Which Party Ruined the Economy?

Here’s a quick, hopefully thought-provoking post.

Under Pres. Reagan there was a large expansion in the size of the federal government. Who had control of Congress during those years? Democrats. Pres. Clinton gets credit for having a good economy and balancing the budget but who is responsible for making and passing budgets? Congress. Pres. Clinton did the politically expedient thing and worked with the Republicans in Congress to get the budget balanced (although, the budget would prove to be unsustainable because it was based on unrealistic expectations of future tax income; the balanced budget was in trouble starting in late 2000 and early 2001 when a recession hit).

We had a good economy in the 1990s with Republicans in charge of Congress and with a Democrat in the White House. Things went south with the Internet bubble burst in 2000 and 2001. That was the start of a recession made much worse by the events of 9/11. Thankfully, the “Bush” tax cuts (Republicans were still in control of Congress) were passed. They helped shorten the recession. What was not good was passing them and increasing our federal spending. The economy was going along quite well until the housing market crashed in 2006-2007. This was one of the main factors resulting in the biggest recession the U.S. has faced. I’m not going to blame any political party for the recession but I have to point out that Democrats (and many Republicans) helped put in place government housing policies in the 1990s that were factors in the housing bubble burst. Further, Democrats were the ones opposed to regulations Republicans were trying to put in place that might have reduced the housing market crisis. Both parties are culpable for their actions or inactions though.

In 2006 (2007) Democrats took control of the House and Senate. In 2007 the recession officially started. Things were bad with the Republican Pres. Bush and a Democrat majority in Congress. They passed some bailout policies that were weakly effective at best and harmful at worst. Then Pres. Obama took office in 2009 (2008 election). He nearly had a Democrat supermajority in Congress with which to work. It seemed the perfect time to get things done to help the economy but instead of focusing on the economy, or at least trying to stay out of its way (there were other bailouts, some that seemed effective – the auto bailouts – but most have no measurable effects other than a huge deficit), Pres. Obama and the Democrats passed an environmental bill (which no one had the opportunity to read before it was passed) and a gigantic health insurance bill (which also was not read before it was passed).

In 2010, after about 2 years in office, Pres. Obama said he was serious now about the economy. Things were still bad. In 2010 (starting tenures in 2011), Republicans took control of the House and gained seats in the Senate. In 2011 the economy finally started to improve after Democrats no longer had complete control of Congress. It’s still rough but getting better.

What I think is interesting is that the economy seems to flourish when Republicans are in charge of Congress and it seems to flounder when Democrats are in charge of Congress. It also seems that our economy is finally starting to recover in spite of the worst efforts of many Democrats (and many Republicans who either went along or didn’t fight bills enough). It seems like the best course of action would have been either to do nothing or pass smaller, more focused stimulus measures. Tax cuts always work to improve the economy and are usually the best way to stimulate the economy. They just have to be accompanied by a reduction in spending. Basically, the government should get out of the way of the economy and provide focused regulations when necessary.

This post is biased. I wrote it this way on purpose to provide a counter-point to many arguments I have heard or read that praise Pres. Clinton for the good economy of the late 1990s, blame Pres. Bush for the 2007 recession, and praise Pres. Obama for the current economic improvements. There are many people who blame all good things on actions of Democrats and all bad things on actions of Republicans. That’s such a gross oversimplification of who things actually work that it’s not an effective argument (well, it is often effective because many people do not think critically and just accept it as truth). I wrote this post to show that I can argue just the opposite – that poor economies are the result of the actions of Democrats; after all, Congress is in charge of spending and passing laws and our economy suffered the most with Democrats in charge.

What’s the truth? Probably something in the middle (Democrats and Republicans are both responsible). Our federal government is too big and certainly too inefficient. I’d argue that the inefficiency (bureaucracy) is worse than the size of government. We need a Congress and a president who are willing and able to increase the efficiency of the government in part by reducing its footprint.

Mitt Romney’s Tax Returns

It took some comments on the New York Times article about Mitt Romney’s tax returns to bring me out of retirement from posting on this blog. I want to provide brief responses to a few of the comments that capture much of the general sentiment of those commenting on that particular article (I cherry pick comments but I’m only focusing on comments with many other reader “recommendations”).

The current highest reader-rated comment is this: “Anyone who sees nothing wrong with the fact that somebody who makes $20 million/year pays less than 14% in taxes, while someone who makes $40K/year pays over 20% is insane. Do not over-think it. It’s absurd and unjust on its face.”

There are many similar comments. For example: “this MITT guy earns 21mil & pays 15% in taxes [sic]. Joe the knuckle head plumber earns 50K and pays 28% in taxes”

What’s wrong with the comment(s)? First, it’s telling that this is the highest rated comment on the article; that tells you something about NYT readers and their biases (just like this post reveals some of my biases). Second, it never helps your cause to insult those with whom you disagree. Third, someone making $40K is not paying over 20% in income taxes (that’s all we’re talking about here – not other kinds of taxes; that’s all we can talk about because the article is about Mitt Romney’s income tax return). With the current tax code, a single person (I calculated as a single in order to try to increase the potential tax burden the most and to reduce credits or deductions or exemptions) earning $40,000 a year has a pre-deduction and credit federal income tax burden of $6030. Aha! That’s a higher rate than Mitt Romney pays (it’s 15%). However, that is a pre-deduction/credit tax amount. The standard deduction for a single person with no dependents and no other conditions that might change that deduction is $5,950. Using that deduction without any itemization (no other items resulting in a higher deduction), a single person making $40,000 a year would owe $4,106 in federal income taxes (estimated using the IRS estimated tax site). That is a 10.3% effective tax rate, which is lower than Mitt Romney’s. At no point was the tax rate ever over 20%, like that particular commenter stated. Further, it is certainly possible but not likely that my hypothetical $40,000 a year earner would have no other credits or deductions. In reality, most people earning $40,000 a year pay a lower income tax rate than 10% (from a WSJ article: “The average income-tax rate for the middle slice of households—those making between $34,300 and $50,000—was 3.3% for 2007.”;  {that article isn’t that great; if you want a better WSJ article to read, read this one}). There’s not much more to say in response to the comment on the NYT article.

