Friday, October 19, 2012

Are You Trying to Confuse Us With the Data? --- Tax Cuts for Job Creators

Here's a data-driven article for those thoughtful individuals who won't let the data get in the way of preconceived notions ...
If the priority is to create a substantial number of jobs over the next presidential term, evidence from the last half-century strongly suggests that tax cuts for the top 5 percent (those with incomes above $200,000) won’t work.  Rather, tax cuts for working families, tax cuts directly aimed at expanded hiring or increases in infrastructure investment would have much more bang for the buck and would cost much less in terms of forgone revenue and deficit reduction in the future.
October 19, 2012, 6:00 am

The centerpiece of Mitt Romney's tax plan is an across-the-board 20 percent cut in marginal tax rates. This cut, along with a few other tax changes Mr. Romney has endorsed - such as repeal of the estate tax and the alternative minimum tax - would reduce federal tax revenue from personal income and payroll taxes by an estimated $3.6 trillion to $3.8 trillion over 10 years.
The total is closer to $5 trillion when Mr. Romney's proposed cut in the corporate income tax rate to 25 percent is included. About two-thirds of this amount would go to taxpayers making $200,000 a year or more - about 5 percent of all taxpayers.
Extending the Bush tax cuts for high-income earners, as Mr. Romney proposes, adds another trillion in lost revenue and increases the share of the benefits going to the top 5 percent. Even if the cost of the Romney tax cuts for the top 5 percent is covered by base-broadening measures, as Mr. Romney promises - but as President Obama and many others assert is mathematically impossible - does it make sense to devote trillions of dollars to lowering income taxes for the top 5 percent? Is this an effective way to create jobs?
Mr. Romney appears to think so. His plan rests on the assertion that lower taxes for high-income taxpayers will increase economic activity and employment - that lower taxes for job creators create jobs and will do so quickly. This assertion, while superficially convincing and ideologically compelling, is not supported by the evidence.
If tax cuts for high-income earners generate substantial real economic activity and job creation, then we should expect to see two things in the data. First, employment growth should be stronger in the years after tax cuts for these earners. Second, parts of the country with a larger share of high-income earners should experience stronger employment growth after national tax cuts for these taxpayers, because the places where they live receive a larger share of the national tax cuts.
What do we actually see after combing through a half-century of economic data? Neither of these predictions is borne out.
The graph below, based on our research, shows the relationship between the cumulative change in income and payroll tax liabilities for the top 5 percent over a two-year period as a share of gross domestic product and employment growth in the two years after the change.
For each year given, the changes in tax liability include the changes from the previous two years.
The graph and the regression analysis on which it is based reveal that there is no link between income tax cuts for the top 5 percent and subsequent job creation. (We also examined the relationship between tax cuts for the top 10 percent and subsequent job creation and found the same result.)
The table below highlights three of these tax changes -- the Reagan tax cut of 1982, the Clinton tax increase of 1993 and the Bush tax cut of 2003 - and subsequent employment growth. Strong employment growth followed the Reagan cut, but the employment growth following the Clinton tax increase exceeded the employment growth following the Bush tax cut, which was comparable in size to the Reagan cut.
Job growth at the state level after national tax cuts for high-income earners confirms the absence of a strong link between such cuts and the pace of job creation in the next two years.
The next graph shows no substantial link between tax cuts for the top 10 percent and the pace of job creation at the state level. Employment growth in states with a large share of rich people, such as Connecticut or New Jersey, was not much faster, on average, than it would have been otherwise after the Reagan and Bush tax cuts for the top 10 percent and wasn't much slower, on average, after the Clinton tax increase on this group.
Each data point includes the changes in tax liability include the changes from the previous two years.
If there really were a strong link between job creation and tax cuts for high-income "job creators," we should be able to see the effects somewhere. But we have found no evidence that such cuts lead to substantially faster employment growth at the national, state or even ZIP-code level.
Tax cuts for everyone else are a much more effective path to job creation. Our research found a statistically significant and positive relationship between tax cuts for the bottom 95 percent and job growth at both the national and state levels. The graph below shows the relationship for the national data. Our results indicate that almost all of the stimulative effect of income and payroll tax cuts on job creation in the short to medium run result from such cuts for the bottom 95 percent.
For each year given, the changes in tax liability include the changes from the previous two years.
Lower-income taxpayers spend a higher share of their tax cuts. Many of these taxpayers often have more difficulty borrowing money and tapping into their housing wealth than higher-income individuals. These demand-side forces explain why consumption goes up much more after tax cuts for the bottom 95 percent than after equivalently sized cuts for the top 5 percent. An increase in consumption, which still accounts for about 70 percent of G.D.P., fuels increases in demand, and that leads companies to create more jobs. In survey after survey, businesses confirm that changes in demand are the primary determinant of their employment decisions.
Investment also increases after tax cuts for the bottom 95 percent, suggesting that shifting moderately size tax cuts to the bottom 95 percent from the top 5 percent isn't a zero-sum trade-off between consumption and investment.
Instead, an increase in demand and economic activity because of an increase in consumption also makes investment more attractive, especially in difficult economic conditions.
Over all, our research shows that tax cuts for the bottom 95 percent are much more effective than tax cuts for the top 5 percent at increasing job creation in the subsequent two years.
Other analysts reach similar conclusions. For example, the Congressional Budget Office and Mark Zandi, Moody's chief economist, find that tax cuts for lower-income recipients generate larger increases in employment per dollar cost to the federal budget than comparable tax cuts for high-income taxpayers in the short run.
What about the long run? A recent report by the Congressional Research Service found no clear relationship between cuts in marginal tax rates that primarily benefit high-income taxpayers and economic growth and job creation. A recent review by three distinguished academic economists also found no convincing evidence that real economic activity responds materially to tax-rate changes on top income earners, although such rate changes do affect their tax-avoidance behavior.
Cross-country comparisons also do not show a close link between top marginal rates and growth. While these studies don't find large effects in the long run, we note that these long-run effects are harder to measure and are thus more uncertain.
Nevertheless, if the priority is to create a substantial number of jobs over the next presidential term, evidence from the last half-century strongly suggests that tax cuts for the top 5 percent won't work. Tax cuts for working families, tax cuts directly aimed at expanded hiring or increases in infrastructure investment would have much more bang for the buck and would cost much less in terms of forgone revenue and deficit reduction in the future.
With elevated unemployment, weakness in Europe and slowing growth in emerging economies, fiscal measures that actually increase economic activity and employment in the near term are required. Our research shows that tax cuts for the rich do not meet this standard.

