The Tax Evader in Chief

Bruce Bartlett:

A key reason for Mr. Romney’s low tax rate is that a very substantial amount of his income comes from capital gains – 51 percent in 2011 and 58 percent in 2010. Capital gains, no matter how large, are taxed at a maximum rate of 15 percent, whereas wage income can be taxed as much as 35 percent by the income tax plus taxes for Medicare and Social Security. The latter two are not assessed on capital gains.

Significantly, much of Mr. Romney’s capital gains income achieved this treatment through a special tax loophole called carried interest. According to recently released documents, executives at Bain Capital, where Mr. Romney made the bulk of his estimated $250 million fortune, saved $200 million in federal income taxes and another $20 million in Medicare taxes because of the carried interest loophole.

The way the loophole works relates to the peculiar method in which money managers are compensated. Typically, they receive a fee of 2 percent of the gross assets under management, much of which comes from employee pension funds, plus 20 percent of any increase in value.

Thus, on $1 billion of assets the managers would automatically get $20 million that would be taxed as ordinary income. If the assets increased 10 percent to $1.1 billion, they would get another $20 million. For tax purposes, this additional $20 million would be treated as a capital gain and taxed at 15 percent.

The theory is that the money managers effectively become part owners of the assets they manage as a result of the fee structure. Critics contend that the distinction between the 2 percent and 20 percent fees is purely artificial — that in reality all their compensation should be treated as ordinary income and taxed as such.

Among the sharpest critics of carried interest is Victor Fleischer, a law professor at the University of Colorado. In a Sept. 4 post on DealBook, he explains that the New York attorney general’s office is looking into the issue, seeking to determine whether money managers have been illegally converting their 2 percent management fees into lower-taxed capital gains.

"Are you better off...?"

Krugman:

Bill Clinton’s speech at the Democratic National Convention was a remarkable combination of pretty serious wonkishness — has there ever been a convention speech with that much policy detail? — and memorable zingers. Perhaps the best of those zingers was his sarcastic summary of the Republican case for denying President Obama re-election: “We left him a total mess. He hasn’t cleaned it up fast enough. So fire him and put us back in.”  ...

On Inauguration Day 2009, the U.S. economy faced three main problems.

First, and most pressing, there was a crisis in the financial system, with many of the crucial channels of credit frozen; we were, in effect, suffering the 21st-century version of the bank runs that brought on the Great Depression. Second, the economy was taking a major hit from the collapse of a gigantic housing bubble. Third, consumer spending was being held down by high levels of household debt, much of which had been run up during the Bush-era bubble. 

The first of these problems was resolved quite quickly, thanks both to lots of emergency lending by the Federal Reserve and, yes, the much maligned bank bailouts. By late 2009, measures of financial stress were more or less back to normal. 

This return to financial normalcy did not, however, produce a robust recovery. Fast recoveries are almost always led by a housing boom — and given the excess home construction that took place during the bubble, that just wasn’t going to happen. Meanwhile, households were trying (or being forced by creditors) to pay down debt, which meant depressed demand. So the economy’s free fall ended, but recovery remained sluggish. 

Now, you may have noticed that in telling this story about a disappointing recovery I didn’t mention any of the things that Republicans talked about last week in Tampa, Fla. — the effects of high taxes and regulation, the lack of confidence supposedly created by Mr. Obama’s failure to lavish enough praise on “job creators” (what I call the “Ma, he’s looking at me funny!” theory of our economic problems). Why the omission? Because there’s not a shred of evidence for the G.O.P. theory of what ails our economy, while there’s a lot of hard evidence for the view that a lack of demand, largely because of excessive household debt, is the real problem. 

And here’s the good news: The forces that have been holding the economy back seem likely to fade away in the years ahead. Housing starts have been at extremely low levels for years, so the overhang of excess construction from the bubble years is long past — and it looks as if a housing recovery has already begun. Household debt is still high by historical standards, but the ratio of debt to G.D.P. is way down from its peak, setting the stage for stronger consumer demand looking forward. 

And what about business investment? It has actually been recovering rapidly since late 2009, and there’s every reason to expect it to keep rising as businesses see rising demand for their products...

Does this mean that U.S. economic policy has done a good job? Not at all. 

Bill Clinton said of the problems Mr. Obama confronted on taking office, “No one could have fully repaired all the damage that he found in just four years.” If, by that, he meant the overhang of debt, that’s very much the case. But we should have had strong policies to mitigate the pain while households worked down their debt, as well as policies to help reduce the debt — above all, relief for underwater homeowners. 

The policies we actually got were far from adequate. Debt relief, in particular, has been a bust — and you can argue that this was, in large part, because the Obama administration never took it seriously. 

But, that said, Mr. Obama did push through policies — the auto bailout and the Recovery Act — that made the slump a lot less awful than it might have been. And despite Mitt Romney’s attempt to rewrite history on the bailout, the fact is that Republicans bitterly opposed both measures, as well as everything else the president has proposed. 

So Bill Clinton basically had it right: For all the pain America has suffered on his watch, Mr. Obama can fairly claim to have helped the country get through a very bad patch, from which it is starting to emerge.

The virtuoso

  

Bill Clinton nominates Barack Obama for re-election.   
The transcript!  Perhaps the greatest political policy speech of the 21st Century. 

