- Lower tax ratesThe first policy in President Obama's tax policy is "the tax system should be simplified and work for all Americans with lower individual and corporate tax rates and fewer brackets." This is by far an idealistic, and honesty a simplistic way of attempting to address what is currently a major dialogue point in American politics. Any candidate, regardless of party, can attach themselves to a lower tax rate pledge. The difficulty now is how do you attempt to keep taxes low, while at the same time expanding the spending required by the federal government. Again, the same issue that plagues Governor Romney's plan as shown in my last post, is here as well. The simple, realistic, and quite honestly, obvious issue is that attempting to maintain any level of spending without either (a) changing mandatory spending laws, or (b) raise the tax rate to support the current spending requirements, is untenable in the short and long term.
- Cut inefficient and unfair tax breaks.This portion of the President's plan is also overly idealistic. The use of terms like "fair" and "unfair" creates an immediate spearation in the society. As stated in the proposal, "cut tax breaks that are inefficient, unfair, or both so that the American people and businesses spend less time and less money each year filing taxes and cannot avoid their responsibility by gaming the system. This includes cutting tax preferences for high-income households; eliminating special tax breaks for oil and gas companies; closing loopholes for investment fund managers; and eliminating benefits for corporate jet owners." The last statement is one that does nothing to actually address the issue of cutting inefficient and unfair tax breaks. A more realistic approach would be to state that tax loopholes would be closed to ensure that businesses are unable to not pay the current tax rate. In this way, there is clear cause and effect. This is the point of dialogue, not to set an idealistic view that somehow all people feel that there are those that have and those that have not. To do so does not address the issue at hand, that of spending and tax revenue.
- Cut the deficit.The President's plan says it wants to "cut the deficit by $1.5 trillion over the next decade through tax reform, including the expiration of tax cuts for single taxpayers making over $200,000 and married couples making over $250,000." This is the first portion of the plan that comes close to passing a realist view point. From this, it is easier and more identifiable to see how the President views deficit cutting in light of current tax law. To allow the expiration of tax cuts, as stated above, is not fully accurate. In fact, the tax cuts had a greater impact than just on those making over $200,000. The chart linked here does a great job of explaining that. If it is just a matter of letting those tax rates revert back to their previous levels, it is a true statement that the government will gain more funds to spend. This may be the most realistic approach to increase the coffers while not creating any new taxes. No whether or not Congress has the political will to do so is another issue entirely.
- In this preliminary analysis, it is obvious that these policies are overly idealistic in their nature. Perhaps the most difficult question either candidate will have to answer will be, how do you maintain federal spending while not increasing or changing the tax rate? In my next blog post, I will analyze the last two points of President Obama's tax policies.
Saturday, October 27, 2012
Analysis of President Obama's proposed tax policy
In this post, I will take a look at the tax policies that President Obama is positioning as a candidate for a second term as President of the United States. As I have done in my previous posts, this will be an analysis from a realist perspective. With that being said, let us begin looking at what exactly the tax policy would be. The positions that are being shown can be found here. Additionally, this shows the power of the bully pulpit that every president enjoys, as President of the United States (POTUS) can utilize multiple media platforms in order to inform and persuade the American public.
Thursday, October 25, 2012
Analysis of Mitt Romney Plan for Economic Growth (Part 2)
In this blog, I will analyze the last two pillars of Governor Romney's plan for economic growth. Again, I will link the website at the bottom of this entry, so that readers can view the original documents for themselves. In my last post, I addressed the first two areas that Governor Romney puts forth in his plan. Accordingly, I will view the purposed policies through a realist view of political science.