Tuesday, October 16, 2012

Some Thoughtful Comments About Economic "Mojo"

Economics Nobel Laureate Michael Spence explains to WSJ Live’s Simon Constable what it will take for the U.S. to get back its economic mojo, plus why he favors Obama’s economic policy over Romney’s.  (Please just ignore the commercial lead-in.)

Saturday, October 13, 2012

Einstein and "Insanity"

We've heard a lot of discussion about job growth during the Bush Administration's years under its economic policies (including deregulation and lower taxes for "job creators"). Many of those same policies are currently being touted by the Romney/Ryan team as the "be all and end all" for continued economic recovery and growth. But a close look at the data suggest that the years of lower taxes and less regulation (particularly with respect to the financial services industry) didn't, in the past, bring the nirvana the Republicans now say will occur with the same lower tax and deregulation policies. As Albert Einstein has been credited as saying, "Insanity is doing the same thing over and over and expecting different results."

The chart below shows the non-farm jobs growth under Clinton (when taxes were higher), Bush (with lower taxes and less regulation) and Obama (with continued lower taxes and less regulation in the early period of his administration) ...

Saturday, October 6, 2012

Is Mr. Romney a Candidate Worthy of the American Electorate's Trust?

The American people should expect their Presidential candidates to abide by some basic ethical rules (such as honesty) in the quest to be the leader of this Country.   However, it seems Mr. Romney is either clueless as to what the truth really is, or worse, ethically challenged and intentionally lying in this campaign.  Now is the time for the American electorate to consider Mr. Romney's character and decide if his lack of truthfulness (no matter the reason) disqualifies him to become POTUS.

