Archive for the ‘Finance’ Category

Zombie Politics and Debt Hysteria

Friday, January 25th, 2013

First a quick summary.

In previous posts we’ve gone through the issues surrounding debt and built a case for economic growth and lower unemployment as viable methods to reduce our debt.  Austerity programs do not stimulate economic growth or lower unemployment, at least in the short term.  They actually make things worse.

We’ve also looked at the REAL problem which is the rate of growth in Healthcare costs.  Austerity programs do NOTHING to bring down the costs of healthcare delivery.  Economic growth also does nothing about this problem.  Yet deficit hawks are not talking about this as the middle term problem we have to solve.  Instead they focus exclusively on reducing the debt.


Zombie Politics.

This term was originally coined by John Sides.  He defines it as “ideas about politics that have become so cemented in conventional wisdom that it is virtually impossible to dislodge them. It doesn’t matter what the data says, or what published research says. Zombie politics means that even though the ideas are dead, they just can’t be killed.”

Here are a few examples of Zombie Politics in action.

The House prevented any tax increases until after the 12/31 deadline passed and even then only enough Republicans agreed so that it could pass with overwhelming Democratic support.  That’s because a core belief of current Republicans dating back to Reagan is that low tax rates for high income earners have significant economic impact.  Even though this theory has been widely discredited, most recently by the Congressional Research Service; it lives on as the cornerstone of Republican politics.

Hurricane Sandy relief was voted down because, to quote Paul Ryan, “Unfortunately [the bill] refuses to distinguish — or even prioritize — disaster relief over pork-barrel spending.”  Rep. Peter King (R-N.Y.), a powerful House Republican who represents New York’s Long Island, which sustained billions of dollars in storm damage, refuted those claims. “The House bill never contained any of those extraneous provisions,” he said.

New Jersey Gov. Chris Christie (R) said on Wednesday that the failure to vote on the aid bill was the result of “toxic internal politics” in the Republican Party. “Americans are tired of the palace intrigue and political partisanship of this Congress,” Christie said. “Disaster relief was something that you didn’t play games with.”

This isn’t the first time that Republicans have opposed disaster relief.  In each case, the same complaints about “pork barrel spending” and “unsupervised slush funds” are voiced, but those are just code words for the core issue.  They honestly don’t believe that government can play an effective role as the relief agency of last resort.  That’s because they hold fast to the zombie view that government is America’s number one problem, not its solution even in these cases of extreme need.

The first debt ceiling debate is another perfect example.  Republicans claimed that letting the president have increased spending authority is irresponsible.  Quoting, “Republicans, including House Speaker John Boehner and Rep. Michele Bachmann, have said that the president wants ‘a blank check.’ Not true. First, he’s asking to borrow money to pay obligations Congress has already approved.”  Yet this characterization that increasing the debt ceiling somehow empowers Obama to spend MORE is another zombie proverb.

Another zombie maxim is that jobs are created by less government, lower taxes, and fewer regulations.  This has been boiled down recently to the frequent comment heard during the last campaign that the government doesn’t create any jobs.  Yet World War II is largely credited with the recovery from the Great Depression by the massive government spending which converted the country to a government run munitions factory.

These disproven zombie concepts have been summarized by Grover Norquist when he said, “Our goal is to shrink government to the size where we can drown it in a bathtub.”   The problem is that, contrary to Republican claims, the vast majority of American LIKE much of what modern government does.

Should Spend More

Spending About Right

Should Spend Less

Don’t Know or No Answer

Protecting the environment





Protecting the nation’s health





Halting the rising crime rate





Dealing with drug addiction





Improving the education system





Social Security





Solving urban problems





The military, arms, and defense





Highways and bridges










Parks and recreation





Mass transit





What we are left with is a minority segment of the voting public and their representatives who are determined to REDUCE the size of government at every opportunity.  Their beliefs ARE NOT based in fact, but that doesn’t appear to bother them.

The best policies are not those that have the most likelihood to succeed.  The best policies are the ones that will ultimately reduce the size of government because this is their religion.

Don’t get me wrong.  I am a religious person.  I DO believe in God and the power of prayer.  But I don’t believe I have any right to impose my beliefs on anyone else.  When it comes to governing a country, we have to depend on good data rather than religious belief to confirm that our course is going to benefit the majority of our citizens.

In the next couple of posts let’s see if we can dig into data supporting this claim that conservative republicans possess a blind unreasoning commitment to a particular point of view, why this leads to zombie politics, and why this is something that appears UNIQUE to the conservative movement.

The REAL Financial Problem

Sunday, January 13th, 2013

As we saw in the previous post, our near term fiscal issues ARE NOT the result of irresponsible spending. They are the direct result of the deepest recession in our country’s history, surpassed only by the great depression. Part of the legislation put in place after the depression to prevent a repeat of that economic collapse included a social safety net. This safety net provides those who find themselves in dire financial condition, a floor of support below which they can’t drop. This set of interlocking programs also limits the economic damage of any contraction by keeping at least some money flowing from consumers to producers. It’s this safety net spending along with the loss in tax revenue from having excess capacity in workers and factories that is driving $600B of our annual deficits. That extraordinary safety net spending is decreasing and tax receipts are increasing as the economy recovers. The spending will disappear when we approach full employment and robust economic growth.

The REAL problem on our economic horizon is handling the cost of the baby boomer retirement and the impact that it will have on Social Security, Medicare, and Medicaid.

Moreover, an increasingly large portion of the debt is money that the government owes to itself because of borrowing from large entitlement programs such as Social Security and the Medicare. That’s because the money spent on discretionary programs has generally declined, as a share of the economy, while spending on mandatory programs has soared — and will only consume a larger share of the economy as the Baby Boom generation heads into retirement.

In fact, the debt owed to entitlement programs is now almost as large a share of the economy as all U.S. government debt before Ronald Reagan became president.

