Wednesday, November 05, 2008

I have to agree 

McCain should have opposed the bailout. There was a lot of popular resentment of it; it would have put a mile's distance between McCain and Bush's failures; it would have given McCain a great populist issue to ride; and it would have put Obama in the awkward position of defending Bush to the country. Even though the public wanted to "do something," McCain could easily have screamed "Yea, but not this!" from the rooftops - and people would have listened.

The main counter-argument: If McCain had opposed the bailout, it might not have passed - making it much harder to campaign against it. Indeed, Obama might have seen the trap and opposed the bailout, too, making it even harder for McCain to make the bailout his central issue. I wouldn't dismiss these possibilities. But even if they came to pass, an anti-bailout McCain would have had better chances than he does today.
From Bryan Caplan's student Brian Blase. Indeed, some are pointing to McCain's decision to suspend his campaign as being the end of his surge in the polls, but what if he had gone to DC not to help broker a deal for Congressional Republicans but to lead the opposition? Had he lead a successful opposition, it would have bolstered him as long as the market did not tank more than it did. Had it passed and the market tanked, he could say "See? I warned you!" But if he opposed, the bill failed, and the Dow was at, say, 5000 on Monday, he would have been probably no worse off than he was yesterday.

So why didn't he? I think he believed the bailout would work (as I did), and acted sincerely rather than strategically.

Labels: ,

Friday, October 24, 2008

SCSU poll: Obama up 5, Coleman up 9 

(h/t: Michael)

The SCSU Survey, directed by some of our faculty but managed by SCSU students, reports that Barack Obama leads John McCain in the state by five percent. The poll had 509 voters. SC Times reported Larry Schumacher reports that the poll included cell phones (the report says 130) for the first time, but that they did not screen for registered or likely voters "because of Minnesota�s same-day voter registration laws." �The report shows that there's little difference in either margin when you use a registered screen, voted in 2006 screen, etc. �Read the survey for the evidence. �I find that result -- the screen didn't matter -- the most interesting part of the survey.

Interestingly, the party ID questions showed initially a 30-24 split for Democrats with 37 percent not identifying with either party. �When pushed by the surveyer, the party ID gap for Democrats widens to 42-34. �

The survey's margin of error at this size is +/- 4.6%.

I know one of the survey directors, Department of Political Science chair Prof. Steve Frank, reads this blog from time to time, so questions you put here may be answered by him rather than me. �

Labels: , , , , ,

Tuesday, October 21, 2008

Graphs of the day: Share of income tax payers who pay zero 


The tax code has always contained provisions that reduce the income tax burden for low-income workers, such as the standard deduction, personal exemption, and dependent exemption. Between 1950 and 1990, the percentage of tax filers whose entire tax liability was wiped out by these provisions averaged 21 percent. Since then, lawmakers have expanded credits�such as the earned income tax credit (EITC)�while creating a plethora of new credits, including the child tax credit, the HOPE credit, lifetime learning credit, and the credit for adoption expenses.

Most tax credits can only reduce a taxpayer's amount due to zero, but the EITC and the child tax credit were also made refundable, meaning that taxpayers are eligible to receive a check even if they have paid no income tax during the year. Those tax returns have become, in effect, a claim form for a subsidy delivered through the tax system rather than a direct payment from a traditional government program like welfare or farm supports.

As shown in Table 1 below, the Tax Foundation estimates that there will be 47 million tax returns with zero income tax liability in 2009 under current law. That's one-third of all tax returns, and those 47 million tax returns represent 96 million individuals.

Both the McCain and Obama plans would increase this number by expanding existing tax benefits or creating new ones. Senator McCain is proposing one expanded provision�the dependent exemption�and one new credit, a $5,000 refundable health care tax credit. The Obama plan contains seven new provisions, including a new "Making Work Pay Credit," a "Universal Mortgage Credit," and a plan to eliminate income taxes for seniors earning under $50,000.1

Taken together, the Tax Foundation estimates the McCain proposals would increase the number of nonpayers by about 15 million, bringing the total number of taxpayers who pay no personal income taxes to 62 million, roughly 43 percent of all tax filers. Almost all of this is due to McCain's health care credit, which dramatically realigns health care incentives and gives people a powerful motive to buy health insurance. This tax provision has a bigger impact on cutting people's taxes than any single proposal from either party.2

Source. See also this on the McCain health plan. (h/t: Mankiw.)