"The decline of the public corporation"

Economist Nancy Folbre at NYT's Economix:

Public corporations that ordinary people can invest in and get rich from represent one of the great selling points of American capitalism – at least according to the salesmen.

Yet public corporations, which rose to dominance in the United States economy in the second half of the 20th century, are now waning in significance.

As Gerald Davis of the Ross School of Business at the University of Michigan points out, the number of public corporations in the United States in 2009 was only half what it was in 1997. The share of employment represented by the largest 25 corporations has also declined over time.

Professor Davis asserts these trends result from increased reliance on overseas contractors for manufacturing...

Public corporations have also become less public. Professor Davis contends that share ownership has become heavily concentrated through mutual funds, such as Fidelity, which he says now holds significant blocks of 10 percent to 15 percent in many large companies. Even Fidelity’s role is overshadowed by BlackRock, proprietor of iShares Exchange Traded Funds, which, Professor Davis estimates, was the single largest shareholder in one out of five corporations in the United States in 2011.

Private companies going public often rely on “dual-class shares” that give original owners more voting rights than other investors. The founders of both Groupon and Zynga gained extra clout in this way.

The incentives to “go public” are smaller than they once were, because the rise of private equity firms and hedge funds has made it easier to raise money outside the stock market. Private companies are less subject to government regulation and oversight...

Lack of demand and the need for more stimulus

"Even" a Bush-era economic advisor, via The Wall Street Journal, confirms that current unemployment rates are rooted in lack of consumer demand and that renewed stimulus can help move the numbers:

Is the job market weak because of structural changes, or is a lack of demand the true factor keeping unemployment rates high?

Answer that, and you resolve a grand mystery that’s bedeviled those who are trying to make sense of the persistently high levels of unemployment that have been afflicting the U.S. economy for several years now.

The answer isn’t just academic: If a lack of demand is behind high unemployment, the Federal Reserve can help fix the situation via monetary policy stimulus. Structural problems, however, are beyond the reach of those remedies.

A paper presented Saturday at the Kansas City Fed’s annual Jackson Hole, Wyo., research conference argues that what currently ails the economy is indeed a demand problem. That suggests the Fed has room to act if it chooses to do so. The paper was written by Edward Lazear of Stanford Graduate School of Business and James Spletzer of the U.S. Census Bureau. Mr. Lazear was also a chairman of President George W. Bush’s Council of Economic Advisers.

“An analysis of labor market data suggests that there are no structural changes that can explain movements in unemployment rates over recent years,” the authors write. “Neither industrial nor demographic shifts nor a mismatch of skills with job vacancies is behind the increased rates of unemployment.” ...

The Tax Evaders

New York Times:

The New York attorney general is investigating whether some of the nation’s biggest private equity firms have abused a tax strategy in order to slice hundreds of millions of dollars from their tax bills, according to executives with direct knowledge of the inquiry.

The attorney general, Eric T. Schneiderman, has in recent weeks subpoenaed more than a dozen firms seeking documents that would reveal whether they converted certain management fees collected from their investors into fund investments, which are taxed at a far lower rate than ordinary income. 

Among the firms to receive subpoenas are Kohlberg Kravis Roberts & Company, TPG Capital, Sun Capital Partners, Apollo Global Management, Silver Lake Partners and Bain Capital, which was founded by Mitt Romney, the Republican nominee for president. Representatives for the firms declined to comment on the inquiry. 

Mr. Schneiderman’s investigation will intensify scrutiny of an industry already bruised by the campaign season, as President Obama and the Democrats have sought to depict Mr. Romney through his long career in private equity as a businessman who dismantled companies and laid off workers while amassing a personal fortune estimated at $250 million...

The tax strategy — which is viewed as perfectly legal by some tax experts, aggressive by others and potentially illegal by some — came to light last month when hundreds of pages of Bain’s internal financial documents were made available online. The financial statements show that at least $1 billion in accumulated fees that otherwise would have been taxed as ordinary income for Bain executives had been converted into investments producing capital gains, which are subject to a federal tax of 15 percent, versus a top rate of 35 percent for ordinary income. That means the Bain partners saved more than $200 million in federal income taxes and more than $20 million in Medicare taxes...

The most memorable moment from the GOP convention

Clint wasn't at his best channeling Grandpa Simpson. But it was great live television.

Tampa

Even the insanely reactionary FOX News...

FOX News contributor Sally Kohn:

(T)o anyone paying the slightest bit of attention to facts, Ryan’s speech was an apparent attempt to set the world record for the greatest number of blatant lies and misrepresentations slipped into a single political speech. On this measure, while it was  Romney who ran the Olympics, Ryan earned the gold.

The good news is that the Romney-Ryan campaign has likely created dozens of new jobs among the legions of additional fact checkers that media outlets are rushing to hire to sift through the mountain of cow dung that flowed from Ryan’s mouth. Said fact checkers have already condemned certain arguments that Ryan still irresponsibly repeated.

Fact: While Ryan tried to pin the downgrade of the United States’ credit rating on spending under President Obama, the credit rating was actually downgraded because Republicans threatened not to raise the debt ceiling.

Fact: While Ryan blamed President Obama for the shut down of a GM plant in Janesville, Wisconsin, the plant was actually closed under President George W. Bush. Ryan actually asked for federal spending to save the plant, while Romney has criticized the auto industry bailout that President Obama ultimately enacted to prevent other plants from closing.