In this regard, consider the following ...

From Joe Conason (editor in chief of ...
  • “It’s not easy to debate a liar,” complained an email from one observer of the first presidential debate – and there was no question about which candidate he meant. Prevarication, falsification, fabrication are all familiar tactics that have been employed by Mitt Romney without much consequence to him ever since he entered public life, thanks to the inviolable taboo in the mainstream media against calling out a liar (unless, of course, he lies about sex).
  • Yes, President Obama ought to have been better prepared for Romney’s barrage of blather and bull. The Republican’s own chief advisor, Eric Fehrnstrom, had glibly described the “Etch-a-Sketch” strategy they would deploy in the general election, to make swing voters forget the “severe conservative” of the primaries. Romney executed that pivot on Wednesday night, but he could do so only by spouting literally dozens of provably fraudulent assertions — which various diligent fact-checkers proceeded to debunk.
Concerns along these lines were not uncommon following the first Presidential Debate.  In fact, note David Gergen's (senior political analyst for CNN and an adviser to four U.S. presidents) take from Wednesday night:
"I think [President Obama] was so surprised, he thought Romney was just flat-out lying."
And from Steve Benen (political writer and blogger), who chronicles the various misstatements (now at 50!) of Mr. Romney ...
1. In reference to the unemployment rate, Romney said, "The reason it's come down this year is primarily due to the fact that more and more people have just stopped looking for work."

2. On Fox News last night, Romney said in reference to the president, "[W]hat I find so offensive about his tax plan is by raising taxes on small business, as he does, he will kill jobs."
In reality, Obama has repeatedly cut taxes on small businesses -- by some counts, 18 times -- and if given a second term, his tax plan would have no effect on 97% of small businesses. 

3. Speaking yesterday at the Colorado Conservative Political Action Committee Conference, Romney said, "this sequestration idea ... came out of the White House."
No, it didn't. This sequestration idea emanated from House Republicans. 

4. In the same speech, Romney said Obama "spending more and more, borrowing more and more, putting us on a road to Greece."

5. In Wednesday night's debate, Romney said, "I don't have a $5 trillion tax cut. I don't have a tax cut of a scale that you're talking about."
Independent analysts determined the proposed across-the-board rate cut would cost $5 trillion. 

6. Romney said, "I'm not going to reduce the share of taxes paid by high-income people. High-income people are doing just fine in this economy."
That's not true. The wealthy would receive a massive, disproportionate tax break under the Romney plan. 

7. Romney said, "[G]asoline prices have doubled under the president."
To blame gas prices on the president's policies is ridiculously untrue. 

8. Romney said, "I'm not going to cut education funding. I don't have any plan to cut education funding and grants that go to people going to college."

9. Romney argued, "Energy is critical, and the president pointed out correctly that production of oil and gas in the U.S. is up. But not due to his policies. In spite of his policies. Mr. President, all of the increase in natural gas and oil has happened on private land, not on government land."

10. On taxes, Romney said, "I do want to reduce the burden being paid by middle-income Americans. And to do that that also means that I cannot reduce the burden paid by high-income Americans."
This is ridiculously untrue (and more than a little incoherent). 

11. On taxes, Romney argued, "I will not reduce the share paid by high-income individuals. I -- I know that you and your running mate keep saying that, and I know it's a popular things to say with a lot of people, but it's just not the case."

12. Romney said, "I will not reduce the taxes paid by high-income Americans."
That's slightly different than the other lie. It's also equally wrong. 

13. Romney said, "I will not, under any circumstances, raise taxes on middle-income families." He cited "six studies" to back him up on this.
There's ample evidence that Romney will have no choice but to raise taxes on middle-income families and the six studies don't back him up. 

14. Romney said, "I saw a study that came out today that said you're going to raise taxes by 3 to $4,000 on middle-income families."
The study is wrong, and that's not what it said. 

15. Romney said on tax rates, "Mr. President, you're absolutely right, which is that with regards to 97 percent of the businesses are not taxed at the 35 percent tax rate, they're taxed at a lower rate. But those businesses that are in the last 3 percent of businesses happen to employ half -- half -- of all of the people who work in small business."
That's a new one. It's also not true. 

