Romney's tatoos

Another example of how a picture can say so much.

A kernel of truth wrapped in preposterous arithmetic

The Romney-Ryan tax plan has a kernel of truth wrapped in preposterous arithmetic.  Consider a graph of the relationship between tax rates and tax revenue:

This is known as the Laffer Curve, named after Alfred Laffer, an economist in the Reagan administration.  If the tax rate were 0 percent (point A), everyone understands that tax revenue will be zero.  However, many don't ponder the fact that if the tax rate were 100 percent (point E), tax revenue would also be zero, because no one would do any work.  At tax rates higher than 0 percent and lower than 100 percent, tax revenue is above zero.  Point C represents the tax rate where tax revenue is maximized.  Point B, between A and C, represents a situation where increasing the tax rate would increase tax revenue (in calculus-speak, the derivative of the Laffer Curve is positive at point B).  Point D, between C and E, represents a situation where decreasing the tax rate would increase tax revenue (in calculus-speak, the derivative of the Laffer Curve is negative at point D).  

There is nothing at all to argue about so far.  But what is the actual tax rate represented by point C?  Clearly, tax rates higher than that point don't make sense.  When JFK took office, the maximum marginal federal income tax rate was over 90 percent.  He lowered the maximum marginal rate to 70 percent.  Although it's hard to determine cause and effect, it's plausible to assume that a marginal tax rate of 90+ percent put us on the right side of the Laffer Curve.  So JFK's change probably increased revenue.  

Reagan lowered the maximum marginal federal income tax rate to 28 percent, while eliminating many deductions and equalizing the tax rates on wages and long term capital gains.  

Did that place the country on the left side of the Laffer Curve?  A decade later, in the Clinton administration, we ran an experiment that pretty definitively proved it had.  Clinton raised the maximum rate back up to 39.6 percent; the economy boomed, and the federal government ran large surpluses.  Bush 43 lowered the maximum marginal rates to 35 percent on wages and 15 percent on long term capital gains; the economy struggled and the federal government ran large deficits. That suggests that if we raised current rates, tax revenue would rise, and if we lowered them, tax revenue would fall.  Most credible estimates place point C, the peak of the Laffer Curve, at 50 to 70 percent.

Romney and Ryan, however, live in a fantasy world where the the Clinton/Bush experiments never happened.  If JFK could reduce tax rates to 70 percent from 90+ percent and see tax revenue increase, then, well, tax cuts always increase tax revenue, regardless of the rate you are starting from.  That is preposterous.  

Pay no attention to the numbers behind the curtain

"You heard what I said about my tax plan. The top 5 percent will continue to pay 60 percent, as they do today."  -- Mitt Romney, October 16, 2012

With that one fascinating statement in the second debate, the self-described "severely conservative" candidate made a severely cunning move.  Amazing as it may sound, Romney could reduce the effective tax rate on the top 5 percent, and have it rise for everyone else (i.e. the bottom 95%), yet the top 5 percent would continue to pay 60 percent.

The reason for this has to do with income inequality, which has been rising in the U.S. and is currently on par with Uruguay, Argentina, and Ecuador. If it continues to rise, as it is likely to do, and will almost certainly do under a Republican administration, then the aggregate income of the top 5 percent will grow while everyone else's income stagnates, at least in relative terms.

(Sidenote: I'm assuming Romney is correct that the top 5 percent currently pay 60 percent of taxes.)

The top 5 percent then would receive a higher proportion of the nation's income while their tax burden stayed the same - hence, lower effective tax rates.  Everyone else would receive a lower proportion of the nation's income while their tax burden, currently 40 percent, stays the same - hence higher effective tax rates, at least relatively speaking.

This isn't the only way Romney could shift the tax burden away from the wealthy and onto the less wealthy, while abiding by his promise.  Stating that the top 5 percent pay 60 percent of taxes says nothing about how the tax burden is shared across the top 5 percent.  The tax burden could simply shift away from, say, the top 1 percent onto the top 2-5 percent.

As you go up the income ladder, over the past couple of decades the rungs have been getting farther apart.  Reducing marginal tax rates across the board guarantees a windfall for the super-wealthy in two ways:

1. The tax rate on long term capital gains, a form of income heavily skewed to the super-wealthy, is already very low, contrary to the spirit of Ronald Reagan, who argued the tax rates on long term capital gains and wages should be the same.
2. Many tax deductions are already phased out for the wealthy, so they are in large part immune to any efforts to further restrict deductions.

That windfall would be paid for by everyone else, while the top 5 percent would continue to pay the stated 60 percent of taxes.