Fact: Though Ryan insisted that President Obama wants to give all the credit for private sector success to government, that isn't what the president said. Period.

Fact: Though Paul Ryan accused President Obama of taking $716 billion out of Medicare, the fact is that that amount was savings in Medicare reimbursement rates (which, incidentally, save Medicare recipients out-of-pocket costs, too) and Ryan himself embraced these savings in his budget plan.
Elections should be about competing based on your record in the past and your vision for the future, not competing to see who can get away with the most lies and distortions without voters noticing or bother to care. Both parties should hold themselves to that standard. Republicans should be ashamed that there was even one misrepresentation in Ryan’s speech but sadly, there were many...

And then there’s what Ryan didn’t talk about.

The Folly of Ideological Zealots, aka Republicans circa 2012

Timothy Snyder at New York Review of Books on the "Grand Old Marxists":

A specter is haunting the Republican National Convention—the specter of ideology. The novelist Ayn Rand (1905–1982) and the economist Friedrich von Hayek (1899–1992) are the house deities of many American libertarians, much of the Tea Party, and Paul Ryan in particular. The two thinkers were quite different...Yet, in popularized form, their arguments together provide the intellectual touchstone for Ryan and many others on the right wing of the Republican Party, people whose enthusiasm Mitt Romney needs.

The irony of today is that these two thinkers, in their struggle against the Marxist left of the mid-twentieth century, relied on some of the same underlying assumptions as Marxism itself: that politics is a matter of one simple truth, that the state will eventually cease to matter, and that a vanguard of intellectuals is needed to bring about a utopia that can be known in advance. The paradoxical result is a Republican Party ticket that embraces outdated ideology, taking some of the worst from the twentieth century and presenting it as a plan for the twenty-first. 

Romney’s choice of an ideologist as his running mate made a kind of sense. Romney the financier made hundreds of millions of dollars in an apparent single-minded pursuit of returns on investment; but as a politician he has been less noted for deep principles then for expediently changing his positions...

Rand in reality...

Insofar as he is a man of principle, the principle seems to be is that rich people should not pay taxes. His fidelity to this principle is beyond reproach, which raises certain moral questions. Paying taxes, after all, is one of our very few civic obligations. By refusing to release his tax returns, Romney is likely trying to keep embarrassing tax dodges out of public view; he is certainly communicating to like-minded wealthy people that he shares their commitment to doing nothing that could possibly help the United States government. The rationale that Ryan’s ideology provides for this unpatriotic behavior is that taxing rich people hinders the market...our primary responsibility as American citizens is to give way to the magic of the marketplace, and applaud any associated injustices as necessary and therefore good.

Ryan and Rand

The Ayn Rand fan club, "Atlas Society", has done the country a real service in releasing a transcript of Veep wannabe Paul Ryan's 2005 talk in praise of the pop novelist and self-styled "philosopher." This speech is not some youthful indiscretion, but insights into his intellectual, political and moral development well into his third congressional term. The (numbers) mark time into the audio recording of Ryan's remarkable self-revelation - one which not too surprisingly he has recently attempted to disavow in a predictable act of cowardice:

(1:45) I just want to speak to you a little bit about Ayn Rand and what she meant to me in my life and [in] the fight we’re engaged here in Congress. I grew up on Ayn Rand, that’s what I tell people..you know everybody does their soul-searching, and trying to find out who they are and what they believe, and you learn about yourself.
 

(2:01) I grew up reading Ayn Rand and it taught me quite a bit about who I am and what my value systems are, and what my beliefs are. It’s inspired me so much that it’s required reading in my office for all my interns and my staff. We start with Atlas Shrugged. People tell me I need to start with The Fountainhead then go to Atlas Shrugged [laughter]. There’s a big debate about that. We go to Fountainhead, but then we move on, and we require Mises and Hayek as well.

 

(2:23) But the reason I got involved in public service, by and large, if I had to credit one thinker, one person, it would be Ayn Rand. And the fight we are in here, make no mistake about it, is a fight of individualism versus collectivism.

Continuing the RyanFest

Paul Krugman on the unserious Mr. Ryan...and the unserious "serious" people who take him seriously:

Mitt Romney’s choice of Paul Ryan as his running mate led to a wave of pundit accolades. Now, declared writer after writer, we’re going to have a real debate about the nation’s fiscal future. This was predictable: never mind the Tea Party, Mr. Ryan’s true constituency is the commentariat, which years ago decided that he was the Honest, Serious Conservative, whose proposals deserve respect even if you don’t like him. 

But he isn’t and they don’t. Ryanomics is and always has been a con game, although to be fair, it has become even more of a con since Mr. Ryan joined the ticket. 

Let’s talk about what’s actually in the Ryan plan, and let’s distinguish in particular between actual, specific policy proposals and unsupported assertions. To focus things a bit more, let’s talk — as most budget discussions do — about what’s supposed to happen over the next 10 years. 

On the tax side, Mr. Ryan proposes big cuts in tax rates on top income brackets and corporations. He has tried to dodge the normal process in which tax proposals are “scored” by independent auditors, but the nonpartisan Tax Policy Center has done the math, and the revenue loss from these cuts comes to $4.3 trillion over the next decade.

The many faces of Paul Ryan

Up with Chris Hayes:

Long before he became one of the right’s most vocal critics of the idea that government spending could help boost the flagging economy, Rep. Paul Ryan offered a forceful, full-throated defense of stimulus spending — when then-President George W. Bush wanted it in 2002.