Washington Post

The Demographic Problem

The Baby Boomers are a large cohort of the population (70M+) that are going to be retiring over the next ten years. Programs like Social Security and Medicare use taxes from today’s payroll to pay the benefits for today’s retirees. If the population growth tracked GDP growth, this wouldn’t be a problem. When you have large demographic anomalies like the Baby Boom generation, you end up with a situation where there aren’t enough workers to support the costs of retirees.

Fortunately the solutions to demographic problems are comparatively simple. You either adjust benefits based on income, change the age at which people qualify for benefits, or change the tax formulas on those funding the benefits.

If you did some combination of those things, Social Security would be fine, but Medicare/Medicaid would still be in trouble.

The Healthcare Problem

Our healthcare system is also broken. The result is that the rate at which healthcare costs are growing exceeds the GDP growth rate. That is unsustainable under any circumstances.  When you combine that problem with the undeniable demographic issues of the Baby Boomer, more systematic changes are required.

Spending in General is NOT the Problem

These inexorable demographic changes mask the fact that over the past four years we have experienced historic levels of fiscal discipline. While there was a temporary and necessary spike in spending from the Recovery Act, annual appropriations actually declined by 1.4 percent a year between 2008 and 2012 in inflation-adjusted dollars — after growing by 6.1 percent a year during the George W. Bush administration.

NY Times

Real Solutions to Real Problems

Obamacare is the first step in changing the healthcare business model. Here is a short list of the next steps to change our healthcare delivery model from a transaction model to an outcomes one. These come from a report by the Commonwealth Fund. The Commonwealth Fund contracted with Actuarial Research Corporation to estimate the cumulative impact on healthcare spending by 2023 if the set of policies were to take effect in 2014. Results showed a $242 billion savings for state and local governments, $189 billion in savings for employers, and $537 billion to consumers because of lower premiums and out-of-pocket costs.

Revise the Medicare physician fee structure and methods of updating payment so that it rewards value. The sustainable growth rate formula should be repealed and replaced with a physician payment policy that incentivizes improvements in health outcomes. Such a system would only provide increases in payments to doctors participating in innovative delivery systems. Fees would otherwise remain at 2013 levels. This will force those physicians reluctant to leave the comfort of their transaction model based medicine to change.

Medicare also should be allowed to institute competitive bidding for medical commodities. The medical commodity lobby has so far prevented Medicare from applying the sort of market-based bidding that every other industry uses to drive down costs.

Strengthen primary care and support teams for high-cost, complex patients. Primary care physicians who participate in a patient-centered medical home would receive enhanced payments. The structure would provide incentives to improve patient outcomes. It will also insure that physicians continue to enter the primary care field of practice, rather than simply being employed by vertically integrated systems like Kaiser.

Bundle hospital payments to focus on total costs and patient outcomes. Providing a single payment for all care during an episode would provide incentives for teamwork and accountability to reduce readmissions and follow-ups.

Adopt payment reforms across markets with public and private payers working together. Ensuring public and private payers employ the same or similar payment methods would reduce complexity for physicians and others in the healthcare system.

 Reform medical malpractice rules and payout policies. Medical liability policies should encourage the disclosure of medical errors and provide fair compensation for injury and medical costs.

The goal is to bring the rate at which healthcare costs grow in line with GDP growth. If that can be done, then the Medicare/Medicaid problems becomes one dimensional just like Social Security and will yield to the same sorts of solutions – means tested benefits, increasing the age requirements, or changing the tax formula.


The near-term financial issues with large deficits that we face ARE NOT the result of irresponsible spending. They are the result of social safety net increases and tax receipt decreases due to high unemployment and slow financial growth. Those both can be fixed through more robust economic growth. So they are NOT systematic problems.

We DO have some systematic medium to long term problems with Social Security, Medicare, and Medicaid. Those problems are due to the demographic anomaly called the Baby Boom and our antiquated healthcare system. Social Security and Medicare need some changes to deal with the demographic issue, but that won’t fix the healthcare system. That also has to be fixed in order to preserve Medicare and Medicaid as viable programs.

Next let’s look at how some conservatives have tried to create a debt hysteria and what their motives might be.

Debt, Deficit, and Math

Monday, December 31st, 2012

Here’s a little bit of truth through facts about the current political turmoil over debt and deficit.

First some definitions

Deficit is the difference between what the government spends and what it takes in through various revenue sources every year.  The deficit has been going down every year that Obama has been in office.  In round numbers we are talking about $1T a year.

Debt is the total amount of money that the government owes.  Some of that money is owed to the public and some of that money is owed to itself (primarily through Social Security bonds).

One of the measures of the health of any economy is the ratio of public debt to GDP.  If the debt is growing faster than the economy, that ratio goes up.  If the economy is growing faster than the debt, that ratio goes down.  We are someone where in the 70’s right now and the debt is growing faster than the economy mostly because we are still recovering from a recession.

Now tactics

The goal is to reduce rate of growth in the debt, not the actual amount of debt itself.

You can attempt to reduce the rate of growth in the debt by simply attacking the debt side of the equation.  The problem is that austerity, as we’ve seen in Europe, generally causes recession.  Recession reduces the size of the GDP.  The result is no change in debt as a percentage of GDP, and the potential to make things worse.

On the other hand, there are also practical limits to the rate at which the GDP can grow over any sustained period without also raising the specter of inflation because things like labor and raw materials tend to become more costly as demand increases and supply decreases.

Goldilocks Path

Many economists suggest that 4% growth is the optimal target for US GDP.  At or around that level, we can easily sustain deficits in the range of $400B and still drive debt as a percentage of the GDP down to the 30% range.  If the economy starts to grow faster, raise taxes and lower spending.  If the economy slows, increase spending and decrease taxes.