Say what you will about the motives of Romney, Ryan, and their advisors, but surely they had a reason to focus on 5 percent, as opposed to 20 percent, or 10 percent, or 1 percent, or the .1 percent to which Romney personally belongs.  The cynic in me says it's because the 5 percent stratum allows Romney to shift the tax burden downward the most while sounding like he's not doing anything of the sort.  The end result is a less progressive, more regressive tax structure.

Take a second, careful look at everything the severely conservative candidate promises to do:

• Make permanent, across-the-board 20 percent cut in marginal rates
• Maintain current tax rates on interest, dividends, and capital gains
• Eliminate taxes for taxpayers with AGI below $200,000 on interest, dividends, and capital gains
• Eliminate the Death Tax
• Repeal the Alternative Minimum Tax (AMT)

And remember Romney is on record claiming he can do all this in a revenue-neutral fashion.  Most comments focus on the fact this is severely impossible.  And that's maybe where the focus should be.  But I find it fascinating how Romney chose a statement that sounds good but would allow him to shift the tax burden downward.

Cut taxes.  Don't cut taxes. What's clear is this severely conservative candidate has done a lot of damage to his own positions as well as to basic arithmetic.

Update: The Economist has a thought provoking opinion piece on "Inequality and the world economy."

David Brooks, Medicare, and the Perils of Ideological Labeling

Like Matt Yglesias and David Brooks, I have a healthy respect for the ability of free markets, if designed properly, to solve problems. But Matt makes an interesting point about using ideological labeling to perform analysis:

If you read the column, I think that what you'll find is that basically all the analytical work is being done by a project of ideological labeling. Brooks describes this as a plan that works "through a market system" featuring "normal market incentives." He twice calls it a "market-based approach" and once refers to critics as scoffing at "market-based strategies." The idea of a market has positive emotional resonance with many people, so if you convince them that you have a "market-based" alternative to price controls that will sound good. But a system of government-funded subcontractors is only market-based if you squint at it really funny. Or, rather, it's very much a market but it's a market for political influence.

The human toll of our broken individual health insurance market

In A Possibly Fatal Mistake, Nicholas Kristof recounts how a dysfunctional individual insurance market encourages people, including his freshman-year college roommate, Scott Androes, to gamble with their lives, while racking up huge medical bills paid for by everyone.

It is easy to blame Scott for not signing up for insurance when he could have, and he freely acknowledges the mistake.  However, both Scott and Nicholas gloss over the fact that getting covered in the individual insurance market is time-consuming and by no means assured, even for the healthy, as I learned first-hand.  Moreover, consider how Scott explains his decision:

I didn’t buy health insurance because I knew it would be really expensive in the individual policy market, because many of the people in this market are high risk. I would have bought insurance if there had been any kind of fair-risk pooling.

On January 1st, 2014 Obamacare will enable the individual insurance market to function properly by eliminating the adverse selection problem.  It will also discourage free-loading, the tendency for people to gamble more when others bear the financial cost if they happen to lose the bet.

Nicholas Kristof:

Already, Obamacare is slowly reducing the number of people without health insurance, as young adults can now stay on their parents’ plans. But the Census Bureau reported last month that 48.6 million Americans are still uninsured — a travesty in a wealthy country. The Urban Institute calculated in 2008 that some 27,000 Americans between the ages of 25 and 65 die prematurely each year because they don’t have health insurance. Another estimate is even higher.

You want to put a face on those numbers? Look at Scott’s picture. One American like him dies every 20 minutes for lack of health insurance.

Paul Krugman makes similar points in Death by Ideology.

Simply blaming 48.6 million people, Ayn Rand-style, for their irresponsibility makes no sense for four reasons:

1. It's not their fault the individual insurance market is unable to function properly.
2. Many of those 48.6 million people want to participate as customers in the individual insurance market, but can't due to its dysfunction. Thanks to Obamcare, they'll get the opportunity to be customers in 2014.
3. No first-world nation can blithely dismiss the deaths of 27,000 people annually as simply a lesson in personal responsibility.
4. Even if you blithely dismiss the human toll, you still have to consider the resulting huge medical bills which we all pay for

Mitt Romney debates himself

Watch this great debate between Mitt Romney and Mitt Romney.

Best online political ad

http://www.romneytaxplan.com/

Is Romney really a job creator? Ronald Reagan’s budget director takes a scalpel to the claims

In the Mitt Romney: The Great Deformer, David Stockman, Ronald Reagan's budget director, employs his 17 years of private equity experience in analyzing some of Bain Capital's most profitable deals during Romney's tenure there.  It's adapted from his book, The Great Deformation: How Crony Capitalism Corrupts Free Markets and Democracy, which will be published next year.