Ryan has denounced the 2009 Recovery Act signed by President Obama as “a wasteful spending spree” and “failed neo-Keynesian experiment,” and – as The Huffington Post pointed out this morning — dismissed as “sugar-high economics” the idea that government spending, through measures like payroll tax cuts and unemployment benefits, can help shore up a faltering economy.

But in 2002, when then-President Bush was seeking a roughly $120 billion package of tax cuts, tax incentives for business and unemployment benefits to jump-start the economy, Ryan offered a vigorous defense of the plan. “What we're trying to accomplish today with the passage of this third stimulus package is to create jobs and help the unemployed..." The remarks came during a House debate on the measure on Feb. 14, 2002.

                     

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"A slick salesman..."

Economist Mark Thoma @ NY Daily News:

When Mitt Romney introduced Representative Paul Ryan of Wisconsin as his running mate in the presidential election, he emphasized that Ryan “has become an intellectual leader of the Republican Party” on economic policy. But a close examination of Ryan’s monetary and fiscal policy proposals makes it hard to understand why he is held in such high regard.

Ryan’s views on monetary policy are, by his own admission, heavily influenced by Ayn Rand’s Atlas Shrugged. Concerns about inflation – currency debasement – are prominent in Rand’s novel, and those concerns drive Ryan’s monetary policy proposals. For example, Ryan introduced legislation in 2008 to replace the Fed’s dual mandate to stabilize both inflation and employment with a single mandate to stabilize inflation. Under Ryan’s proposal, the Fed would ignore employment when making policy decisions.

Ryan’s lack of concern over employment is disconcerting, but it’s at least possible to find economists who support a single inflation mandate for the Fed. It’s much harder to find anyone who will support another inflation prevention policy Ryan has proposed, a policy similar to a gold standard.

The Madness...

Think Progress:

Blaming Obama

Sane conservative Bruce Bartlett at Economix:

Although it was quickly overshadowed by his choice of Representative Paul D. Ryan of Wisconsin as his running mate, Mitt Romney released an important document last week by his principal economic advisers that deserves more attention than it got. It is an audacious attempt to blame Barack Obama for the economic mistakes of George W. Bush and Republicans in Congress.

The Choice

Via Daily Kos:

President Obama in Dubuque, Iowa, returning fire on Medicare in the wake of the Romney-Ryan campaign's new "Mediscare" attack ad:

"I think they know their plan is not very popular," the president said. "You can tell that because they're being pretty dishonest about my plan." 

"Here's what you need to know," the president continued. "I have made reforms that have saved millions of seniors with Medicare hundreds of dollars on their prescription drugs." Obama was referencing the fact that Obamacare closed the donut hole, which Romney and Ryan would reinstate. "I have proposed reforms that will save Medicare money by getting rid of wasteful spending in the system. Reforms that will not touch your Medicare benefits, not by a dime."

As for Romney and Ryan? "They have a very different plan," the president said. "They want to turn Medicare into a voucher program." That would end the guarantee of Medicare, Obama said, citing the CBO study showing that the Ryan plan would cost seniors an extra $6,400 per year.

"My plan has already extended Medicare by a decade. Their plan ends Medicare as we know it. My plan reduces the cost of Medicare by cracking down fraud, and waste, and subsidies to insurance companies. Their plan makes seniors pay more so they can give another tax cut to millionaires and billionaires. That's the difference between our plans on Medicare, that's an example of the choice in this election.."

Romney, Ryanism and Ayn Rand

Simon Schama at Financial Times:

This much you have to give Mitt Romney: by choosing Paul Ryan as his running mate he has made it impossible to avoid turning the presidential election into a genuine and long overdue debate on the nature, extent and responsibilities of American government...

Because Mr Ryan (unlike the top of the ticket), is in the habit of actually attaching numbers to his budget proposals, there is a faint possibility that the debate between Americans who want to retain the institutions of the New Deal and the 1960s (such as Medicare) and those who believe that under Franklin Roosevelt and Lyndon Johnson the country took a fatal step towards collectivism, will actually have to consider evidence rather than collapse into the usual exchange of uninformed abuse that gets confused with argument.

Paul Ryan's crackpot 2005 Social Security Privatization scheme would have brought the entire economy under state control

Wonkblog turned up this "believe it or not" moment in the history of crackpot "Ryan Plans":

Ryan’s Social Security privatization proposal,  the Social Security Personal Savings Guarantee and Prosperity Act of 2005, which he sponsored along with then-Sen. John Sununu (whose father has been a prominent Romney surrogate), would have allowed workers to funnel an average of 6.4 percent of their 12.4 percent payroll-tax contribution to a private account. Lower-income workers would be able to divert more of their wages, as the plan allows 10 percent of income up to $10,000 and 5 percent of income up to the payroll tax cap to be diverted. By default, the private account would be invested in a portfolio set by the Social Security Administration of 65 percent stocks and 35 percent bonds. Workers could choose an 80/20 stock-bond portfolio, or a 50-50 portfolio, but would not be able to pick individual stocks or bonds. At retirement, all participants in the plan would be required to buy an annuity.