The Clinton years are a good example of this.  Paul Krugman summarizes, “Federal debt was higher at the end of the Clinton years than at the beginning — that is, the deficits of the Clinton administration’s early years outweighed the surpluses at the end. Yet because gross domestic product rose over those eight years, the best measure of our debt position, the ratio of debt to G.D.P., fell dramatically, from 49 to 33 percent.”

How do we get there from here?

If we take the current $1B deficits that we are running and subtract the $400B that we agree is a reasonable level to run in the best of times, let’s see what happens to the other $600B of our current deficit if the economy continues to grow.

Recessions cause increased spending in means tested social safety net programs like food stamps and Medicaid because wages fall and people lose their jobs.  The result is more people unemployed or underemployed qualify for these benefits.  If we were at the sort of sub 6% unemployment levels typical in past periods of 4% economic growth, we would eliminate $150B in deficit spending without any other changes to these programs.  More people working means fewer would need these services.

Now let’s look at increases in tax revenues and reductions in short term stimulus spending going on today from a better employment picture and more robust growth.  That total is somewhere around $450B given what we are spending today.

Assuming these figures are correct, returning to full employment and a sustained period of economic expansion also fairly quickly returns us to $400B deficits and a reduction in the debt as a percentage of GDP equation.

The good news is that we are seeing very positive signs of growth across the economy.  To quote Paul Krugman, “Housing is reviving, consumer debt is down, employment has improved steadily among prime-age workers.”

We don’t have a spending problem or at this point even a growth problem.

We do have a political problem.  Again quoting Krugman, “Unfortunately, this recovery may well be derailed by the fiscal cliff and/or a confrontation over the debt ceiling; but this has nothing to do with the alleged unsustainability of the deficit.”

We’ll look at that political problem next and the REAL issue that threatens the economic health of the country.

We don’t negotiate with Terrorists

Thursday, December 27th, 2012

Let’s do a quick recap to figure out how where we are on negotiations to come up with a better spending and tax plan than the one set to take effect on January 1, 2013

The January 1, 2013 deadline was set two years ago by this same congress as part of a bargain to resolve another artificial crisis.  That artificial crisis was created by newly elected Tea Party Republicans who refused to allow the government to borrow the money required to pay for things that Congress had already approved purchasing.  At the time, both parties agreed to put in place a series of spending and tax cuts so severe that both parties agreed it would force a compromise.

The date for that compromise as well as decisions about a number of related items including Bush tax cuts, exemptions from the Alternative Minimum Tax, FICA reductions, and extensions to unemployment benefits was purposely set after the 2012 election.  The thought was that the voters should have an opportunity to weigh in on these issues.

Republicans were so confident that they were going to win the 2012 election that they admitted that they didn’t have an alternate plan to deal with all of these issues if they lost.  Their plan if they won was to pass the Romney budget and make the Bush tax cuts permanent.

The voters DID express their opinion.

The Democrats won the election which included a promise to raise taxes on those making more than $250,000 a year.

After the election President Obama and House majority leader Boehner began negotiations. The following graph shows how those negotiations progressed.

When negotiations broke down, Boehner and Obama were $200B apart on tax revenue and $200B apart of spending reductions.  Boehner had conceded that taxes on wealthy people had to go up.  Obama had conceded that future spending on Social Security and Medicare should be adjusted.  All that remained to close this deal was split the difference on the numbers and work out the remaining details.  Obama still had to sell this deal to his reluctant Democrats in the Senate and Boehner had to do the same with his reluctant Republicans in the House.  It was those House Republicans who killed the deal when they refused to back the fall back “Plan B” bill that Boehner introduced to improve his bargaining position with Obama.  Rather than strengthen Boehner, this bill demonstrated that Boehner didn’t have the Republican support he needed any of the offers he made to Obama.

The same Republicans who wanted to put these questions to the voters now appear perfectly willing to ignore the will of 2012 voters.

At this point, the only deal than can pass in the few remaining days before this Congress ends, is one that comes from a compromise in the Senate that would allow a majority of Democrats to pass a bill that then would also pass the House.  This would require two things.  First, Senate Republicans would have to agree to allow such a bill to come to a vote rather than filibuster it.  Second, at least 26 House Republicans would have to support the bill along with the 191 Democrats.

The good news is that it if this Congress fails to get this done, the new Congress will have some time in January to act before these tax increases and spending cuts really take effect.  In the new Congress, Democrats only need 17 House Republicans to pass a bill.  Failing to get this deal done before the end of the year will continue to erode the confidence in the global community that the United States is capable of managing its own affairs.

The bottom line is that we live in a democracy.

We get the government that we vote for.

In 2010 voters sent a lot of “no compromise” Republicans to the House.  Those members exerted their power to create this crisis and don’t appear included even after their 2012 defeat to change their behavior.  While there are fewer of these sort in the new Congress, a significant number were sent back to continue the work that they began in 2010.  Many of those re-elected, benefited from 2010 Republican majorities in state legislatures who took advantage of the redistricting process to create “safe” Republican districts for their representatives.

Here are just a few recent examples of Republican dysfunction.

Senate Republicans recently rejected the UN Convention on the Rights of People With Disabilities.  This treaty was negotiated and signed by GW Bush.  Bob Dole came to the Senate floor in his wheelchair to lobby for its passage.  It essentially requires other countries to improve to our level of protection for the disabled, without requiring us to change any laws. It has already been ratified by 126 countries.  Rick Santorum, who holds no elected office, lead the Tea Party charge to defeat the bill based on some loony concept of U.S. “sovereignty” which essentially calls into question the whole premise of the United Nations.

We had the embarrassing moment earlier this month when Senate Minority Leader McConnell called for a vote on Obama’s proposal to change the method in which the debt ceiling is extended.  He was hoping to create an embarrassing moment for Democrats on the issue.  When Senate Majority Leader Harry Reid agreed to an immediate up or down vote, McConnell was forced to filibuster his own bill in order to prevent it getting passed.