Stockman:

Indeed, the next president’s overriding task is restoring national solvency—an undertaking that will involve immense societywide pain, sacrifice, and denial and that will therefore require “fairness” as a defining principle. And that’s why heralding Romney’s record at Bain is so completely perverse. The record is actually all about the utter unfairness of windfall riches obtained under our anti-free market regime of bubble finance.

When it comes to lies and half-truths, Romney saves his best stuff for foreign policy

Fred Kaplan declares today's speech Mitt Romney’s Most Dishonest Speech.

Joan Walsh's article covers the same speech, pointing out some of Romney's "magical thinking and mendacity."

Update: After Dick Cheney blamed Obama for the deaths of four Americans in Libya, Will Saletan pointed out the irony.

Romney would boost abortion rates

By repealing Obamacare, a new study suggests Romney would significantly increase abortion rates. As reported in a Salon.com article, the study,

by the Contraceptive CHOICE Project in Obstetrics & Gynecology, found that providing women with no-cost birth control, as does Obama’s Affordable Care Act, and educating them on effective protective measures dramatically reduced unwanted pregnancies.

...

Abortion rates among these women were less than half the regional and national rates, with 4.4 to 7.5 abortions per 1,000 women compared to 19.6 per 1,000 women. The birth rate among teen girls ages 15-19 was 6.3 per 1,000 — less than a fifth of the national rate, which is 34.3 per 1,000.

And Republicans placed him on the House Science Committee

For another entry in the "Republicans have Jumped the Shark" contest, consider the comments of House Science Committee member Paul Broun (R-GA), speaking at the Liberty Baptist Church Sportsman’s Banquet last month:

“All that stuff I was taught about evolution and embryology and the Big Bang Theory, all that is lies straight from the pit of Hell.  And it’s lies to try to keep me and all the folks who were taught that from understanding that they need a savior.”

Note that Paul Broun should not be confused with fellow House Science Committee member Todd Akin (R-MO), who questioned whether women who were the victims of "legitimate rape" could get pregnant.

Update: For six additional "Jump the Shark" members of the House Science Committee, see the Least scientific members of the House Science Committee.

Update #2: While Paul Broun ran unopposed in the 2012 election, the Augusta Chronicle reports that Charles Darwin

received more than 4,000 write-in votes in Athens-Clarke County in balloting for the 10th Congressional District seat retained Tuesday by five-year incumbent Republican Paul Broun.

That's an impressive result for Darwin, considering (1) he wasn't even on the ballot, and (2) he's been dead for 130 years.

Update #3:  Marco Rubio, Republican member of the Senate Commerce, Science, and Transportation Committee, joins the party.

Update #4: Republicans will likely take the gavel of the House Committee on Science, Space and Technology away from a science denier, and give it to another science denier.

No, "Moderate Mitt" isn't back

Steve Kornacki:

Comparisons between Romney now and George W. Bush in 2000 are becoming popular, since Bush employed the same basic strategy [of striking a moderate tone] in his campaign that Romney used in the debate. There’s an important difference, though: Bush’s platform actually included some nods to moderation. With Romney, it’s only his words.

Romney's "truthiness" score: 85 seconds per lie

http://thinkprogress.org/politics/2012/10/04/958801/at-last-nights-debate-romney-told-27-myths-in-38-minutes/

Paul Krugman calls Romney's health plan a "sick joke"

I often disagree with Paul Krugman, and last week was no exception when he called Romney's health plan a "sick joke,"  Krugman was being far too kind to Romney.

Not only does Romney's plan not work for those with preexisting conditions, as Krugman points out, it doesn't even work for people such as myself who are healthy and have been continuously covered since the day they were born. Those with group insurance and those on Medicare have no idea how bad things are for people like me with access to neither. Under current law - that is to say, Obamacare - the problems will be fixed a little over a year from now.

Romney talks about banning exclusions of preexisting conditions for those who have been continuously covered, but would let insurance companies simply refuse to offer insurance policies to those people (one company refused to offer my healthy daughter a policy because they claimed she had acne). You'll never hear that in Romney's stump speech, but one proof that Romney opposes "guaranteed issue" is a reference on mittromney.com to "high risk pools." Second, Romney remains silent regarding insurance companies charging higher premiums for those with preexisting conditions, a reprehensible practice that, under Obamacare, becomes illegal on January 1st, 2014. Finally, by not ensuring virtually everyone is covered, Romney does nothing to address the high rate of medical bankruptcies, and does nothing to solve a nasty problem called "adverse selection."

Krugman correctly points out that Romney's plan does nothing for the uninsured or those who have had gaps in their coverage. But Romney's plan won't even work for people like me who are healthy and have been continuously covered.