I am on the local United Way board of directors, and one of the UW's foci is on "financial stability". One of the largest programs I see run under that banner is a program to help low-income families file for the earned income tax credit. (Here's an example from Seattle.) EITC has been frequently abused, to the tune of over $8 billion. It takes 15-20 minutes online to figure out if you even qualify, let alone fill out the form and be sure to carry that over to 1040A (no EZ for the EITC claimer.) Now we have one candidate proposing a single tax credit to put health benefits on an equal footing with cash wages, while the other is proposing seven additional credits. How difficult will the new tax forms be, and where will we get the volunteers to help file them?

To bet on Obama, perhaps you should go long on H&R Block.

Oh, and guess who loves EITC? And even helps with filings? ACORN. Can't wait to read Mickey Mouse's tax return.

Labels: , , ,

Wednesday, October 15, 2008

I hope it happens tonight 

In tonight's debate look for John McCain to tie Barack Obama to liberal positions that are essential to elements of the Democratic nominee's coalition.

Chief among them is so-called "card check" legislation that passed the House in 2007 only to be bogged down in the Senate. The bill is the No. 1 priority of Mr. Obama's union supporters and would provide a way to bypass the requirement for secret-ballot elections to unionize a company. Instead, employees would be deemed to have selected a union when a majority of workers sign a card stating support for such a move -- often in the presence of union organizers.

Mr. McCain briefly raised card check in a previous debate with Mr. Obama, but he now has an iconic liberal he can cite as a prominent opponent of the idea. Former Sen. George McGovern calls secret ballots in union elections a "basic right." He has even agreed to appear in an ad sponsored by a pro-business group that is running in seven states holding Senate elections.

From today's Political Diary, by John Fund at the WSJ. McCain can tie this to Prop 49 in Colorado, a measure that would stop government from withholding money from a public employee's paycheck for a union to use to influence government via elections.

David Weigel points out this bill has been bought and paid for by the unions, and it is the expectation of Obama in return for $360 million or more spent by the unions on helping him and the Democrats. You want issues and not associations, Sen. McCain? Hector Sen. Obama on this issue.

Labels: , , ,

Saturday, October 11, 2008

A Message for McCain (and Coleman) 

We Americans need real bipartisan solutions, not the "I'll reach across the aisle" mantra (never uttered by Democrats) that too many Republicans say but too often is perceived and treated as weakness by Democrats. Senators McCain and Coleman, I believe if you change your verbiage, you can increase your odds.

"I remain willing to work with ANYONE who is willing to solve problems. But, bipartisanship does NOT mean ignoring the Democrats' bad actions and oppositions that are plainly wrong.
- When Democrats block solutions to our energy problems, they are wrong.
- When Democrats block investigation into Fannie Mae and Freddie Mac because their leaders, Democrat Senator Chris Dodd's, Democrat Representative Barney Frank's, and mostly other Democrats who blocked efforts to avoid the housing meltdown, they are wrong.
- When Democrats block supplying our troops with the necessary equipment, they are wrong.
- When Barack Obama used ACORN to push through loans to people who could never afford them, he was wrong.
- When the mainstream media gives Obama passes on his questionable associates and actions over the years, they are wrong.
- When Democrats tell us government has all the answers, they are wrong; the greatest growth in American wealth, across the board, came during periods of very little government interference.
"Americans will make the right decisions if they have the right information. Unfortunately, too many are uninformed because of an admitted biased press and Democrat candidates who work against the freest people in the world. They want control, period.

"Bipartisanship is not just doing what the Democrats' want, ways that too often penalize the very people they claim to help. Bipartisanship is finding ways for all Americans."

"We are Americans; we solve problems; we create; we design; we provide environmentally sound solutions that also promote the good of all. When you Democrats choose to work with us on these issues, we welcome you with open arms."


Friday, October 10, 2008

John McCain Townhall at Lakeville South HS 

This afternoon, Republican presidential candidate, John McCain, held a townhall meeting at Lakeville South High School. He was terrific! Among the MN politicians who spoke were: Marty Seifert, Minority Leader for the MN House; Patrick Garofalo, House Representative for Farmington/36B; former senator, Rudy Boschwitz; former US House Representative, Tim Penny; and Minnesota's Second Congressional District Representative, John Kline.

