US Politics: show us the money

[DanteGabriel]

“I want to keep the current progressivity in the code,” Romney told CBS’ “60 Minutes” Sunday. “There should be no tax reduction for high income people. What I would like to do is to get a tax reduction for middle-income families by eliminating the tax for middle-income families on interest, dividends, and capital gains.”

In other words, the Republican nominee promises that, after his across-the-board rate cuts and elimination of unspecified loopholes benefitting high income earners, the tax burden will be reduced for the middle class and remain constant for the wealthy. And yet he promises the plan won’t add to the deficit.

“I don’t want a reduction in revenue coming into the government,” he said.

Conservative economists have tried make the numbers work. Martin Feldstein — a Harvard professor and president emeritus of the National Bureau of Economic Research — released a paper arguing that the targets could be met if “middle class” is defined downward — specifically if Romney increases the tax burden on incomes between $100,000 and $250,000 to pay for tax rate cuts for everyone else. Feldstein’s report ratified the Tax Policy Center’s broad thesis that Romney’s 20 percent tax rate cuts could not be offset merely by unwinding deductions and credits for the wealthy — families typically defined by both parties as middle class would also have to take a hit.

Romney has trumpeted Feldstein’s study in interviews. But when pressed about the unflattering specifics, he demurred, “I haven’t seen his precise study.”

What the study found was that there isn’t enough money in tax loopholes for people in top tax brackets to offset the trillions of dollars Romney’s promised rate cuts would cost. Perks that benefit middle income earners like the mortgage interest deduction, and deductability of employer-based health insurance, charitable giving and state and local taxes would need to be limited or eliminated.

http://tpmdc.talkingpointsmemo.com/2012/09/romney-digs-himself-into-a-deeper-hole-on-taxes.php?ref=fpnewsfeed

This is a cordial invitation to any Mitt Romney backers (or, really, anyone at all) to provide us evidence that electing Romney would lead to a faster economic recovery.

[Fez]

http://tpmdc.talking...?ref=fpnewsfeed

This is a cordial invitation to any Mitt Romney backers (or, really, anyone at all) to provide us evidence that electing Romney would lead to a faster economic recovery.

Funnily enough, half of Romney's plan actually may not be bad policy move (horrible politically though). Here's Matthew Yglesias:

But since Romney won't defend this on the merits, I will. The good thing about taxes is they raise revenue, which can be used to do useful things. The bad thing about taxes is they may be a drag on economic growth. But here there are two considerations. One is the "incentive effect" of taxes—higher taxes mean less incentive to do economically valuable things. The other is the "income effect"—less money in your pocket means more incentive to do economically valuable things. The genius of Romney's plan is that by eliminating deductions it leaves middle class families with less money in their pockets (so a pro-growth income effect) while also lowering the tax rate they pay on a marginal dollar of additional earnings (so a pro-growth incentive effect). Basically it's a huge win. You get a bunch of revenue in a way that bolsters the country's growth prospects. The voters don't want to hear that this is a good idea, but it's a good idea.

The problem, as he nearly admits, is that this is mostly offset by the harm of lowering taxes on the wealthy even further. But "I want to raise taxes on everyone!" isn't exactly a winning political argument, and anyway Romney would never raise taxes on the rich as well, so it's a moot point.

[DanteGabriel]

I still have yet to see anyone explain to me why the republic would implode if we just went back to the Clinton-level rates on the top brackets. Taxes have never been lower on the wealthy, and yet here we are with a soaring stock market, a tepid job market, and higher-than-ever income disparity. When is this shit supposed to start trickle down?

Or do things only trickle down when a Republican is in charge? No wait, fuck-all trickled down when Bush the Lesser was President. I guess that proves the Republican hand-washing correct: despite supporting his every bumblefucked idea for eight years, maybe Bush the Lesser really wasn't one of them...

[Sci-2]

Fez, can you walk us through:

The other is the "income effect"—less money in your pocket means more incentive to do economically valuable things.

[Antonius Pius]

I still have yet to see anyone explain to me why the republic would implode if we just went back to the Clinton-level rates on the top brackets. Taxes have never been lower on the wealthy, and yet here we are with a soaring stock market, a tepid job market, and higher-than-ever income disparity. When is this shit supposed to start trickle down?

St. Swithin's Day. Unless it's a Monday.

[Inigima]

Fez, can you walk us through:

I assume what he's referencing is: Say you can give $100 to either of two people, a guy struggling to pay his bills or Mitt Romney. If you give it to Romney, he'll have another $100 in his bank account. Which is, you know, fine. But it isn't money being spent, because he already has everything he needs, so he's just going to save it.

If you give it to the other guy, though, he'll spend it. Because he needs to. He needs food, housing, electricity. Money being spent is money circulating through the economy, which is what allows our economy to function.

So, in a vacuum, it's "better" for the economy to give money to poor people than to rich people. It has nothing to do with who "deserves" the money, it has to do with simple economics.