Tell it to Paul Ryan

The Social Security Administration concluded that the Ryan-Sununu plan would require huge increases in general budget revenue to make up the shortfall left in payroll tax revenue. Specifically, revenue would have to increase by 1.5 percent of GDP every year, an analysis by the Center for Budget and Policy Priorities found, or about $225 billion at current GDP. That’s a big honking tax hike. What’s more, under the plan, investments in the stock and bond markets would skyrocket such that by 2050, every single stock or bond in the United States would be owned by a Social Security account. This would mean that the portfolio managers at the Social Security Administration would more or less control the entire means of production in the United States.

All you need to know about Paul Ryan

Aside from his fealty to the sociopathic cult novelist Ayn Rand (she of the "Christian morality is evil" Objectivist  philosophy that was embedded in a series of melodramatic  novels), the following is IMHO the single most salient fact attached to Paul Ryan:

(B)ecause commercial insurers cost more to run than government plans, the Wisconsin Republican's proposal to privatize Medicare starting in 2022 would actually spark a dramatic increase in how much the nation spends on healthcare for the elderly, according to an independent analysis by the nonpartisan Congressional Budget Office.

There is not an ounce of "fiscal conservative" in this scheme - it's privatization for the sake of ideology - Ayn Rand's "moral foundation" for unbridled capitalism of the sort that makes sociopaths and parasites like Dick Cheney and Mitt Romney multi-millionaires many times over.

Willard decides that Bain Capital isn't a large or repugnant enough enough stone to be tied to his neck - his "game changeer" Veep pick brings on Dick Cheney, Ayn Rand and killing Medicare

 


 Ed Kilgore @ Washington Monthly:

For progressives, the choice of Ryan makes the task of exposing Mitt Romney’s agenda for the future of the country—already mortgaged to the conservative movement as the price of his nomination—vastly easier.

The choice of a running-mate is often described as the “first presidential decision” of any party nominee. By picking Ryan, Romney has finally forfeited any opportunity to pose as a technocratic crypto-moderate who is a safe alternative for voters disappointed by life under the Obama administration.

All along, Obama’s reelection has depended largely on his ability to make November 6 a clear and dramatic choice between two future courses for the country rather than a referendum on the status quo. The Romney-Ryan ticket makes a “choice election” unavoidable.

In his relentless, desperate pandering to the Tea Party base of the GOP he presumes to lead, Willard doubles-down and offers us "Ryan's Choice" - a dystopian Ayn Rand "moral foundation" for the deregulated capitalism that makes Dick Cheney a very happy man, while seniors see the future of Medicare turned into discount coupons  to help them try to buy the world's most expensive health care from private insurance companies. 

Willard and the Fuzzy Fantasy Factory

Andrew Rosenthal @ NYT:

Mitt Romney is hardly the first Republican presidential candidate to assure Americans that cutting taxes and ending regulation will bring joy to the nation.

Ronald Reagan did it, George H.W. Bush did it, and George W. Bush did it. They won. We got soaring deficits, the worst income inequality since there was income and out-of-control financial institutions that nearly destroyed the American economy. Mr. Romney seems to have learned nothing from that history. He claims President Obama’s stimulus-based policies made the recession worse and then hamstrung the recovery, while his brand of austerity will restore prosperity.

Mr. Romney keeps his economic platform pretty fuzzy, with good reason. The more he spins his story, the more evidence there is that it’s a fantasy.

Mr. Romney has said, for instance, that he can cut marginal tax rates by 20 percent, eliminate the estate tax and the alternative minimum income tax and end capital gains taxes for middle-income Americans without reducing the amount of money flowing into the Treasury.

The answer, he said, is getting rid of certain loopholes. He won’t say what those are, of course...

Willard M. Romney's "Nowhere Man" policy proposals

Ezra Klein at WaPo:

The central difficulty of covering this presidential campaign — which is to say, of explaining Barack Obama and Mitt Romney’s disparate plans for the country — is the continued existence of what we might call the policy gap. The policy gap, put simply, is this: Obama has proposed policies. Mitt Romney hasn’t...

Romney’s offerings are more like simulacra of policy proposals. They look, from far away, like policy proposals. They exist on his Web site, under the heading of “Issues,” with subheads like “Tax” and “Health care.” But read closely, they are not policy proposals. They do not include the details necessary to judge Romney’s policy ideas. In many cases, they don’t contain any details at all.

Mitt's impossible math...

Ezra Klein at WaPo:

I can describe Mitt Romney’s tax policy promises in two words: mathematically impossible.

Those aren’t my words. They’re the words of the nonpartisan Tax Policy Center, which has conducted the most comprehensive analysis to date of Romney’s tax plan and which bent over backward to make his promises add up. They’re perhaps the two most important words that have been written during this U.S. presidential election.

If you were to distill the presumptive Republican nominee’s campaign to a few sentences, you could hardly do better than this statement of purpose from the speech Romney delivered in Detroit, outlining his plan for the economy: “I believe the American people are ready for real leadership. I believe they deserve a bold, conservative plan for reform and economic growth. Unlike President Obama, I actually have one — and I’m not afraid to put it on the table.”

The truth is that Romney is afraid to put his plan on the table. He has promised to reduce the deficit, but refused to identify the spending he would cut. He has promised to reform the tax code, but refused to identify the deductions and loopholes he would eliminate. The only thing he has put on the table is dessert: a promise to cut marginal tax rates by 20 percent across the board and to do so without raising the deficit or reducing the taxes paid by the top 1 percent.