As every speaker said, this election comes down to character, experience, and leadership. Each one said, in their own way, "Hands down, McCain is the guy." He has all three traits. His opponent, Mr. Obama, has questionable character (as evidenced by his neighbors and friends), minimal experience (especially in making decisions - "present" is not a decision, it indicates the inability to make a decision); and leadership - well, when has Obama ever showed leadership? Never.

McCain took a gamut of questions from the floor, addressing such topics as: housing, life, veterans, energy, the economy, going after the culprits who caused the financial mess, China, drilling, etc. One group of junior high students asked about drilling offshore, then went into a short dance line to the tune of "Drill, Baby, Drill" to which McCain responded, "You can come on our tour!"

He was so "at home" in this venue. His answers were sharp, quick, humorous. He comes across as the real deal! Frankly, I was surprised at how human and natural he is. We sat about 25' from the center and it was like he was in your living room. IF he could come across on camera like this, his opponent would not have a prayer.

Of course, no Republican event is complete without ever present protesters. This one was no different - about 10 protesters before the session, maybe 7 afterward. As you can see from this final photo - note the signs on the ground - they had more signs than people so they just couldn't display all their "stuff" - gee, too bad.


Wednesday, October 08, 2008

How much hope do homeowners need? 

So most people are slamming John McCain's plan last night that would have government spend $300 billion to replace bad mortgages held by people who are underwater with good mortgages. The rationale is to save families that we might think did the right thing but lost money on a house anyway.
America�s families are bearing a heavy burden from falling housing prices, mortgage delinquencies, foreclosures, and a weak economy. It is important that those families who have worked hard enough to finance homeownership not have that dream crushed under the weight of the wrong mortgage. The existing debts are too large compared to the value of housing. For those that cannot make payments, mortgages must be re-structured to put losses on the books and put homeowners in manageable mortgages. Lenders in these cases must recognize the loss that they�ve already suffered.
There has been since December a plan that asks lenders and borrowers to get together and renegotiate mortgages. A newer plan (described Monday in the LA Times) already has such a provision in place.
A new federal loan workout program called Hope for Homeowners (HfH) begins this month, targeting those unable to pay their mortgages. It is for homeowners who bought their homes before 2008 and now have monthly payments exceeding 31% of their income.

Under the program, banks would in many cases write down mortgages to 90% of a home's current value. Such a provision would be important in California, where many recent home buyers have mortgages that now greatly exceed their property values.

The new 30-year fixed-rate loan would be insured by the Federal Housing Administration and could not exceed $550,440.
This was passed last week in the bailout bill (see page 69, Sec. 124). And I understand that Section to have been introduced by Sen. Dodd. He pitched it in March. I think this is what Ed Morrissey (whose boss is one of the people slamming McCain) was referring to initially in his post (I now see he has updated and included the HfH plan.) And the McCain page refers to the bill as part of the powers it would have to create the Resurgence Plan. Ed also mentions a post by Marc Ambinder in which the McCain campaign says this money comes out of the $700 billion in the plan. It would be a redirection of the money, not a new cost. That was certainly not clear last night (not that much of this plan really was before I sat and read the email that had the plan I'm quoting here.)

Also worth noting are the conditionalities on the plan:
The McCain Resurgence Plan would purchase mortgages directly from homeowners and mortgage servicers, and replace them with manageable, fixed-rate mortgages that will keep families in their homes. By purchasing the existing, failing mortgages the McCain resurgence plan will eliminate uncertainty over defaults, support the value of mortgage-backed derivatives and alleviate risks that are freezing financial markets.

The McCain resurgence plan would be available to mortgage holders that:
  • Live in the home (primary residence only)

  • Can prove their creditworthiness at the time of the original loan (no falsifications and provided a down payment).
Note that there is no mention of the 31% payment-to-income ratio from HfH, so to me it doesn't look really like the same plan. So buyers of homes with stated-income loans would be out (like this fellow) or people flipping properties.