This next comment (also very highly rated) captures what a number of people stated (the context is that Ann Romney paid around $20,000 last year for “domestic help”):

“There is NO WAY that family only spent $20,000 for domestic help. No family making that kind of income pays so little for domestic help unless they are doing something illegal. Just one house-keeper alone should make more than $20,000 if they were to pay her the legally required over-time, etc. Something is very wrong here.”

This comment and the others like it are assuming that those are wages for 4 people working full-time (and even overtime!) during the year (“if they were to pay her the legally required over-time…“) instead of the reasonable assumption that 4 different people were paid to help around the house(s) when needed. Maybe the “domestic help” (commenter’s words, not mine) only worked 1 hour each and each was paid $5000 for that hour. That’s much more likely than 4 people working overtime for a total of $20,000 in a year. The logic of the comment is seriously flawed. Not only that but the Romneys paid Social Security, Medicare, and other taxes on that $20,000 paid as Household Employment Taxes (see page 38 of the tax return).

Another highly rated comment (just a bit of it): “Like many of the wealthy, Romney paid no Medicare taxes.” Also, this one: “According to his 1040 Obama IS working — he has a number greater than $0 on the line for wages. It’s Mitt Romney who isn’t working — his wage line says $0.”

Actually, Mitt Romney earned $500,000 in speaking fees. Those fees are taxed at self-employment rates, which means at least $500,000 of his income was taxed at a high income tax bracket (with probably a lower effective rate due to deductions). It also means he paid Medicare and Social Security taxes (plus whatever else) on $500,000 (or at least paid higher taxes on that portion of his income). The first of those two comments was not only a red herring (it doesn’t have anything to do with income taxes), it was wrong. The second is wrong as well. If you throw out a red herring you might as well bring up the fact that in 2010, Mitt Romney paid $226,000 in real estate taxes. That’s money going to governments. In 2009 the Romneys paid $750,000 in state and local taxes (page 137 of the return). Stating that has as much (or more) relevance to federal income taxes on a tax return as does talking about Medicare taxes.

Another well-liked comment:

“This man is part of the international elite of super wealth, whether Wall Street tycoons, oil Sheiks, South American land holders or Chinese and Indian industrialists…. And then there is the business of Mormonism and giving as much to his religious as the public coffers. Why does our system of law allow a tax deductible contribution of this size – and to the Mormon Council of Elders, a shadowy private equity giant connected to Goldman Sachs (basically a Mormon bank).”

Notice the logical fallacy of guilt by association. Also note the blatant anti-Mormon bigotry full of completely false information (“Mormon Council of Elders, a shadowy private equity giant connected to Goldman Sachs (basically a Mormon bank)”). I’m sorry, but that is a ridiculous statement. The whole comment is an expression of ignorance or even outright deceit.

Another comment: “Will the moderator at the next debate please question Romney whether it’s fair that he pays a far lower ta [sic] rate on his income than many middle class Americans?”

Actually, the effective average tax rate for middle class Americans is 8%. Mitt Romney, even with mainly investment income, is paying nearly double that rate.

Another one: “Romney is the symbol of what is wrong in America today. His vast income derives from the destruction of companies, jobs, benefits and pensions in order to generate fees for Bain.”

Bain invested in around 100 companies during Romney’s time there (and most of the companies were either just starting or on the verge of collapse – they were not generally healthy companies; Bain took on risky investments). Around 80 of those had very positive results with less than 10 mainly negative results (and this is only if you include what happened to companies up to 7 years after Bain’s involvement, which means that some of the negative results came during the 2000-2002 recession). That’s quite a remarkable record given the risky business investments. So much for destroying companies and jobs!

Here’s the comment that brought me out of retirement (and it had a lot of other people recommending it, which is pretty sad): “Mitt Romney pays less in taxes than I do. And probably less than almost all the population. But no worries. We’re good sheep. Nothing to see here. Moving along.”

Let me restate that: “I pay more than $3,000,000 in taxes in a year. Almost all the population pays more than that. We just do what we’re told though.” Is that statement true? I doubt it. What the person meant to write is about tax rates, not taxes. Even so, the statement is still wrong. Mitt Romney’s effective tax rate (again, which is what that individual really meant to write, not just taxes) is higher than 80% of tax-paying Americans’ effective rates (additionally, 47% have no income tax burden). So no, Mitt Romney does not pay “less than almost all the population.” Mitt Romney pays much more.

Okay, one last one: “Oh, I get it. You made the money all by yourself. And who paid for the police so you wouldn’t be robbed? And who paid for the transportation system that allowed your goods to flow to and from your place of business.”

Actually, Mitt Romney paid a lot of that. He paid over $700,000 in local and state taxes, including a lot of property taxes. Those go to support the police and the transportation system. He pays sales tax. In any case, we all talk about how we do our jobs or “I earned this” or “I did that”; that doesn’t mean we necessarily ignore the contributions of others.

What we can learn from many of these comments is that there is room for improvement in the critical thinking department. We all could improve in that department; I know I certainly can! But what happens is that some people let their hatred or intense dislike of others cloud their judgments. We allow our biases and assumptions interfere with logical, critical thinking. All people do it to one extent or another. I’m not arguing that we all need to be coldly logical all the time but we could certainly use a boost in critical thinking skills and stop spreading falsehoods.