The Tax Policy Center took Romney at his word. They also did what he hasn’t done: They put his plan on the table.

To help Romney, the center did so under the most favorable conditions, which also happen to be wildly unrealistic. The analysts assumed that any cuts to deductions or loopholes would begin with top earners, and that no one earning less than $200,000 would have their deductions reduced until all those earning more than $200,000 had lost all of their deductions and tax preferences first. They assumed, as Romney has promised, that the reforms would spare the portions of the tax code that privilege saving and investment. They even ran a simulation in which they used a model developed, in part, by Greg Mankiw, one of Romney’s economic advisers, that posits “implausibly large growth effects” from tax cuts.

The numbers never worked out. No matter how hard the Tax Policy Center labored to make Romney’s promises add up, every simulation ended the same way: with a tax increase on the middle class. The tax cuts Romney is offering to the rich are simply larger than the size of the (non-investment) deductions and loopholes that exist for the rich. That’s why it’s “mathematically impossible” for Romney’s plan to produce anything but a tax increase on the middle class...

Romney's plan to dig a deeper hole...

John Cassidy at The New Yorker:

In today’s Wall Street Journal, the Columbia economist Glenn Hubbard, who is one of Mitt Romney’s top economic advisers, has an op-ed piece entitled “The Romney Plan for Economic Recovery.” When I saw the headline, I felt a rush of anticipation: at last, I thought, here is the big new jobs initiative that the G.O.P. campaign is relying on to turn things in its favor.

I was mistaken. The first two thirds of Hubbard’s piece is taken up with an attack on the Obama Administration’s economic record: ineffective stimulus, too much regulation, failure to tackle the housing market—all very familiar stuff. When Hubbard eventually gets to laying out Romney’s alternative, there is nothing new either, just a reiteration of the existing policy plaform: a vague promise to cut federal spending and reduce the budget deficit, an even vaguer plan to cut taxes but in a “revenue-neutral fashion,” and a commitment to repeal Obamacare and Dodd-Frank. Judging by this piece, and by recent statements from Romney himself, the G.O.P. campaign still doesn’t have a recovery program worth the name. Indeed, if we are to believe the evidence of our eyes and ears, he remains committed to immediate spending cuts that could well bring on another recession.

Mitt Romney wants to raise your taxes and cut his

 David Firestone at NYTs:

The Romney campaign’s increasingly desperate attempts to dismiss a new study of its tax plan are a pretty good sign that the study is devastating. That isn’t to say the campaign is trying to counter it with actual specifics.

The big red one at the far right is tax cuts to the top 1%

Performed by the Tax Policy Center, a joint venture of the Brookings Institution and the Urban Institute, the study shows that Mitt Romney’s proposal would lead to significantly lower taxes for the rich, and a higher tax burden on middle- and lower-income taxpayers.

It’s been well known for a while that Mr. Romney’s tax plan was a mathematical impossibility. He promised to reduce marginal tax rates by 20 percent, eliminate the estate tax and the alternative minimum tax, and end the capital gains tax for middle-income taxpayers – all while not lowering the amount of revenue coming into the treasury. Mr. Romney said he would offset those losses by ending a series of loopholes, but has yet to cite a single loophole he would delete.

What sane Conservatism looks like...

I'm not particularly a fan of the prolific gay, Tory, Catholic blogger Andrew Sullivan's, but I'll give credit where it's due to his articulating what a responsible conservatism might sound like. Sullivan on "the crux of our current debate:"

It is not what the GOP wants it to be about: some kind of ideological, abstract debate about government and freedom. It's a practical question about whether the US needs a correction from thirty years of center-right (yes, I include Clinton in that consensus) and then hard-right governance. That practical question requires engagement with the specifics of America's needs at this present moment. It is not un-American to favor private enterprise and small government, as Romney presents his own views. Far from it. Equally, it is emphatically not un-American to stress the parallel importance of collective infrastructure, institutions and public goods which are essential to free enterprise's flourishing. If you don't believe me, go read Adam Smith. Small government doesn't mean no government…

When people ask me how I can remain proud of supporting Ronald Reagan in 1980 and also proud of supporting Barack Obama in 2012, I can simply say: there is no contradiction. Reagan was right for his time; Obama is right for his. Both conservatism and liberalism have a role to play in guiding America toward balance and success. They exists as traditions that help correct each other's excesses. And that is why the Republicans' current insistence that liberalism is inherently un-American is so un-conservative. It is without the context Reagan provided; it has no time and place to measure itself by; it is pretty close to theology, rather than politics.

And it seems to me that the problem of 2012 is not excessive government (although there are plenty of ways in which government could and should be leaner and more efficient, a project Obama has been engaged on). The problem is weak government when it came to regulating the financial sector; insolvent government because of a refusal to raise taxes even as spending has soared and revenues have collapsed; and hubristic government that tried to being freedom to every person on the planet through military occupation. And the answer is not doubling down on theology, but restoring limited but effective government in areas where only government can work.

Here's why we need it, in this present crisis, to coin a phrase:

America is worse off than it was 30 years ago — in infrastructure, education and research. The country spends much less on infrastructure as a percentage of gross domestic product (GDP). By 2009, federal funding for research and development was half the share of GDP that it was in 1960. Even spending on education and training is lower as a percentage of the federal budget than it was during the 1980s ... In 2001, the World Economic Forum ranked U.S. infrastructure second in the world. In its latest report we were 24th. The United States spends only 2.4 percent of GDP on infrastructure, the Congressional Budget Office noted in 2010. Europe spends 5 percent; China, 9 percent.