There's a glut of homes on the market. A glut is reduced either by decreasing supply or increasing demand. Lee Ohanian tries to sell an increased in skilled immigrants as a way to increase demand. The McCain Resurgence Plan, at its base, tries to reduce supply by not forcing the sale of homes through foreclosures. It might be, might be, cheaper to throw a few dollars into homes directly than to support the banks through the purchase of MBSs. From the Plan:
The new mortgage would be an FHA-guaranteed fixed-rate mortgage at terms manageable for the homeowner. The direct cost of this plan would be roughly $300 billion because the purchase of mortgages would relieve homeowners of �negative equity� in some homes. Funds provided by Congress in recent financial market stabilization bill can be used for this purpose; indeed by stabilizing mortgages it will likely be possible to avoid some purposes previously assumed needed in that bill.
The relief of negative equity means that the banks would receive from the government the difference between the principal on the original mortgage and the mortgage "at terms manageable for the homeowner." I still need some flesh on that. I would want to know if the 31% payment-to-income ratio is the definition of manageable. I'd want to know if the government can be certain the initial purchase price on the home was not set in order to qualify someone for a shady mortgage. Those details aren't there, and don't look in Marty Feldstein's pitch from last Friday (which is not exactly the same proposal anyway, but a close cousin.)

I'll see if my contacts in the McCain campaign will provide any additional details.

Labels: , ,

Wednesday, September 17, 2008

Best line I heard at breakfast today 

You know what John McCain should say? "We can't even figure out what's going on with our own books and can't even balance our own budget, so why should we want to get further control of the financial sector's?" That would be a sharp contrast with Obama.
This after I read to the assembled this from the WSJ.

"Under my reforms, the American people will be protected by comprehensive regulations that will apply the rules and enforce them to the full," Sen. McCain said in Florida Tuesday. "There will be constant access to the books and accounts of our banks and other financial institutions. By law, it will reduce the debt and risk that any bank can take on. And above all, I promise reforms to prevent the kind of wild speculation that can put our markets at risk, and has already inflicted such enormous damage across our economy."

The sentiment is a far cry from Sen. McCain's antiregulation record. On the stump, he didn't explain how he would distinguish legitimate investment from "wild speculation" or exactly what steps he would take to eliminate the latter.

Given that Carly Fiorina seems to be as adept a public spokesperson on economics as Phil Gramm -- what with her "greed overcoming common sense" line on Hugh's show and now saying none of the four candidates can be CEO of a large corporation (both statements could be true, but demonstrate that a CEO's bluntness is not fit for politics) -- it's unlikely we'll hear my friend's suggestion soon.

McCain's economic policies might be better than Obama's, but it's not his long suit.

(BTW, here's what Obama has said. Exit question: What's the diff?)

Labels: ,

Monday, September 15, 2008

Greet John McCain and Sarah Palin 

Victory Time with John McCain and Sarah Palin

It's our team, they're coming to MN, we need to show them our state is FINALLY moving red. Here's the key info:

Friday, September 19th
Key Air Hanger at the Anoka County-Blaine Airport
10188 Radisson Road NE
Blaine, MN 55449

Doors Open: 9:00 AM
Event Begins: 12:00 PM


Labels: ,

Friday, September 12, 2008

Who gets earmarks? 

With all the discussion going on of earmarks and Alaska, I thought I would bring a couple of papers that might clarify the debate. �Melissa Boyle and Victor Matheson of Holy Cross recently wrote a short paper on the determinants of earmark spending. �It fits a few points that are important:

  1. The party in power gets more earmarks. �Their study looks at 2000 through 2006, and Republican senators were able to get more than Democratic senators.
  2. The more senior that senator is, the more powerful they are and the more earmarks they can steer home.
  3. Because, unlike the House, the Senate provides two seats to each state, smaller states will have a larger per capita figure as they have disproportionate power in one half of Congress. �(This is, as they mention, the Constitutional compromise that helped end the Articles of Confederation.) �

Now that description all points to one guy, Sen. Ted Stevens, who happens to be the senator of the state from where Gov. Palin hails. �Regardless of her actions, that state was bound to get a disproportionate share of earmarks, according to the Boyle and Matheson estimates. �They also cite Bernhardt, Dubey and Hughson (2004) and Knight (2004) as providing supporting evidence.