Several days later, we have the Boehner Plan B debacle where he had to admit that he didn’t have the power to negotiate a deal with Obama on the fiscal cliff.

Tom Friedman summarized it best quoting James Carville in a recent column entitled “Send in the clowns”.

The political obsessions of the Republican base — from denying global warming to defending assault weapons to opposing any tax increases under any conditions, to resisting any immigration reform — are making it impossible to be a Republican moderate, said Carville. And without more Republican moderates, there is no way to strike the kind of centrist bargains that have been at the heart of American progress — that got us where we are and are essential for where we need to go.


But if Republicans continue to be led around by, and live in fear of, a base that denies global warming after Hurricane Sandy and refuses to ban assault weapons after Sandy Hook — a base that would rather see every American’s taxes rise rather than increase taxes on millionaires — the party has no future. It can’t win with a base that is at war with math, physics, human biology, economics and common-sense gun laws all at the same time.


The problem is NOT one of leadership.  Clearly both Obama and Boehner made significant concessions and had a deal on the table that made both parties uncomfortable.  But that deal didn’t get done because a significant portion of the elected Republicans in the House blocked it.

If some voters continue to reward the sort of terrorist behavior that we’ve seen from Tea Party Republicans, there is precious little that can be done.  Our system allows them to effectively shut down the government, if that’s what they choose to do and they have the votes to do it.  At this point, this group appears determined to raise taxes on everyone, cut spending, and likely cause a recession rather than accept a compromise with a President they despise.

As far as what we do in the meantime, we trust in the wisdom of voters to fix the problems created in 2010.  Ronald Reagan said it best during his debate with Jimmy Carter, “We don’t negotiate with Terrorists”.

Know When to Hold ‘Em

Wednesday, November 28th, 2012

The fiscal cliff is the first test of Obama’s second term.

Here’s where it stands right now.

Staffs from both the White House and Republican leaders in the House and Senate have been working since the election to determine if there is any middle ground.

The problem is that Republicans appeared so confident that Romney was going to win, that they didn’t have a plan B. They were prepared to simply renew the Bush tax cuts for everyone and kick the debt can down the road with Romney in White House. Instead, they now have to deal with a newly popular President and a majority of Americans who support raising taxes on the wealthy.

The problem is that the Republican plan to limit deductions, doesn’t generate enough revenue (at least from high income tax payers) to replace what would come in just by letting the Bush tax cuts expire.  Also if deductions were limited, charities would likely be hardest hit.

As an aside, the whole concept that the economic impacts vary based on the type of tax increase is hard to swallow. If tax bills go up and that’s a bad thing, then how can there be any difference. And if the economy can survive raising tax bills from limiting deductions, why wouldn’t it also survive from a similar simpler increase in rates?

As that realization is dawning on the American people, the fundamental bargaining position of Republicans is eroding. The Republicans have said that they feel that they have leverage in these negotiations because if the country goes over the fiscal cliff and the economy suffers, Obama will be blamed.

The Obama administration, however, has positioned this differently in the minds of voters. What they have said is that Republicans would rather raise taxes on everyone in order to avoid raising taxes on the wealthy. They have already trotted out data to support the claim that a middle class tax hike will damage the economy by reducing consumer spending. They have trotted out billionaires and small business owners who have said that they are WAY more concerned about the economic impacts of middle class tax increases. The White House has also pointed out that there is a bill before the House right now which extends only middle class tax cuts. Obama challenges Republicans to pass that bill today while the rest of spending reductions are worked out. Obama only needs 17 Republican House votes to pass it. Some Republicans have already said that if Boehner brought the bill up, it would pass.

Some House Republicans are already saying that the House should give Obama the middle class tax cut that he is asking for and then hold him accountable for the economic collapse that they’ve predicted will occur.  This strategy also provides them some political cover since the only thing that they voted for was the middle class tax cut, rather than voting for a tax hike on the wealthy.

The problem that others have with this strategy, however, is that it would be perceived as a clear win for a President that they detest. It would also undermine their claim that this President can’t lead and is ineffective. And if the predicted economic collapse from raising top tax rates fails to materialize it will further weaken Republican prospects in 2014.

What is also interesting is what a low profile Paul Ryan has been keeping since the election. I believe he also knows that this is a losing proposition and would rather have it all fall on Boehner’s shoulders.

That only further confirms that a deal is going to get done. At the very least, it will involve passing the Senate resolution to extend the middle class tax cuts for another year, approving another debt ceiling raise, and kicking spending cuts down a road until the new congress is sworn in.

Everybody wins because the Republicans live to fight another day.

You gotta know when to fold ‘em.

Romney 2.0

Sunday, October 7th, 2012

A liberal, moderate, and conservative walked into bar; the bartender looked up and said, “Hello Mitt”.

This new Romney showed up at the debates.  Let’s see how he compares with the old one.

Romney 1.0 promised to cut taxes 20% across the board in order to stimulate the economy.  Romney 2.0 said everyone’s tax bills wouldn’t change.  Rate changes will be balanced by deduction reductions.  No details yet.  When pressed on how he could keep all of these promises and also reduce the deficit, Romney 2.0 said that this revenue-neutral plan would spur economic growth just like his old plan, even though this new one is putting no more money in the hands of consumers or job creators.

Healthcare Reform
Both Romneys are going to repeal Obamacare, but Romney 2.0 claimed his plan covered popular things like pre-existing conditions.  After the debate, his campaign admitted his “plan” relied on every state passing their own version of Romneycare.

Deferred Action for Illegal Aliens
Romney 2.0 said he would support the President’s action.  The next day his campaign said the real plan was to end the program if elected and only honor those deferrals issued between now and then.

Romney 2.0 provided a full throated endorsement of financial regulation including large parts of the Dodd Frank bill which Romney 1.0 promised to repeal.   No details on potential replacements.