16. Romney said, "[Y]our plan is to take the tax rate on successful small businesses from 35 percent to 40 percent. The National Federation of Independent Businesses has said that will cost 700,000 jobs."

17. Romney said, "What things would I cut from spending? Well, first of all, I will eliminate all programs by this test -- if they don't pass it: Is the program so critical it's worth borrowing money from China to pay for it? And if not, I'll get rid of it."
The implication here is that U.S. debt is financed by the Chinese, but this isn't true -- China only holds about 8% of the nation's debt. 

18. In reference to how he'd balance the budget, Romney said he'll "get rid of" the Affordable Care Act.
This is incoherent and absurd. "Obamacare" cuts the deficit to the tune of about $109 billion over the next decade. It's simply incoherent to say you'll cut the deficit by eliminating a law, which would in turn increase the deficit. That's like promising to put out a fire by using more kerosene. 

19. Romney said, "The president said he'd cut the deficit in half. Unfortunately, he doubled it."
Maybe Romney doesn't know what "double" means. The deficit on Obama's first day was $1.3 trillion. Last year, it was also $1.3 trillion. This year, it's projected to be $1.1 trillion. When he says the president "more than doubled" the deficit, as he has many times, Romney's lying. 

20. Romney argued, "The president's put in place as much public debt, almost as much debt held by the public as all prior presidents combined."
He's said this before, but it's not even close to being true. 

21. On subsidies, Romney said to the president, "[Y]ou say Exxon and Mobil -- actually, this $2.8 billion goes largely to small companies, to drilling operators and so forth."
Nice try, but no. 

22. Romney said to Obama, "[Y[ou put $90 billion -- like 50 years' worth of breaks -- into solar and wind."
That's not quite right, and much of the $90 billion was appropriated by George W. Bush, not Obama. 

23. Romney argued to the president, "[Y]ou said you get a deduction for getting a plant overseas. Look, I've been in business for 25 years. I have no idea what you're talking about."
Romney's admitted cluelessness notwithstanding, he's simply wrong to argue the tax deduction doesn't exist. It's real. 

24. On entitlements, Romney argued, "[N]either the president nor I are proposing any changes for any current retirees or near retirees, either to Social Security or Medicare. So if you're 60 or around 60 or older, you don't need to listen any further."
That's demonstrably wrong. Under Romney's policy, the cost of prescription drug prices and preventive care for seniors would go up immediately -- for current and future retirees. For that matter, since Romney's plan hastens Medicare's insolvency -- soon -- seniors should listen closely. 

25. Defending his Medicare plan, Romney said the idea originated in part with Paul Ryan and Sen. Ron Wyden (D-Ore.), "who's a co-author of the bill."
According to Ron Wyden, that's ridiculously untrue. 

26. In reference to Dodd-Frank, Romney said, "[I]t designates a number of banks as too big to fail, and they're effectively guaranteed by the federal government. This is the biggest kiss that's been given to New York banks I've ever seen. This is an enormous boon for them.... I wouldn't designate five banks as too big to fail and give them a blank check."
This simply has no basis in fact. 

27. In reference to Wall Street reform, Romney said, "It wasn't thought through properly.... [I]t's killing regional and small banks.

28. In reference to the Affordable Care Act, Romney said, "It cuts $716 billion from Medicare to pay for it. I want to put that money back in Medicare for our seniors."
As I suspect Romney knows -- he'd already endorsed these same cuts earlier in the year -- he's just not telling the truth. 

29. In the next breath, Romney says of the health care law, "[I]t puts in place an unelected board that's going to tell people, ultimately, what kind of treatments they can have."
This is getting awfully close to the "death panel" argument, and it's not true. 

30. Romney vowed to "sit down with Democratic leaders as well as Republican leaders -- as we did in my state."
That's wildly misleading. In his one term, Romney issued more than 800 vetoes, over 700 of which were overridden, and demonstrated a "relative disinterest in bipartisan collaboration." 

31. According to Romney, congressional Republicans unveiled a "bipartisan" health care reform plan in 2010. "It was swept aside."
There was no "bipartisan plan" from GOP lawmakers. Romney just made this up. 