Reform Entitlement Programs to Ensure their Viability
Governor Romney's plan is one that attempts to "gradually reduce growth in Social Security and Medicare benefits for more affluent seniors" and "give more choice in Medicare to improve value in health care spending." In order to analyze this properly, it is necessary to look at the federal law that these two entitlement programs are funded by, and what would be required in order to make these policy changes. The Social Security Act of 1935 established the system that is currently in place, and makes spending mandatory in the budget. Also, the Social Security Act of 1965 added Medicare as a mandatory spending expenditure for any budget. With this knowledge, it is necessary to view that to gradually reduce growth in Social Security and Medicare, it will, quite literally, take an act of Congress. I want to say that again. The changes made to either of these programs must be changes in law. Again, this policy is more idealistic than realistic. As has been shown in our current political history, the ability of Congress to pass a law that creates changes are few and far between and typically are divided among ideological lines. A more realist view would be to have a dialogue over whether or not, should the U.S. have systems in place to care for the elderly and the infirm. If so, then the massive changes that are being stated by this policy may have a chance at occurring. However, given the amount of political capital needed to push legislation of this magnitude through the Congress, it may not be viable. One only needs to look at the passage of the Affordable Care Act to see that even with a majority, President Obama had to spend political capital with his own party in order to have any hope of the law passing. As an idealistic policy, it does not address the truth of the matter. In order for any change in either entitlement program to occur, it must come from the Congress. While House Majority Leader John Boehner (R-8th District, Ohio) may have the ability to whip the votes in the House, it would meet with fierce opposition by the Senate Majority Leader, Harry Reid (D-Nevada). Even if there is a party shift which gives the Republican party a majority of both houses of Congress, the political reality is that once a bill of this magnitude began, the political push back by those affected by it may make it untenable, and a non-starter even in a sub-committee.
Make Growth and Cost-Benefit Analysis Important Features of Regulation
In this final pillar of the plan put forth by Governor Romney, the desire to change the current state of legislation becomes the focus. Specifically, to repeal and replace the Dodd-Frank Act and the Affordable Care Act. The Dodd-Frank Act was drafted in reaction to the economic crisis of 2008. It created oversight and regulation in order to prevent another crisis. There are two provisions that are the cornerstones of the Act itself. First, it ends the idea of "to big to fail bail-outs" and establishes consumer protections. While this Act is a necessary check against rampant speculation by investors, the Act itself is flawed. It is more realistic to repeal the Dodd-Frank Act, and reenact the Glass-Steagall Act, specifically Section 16, 20, 21, and 32. These sections separate commercial and investment banking, and are commonly now referred to as the Volker rule. However, I am unsure that a Romney administration would be willing to repeal the regulations and then also put limitations on banking. As for repealing the Affordable Care Act, this would be more difficult. Since the Supreme Court stated that the Affordable Care Act is constitutional, it would require that the law be replaced with an equally constitutional law, or a complete abandonment of the policy. Realistically, it would be unrealistic to repeal the act, as the provisions of the act are being rolled out and many in the public are beginning to appreciate what was legislated. As for the particular mandates, however, there is a wider ability to limit and/or remove them completely.
In this analysis, there is a more realistic view brought to bear by Governor Romney. However, it is necessary to temper that with the facts of the current political world. If there is an opportunity to enact these policies, it may create a deficiency in political capital. If Mitt Romney wins by a slim majority, and the Congress stays split, this will create a more difficult puzzle for him to navigate. As with any candidate, the ability to convince the population of the viability of a particular policy is not as important as gaining popular support for the desired change. The real work does indeed begin upon election, and not only attempting to enact policies, but ensuring that those of your party in Congress are willing to do so as well.