Romney 1.0 wanted to reform Medicare as part of a larger effort to reduce the deficit.  Romney 2.0 says that he plans to keep Medicare unchanged for anyone who wants to use it now and into the future.  In addition he will create an alternate voucher program in hopes that everyone will move from the guaranteed program to the program where they have to take some of the risk regarding the cost of their care once they are retired.  He hasn’t provided any details on how running two competing healthcare plans will be cheaper than running one.

Romney 1.0 claimed that Obama’s policies have created a pervasive culture of dependency and entitlement that threatens the very fabric of democracy.  Romney 2.0 apologized, “I said something that’s just completely wrong.”

Truth in Advertising
Romney’s pollster said “We are not going to let our campaign be dictated by fact-checkers”.  Romney 2.0 claimed that when “any time there’s anything that’s been amiss (in our advertising), we correct it or remove it.”  When asked for examples, his campaign couldn’t produce any.

Perhaps there isn’t as much difference between Romney 1.0 and Romney 2.0 after all.

Fact-checking the Democratic Convention

Friday, September 7th, 2012

If you take as any guide, the Democratic Convention that just concluded spent a lot more time discussing facts than the Republican Convention in Tampa. There were only two statements tracked by Politifact that rated a “false”. One by Delaware Governor Jack Markell who used a Romney quote out of context about firing people who provide poor healthcare as indication of how Romney would respond to a potential factory closing. The other was the claim by Rep. James Clyburn that Republicans stood on the sidelines when Social Security, Medicare, and Medicaid were created. While there was vigorous debate about all three programs, a majority of Republicans supported all three in the final vote.

That said there were still issues that should be mentioned because they weren’t entirely accurate.

On the debt, Obama said, “Independent analysis shows that my plan would cut our deficits by $4 trillion. Last summer, I worked with Republicans in Congress to cut $1 trillion in spending.”

The problem with this statement is that there was no mention of the timeline on the $4T which could give the impression that the current $1T deficit would be eliminated. The facts are that a the end of the most recent 10-year budget proposal, the debt would be 76% of GDP. That represents and increase of approximately 4% of the 74% debt figure today. Simpson-Bowles, by comparison, would reduce the debt as a percentage of the GDP over the same period to 60%. The bulk of the deficit reductions comes from tax increases on the wealthy rather than spending cuts.

On a related topic, Obama also said that savings from winding down the wars in Iraq and Afghanistan would be used to rebuild roads, bridges, schools and runways. The problem is that those wars were financed with “deficit” dollars. So ending those wars doesn’t magically free up money for other projects. Any infrastructure spending using the same model that funded the Iraq and Afghanistan wars will increase the deficit in the same way the wars have done.

Obama referenced trade agreements that he signed which will improve our exports. What he didn’t say is that the Bush administration negotiated those agreements. Obama still had to get those agreements through an obstructive Congress, but he can’t take full credit for the final product.

Obama implied that Romney would turn Social Security over to Wall Street. While Romney did support this position in 2008, he no longer does. Obama does get positive marks for including modest Social Security reform in his latest budget proposal.

Joe Biden and the film that aired before Obama spoke referenced an incident during Obama’s mother’s hospitalization for breast cancer. She did have a dispute with an insurance company, but it wasn’t over health benefits. It was for disability pay. So the clear line from the death of Obama’s mother to healthcare reform, is really a more complicated story than the Democrats have been telling.

Biden also repeated the line that Romney was willing to let Detroit go bankrupt. The actual WSJ opinion piece that Romney wrote didn’t say that. Only the headline, which Romney didn’t write. Romney did, however, support that headline in a TV appearance. What Romney was recommending a “managed bankruptcy” and claimed that the private sector could finance that. The Obama administration explored that concept but couldn’t find any private firms willing to participate, so the government essentially funded the managed bankruptcy and reorganization of GM and the sale of Chrysler to Fiat. They do, however, deserve credit for the results of this actio.

Biden claimed the the Romney plan would cause Medicare to go bankrupt. The inaccurate term here is “bankrupt”. The reference here was to Medicare Part A which is funded by a payroll tax paid by employees and employers. The administration negotiated a $716B savings in the ACA which would benefit this fund and extends its life well past the 2016 date. Romney wants to repeal the ACA which will eliminate this savings and shorten the life of the Medicare trust fund. The fund won’t technically go bankrupt, but if it does run low on fund, the government is going to have to respond to make up the shortfall or cut benefits.

Biden cited a new territorial tax as being part of Romney’s proposal and that it will create 800,000 overseas jobs. Romney does propose as part of his corporate tax reform initiative to exempt foreign corporate profits from domestic US taxes. The study cited by Biden does support Biden’s claim with regard to foreign employment gains, though it doesn’t specifically examine Romney’s proposal. The study does not suggest that these foreign jobs will come at the expense of US jobs.

Finally Biden claimed that Romney’s tax plan would include an effective tax increase of $2,000 for middle class families. This is based on an analysis of the Romney plan by the nonpartisan Tax Policy Center. Romney has claimed that his tax reductions would be revenue neutral because he would simultaneously close man tax loopholes, but he hasn’t said which ones he would close. The Tax Policy Center in their analysis said that the only way to make the math work, would be to close some tax loopholes like the deduction for mortgage interest that benefit the middle class. The Romney campaign disputes these findings but hasn’t provided an alternate explanation of how their math would work. In the absence of this explanation, Biden’s claim has to stand.

The quick summary is that the Republicans generally were significantly more fact-challenged than the Democrats and also shared far less detail about what they planned to do than the Democrats.  The Democrats did their fair share of fact stretching, but none of these compared with the many “pants on fire” lies that were core portions of the Republican convention message.

Crazy Train

Sunday, August 26th, 2012

This has been a remarkable week for exposing the crazy side of conservative Republicanism.