I wrote to Matheson (a Minnesota native, we have a good mutual friend) who indicated that he was supportive of Senator Obama in the presidential race. �I had thought that perhaps density or share of land held by the federal government -- a big issue in the West and in Alaska -- might be an explanatory variable. �He hadn't tested that, but makes the good point that money for federally owned land may come through regular appropriations, not an earmark. �Regarding the small state hypothesis, note that the second highest state in per capita earmarks is Hawaii. �

I asked Matheson if he could check the residuals, which might indicate who is 'porkier' than the others. �The scores kind of surprise me. �Here's what Matheson found:

Arizona has the eighth "best" residual (behind both Joe Biden's Delaware and John Kerry/Ted Kennedy's MA). Alaska is dead last. IL comes in with a residual right around $0. The residents of Alaska averaged about $450 more per year in earmarks than one would expect even despite their small size, Republican delegations, and senior senator tenure. AZ received about $120 less than one would expect. Residents of Delaware received $165 less per person than would be expected. It should be noted that Delaware residents actually receive slightly more than AZ residents but they come out better in the residual comparisons because being a smaller state and Biden having more tenure than McCain, we would expect them to be raking in a lot more.

He's a bit more muted on Obama, who as a freshman senator you would have thought would come up on the short end of the earmark stick (and his state is pretty good sized.) �But the nature of those earmarks -- for projects that helped political backers or for the place his wife works -- might raise some extra scrutiny. �So too are these votes. Matheson also notes that the results might make Republicans look the worse because of Lord Acton:

Thus the real answer may be that absolute power corrupts absolutely and that the Democrats may overtake the Republicans as the biggest crooks once the upcoming election winds up. No way to tell with the current data, however.
That's why there are still political analysts.

Labels: , , ,

Monday, September 08, 2008

The Best People Surround Themselves with Talent 

The best people have no fear of talent, skill, ability, success. They intuitively know that surrounding themselves with others who are good or better than they is a win/win situation. Ronald Reagan understood this principle. He simply attracted the best to work with him. Why? He recognized he could not do everything; he needed expertise in other areas and he found the best he could for every environment.

John McCain understands this, too. He picked a brilliant, relatively unknown governor who had taken on the "system." Sarah has the courage to do what is right. McCain needs this independence because he wants to get government off our backs. Over intrusive government stifles creativity, freedom, etc.

John McCain has no qualms about Sarah getting the attention because he knows what is at stake. Sarah will drive the Republican base. Sarah will give hockey (and soccer) moms a reason to return to the party of responsibility (yes, we blew it a few years ago). Sarah is every feminist's nightmare - Sarah has done everything the feminists have been whining about for 40 years but, horrors, Sarah is a Republican!!

A presidential ego that has to pick a VP who will not be a threat in any way to the top of the ticket is a losing proposition. McCain picked the future. Sarah is just the first. Surround yourself with good people - we all win.


Michelle Obama claims that Barack also showed courage by picking Joe Biden:
"What you learn about Barack from his choice is that he�s not afraid of smart people."
People say that Hillary is intimidating. I have seen nothing suggesting that people might fear Biden because he's so smart. Obama's VP choice reveals exactly the fear of being overshadowed that is absent in McCain.