Reform Entitlement Programs to Ensure their Viability
Governor Romney's plan is one that attempts to "gradually reduce growth in Social Security and Medicare benefits for more affluent seniors" and "give more choice in Medicare to improve value in health care spending." In order to analyze this properly, it is necessary to look at the federal law that these two entitlement programs are funded by, and what would be required in order to make these policy changes. The Social Security Act of 1935 established the system that is currently in place, and makes spending mandatory in the budget. Also, the Social Security Act of 1965 added Medicare as a mandatory spending expenditure for any budget. With this knowledge, it is necessary to view that to gradually reduce growth in Social Security and Medicare, it will, quite literally, take an act of Congress. I want to say that again. The changes made to either of these programs must be changes in law. Again, this policy is more idealistic than realistic. As has been shown in our current political history, the ability of Congress to pass a law that creates changes are few and far between and typically are divided among ideological lines. A more realist view would be to have a dialogue over whether or not, should the U.S. have systems in place to care for the elderly and the infirm. If so, then the massive changes that are being stated by this policy may have a chance at occurring. However, given the amount of political capital needed to push legislation of this magnitude through the Congress, it may not be viable. One only needs to look at the passage of the Affordable Care Act to see that even with a majority, President Obama had to spend political capital with his own party in order to have any hope of the law passing. As an idealistic policy, it does not address the truth of the matter. In order for any change in either entitlement program to occur, it must come from the Congress. While House Majority Leader John Boehner (R-8th District, Ohio) may have the ability to whip the votes in the House, it would meet with fierce opposition by the Senate Majority Leader, Harry Reid (D-Nevada). Even if there is a party shift which gives the Republican party a majority of both houses of Congress, the political reality is that once a bill of this magnitude began, the political push back by those affected by it may make it untenable, and a non-starter even in a sub-committee.
Make Growth and Cost-Benefit Analysis Important Features of Regulation
In this final pillar of the plan put forth by Governor Romney, the desire to change the current state of legislation becomes the focus. Specifically, to repeal and replace the Dodd-Frank Act and the Affordable Care Act. The Dodd-Frank Act was drafted in reaction to the economic crisis of 2008. It created oversight and regulation in order to prevent another crisis. There are two provisions that are the cornerstones of the Act itself. First, it ends the idea of "to big to fail bail-outs" and establishes consumer protections. While this Act is a necessary check against rampant speculation by investors, the Act itself is flawed. It is more realistic to repeal the Dodd-Frank Act, and reenact the Glass-Steagall Act, specifically Section 16, 20, 21, and 32. These sections separate commercial and investment banking, and are commonly now referred to as the Volker rule. However, I am unsure that a Romney administration would be willing to repeal the regulations and then also put limitations on banking. As for repealing the Affordable Care Act, this would be more difficult. Since the Supreme Court stated that the Affordable Care Act is constitutional, it would require that the law be replaced with an equally constitutional law, or a complete abandonment of the policy. Realistically, it would be unrealistic to repeal the act, as the provisions of the act are being rolled out and many in the public are beginning to appreciate what was legislated. As for the particular mandates, however, there is a wider ability to limit and/or remove them completely.
In this analysis, there is a more realistic view brought to bear by Governor Romney. However, it is necessary to temper that with the facts of the current political world. If there is an opportunity to enact these policies, it may create a deficiency in political capital. If Mitt Romney wins by a slim majority, and the Congress stays split, this will create a more difficult puzzle for him to navigate. As with any candidate, the ability to convince the population of the viability of a particular policy is not as important as gaining popular support for the desired change. The real work does indeed begin upon election, and not only attempting to enact policies, but ensuring that those of your party in Congress are willing to do so as well.
Wednesday, October 24, 2012
Analysis of Mitt Romney Plan for Economic Growth
In the ongoing debate between which party or candidate has the correct vision for the economic future of the United States, the next few blogs will be an analysis of the policies from each candidate's website (as liked below) and the realist view of whether or not that policy will in fact create jobs. As a point of reference, it is difficult at best to say with any sincerity that government has the ability to create jobs outside of its own bureaucracy. With that in mind, the question becomes, are these promised jobs being created by the public sector in reaction to the policies, or is it just the engine of capitalism in its ebb and flow, creating new opportunities?
The first economic plan is from Governor Mitt Romney (R), and is developed with four main economic pillars. These are to stop runaway federal spending and debt; reform the nation's tax code to increase growth and job creation; reform entitlement programs to ensure their viability; and make growth and cost-benefit analysis important features of regulation. Each pillar has sub-areas which will be discussed as well.