32. Asked what he would replace the Affordable Care Act with, Romney's exact words were, "Let, well, actually, actually it's , it's, it's a lengthy description."
That's a lie. Romney's online description of his health care reform plan is just 369 words. 

33. Romney said, "Pre-existing conditions are covered under my plan."
I really wish that were true. It's not. 

34. Romney, offering "proof" that the president's agenda is "not working," said, "23 million people are out of work."
That's not true. As of the time of the debate, there were 12.5 million Americans unemployed. 

35. In reference to public support for green-energy companies, Romney argued, "These businesses, many of them have gone out of business. I think about half of them, of the ones have been invested in, they've gone out of business."
As Romney's own aides later admitted, this is demonstrably false. 

36. In a TV campaign ad released this week, Romney said "Obama and the liberals already have ... raised taxes on the middle class."
That's obviously untrue; Obama has repeatedly cut taxes on the middle class. In fact, Romney admitted as much just last week. 

37. In the same ad, Romney accused Obama of creating "government-run health care."
As Romney knows -- his own state health care law served as the blueprint for the president's plan -- the Affordable Care Act relies on private insurers, and is not "government-run health care." 

38. The same ad claims consumers will be forced to "pay more for your medicine."
Actually, the only change in the cost of medication came for seniors -- and "Obamacare" closes the donut hole to make sure they pay less, not more. 

39. The commercial goes on to say the Affordable Care Act "includes a trillion dollars in higher taxes -- even on the middle class."
This is apparently in reference to the individual mandate. And if the claim is true, then Romney's Massachusetts law also includes higher taxes -- even on the middle class. 

40. In his weekly podcast, Romney said Obama's vision of international affairs is premised on seeing the United States "as merely one among many nations rather than as an exceptional nation."
Obama is the only president in American history to publicly and explicitly endorse the principle of American exceptionalism. 

41. Romney also argued "our moral standing has declined" around the globe.
No, it hasn't. Respect and support for the United States around the world has improved under Obama. 

42. Romney went on to say Obama no longer supports "standing with Israel."

43. Romney also said the president "refuses to meet with Israel's prime minister, Benjamin Netanyahu."
Obama has met with Netanyahu many times. 

44. He went on to say, hoping to draw a contrast with the president, "I will never apologize for America."
How is it possible the whole "apology" lie hasn't gone away yet? 

45. At a campaign event in Wayne, Pennsylvania, Romney said the president is "planning on cutting our military by about a trillion dollars over the next decade."
No, he's not. Obama is planning to cut defense spending, on the recommendation of the Pentagon and the Joint Chiefs, by about $500 billion over the next decade. There are other cuts looming, but they were crafted by Romney's party and endorsed by his own running mate. 

46. At the same event, Romney argued, "[T]he president adds about a trillion dollars a year to the national debt."
It's true that in recent years, about a trillion dollars a year to the national debt, but it's not the president who's doing it. 

47. Romney went on to say, "Do you realize that our Navy is smaller in terms of the number of ships than any time since 1917?"
This one again? Romney dropped this lie a while back, but it's apparently made a comeback. 

48. Romney also vowed, "I will not raise taxes on middle-income Americans."
There's ample evidence that Romney will raise taxes on the middle class. 

49. Romney went on to promise, "I've got a plan. I've got a plan to help free people pursue their dreams and get this economy going. And the good news is this: It'll create 12 million jobs."
Putting aside the pesky detail that Romney doesn't actually have a specific jobs plan, the fact remains that if we do nothing, we're on track to create 12 million new American jobs over the next four years anyway. 

50. Romney added, "I want to take that big cloud off of the small business world that's hanging over them. Three-quarters of them say they don't want to hire more people because of this cloud and that cloud is Obamacare."
Romney's referring to a "survey" conducted by the U.S. Chamber of Commerce if its members. The claim, however, is a misleading joke -- the Chamber, a pro-Republican lobbying institution heavily invested in helping Romney, put up an unscientific online survey. Treating this as a legitimate poll of businesses is fundamentally dishonest.