Labels: , , ,

Tuesday, August 19, 2008

When tax analyses argue past each other 

There are numerous analyses running around right now about the tax plans of Barack Obama and John McCain. I think many of them are talking past each other. Let's consider three different paths an analysis can take.
  1. Efficiency and distortion -- one part of tax policy concerns itself with whether the tax system is extracting a given amount of revenue at the lowest possible cost in terms of deadweight costs, rent-seeking, or otherwise gunking up the price system. (Like Phil, I watched that ethanol piece on and said to myself "good principles of econ clip!") Concerns about efficiency and distortion are addressed by study of the marginal tax rate, since distortion occurs at the margin. It's on this score that McCain's proposal to reduce the corporate tax rate to 25% looks good. It is not at all a statement that businesses are paying too much in taxes. Indeed, it could be that we get more tax revenue at a lower rate; neither McCain nor I am making that claim, but it's important to point out that if lowering a tax rate meant you increased tax take (even as a share of profits or GDP, because multinational corporations were shifting tax liability to lower-tax jurisdictions), the efficiency argument would still be valid. Or the higher marginal rate for earners over $250k in the Obama plan is seen by Greg Mankiw, for one, as reducing the incentives to work, save and invest. Either way, these are arguments made at the margin.
  2. Equity -- the argument that some should pay more than others is a different debate. For example, Mike Moffatt responds this morning to Paul Krugman's statement that the debate over the corporate income tax is much ado about nothing. It's not to Mike because "the U.S. corporate tax system is highly complex and distortionary". True, but that's not Krugman's argument. Take also the debate between Brill and Viard on the one side and Obama advisors Furman and Goolsbee, discussing the Obama plan for income taxes. The former point to the inefficiency and increased distortion created for some middle income familes from the Obama plan; Furman and Goolsbee focus on the fact that taxes overall would be lower. (So too the analyses from the Tax Policy Center.) By focusing on average taxes paid in the past rather than marginal rates prospectively to be paid in the future, the two groups are arguing past each other. Tyler Cowen comes closest to my point here in debating the Brill and Viard article:
    I am not saying that Obama is "raising taxes on the poor." It is about marginal rates and yes marginal rates do matter for incentives. This is a genuine problem of many indeed most anti-poverty programs...
    I'm not making the case that there is absolutely an equity-efficiency tradeoff (a la Okun), just that they are separate cases, and policy advisors and bloggers can put different weights on the outcomes of two second-best proposals.
  3. Scope of government -- the other concern can be the size of government. Many people seem to focus on how much each plan adds to the deficit (that seems to be a concern in the Tax Foundation analysis, for example). So people will want proposals that are "revenue neutral" or "deficit neutral" because the proposal is not to increase the scope of government. Increasing deficits do imply a larger scope of government for future taxpayers who must retire the debt that is created by that deficit.
If you want a sense of which argument is being made, look for the number used for the argument. Tax rates are about efficiency, tax shares are about equity, and government expenditures or debt or deficits as a share of GDP are arguments about scope of government -- this would be a simple shortcut that might help sort out who's talking about what.

Labels: , , , ,

Wednesday, August 13, 2008

Shocking news! Firms without taxable profits don't pay income taxes! 

At least one liberal reports this as proof we need to keep corporate taxes high:
The Government Accountability Office said 72 percent of all foreign corporations and about 57 percent of U.S. companies doing business in the United States paid no federal income taxes for at least one year between 1998 and 2005.

More than half of foreign companies and about 42 percent of U.S. companies paid no U.S. income taxes for two or more years in that period, the report said.

During that time corporate sales in the United States totaled $2.5 trillion, according to Democratic Sens. Carl Levin of Michigan and Byron Dorgan of North Dakota, who requested the GAO study.

The report did not name any companies. The GAO said corporations escaped paying federal income taxes for a variety of reasons including operating losses, tax credits and an ability to use transactions within the company to shift income to low tax countries.
It might be worth noting, though, that a majority of these firms had no taxable income. For U.S. corporations, 9% had no gross profits (sales minus cost of goods sold), another 7% had no total income (gross profit plus dividend, interest, rent, royalties and capital gains or losses, and other losses.), and a clear 58% more had no taxable income before any net operating loss deductions or special deductions. 69% of that last number comes from deducting things like salaries, interest, depreciation, advertising and the like. (Source: GAO study.)

The Tax Foundation notes that 99.7% of the corporations in the study that paid no income tax in 2005 were large. Why did they not pay taxes?
For example, in a "clever tax dodge", American Airlines avoided income tax for 2005 by losing $862 million. General Motors lost $10.5 billion in 2005; I bet those greedy fat cats didn't pay any corporate income tax, either.
What should be clear is that governments that have higher taxes induce their firms with overseas operations to move revenue to the low-tax countries. The graph below (source) comes from 2003. The Tax Foundation has shown Germany's corporate tax rate falling below ours by 2006, leaving on Japan at 0.6% more than ours. (See also the KPMG survey.)
Senator McCain's and Congresswoman Bachmann's support of cuts to corporate tax rates are in fact consistent with trends around the world. And the GAO study, if anything, shows the ineffectiveness of trying to collect taxes on multinational corporations by a high corporate tax rate.

Labels: , , , ,

Wednesday, July 16, 2008

Best paragraph I read today 

Obama's plan, according to [Dan] Mitchell, means "higher taxes on work, savings, and investment." He pointed out that politicians understand the economics at play when they tax activities like smoking: higher taxes, less smoking. Why then, he asked, would we want to increase taxes on work, savings, and investment?
From a summary of a Cato Institute podcast by Will Luther at the Tax Foundation.