Stop Runaway Federal Spending And Debt
In order to achieve this goal, Governor Romney has stated that federal spending should be reduced as a share of GDP to 20% (its pre-economic crisis average) by 2016. Currently, federal spending by the Federal government is 22.4% of the GDP (http://www.whitehouse.gov/sites/default/files/omb/budget/fy2013/assets/13msr.pdf) page 29. The question then becomes, will lowering spending by 2.4% in four years really reel in runaway federal spending and debt? From a purely realistic point of view, this lowering of spending will not have the desired outcome, and quite certainly would have no impact on possible employment and job creation. It also does not take into account any changes in the economy. To claim spending cuts as an economic boon is idealistic, as that idea places economic growth in a vacuum, rather than the economy being fluid and having the ability to ebb and flow. Also, the assumption is that the GDP will stay static in that four year time frame. If the idea is to cap spending at 20% of GDP, then one must take into account not only economic downturns, but also economic growth. As an example, if the GDP were to grow to 1 million dollars, then the federal government could expect to spend $200,000. In the next year, the GDP grew to 5 million dollars, then the federal government could expect to spend $1,000,000. In that one year swing, the federal government would be spending more than the prior year's GDP. This is necessary to understand in order to see how real dollars would be spent given this cap. In my analysis, it is unsustainable to link federal spending to the GDP, as the society ages and new employees enter the market, the GDP will remain in flux. Given this fact, the expectation of those who receive a federal benefit (Social Security, Medicare, etc.) is not, nor should it be, related to the GDP at all. Instead, the question should become, what is acceptable to cut or limit in federal spending in light of the expectations of the citizens.
Reform The Nation’s Tax Code To Increase Growth And Job Creation
The Romney plan states the desire to "Reduce individual marginal income tax rates across-the-board by 20 percent, while keeping current low tax rates on dividends and capital gains. Reduce the corporate income tax rate – the highest in the world – to 25 percent." This policy does not address the fundamental issue. A majority of corporations that are in business in the United States are in multi-national entities, and may not be based in the U.S. If they are not based there, are they subject to the U.S. tax code? Let us address the latter. Of the corporations that operate in the United States, just how much in taxes do they pay. According to the GAO, "eighty-three of the 100 largest publicly traded U.S. corporations in terms of 2007 revenue reported having subsidiaries in jurisdictions listed as tax havens or financial privacy jurisdictions." (http://www.gao.gov/products/GAO-09-157). So, if that is what is happening, how will reducing the corporate income tax rate increase job creation. In light of the current corporate tax rate (35%), corporations still manage to come to the United States, because it is an economic superpower, regardless of what the current candidate states. In fact, "the worldwide operations of U.S. multinationals are highly concentrated in America in their U.S. parents, not abroad in their foreign affiliates. The idea that U.S. multinationals have somehow “abandoned” the United States is not supported by the facts. They maintain a large presence in America relative to the overall U.S. economy and relative to the size of their foreign affiliates." (http://www.uscib.org/docs/foundation_multinationals_update.pdf). And so, how, exactly will this increase job creation? It will not. Plain and simple. If the desire is to reform the tax code, then the loopholes that exist that allow corporations to pay less that they are required will have to be closed. If that is done, then the market will dictate job growth, as those corporations that are competitive would continue to be so.
While each of these policy positions may seem to come across to people as being attainable, a further look shows that perhaps they are from an idealistic viewpoint. It would be ideal, I agree, to be able to limit federal spending to a percentage of the GDP. However, realistically, this is untenable, as it does not take into account any variances in the economy. I find this highly problematic, as a businessman should have the acumen to realize that there is not one answer that fits economic growth. A more realist view would either cap the federal spending at a level commensurate with the census (that is, paying for the services rendered based on the actual population of the country), or create cuts to federal spending as it relates to foreign expenditures, and use any available funds to ensure domestic solvency.
The next blog will address the final two pillars of the Romney plan and analyze them as well. From there, I will discuss the economic plan being put forth by the President.