Women’s Issues
Suburban women were a significant part of Obama’s winning coalition in 2008 and were also the reason why so many Tea Party Congressmen were elected in 2010.  So how are the Republicans doing with this particular voting block this year?

Look no further than Todd Akin the tea-party backed Congressman running against Clare McCaskill in the Missouri senate race.  He referenced a loony theory created by Dr. Jack C. Willke, the father of the antiabortion movement, that pregnancy from rape is rare.  This theory is important to the pro-life movement because it allows them to argue that the current exclusions of rape from abortion bans are unnecessary.  Not only is this whole concept deeply offensive to women across the political spectrum, but the theory has no basis in fact.

It has also shined a light on Paul Ryan’s record regarding women’s rights.  Ryan and Akin co-sponsored a bill which attempted to introduce this concept of “legitimate rape”.  Ryan’s 100% rating from the National Right to Life Committee is the result of his support for the Partial-Birth Abortion Ban Act, the Unborn Victims of Violence Act, and the No Taxpayer Funding for Abortion Act.  Ryan and Akin were also co-sponsors of the Sanctity of Human Life Act which sought to give a fertilized egg the same rights of “personhood” as a human being and would not only ban all abortions but outlaw some forms of birth control.

Ryan has said he will support the Romney position of allowing abortions in the case of rape, incest, or threat to the life of the mother.  Some women are already wondering what would happen if Romney were elected and then could no longer serve?

Climate Change
We are going through the worst drought in 60 years which deeply affects famers.  New scientific studies are released almost every week attributing this drought specifically to climate change caused by human activities.  Yet, John Shimkus of Illinois who heads the house subcommittee on climate change says there is nothing to worry about.  “The earth will end only when God declares it to be over,” he said, and then he went on to quote Genesis at some length.

John Barton is on the same committee.  He’s the one who among other things apologized to BP because he felt the Obama administration was being too demanding following the gulf oil spill.  Barton cited the Almighty in questioning energy from wind turbines.  Careful, he warned, “wind is God’s way of balancing heat.”  Clean energy, he said, “would slow the winds down” and thus could make it hotter.  “You can’t regulate God!” Barton barked at the House speaker, Nancy Pelosi, in the midst of discussion on measures to curb global warming.

Michele Bachmann and Jim Inhofe claim that global warming is a hoax.  Mr. Inhofe is a senior member on the Senate Committee on the Environment and Public Works.

Romney’s energy plan calls for increased oil drilling and relaxation of EPA regulations on the use of coal.  He promises North American energy independence by 2020 (assuming Canada still likes us by then).  He depends on a study by the Citigroup for his data but ignores the portion of the study which also recommends dramatic increases in conservation standards in order to achieve energy independence.

Finally Romney also promises freedom from foreign oil and cheaper gas.  As long as oil is a globally traded commodity, he can’t deliver on either of these promises unless he is willing to restrict domestic oil exports.  He’s said he won’t do that.  So though the US balance of trade may improve when the US becomes a net oil exporter, prices will still fluctuate based on international events that could affect supply, and we will still be burning foreign oil.

Jack Kingston of Georgia, a 20-year veteran of the House, is an evolution denier, apparently because he can’t see the indent where his ancestors’ monkey tail used to be. “Where’s the missing link?” he said in 2011. “I just want to know what it is.” He serves on a committee that oversees education.

Romney has taken the position that college students don’t need the loan supports they currently receive.  His advice to a college student asking about how they are going to afford the costs of college is that they shop around for a cheaper college or borrow the money from parents and relatives.

Romney does not want this election to turn on whether or not he releases his tax returns.  However he continues to assist the Democrats in keeping this issue in the news.  The latest evidence of this is from a talk he gave recently to a small business group.

“We’ve got to make it easier for small businesses,” Romney told a crowd of about 300 people at a high-dollar fundraiser in Minnesota. “Big business is doing fine in many places -they get the loans they need, they can deal with all the regulation. They know how to find ways to get through the tax code, save money by putting various things in the places where there are low tax havens around the world for their businesses. But small business is getting crushed.”

So not only did he echo Obama’s remark regarding the private sector, and effectively take that off the table as a future talking point for his campaign, but one of his recommendation for helping small business appeared to be easier access to tax havens.  This remark came on the heels of several reports on Bain’s practice of setting up tax havens for their customers and additional analysis of Romney’s public returns suggesting extensive use of off-shore accounts to avoid US taxes.

Romney has promised to balance the budget, but recently he also said he was going to add back $700B in Medicare spending which the Obama administration had listed as cost savings in the Affordable Care Act.  This $700B, as many have already pointed out, is coming from reduced re-imbursements primarily to hospitals who have agreed to the cuts in return for seeing a reduction in their costs for caring for the uninsured.  The other major source of that reduction comes from reducing the rates paid to insurance companies for the Medicare Advantage coverage since the Affordable Care Act also addresses many of the gaps in Medicare coverage that the Medicare Advantage plans filled.  I’ll address the whole Medicare issue in another more detailed post.  But Romney also hasn’t said how he hopes to pay for this additional $700B in spending and still keep his promise to balance the budget and reduce the deficit.  His math didn’t work before.  It has only gotten worse.

Romney has said that he doesn’t dispute Obama’s citizenship.  At the same time, he met with Donald Trump during the primaries and recently made a joke about his own citizenship in a talk in Michigan where he said “no one ever asked to see my birth certificate”.

Romney’s claim that the Obama administration is dismantling welfare work requirements has been widely criticized as a thinly veiled bit a race-baiting.  It is factually inaccurate because if anything, the states requesting waivers of the current work rules were attempting to put MORE people to work rather than less.  Instead it was an appeal to the portion of the Republican base who distrust an African American President and the motivation of the African Americans who support him.

There are a couple of things going on here.