[Fez]

Fez, can you walk us through:

Right. It's not the nicest of concepts but its a very simple one, and while you can argue its not 'proven' it is insofar as anything in economics is. Basically it goes like this:

The higher that a person's taxes are, the less money they have. The less money they have, the greater marginal utility they will gain from each additional dollar. The greater marginal utility they will gain from each additional dollar, the greater their incentive to better value the dollars they have and to gain additional dollars (work overtime, start a business, get training for one of the 3 million vacant jobs business can't fill because people don't meet the requirements, etc.). This helps stimulate the economy from the bottom up.

Under Romney's proposal, taxes would go up on the middle class, meaning you get this stimulative effect. Now usually this is counter-acted, at least according to conventional wisdom, by the incentive effect, where the higher the tax rate, the less incentive people have to work (aka the Laffer Curve). However that's due to the tax rate on the additional dollars people earn, not on what the underlying total amount paid. Romney's plan would lead to the tax rate going down, so no incentive effect, and the total taxes going up, so there would be an income effect. In other words, he actually would squeeze blood from a stone and it would spur the economy.

The problem with his plan is that he also wants to lower taxes on the rich. If what I just described happened to everyone, it'd be great. You'd get all this economic activity plus government revenues would skyrocket and would be able to spend that money in ways to make up for the metaphorical whip its cracking on the middle class (universal healthcare, guarenteed pensions, various public goods for people to enjoy, etc.). However instead he wants to waste that revenue on tax breaks for the wealthy. Meaning he'll jumpstart the economy on the backs of the middle class and let the wealthy act as a parasite, leaching off that. The economy will grow by nearly every measure, but most of the middle class won't enjoy the fruits of their labor because they'll be working too hard.

ETA: a very important 'not' in the first paragraph

[WrathOfTinyKittens]

Edit - the first paragraph is in response to sciborg and the "no" refers to Inigima's post. Fez posted as I typed.

No, it just means that if you have less money than you need, you're incentivized to earn more either by getting a second job or starting a business or whatever. To some extent taxing people accomplishes this.

Also, DG - to be fair to Commodore, he already answered your question. He said that markets would interpret a Romney win as a good sign based on the presumption (on his part as well as the markets') that another Obama term will result in more regulation and more economic management by govt. He also said that this alone was not enough, in his view, to fix the economy.

So, I think it's no mystery that Romney is not Commodore's ideal candidate to fix the economy; I just think that he thinks Romney will at least not damage it further.

[Sci-2]

Thanks - I figured it had something to do with the middle class working more.

[DanteGabriel]

Wait, so the idea is to make the middle class work harder? At what jobs? The jobs aren't there. The "job creators" are fucking failing us despite the fact that their personal bottom lines are better than ever.

Furthermore, American workers are already at historic highs for number of hours worked and productivity. Yet their wages have been stagnant for decades. And more and more wealth accretes at the top levels. This is the long game the 1% have been running on all the rest of us.

We're already squeezed, thanks very much.

Also, DG - to be fair to Commodore, he already answered your question. He said that markets would interpret a Romney win as a good sign based on the presumption (on his part as well as the markets') that another Obama term will result in more regulation and more economic management by govt. He also said that this alone was not enough, in his view, to fix the economy.

Funnily enough, when I posted Romney's remarks about how the economy would magically improve just because he was elected, I asked Commodore if he agreed with that. His response was to have an attack of the vapors at having something falsely attributed to him. So I'd like to see it spelled out, and I'd like to see someone try and convince us that Romney's budget plan (such as it is) isn't just a vague fantastical pile of bullshit.

By the way, as Obama's lead grows in the polls, the markets are doing better and better...

So, I think it's no mystery that Romney is not Commodore's ideal candidate to fix the economy; I just think that he thinks Romney will at least not damage it further.

Romney won't damage it further? He'd implement the same fucking policies that got us where we are. He would have let the auto industry die off. Does anyone remember that the economy was hemorrhaging 800K jobs a month when Obama took office?

I'm sure the Romney/Ryan economic plan would benefit someone out there -- it's the people who've already drawn overweening and abusive benefit from the berserk and unethical greed frenzy of the Bush the Lesser years, and tanked the world economy to begin with. If the Republicans get their way we'll all end up as serfs to the Kochs and Adelsons of the world.

[WrathOfTinyKittens]

There are millions of jobs open in the US, as Fez mentioned. But we don't have the skilled workers to fill them. These are apparently mainly manufacturing and engineering jobs, things of that nature.

I'd be happy with some sponsored training classes... But I have heard from some business people (in particular the owner of a "specialized trade" company) that it's difficult to find people who can even succeed in the training.

[WrathOfTinyKittens]

In response to your edit DG: I don't at all agree with Commodore, and see the same thing you do. Just stating his viewpoint as I interpreted him - Commodore please correct me if I've put the wrong words in your mouth.

[Fez]

Wait, so the idea is to make the middle class work harder? At what jobs? The jobs aren't there. The "job creators" are fucking failing us despite the fact that their personal bottom lines are better than ever.

Furthermore, American workers are already at historic highs for number of hours worked and productivity. Yet their wages have been stagnant for decades. And more and more wealth accretes at the top levels. This is the long game the 1% have been running on all the rest of us.