As for economic freedom, America remains the fifth most competitive country in the world and the most competitive of major countries.

"The One-Sided Deficit Debate"

James Kwak at Baseline Scenario:

The fact that Simpson-Bowles—which uses its mandate of deficit reduction to call for . . . lower tax rates?—has become widely perceived as a centrist starting-point for discussion is clear evidence of how far to the right the inside-the-Beltway discourse has shifted, both over time and relative to the preferences of the population as a whole.

What’s more, the “consensus” of the self-styled “centrists” is what now makes the Bush tax cuts of 2001 and 2003 seem positively reasonable. With Simpson-Bowles and Domenici-Rivlin both calling for tax rates below those established in 2001, George W. Bush now looks like a moderate; even many Democrats now endorse the Bush tax cuts for families making up to $250,000 per year, which is still a lot of money (for most people, at least)...

Americans are currently getting a menu of proposals with Simpson-Bowles in the right, Paul Ryan and Mitt Romney on the far right, and Fox News on the extreme right. There is no explanation of how to deal with our long-term debt problem in a way that preserves government services and social insurance programs and protects the poor and the middle class...

 As long as those people have the floor to themselves, nothing is going to change.

Willard M. Romney praises socialized health insurance

In Israel, according to the New York Times, Willard M. Romney praised the cost effectiveness of their socialized health insurance system:

“Do you realize what health care spending is as a percentage of the G.D.P. in Israel? Eight percent,” he said. “You spend eight percent of G.D.P. on health care. You’re a pretty healthy nation. We spend 18 percent of our G.D.P. on health care, 10 percentage points more. That gap, that 10 percent cost, compare that with the size of our military — our military which is 4 percent, 4 percent. Our gap with Israel is 10 points of G.D.P. We have to find ways — not just to provide health care to more people, but to find ways to fund and manage our health care costs.”

For more on the virtues of Israel's health care system compared to ours, here's a link to an excellent article from The Jewish Daily Forward.

Awesome Diplomacy

From Empty Wheel:

Bad News for Growth: Since 2009 Government has been shrinking

 Catherine Rampell at NYTs:

While Washington debates whether big government is holding back the economy, it’s worth keeping a couple of facts in mind: Government has been shrinking steadily for two years, and compared to the size of the overall economy, government is actually slightly smaller today than it has been on average in the postwar era.

Here’s a chart showing the annualized percentage change in gross domestic product (blue) and the percentage change in total government spending and investment (red):

 

Bureau of Economic Analysis, via Haver Analytics

 

The overall economy has been growing for 12 quarters. Total government spending (federal, state and local), on the other hand, has been falling for eight quarters. That decline has been driven primarily by state and local spending, which has been falling for 11 quarters. Federal spending has fallen for six of the last seven quarters.

In other words, without the drag of shrinking government, the growth rate of the overall economy (which is measured as consumer spending + investment + government spending + net exports) would be faster. That is even before you consider how public layoffs ripple through the private sector as unemployed workers curb their spending.

Indeed, the shrinking government labor force is another factor worth noting when thinking about the role of government in the economy. While President Obama has been pegged as a big-government politician, the total number of government jobs has actually fallen under his presidency. Federal payrolls have risen a little bit, but not enough to fully plug the steady leak of layoffs at the state and local level.

Government spending aids economic growth

From, yes, The Wall Street Journal:

Even Rupert Murdoch's WSJ...

According to the government’s latest number-crunching exercise — they revised old economic data while taking their first crack at how the economy performed in the second quarter — the Great Recession of 2007-2009 wasn’t as Great as we thought. Sure, it was the worst economic calamity since World War II, but the abyss we sank into three years ago wasn’t as deep as we thought. The reason? Government spending provided a cushion.

Real gross domestic product shrank 4.7% between late 2007 and the middle of 2009 — not the 5.1% initially estimated, the Commerce Department says. In 2009, America’s economy contracted 3.1%, much less than the earlier estimate of 3.5%. (The government’s “positive” revisions to the first and second quarters of 2009 were the biggest ones they made.)

So, what happened? It wasn’t consumer spending or business investments; those estimates were pretty much left alone. Net exports of goods and services abroad were a little stronger than initially thought, but that also doesn’t account for the change. That leaves “government consumption expenditures and gross investment,” which jumped far more in 2009 than initially estimated.

Bush III - Rinse, repeat...

Jon Chait @ NY mag:

Last night, Brian Williams asked Romney to distinguish his approach to economic growth from Bush’s. The answer was a mere recapitulation of his plans (“Well, let me describe — actually, there are five things that I believe are necessary to get this economy going … ”). I won’t reprint the entire answer, but Romney did not make the slightest attempt to distinguish his approach from Bush’s. Of course that is because it’s the same thing! Every single idea Romney listed — low taxes, free trade, less regulation, developing energy, etc. — was part of Bush’s program.

Now, the usual Republican answer here, on how their approach will succeed where Bush’s failed, is to shout, spending! Romney promises to cut it. Bush also promised to cut it, but didn’t. I don’t think this really answers the main objection — lower spending may help the long-term budget picture, but the policies Republicans most directly associate with economic growth are taxes, regulation, and energy. And here Romney really is proposing the exact same policies as Bush.

