney team did not address the substance of the report at all. It simply counted it among a number of “liberal studies calling for more tax hikes and more government spending” by Obama. It sounds like dismissing an independent report without addressing the merits as simply being a “liberal study” would be part of common straw man arguments about liberal intellectuals or tax and spend Democrats. But then you read that one of the three authors of the report used to work for President Obama’s Council of Economic Advisors. And suddenly, dismissing the entire report out of hand might make sense, no matter how credible the numbers within may be. The credibility of the report itself has been compromised, predictably.

Another example of this is in the Chick-fil-A debate. I’ve already given extensive attention to the issue, but the way that it has been presented through the media deserves its own mention. Many outlets viewed this as a freedom of speech issue in that the CEO should be able to think and say whatever he so wishes. However, as many pointed out, freedom of speech is about governmental action. People have every right to protest, boycott, or otherwise raise hell (legally) based on what someone says. This should never be about freedom of speech. To mask this as an issue of persecution or a lack of freedom of speech seemed like a straw man argument, right? How easy is it to simply defend a CEO’s right to their opinion rather than defend the objectives of the organizations to which the corporation made donations or the importance of exercising choice in capitalism through boycotts?

Well, then mayors in a number of major cities (Boston, Chicago, San Francisco, and Pittsburgh among them*) have made statements either vaguely or directly alluding to the idea that they would try to block Chick-fil-A from operating within their cities. Suddenly, the government was in fact attempting to restrict someone’s rights based on their beliefs. Suddenly, this actually was a First Amendment issue. That should have remained a straw man, but alas it received enough credibility to transform the issue in many circles.

* (I did not include Washington D.C. here because the mayor’s remarks in full clearly stated that despite his disagreement, there is nothing he can do to restrict/bar the business)

And finally, as I am writing this, reports are breaking that the Justice Department is giving just a sliver of credibility to the old straw man argument that Democrats do not support or appreciate our troops by suing the state of Ohio over military voting laws. Granted, the lawsuit does not aim to restrict voting rights for the military in any way. Granted the Fox News coverage is misleading and unfair. However, the lawsuit targets a law that grants special voting allowances specifically to military members by stating that those allowances should be made for everyone. The lawsuit claims that the distinction between military voters and civilian voters is “arbitrary.” And so the statement that Democrats are unsympathetic to the military is now backed by a lawsuit filed to by the administration arguing (in different terms) that our troops aren’t special. And Pinocchio turns real.

On the Word “Fair,” and Speaking the Right Language

July 19, 2012 1 comment

We often hear people talk all the time about “bringing people together” or working “across the aisle,” but it rarely seems to come to fruition. I’m sure that part of the reason why this talk has failed is because many of the people who say such things don’t actually mean it. But I think a significant reason for the failure of such rhetoric is because of the rhetoric itself. Specifically, I think that most people spend so much time in their own ideological boxes that they fail to understand how to talk to their opponents in ways that will resonate or at the least be listened to and understood.

To illustrate this point, I can use the example of “common sense.” Prior to reading Mike Huckabee’s “A Simple Government” and Frederick M. Hess’s “Common Sense School Reform,” I didn’t know that “common sense” was a sort of code word for “conservative.” I should have, though. Having watched a fair amount of Bill O’Reilly, I often marveled at his ability, usually through his “talking points,” to make any point of view sound a lot like common sense. I mean this as no slight whatsoever, but conservatives have a way of boiling down their policy ideas to simple talking points and sound bites. This does not necessarily indicate a simpler policy, but merely a different way of communicating those policies to the public. It’s actually quite an impressive skill. As Mark Twain once said, “I didn’t have time to write a short letter, so I wrote a long one instead.”

Another failure to speak the same language occurred when there was a push (especially on social media) for policies to drug test welfare recipients. Many conservatives were in favor of this, while many liberals opposed it. While many liberal complaints talked about morality, racial biases, drug legalization, false positives, and other similar arguments, I felt there was a great opportunity being missed to speak in the same language about this policy proposal.

When I spoke to conservatives about this issue, I talked about the need it created to expand the welfare bureaucracy, expand government powers and controls, and most importantly the fact that it has been shown to be economically inefficient. If there’s anything conservatives hate, it’s government-expanding, wasteful spending that does not accomplish its idealistic goal, right? If the debate had been waged on these terms, perhaps Florida would not have passed the law and eventually lost money, as expected.