Links:
http://www.mittromney.com/JobsPlan
http://www.whitehouse.gov/sites/default/files/omb/budget/fy2013/assets/13msr.pdf
http://www.gao.gov/products/GAO-09-157
http://www.uscib.org/docs/foundation_multinationals_update.pdf
The first economic plan is from Governor Mitt Romney (R), and is developed with four main economic pillars. These are to stop runaway federal spending and debt; reform the nation's tax code to increase growth and job creation; reform entitlement programs to ensure their viability; and make growth and cost-benefit analysis important features of regulation. Each pillar has sub-areas which will be discussed as well.
Stop Runaway Federal Spending And Debt
In order to achieve this goal, Governor Romney has stated that federal spending should be reduced as a share of GDP to 20% (its pre-economic crisis average) by 2016. Currently, federal spending by the Federal government is 22.4% of the GDP (http://www.whitehouse.gov/sites/default/files/omb/budget/fy2013/assets/13msr.pdf) page 29. The question then becomes, will lowering spending by 2.4% in four years really reel in runaway federal spending and debt? From a purely realistic point of view, this lowering of spending will not have the desired outcome, and quite certainly would have no impact on possible employment and job creation. It also does not take into account any changes in the economy. To claim spending cuts as an economic boon is idealistic, as that idea places economic growth in a vacuum, rather than the economy being fluid and having the ability to ebb and flow. Also, the assumption is that the GDP will stay static in that four year time frame. If the idea is to cap spending at 20% of GDP, then one must take into account not only economic downturns, but also economic growth. As an example, if the GDP were to grow to 1 million dollars, then the federal government could expect to spend $200,000. In the next year, the GDP grew to 5 million dollars, then the federal government could expect to spend $1,000,000. In that one year swing, the federal government would be spending more than the prior year's GDP. This is necessary to understand in order to see how real dollars would be spent given this cap. In my analysis, it is unsustainable to link federal spending to the GDP, as the society ages and new employees enter the market, the GDP will remain in flux. Given this fact, the expectation of those who receive a federal benefit (Social Security, Medicare, etc.) is not, nor should it be, related to the GDP at all. Instead, the question should become, what is acceptable to cut or limit in federal spending in light of the expectations of the citizens.
Reform The Nation’s Tax Code To Increase Growth And Job Creation
The Romney plan states the desire to "Reduce individual marginal income tax rates across-the-board by 20 percent, while keeping current low tax rates on dividends and capital gains. Reduce the corporate income tax rate – the highest in the world – to 25 percent." This policy does not address the fundamental issue. A majority of corporations that are in business in the United States are in multi-national entities, and may not be based in the U.S. If they are not based there, are they subject to the U.S. tax code? Let us address the latter. Of the corporations that operate in the United States, just how much in taxes do they pay. According to the GAO, "eighty-three of the 100 largest publicly traded U.S. corporations in terms of 2007 revenue reported having subsidiaries in jurisdictions listed as tax havens or financial privacy jurisdictions." (http://www.gao.gov/products/GAO-09-157). So, if that is what is happening, how will reducing the corporate income tax rate increase job creation. In light of the current corporate tax rate (35%), corporations still manage to come to the United States, because it is an economic superpower, regardless of what the current candidate states. In fact, "the worldwide operations of U.S. multinationals are highly concentrated in America in their U.S. parents, not abroad in their foreign affiliates. The idea that U.S. multinationals have somehow “abandoned” the United States is not supported by the facts. They maintain a large presence in America relative to the overall U.S. economy and relative to the size of their foreign affiliates." (http://www.uscib.org/docs/foundation_multinationals_update.pdf). And so, how, exactly will this increase job creation? It will not. Plain and simple. If the desire is to reform the tax code, then the loopholes that exist that allow corporations to pay less that they are required will have to be closed. If that is done, then the market will dictate job growth, as those corporations that are competitive would continue to be so.