Mitt's Mendacity

Dave Weigel:

At this point, getting video clips of President Obama from Republican campaigns is like getting an article pitch from Jayson Blair. It might tell a good story, but you need to run down the source and triple-check. Jim Geraghty points to our latest example, a rapid-response video from the RNC that clips Obama's speech from Oakland.

Just like we’ve tried their plan, we tried our plan—and it worked. That’s the difference. That’s the choice in this election.  That’s why I’m running for a second term.

Pretty stupid! As Geraghty points out, with a smorgasboard of links, the economy is still horrible three-and-a-half years after Obama took office. But what was the rest of the quote?

I'll cut out government spending that’s not working, that we can’t afford, but I’m also going to ask anybody making over $250,000 a year to go back to the tax rates they were paying under Bill Clinton, back when our economy created 23 million new jobs, the biggest budget surplus in history and everybody did well. Just like we’ve tried their plan, we tried our plan -- and it worked. That’s the difference. That’s the choice in this election. That’s why I’m running for a second term.

What are the chances? Another radical Obama quote that's just a clipped version of something all Democrats believe. Obama wasn't talking, at this moment, about his own economic record. He was arguing that the economy had grown and the deficit had shrunk when marginal tax rates were higher. (Of course he doesn't want to raise all those rates, which undercuts his point about the deficit.) This is a bog-standard part of the 2012 message. "The President also believes that the top 2% should return to Clinton-era income tax rates," said David Plouffe this month, "when the United States created 23 million jobs and ran the biggest budget surplus in history." Obama has tried a bunch of things, but Clinton-era tax rates on income over $250,000 is not among them.

So the truncated version of the Obama quote is insanely misleading. At best, it'll only appear in $10.4 million or so of TV ads.

Inflation? Bring it on!

Michael Hiltzik @ LA Times explains why inflation, in current context, should be embraced as one piece of the solution to the lingering legacy of global financial crisis:

Wars and other crises have a way of remaking your oldest enemies into your best friends (and vice versa — just look at the history of U.S.-Soviet relations from 1939 to 1945). 

Given the depth and persistence of the financial crisis here and in Europe, isn't it time to embrace one of our oldest economic foes, inflation?

The way most people think about inflation is reminiscent of the old National Lampoon cover line about pornography: "Threat or Menace?" But the idea that inflation might be our friend is gaining traction, and not only among progressive economists such as Paul Krugman. The notion has been spotted recently on the Wall Street Journal editorial page, and its clearest expression yet has appeared in the most recent issue of the Milken Institute Review — neither venue being known as a breeding ground of the virus known as economic liberalism.

The discussion focuses on how inflation reduces the debt burden. Debt is a head wind against recovery right now. But if you're a debtor paying a fixed rate of interest, like many homeowners, inflation is good for you — as prices, and hopefully your wages, rise, your mortgage burden falls relative to your income. On the other side of the coin, though, your lender is getting paid back with dollars lower in value than the ones he lent you.

That's the point of the Milken Review paper by economists Menzie Chinn of the University of Wisconsin and Jeffry Frieden of Harvard. The idea, as they put it, is that debt is almost always denominated at fixed interest rates, so as prices and wages rise, the relative debt load falls.

To set up world economies for more growth, Chinn told me, "The important thing is to shrink the size of debt contracts." Up to now, European countries have been trying to do that through austerity — cutting government spending and services, forcing down employment and wages.

"You see people trying to grind their way to balanced budgets and hence stabilize debt levels," Chinn says, "and it's excruciatingly hard. Because of the political difficulties in taking austerity measures over the long term, you have to ask yourself if it's feasible."

Free Lunch Money

Paul Krugman explains why it's insane for the US not to prioritize infrastructure investments right now:

Take a look at the latest Treasury real yield curve data — the interest rate the U.S. government pays on bonds that are indexed to inflation:

That’s right: for every maturity of bonds under 20 years, investors are paying the feds to take their money — and in the case of maturities of 10 years and under, paying a lot.

What’s going on? Investor pessimism about prospects for the real economy, which makes the perceived safe haven of US debt attractive even at very low yields. And pretty obviously investors do consider US debt safe — there is no hint here of worries about the level of debt and deficits.

Now, you might think that there would be a consensus that, even leaving Keynesian things aside, this is a really good time for the government to invest in infrastructure and stuff: money is free, the workers would otherwise be unemployed.

But no: the Very Serious People have decided that the big problem is that Washington is borrowing too much, and that addressing this problem is the key to … something.

The Inspector General's Tale

 Gretchen Morgenson @ NYT:

Nearly four years after Washington began its huge rescues of banks with taxpayer dollars, an important player in this, one of the great financial dramas of all time, is offering a damning account of how the Bush and Obama administrations handled the whole episode. 

He is Neil Barofsky. Remember him — the man whose job it was to police the $700 billion Troubled Asset Relief Program? And his new account, a book titled “Bailout” (Free Press), to be published on Tuesday, is a must-read. 

His story is illuminating, if deeply depressing. We tag along with Mr. Barofsky, a former federal prosecutor, as he walks into a political buzz saw as the special inspector general for TARP. 

Government officials, he says, eagerly served Wall Street interests at the public’s expense, and regulators were captured by the very industry they were supposed to be regulating. He says he was warned about being too aggressive in his work, lest he jeopardize his future career.