However, by far the biggest communication disconnect between the contrasting American ideologies takes place over the word “fair,” especially when in reference to taxes. Here are some definitions of the word fair:

1. free from bias, dishonesty, or injustice: a fair decision.

2. legitimately sought, pursued, done, given, etc.; proper under the rules

It sounds simple enough, but in practice creating a system that is fair–that is free of bias and injustice–is a very subjective exercise. For instance, if you ask a liberal what a fair system of taxation should be, they might say that the rich should pay more; their “fair share,” as it’s often said. If you ask a conservative what a fair system of taxation should be, you might hear that every dollar should be taxed equally under a flat income tax rate or they could mention the consumption-based, aptly titled “fair tax.” And yet, from both the left and the right, you continue to hear calls for a more fair tax system, echoed by calls that “fairness” isn’t a realistic goal.

I think we should all decide here and now to stop with that charade. Let’s all stop discussing taxes and other policies in terms of fairness. Fairness is a construct–it is shaped by the environment and ideology of the person using the word. And when a word has different meanings to each person, that word ceases to have a useful meaning. If liberals or conservatives ever hope to change the minds of people that oppose or are skeptical of their views, appealing to a sense of fairness will never gain that new support. So ditch the useless buzz words and learn to see things from an opposing point of view. Only then can anyone ever truly work across the aisle or bring people together. Of course, doing so would require listening to an opposing viewpoint closely enough to understand the language that they use and the priorities that they espouse. I guess I’m asking for too much.

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.

Categories: Politics Tags: , , , ,

On Mandates and Partisan Worldviews

April 4, 2012 Leave a comment

Much has been said and written about the contemptuous oral arguments that were made last week in regards to the “individual mandate” aspect of the Affordable Care Act (that’s Obamacare for those of you who don’t know). Now, I’m not a Constitutional law expert, nor am I experienced in the health care field (I promise to learn more about both), so maybe my opinion is less valid than many that have already stated their cases. And for the record, I don’t personally know if the ACA will work or if it’s good legislation (due to that lack of experience in the health care field). But if you bear with me, I want to walk through some of the facts here and see if I don’t wind up making some sense.

Justice Kennedy, considered a swing vote, stated that the mandate for citizens to purchase health care would “fundamentally change the relationship between the individual and the state.” Justice Roberts continued down that train of thought by asking if the government can make citizens buy a cell phone to facilitate the use of emergency services.

Color me stupid, but I don’t understand the “fundamental change.”  The government already forces me to purchase services–even from private companies. I am forced to pay taxes. Those taxes pay private companies to carry out a number of services that I do not directly have any say in, ranging from military contractors to private intelligence agencies to the construction companies that build a road. By virtue of the tax money I provide, a number of services that the government has deemed essential are funded by me and provided to me.

Now it is easy to point out that paying taxes to the government is different than paying a fee to a health insurance company.  However, given that the government transfers my tax payments to private companies on a regular basis, it seems to me that the primary difference is simply that of who collects the money.

And this brings me to the second half of my title, the partisan worldview.  Ignoring for a second that the health insurance mandate has been supported by numerous Republicans in the past, it seems to me that the Republicans and the conservatives have now placed themselves into a strange ideological box on the topic:

If the government can provide necessary services itself with public money, and if the government can use public money to purchase services from private entities, then the Republican argument against the mandate seems to indicate that the law is unconstitutional not because it is government overreach, but because the government is not involved enough. It may seem like I’m playing at semantics here, but I am not.

If the government were paying for this service through a federal tax, its constitutionality would not be up for debate (though Republicans and other conservatives would hate it even more).  By streamlining the payment process, and removing government as a financial intermediary between the citizens and the insurance companies, this has become an argument not about taxation, but about being compelled to enter a private market by the government. And so, small government Republicans have found the means to argue against the constitutionality of a law on the basis that the government itself does not collect the money and instead outsources a task to private companies.

It seems strange, when you think about it, that additional government intervention would satiate the conservative argument against constitutionality, but these are the mental games you must play when partisan politics are the dominant force instead of ideas and reason.