There is a segment of the Republican party that hold beliefs well outside mainstream America.  34% of conservative Republicans believe Obama is a Muslim.  51% doubt his citizenship.  50% feel that he is a socialist.  You can see that extremism in the Republican platform which includes a pledge to pass a constitutional amendment to outlaw abortion without exception.  It includes the construction of a giant wall along the US border with Mexico, mandatory use of electronic verification by private employers, no support for a path to citizenship, the blocking of funds to universities offering in-state tuition fees to the undocumented, and an end to federal lawsuits against controversial anti-immigrant legislation such as Arizona’s SB1070.  There’s even language suggesting an annual audit of the Federal Reserve and a “gold commission” to investigate return to the gold standard.

Romney’s strategy to become President has shifted over the last month.  Some pundits say that his selection of Ryan had much more to do with needing to put Wisconsin in play than it did anything else.  That’s because many say that Romney can’t win Ohio.  Romney has to win one of the rust belt states to have any hope of a November victory and he was willing to put Florida at risk because of Ryan’s unpopular Medicare proposals in order to improve his chances in Wisconsin.

The other shift in Romney’s strategy is that he has refocused his attention on his base.  Selecting Ryan made it more difficult for him to win women, but it did guarantee a vigorous attack from Democrats.  That attack and Romney’s recent statements on energy, welfare, and birtherism all indicate that the focus of the rest of his campaign is going to be on turning out the Republican base.  He wants every Republican voter (including those with loony beliefs) so energized that they will be first in line when the polls open.  The added benefit is that a divisive campaign not only gets his base to the polls but also suppresses the less partisan undecided voters who may decide to just stay home because they are so disgusted with the whole process.

This scorched earth strategy  may work to get him elected.

It won’t leave much room for him to govern if he is successful.

What Swing Voters Really Want

Thursday, August 2nd, 2012

This election is going to turn on a relatively small number of voters in a relatively small number of states.

These are the voters who haven’t already decided who they are going to vote for.

In the 10-12 swing states that will decide this election, these undecided voters represent roughly 10% of the electorate.  In the other states leaning or solidly in either candidate’s column, their leads exceed the margin that these undecided voters could influence.

So what do they want?

According to the AP, these voters want more details about Romney’s economic proposals and Bain Capital record, less bickering between the parties and a greater sense of inspiration and leadership from both candidates.

They also understand that this is a vague wish list, but it happens to be the issues that will move them from one candidate to the other.

What is also striking is what is NOT on this list.  This group, for example, is not going to be moved the by jobs reports.  Most feel that the economy, or at least short term improvement in the economy, is beyond the ability for either candidate to deliver.  They also aren’t questioning Obama’s personal history or Obamacare.

So what does that mean for both candidates who have been running very controlled campaigns designed to minimize the mistakes and quickly respond to criticisms?

Here’s my take.

Romney is going to hold out as long as he can hoping that the economy will deteriorate to the point where he can win without providing more information about either his personal finances or his economic plans.  He is certainly not going to do much before the Republican Convention in hopes that the national coverage associated with the convention and his choice of a VP will give him a bounce that will close the gap in the battle ground states.

Obama is going to continue to hammer Romney on his failure to provide specifics while Romney will attempt to deflect that criticism by claiming that he would rather talk about the economy while at the same time avoiding any specifics on what his plans really are to improve it.

This will likely not help either candidate because the undecided will view it as more bickering and less leadership and inspiration.

Romney will eventually be forced to reveal more personal and policy information.  When he does, he will lose.  That’s because on a policy level, his numbers won’t add up.  On a personal level, the information he releases will not answer any questions, but only raise more questions.

Until that happens, we have one of these weird end games that in chess would just result in a draw.  Neither candidate is going to make a bold move because they don’t have to.  Romney is hoping between the economy and the convention to close the gap without releasing any more information.  Obama is hoping that the economy does not get any worse, and that his unrelenting attacks on Romney will eventually force Romney to release more information.

They could very well stretch this whole thing out until November and frustrate undecided voters in the process.

Here’s what I wish they would do to demonstrate leadership and inspiration.

Romney should promote himself as the candidate who can square the circle.  He should be claiming that he is the only one who will be able to reform that tax system, close loopholes created by the rich and powerful, create an incentive-based hiring program, a federally subsidized jobs training program, and capital gains incentives for domestic investments that result in new jobs.  He could have promoted himself as someone who understands the need for healthcare reform and would IMPROVE the Affordable Care Act rather than repeal it.

Obama needs to call the Tea Party Republicans out for the hypocrites that they are regarding government spending and jobs.  He should be using the current conservative Republican bleating about sequestration as evidence to the American people that those who said that debt was THE most important thing and were willing to put the country into default rather than approve one dollar of tax increases are now suggesting that we NEED all of this deficit spending to keep all of the defense industry jobs that will be lost if the defense budget is cut.  He needs to defend government spending as an effective stimulus tool, and propose a whole series of “targeted” jobs programs.  Things like “first fired first hired”.  Eliminate time limits on unemployment insurance until unemployment numbers go under 8% for at least six months, and provide mortgage protection for homeowners who have been laid off until they are able to get new jobs.  This gets paid for through meaningful entitlement reform.

In other words, Romney the conservative should be touting his WILLINGNESS to raise taxes on the rich by closing loopholes.  Obama the liberal should be touting his willingness to reform the entitlement programs in order to continue to invest in job growth.

Just like the undecided, it is a wish list that probably won’t come true.

Putting Tax Returns in Context

Thursday, July 19th, 2012

In Romney’s defense, he is not required to disclose his taxes in order to run for President. To some degree, however, he has created this problem himself by making his business success at Bain a campaign issue. He claims that he has experience that President Obama lacks and as a result will do a better job managing our economic recovery. That gives the Democrats and the American voters every right to request more information about both his business success and how that affected his admitted personal wealth.