We're already squeezed, thanks very much.

Well as Obama's lead grows, the markets are doing better and better...

Well, actually there are jobs. Over 3 million unfilled ones that companies say that can't hire for because there aren't enough qualified candidates. Which is definitely a product of our failing education system, but that's another issue. For now, the important point is that if people feel a greater pinch and those jobs pay better, they have greater incentive to get the training necessary to get qualified for them.

And I did say that for this to really be a good policy, taxes need to go up on the rich as well; which Romney won't do. I"m not saying that Romney's plan is good. I am saying though that he took a good policy (not the only one by any stretch of the imagination, but it would work) and added a bunch of stuff about tax breaks for the wealthy that really sort of ruins it.

[Apoapsis]

Is someone with a yearly income over $100000 actually considered "middle class"? That's more than twice of what's considered an "average" salary over here, and we have 30% tax rates.

[Sci-2]

For now, the important point is that if people feel a greater pinch and those jobs pay better, they have greater incentive to get the training necessary to get qualified for them.

This is where I squint - this whole idea seems to turn on people with less money using that money to get training. The majority of people this seems a viable option for are those without kids?

[awesome possum]

So, I think it's no mystery that Romney is not Commodore's ideal candidate to fix the economy; I just think that he thinks Romney will at least not damage it further.

The thing is, thinking that is a fantasy. Romney has already promised tax cuts that will instantly add $5 trillion to the deficit (or so I've read). We've been living in a trickle down world for almost 30 years now and nothing has trickled down, so thinking Romney could fix anything - when in fact his proposed policies (or what little he's shown of them) have already been smacked down by multiple sources - just further proves that conservatives are living in fantasy land.

[TrackerNeil]

So, in a vacuum, it's "better" for the economy to give money to poor people than to rich people. It has nothing to do with who "deserves" the money, it has to do with simple economics.

This statement illustrates pretty well, I think, something important about conservative thought. If one has decided that tax breaks/rebates/exemptions should be based on the moral worthiness of the recipient, then data or rational argument are irrelevant. It doesn't matter if extending unemployment benefits or increasing the EIC will put more money into the economy than upper-class tax-cuts; what matters is that the upper class work hard and deserve a break, whereas the poor should just work harder.

Something similar goes on with budgeting, as political scientist Jonathan Bernstein often notes. Conservatives - or certainly the ones currently driving the Republican Party - don't think of budgeting as expenditures vs. revenues. To these people, programs worthy of funding are paid for, and those that are unworthy aren't. If funding the worthy programs costs more than tax revenue, oh well, because after all increasing revenues is among the most unworthy of policies a conservative can imagine. This method of budgeting is of course completely divorced from what the average person would expect, but there you are.

BTW, please do read Bernstein. He's amazing.

[DanteGabriel]

In response to your edit DG: I don't at all agree with Commodore, and see the same thing you do. Just stating his viewpoint as I interpreted him - Commodore please correct me if I've put the wrong words in your mouth.

Well, while we wait for Godot Commodore to clarify, let's talk about Niall Ferguson again, because he published another impressive bit of wankery that bears on this subject to some degree.

http://www.thedailybeast.com/newsweek/2012/09/09/niall-ferguson-why-is-obama-winning.html

The conventional wisdom is that Presidential elections are a referendum on the economy's performance of the previous 4 years. Yet in a bad economy, Obama is polling significantly ahead of Romney. Ferguson, with his vast and powerful intellect, sees four possible explanations -- Ferguson is lying and the economy is actually doing well; people are lying to pollsters; people are actually expecting the economy to improve; and the one Ferguson believes is most likely, it's a popularity contest and not actually about the economy.

I think we also have to consider the strong possibility that people just don't believe a guy who made his fortune by rigging games to extract cash from dying companies and sending their jobs overseas is actually the best candidate to turn around a bad economy with high unemployment. That, and Romney is a terminal asshole. So I guess that's some validation for Ferguson's point after all.

[TerraPrime]

Is someone with a yearly income over $100000 actually considered "middle class"? That's more than twice of what's considered an "average" salary over here, and we have 30% tax rates.

"Middle class" covers a big range of income, and here really is no clear cut-off points, unlike other metrics of evaluation, like top quintile, second quintile, etc.

The median household income in the U.S. is about 50K, so by numerical definition, a household with around 50K is middle class. But where does one graduate from "middle class" to "rich" is a lot harder to define.

[Fez]

This is where I squint - this whole idea seems to turn on people with less money using that money to get training. The majority of people this seems a viable option for are those without kids?

Well that's only one option. Another would be to start a business, or work overtime, etc. Usually this training is a time-investment more than a money-investment also. But in cases where money is a factor (i.e. go back to school), people would be more wiling to take out student loans (which are still worth it over a lifetime, despite the high rates).

And remember, if the plan were properly implemented (i.e. not Romney's plan) the government would have lots of additional money coming in, which it can, and often does, spend before it has. Free child care could easily be a service the government started providing for the middle class.

ETA2: nvm, didn't want to confuse the issue by adding my first edit.