Discouraging to read that the budget (and therefore taxation) rises under either McCain or Obama. Obama's rise is five times more, but McCain has added $63 billion in new spending since January. Enough already.

Labels: , , ,

Wednesday, July 09, 2008

Unfairly burdening politicians 

This fiscal crisis in Social Security affects every generation. We now know that the Social Security trust fund is fine for another few decades. But if it gets in trouble and we don't deal with it, then it not only affects the generation of the baby boomers and whether they'll have enough to live on when they retire, it raises the question of whether they will have enough to live on by unfairly burdening their children and, therefore, unfairly burdening their children's ability to raise their grandchildren....
You might say such an unfair burden would be disgraceful. But say it's disgraceful on the campaign trail, and your opponents go bonkers.

BTW, the quote isn't John McCain. It's Bill Clinton in 1998. (h/t: Greg Mankiw.)

Is transferring money from young to old a disgrace? I don't know, it's a pretty strong statement, but standing against it gives the young just a little less change they can believe in.

Labels: , , ,

Monday, July 07, 2008

How to close a deficit 

Ed's first question to me today was about the new McCain paper on closing the budget deficit by 2013 (and several other economic proposals.) It's worth noting that the CBO had scored the budget as in balance by 2012 if the Bush tax cuts had expired, so the debate Democrats want to have is how to reduce the deficit while extending the cuts. McCain's plan includes three items -- promoting economic growth, comprehensive spending controls, and a bipartisan approach to reducing the deficit. Justin Fox calls the last an appeal for the benefits of gridlock: You only feel safe with a Democrat Congress if you have a Republican president.

I remember reading a paper by Mark Zupan many years ago making this argument. See also Chari, Jones and Marimon [1997] or Carmines and Ensley [2006]. The problem with the argument back in the 1990s was that the theory argued for a Democratic legislature and a Republican executive. The world of Newt Gingrich and Bill Clinton didn't fit. Neither, to some, did Reagan and Tip O'Neil. At any rate, I don't have a good guess of how much restraint you would get from that.

How much would a normal amount of economic growth reduce the deficit? If we look at the standardized deficit you get about 0.3-0.4% of GDP, so that the 2009 estimated standardized budget deficit was to be only 0.9% of GDP (about $133 billion). So what you hope is for a budget that works down the deficit by about one quarter of one percent a year on a permanent basis. What McCain has to sell is that this is done by spending restraints he can put in place (with a Republican legislature, lest he sell his Congressional delegation down the river.) As the graph to your right should make clear, the size of this "deficit problem" is not so large when placed in context. Neither is the cure for it, if you believe a zero deficit should be a goal of federal budget policy.

One other thing I said on the air with Ed was that there was not much of a dollar policy either way. McCain at least pays lip service to it today...
John McCain's policies will increase the value of the dollar and thus reduce the price of oil. In recent years, the declining value of the dollar has added to the cost of imported oil. This will change. Americans will have a stronger economy, a stronger dollar and greater purchasing power for oil, gas and food.
...but I wouldn't tie it to the price of oil as its only reason. And he needs to say how he would create it. The Fed doesn't seem inclined to do it for us.

The McCain campaign also released a memo today by Douglas Holtz-Eakin, its senior economic policy advisor, that claims the Obama plan taxes everyone with income above $32,000.
If you own stocks, Barack Obama has a plan to raise your taxes. During the primary, he proposed lifting the cap on income subject to Social Security taxation. He has proposed to repeat the failed Windfall Profits Tax and new taxes on natural gas and coal. He is going to raise taxes on small businesses. There is no group rich, poor or other who will not be adversely impacted by his tax increases.

Even more troubling, Barack Obama has proposed increasing Washington spending and expanding government programs while failing to outline how he will pay for his proposals. Where will Barack Obama make up the difference?
Mandatory spending is about to rise as a share of GDP to about 11% on a standardized basis. It will continue to rise as aging demographics drive up Social Security and Medicare spending. There is not a shred of evidence yet that the Obama campaign has dealt at all with these issues. I wish McCain would say more, but today's plan is at least a start.

Labels: , , ,