While each of these policy positions may seem to come across to people as being attainable, a further look shows that perhaps they are from an idealistic viewpoint. It would be ideal, I agree, to be able to limit federal spending to a percentage of the GDP. However, realistically, this is untenable, as it does not take into account any variances in the economy. I find this highly problematic, as a businessman should have the acumen to realize that there is not one answer that fits economic growth. A more realist view would either cap the federal spending at a level commensurate with the census (that is, paying for the services rendered based on the actual population of the country), or create cuts to federal spending as it relates to foreign expenditures, and use any available funds to ensure domestic solvency.
The next blog will address the final two pillars of the Romney plan and analyze them as well. From there, I will discuss the economic plan being put forth by the President.
Links:
http://www.mittromney.com/JobsPlan
http://www.whitehouse.gov/sites/default/files/omb/budget/fy2013/assets/13msr.pdf
http://www.gao.gov/products/GAO-09-157
http://www.uscib.org/docs/foundation_multinationals_update.pdf
Monday, October 22, 2012
Objectives of this blog
As the United States continues its quadrennial electoral process for the office of President, I am beginning this blog. First, however, I have to set out to explain why I am writing it, and then why I am using the theory of realpolitik to domestic policy decisions.
The purpose of this whole blog experiment is my attempt at drafting ideas that can be further developed as I continue on my educational journey. As has been made evident by the political ads and debates that the candidates have taken part in, the American population is one that looks at issues from a very moralistic view point. While this is not inherently bad or wrong, it does create a vacuum in which clear, realistic thought can be lost. In an effort to have full disclosure, I am a realist as a political scientist. My personal faith, or motivations for who I vote for are my own. As such, I will attempt to not use my own lens to analyze policy decisions. Does this mean I will always be successful? Of course not. Anytime an author states that they will be without bias, they are establishing their bias. With that as a known factor, I will do my best to not try to bias my posts here. No promises, but I will do my best.
Secondly, the idea of realpolitik. For those not familiar with the concept, it was coined in the 19th century by Ludwig von Rochau, a German writer and politician. In his book, Grundsätze der Realpolitik angewendet auf die staatlichen Zustände Deutschlands,(The political organization of human society), von Rouchau describes the meaning of the term:
The purpose of this whole blog experiment is my attempt at drafting ideas that can be further developed as I continue on my educational journey. As has been made evident by the political ads and debates that the candidates have taken part in, the American population is one that looks at issues from a very moralistic view point. While this is not inherently bad or wrong, it does create a vacuum in which clear, realistic thought can be lost. In an effort to have full disclosure, I am a realist as a political scientist. My personal faith, or motivations for who I vote for are my own. As such, I will attempt to not use my own lens to analyze policy decisions. Does this mean I will always be successful? Of course not. Anytime an author states that they will be without bias, they are establishing their bias. With that as a known factor, I will do my best to not try to bias my posts here. No promises, but I will do my best.
Secondly, the idea of realpolitik. For those not familiar with the concept, it was coined in the 19th century by Ludwig von Rochau, a German writer and politician. In his book, Grundsätze der Realpolitik angewendet auf die staatlichen Zustände Deutschlands,(The political organization of human society), von Rouchau describes the meaning of the term:
"The political organism of human society created by the state and is in virtue of a natural law that meets the man with or without consciousness voluntarily or involuntarily in this sense is that old word spoken man is a political animal in this sense should tell a well-known doctrine of the modern era of State is of God, both sentences are correct, fully understood as the same."
So, in essence, realpolitik is more than realism as it describes the human person as it relates to the organization of the state, and society in general. With this concept in mind, it is my hope that any analysis provided on this blog is a balanced approach, that will attempt to make sense of what can be a very frustrating arena of thought; American Politics.
As I begin this process, I welcome any and all comments. Also, any policies or current ideas that any readers may have are welcome as well. To say that any one candidate or party has the correct position on all issues is not a political dialogue. The ability to analyze and honestly apply a theory to the policy may help us, in the long term, to see the advantages and disadvantages of what the outcome may be.
Subscribe to:
Posts (Atom)