Some conservatives have tried to make this a tit for tat sort of exchange. Some examples I’ve read include Obama releasing his college transcripts or the Obama administration releasing more information about the Justice Department’s failed “Fast and Furious” operation.

This isn’t, however, an “I’ll show you mine if you show me yours” exchange of information. Neither Obama nor Romney has made their college experiences an issue in this campaign. If they did, it would be appropriate to expect both of them to produce documents to support their claims.

Similarly, Romney hasn’t made the wrangle between Congressional Republicans and the Justice Department a campaign issue either. Mainly because you don’t have to get very deep into this particular issue before it starts to come apart. Where it starts to come apart is when you ask Congress what it is that they are expecting to find that they don’t already know in the additional documents that they have requested from the Justice Department. The range of answers goes from, “I don’t know” to “A covert government plan to restrict gun rights”. The reason why the Justice Department has refused to provide more documents is because the documents Congress already has provide more than sufficient support on how this operation went bad and who the people were in the Justice Department that initially attempted to cover it up. There is no suggestion that the cover up went any further in the agency of any other motivation or any deeper plot that reaches higher in the administration.

There ARE valid reasons, however, to request more information from Romney based on the small amount of information that he has already released.

Here are a few.

The Swiss Banks Account

The person managing Romney’s assets in a blind trust said that he put some of Romney’s money in a Swiss Bank account and used it to buy Swiss Francs in order to hedge against the possibility that the US dollar would lose value. Tax experts say this is a weak justification for a Swiss Bank account. Why would someone making a run for the Presidency admit to betting against the US dollar and if they did, why use a Swiss Bank account to do it? There are many easier ways to speculate in foreign currencies that don’t require the secrecy and expense associated with a Swiss Bank account.

The account was closed in 2010. Earlier returns should reflect income earned from that account. Those using foreign bank accounts are also required to file a form with the government. As part of an effort to curtail money laundering, the Justice Department offered an anonymous amnesty program in 2009 for those who had not properly reported on foreign bank accounts. So there is also the possibility that Romney participated in that program. Earlier tax returns would reveal more detail about this account and how it was used.

The $100M IRA

During the time that Romney worked at Bain, he started an IRA which is now worth $100M. The problem is that the maximum tax free contribution that Romney could make to that IRA on an annual basis is $30K. At that rate, it would take 3,000 years to get to $100M. Since the only value of an IRA is to shelter current income from tax, that leaves a very reasonable question regarding the remarkable rate of growth seen in this IRA, particularly given the damage many other IRA’s suffered during the financial meltdown.

One possible explanation is that he just made some remarkable investment choices.

Another possible explanation is that he sheltered much more than the allowed $30K/year in his IRA by using Bain stock that was valued from a contribution perspective at far less than it was actually worth. He could have done that using an obscure “safe harbor” rule which covers taxation of service partner income in the sorts of deals Bain did, but the “safe harbor” taxation rules specifically exclude contributions to retirement plans. Retirement plan contributions must be measured at fair market value. More tax returns covering periods of time when these retirement plan contributions were made would answer that question.

Family Trusts

There are also huge amounts of money in Romney family trusts. There are gift taxes associated with funding these trusts. That raises the question of how much tax he paid to setup these trusts. If he used similar sorts of “safe harbor” valuations for contributing Bain stock to these trusts in an effort to reduce his tax exposure, he could be liable for serious penalties.

Complex Tax Returns

The one complete tax return that Romney has released for 2010 raises more questions than it answers about Romney’s finances. If the purpose here is to be transparent and provide the American public a clear understanding of the candidate’s finances so they can assess whether this candidate would have any conflicts of interest if they were elected, Romney has not provided enough information. His assertion that he has paid all of the taxes due does not address the issues of conflict of interest.

Low Tax Rate

The bulk of Romney’s income these days comes from fees that Bain earns for managing other people’s money (carried interest). He and his family enjoy a remarkably low tax rate because of a loophole inserted to benefit this one particular form of income. The vast majority of tax scholars and policy experts agree that there is no policy justification to single out one particular form of income for this special treatment. Romney hasn’t addressed this issue, but he has said that he plans to close tax loopholes are part of his plan to lower tax rates across the board. Since he happens to benefit directly from one of these tax loopholes that costs taxpayers billions of dollars every year, he has to state whether this one in on his list. Otherwise voters have a right to question how he plans to deal with this conflict of interest. Obama, in comparison, has said that he WANTS to raise his own taxes because he falls into the group that makes more than $250K a year.


The American people need to know if a presidential candidate has financial interests that create a conflict of interest. Romney clearly DOES have a conflict of interest regarding the special tax rate that “carried interest” has. The American people also need to know that the success that Romney has enjoyed is the result of his business savvy rather than his ability to hire smart tax attorneys and “game” the tax code. Romney also claims that he has paid all of the taxes that he owed. There is some evidence, particularly with his $100M IRA, that he may have some tax liabilities.

The only way to resolve these issues is for Romney to release more tax returns dating back to his days at Bain AND to declare whether or not he plans to close the tax loophole on “carried interest”.

There is nothing wrong with wealthy people hiring experts to minimize their tax burden. There is also nothing wrong with wealthy people taking advantage of tax loopholes that they themselves didn’t lobby to get inserted into the system.

When you run for President, however, you represent everyone – not just your economic and social peers. Since he is using his wealth as a qualification for the office, I think he also owes more detail to the rest of the country that isn’t wealthy. If the detail shows that he has aggressively “gamed” the tax system, he should be prepared to defend those actions. If it raises issues of potential conflicts of interest, he should explain how he is going to resolve them. If he has in fact cut some corners that put him at some personal risk regarding the legality of his past tax activities, the American people should know that before they cast their vote.

That’s why he has to release more information and declare what specific tax loopholes he plans to close.