Romney's Tax Plan: It Don't Add Up!

 WASHINGTON — A small nonpartisan research center operated by professed “geeks” has found itself at the center of a rancorous $5 trillion debate between President Obama and Mitt Romney.

No white paper or policy manifesto put out during the presidential campaign has proved more controversial than an August study by the Washington-based Tax Policy Center, a respected nonprofit that issues studiously detailed tax analyses.

That study found, in short, that Mr. Romney could not keep all of the promises he had made on individual tax reform: including cutting marginal tax rates by 20 percent, keeping protections for investment income, not widening the deficit and not increasing the tax burden on the poor or middle class. It concluded that Mr. Romney’s plan, on its face, would cut taxes for rich families and raise them for everyone else.

The detailed paper proved kindling for a political firestorm. Mr. Romney criticized the center as performing a “garbage-in, garbage-out” analysis and his campaign accused it of partisan bias. The Obama campaign used the center’s numbers to argue that Mr. Romney had proposed a $5 trillion tax cut. Economists jumped on the bandwagon too, flinging analyses back and forth and picking apart the projections and assumptions in the report.

At the Tax Policy Center itself, responses ranged from irritation at the partisan nature of some attacks to incredulity over the political hysteria. “There was this résumé-hunting, White-House-visitor-log” searching feel to the response, said the center’s director, Donald Marron, a former Bush administration economist. “That was unanticipated,” he added dryly.

In many ways the report did just what the center was created to do: inject some solid numbers into a shifty, accusatory, raucous political debate. The decade-old center — a joint project of the Brookings Institution and the Urban Institute, two nonpartisan grandes dames of the Washington world — was founded precisely to “fill that niche,” Mr. Marron said.

“A lot of tax policy discussions are — how to describe them? — people yelling at each other,” he said. “We believe that good information leads to better policy discussions and ultimately better policy outcomes.”

The center’s claim to provide reliable, nonpartisan information comes in part from its staff makeup. It has about four dozen affiliated staff members and scholars — most are economists, several are considered top experts in their fields, and a number have experience in either Republican or Democratic administrations.

It also is derived by virtue of its ownership of a highly sophisticated tax modeling system, one that took about two years to build and has a small coterie of specialists to tend it. The model resembles those used by government offices to forecast the effect of changes to the tax code, and it relies on about 150,000 anonymous tax returns and a wealth of data on pensions, education, consumer expenditures and economic growth.

“They’re one of the few groups that have this very big, very accurate model,” said Martin A. Sullivan, the chief economist and a contributing editor at Tax Analysts, a specialty publisher. “What they’re doing is just making the best computations available” for others to interpret, he said.

That includes so-called distributional analyses that show how changes to the tax code would change the relative burden on high-income and low-income families — a dry tax topic yet one of the most politically potent ones of the campaign, given the broader debate about tax fairness and inequality.

The analysis of the Romney proposal has proved highly controversial not just among politicians, but also among some economists.

Researchers including Martin Feldstein of Harvard and Harvey S. Rosen of Princeton have argued that Mr. Romney’s tax math might work if he raised taxes on families making more than $100,000 a year — not $200,000 to $250,000 a year, as he currently promises — or if his plan gave a strong jolt to economic growth.

“Reasonable economists disagree on” the growth effects of plans like Mr. Romney’s, said Alan J. Auerbach, a tax expert at the University of California, Berkeley, who added that he did not see the math working out as currently described. “It matters a lot what kind of reductions you’re making or how you’re paying for tax cuts.”

Others have argued that the Tax Policy Center filled in too many of the holes in Mr. Romney’s light-on-detail proposal — making a full analysis impossible and skewing the center’s paper’s results.

“It is not an analysis of Governor Romney’s plan,” said Scott A. Hodge, the president of the Tax Foundation. a nonprofit research group also based in Washington.

“It has been, I think, mislabeled as such and misinterpreted as such. We don’t think there are enough details to analyze,” he said, adding that he believed that it was possible to devise a distributionally neutral, revenue neutral tax reform that cut rates in the way Mr. Romney described.

The Tax Policy Center said that it had sought as many details as possible from the Romney campaign. (Its economists said it has a cordial back-and-forth with the economic policy teams in both campaigns, as it did in 2008.) Given the numbers available, it had tried to perform the analysis in the most generous way possible, and still did not see how Mr. Romney’s rate cuts could square with his other goals.

“We wrote a technical, accurate paper given the available information,” said William G. Gale of the Brookings Institution, one of the paper’s main authors, in a recent interview. “The criticism that you can’t analyze the Romney tax plan because there isn’t one? That hasn’t stopped other economists from analyzing its growth effects. I like to have substantive discussions about tax policy. The uproar about the paper has not been substantive.”

Many economists across the political spectrum have said they found the report’s conclusions convincing, like Alan D. Viard, a tax expert at the right-of-center American Enterprise Institute.

Mr. Sullivan of Tax Analysts said: “I like tax reform. I want to broaden the base. It’s something I’ve devoted my life to. And I welcome Governor Romney and the Republicans’ strong push, but the plan doesn’t work out. It’s not mathematically possible.”

An Email between Christians...

My Reply...

I appreciate your article.  It was insightful, and well-written.  It is good to be refreshed on The Declaration of Independence, and the government that was put in place to uphold those ideals.  There is no question that our Founding Fathers were moral people. Many of them (like Adams) were devout Christians.  Even those who did not identify themselves as Christians (like Franklin and Jefferson) understood that morality was essential for a Democracy to function.  Franklin regularly attended sermons by George Whitefield and even went as far as helping build a hall where the masses could hear his sermons.

Our Founding Fathers also understood that tyranny comes in many forms.  Man by nature is corruptible.  Even Federalist Alexander Hamilton floated the notion of a monarchy during the Constitution Convention.  The Founding Fathers' genius shined through with a three-branch system, a separation of powers, and checks/balances system that ensured that no one branch could dominate the others.  Still though, it seems that agendas on both sides of the aisle have been radicalized.

It bothered me when Steve LaTourette called it quits in Congress.  He was one of the few candidates who was known for his uncanny ability to get things done in Washington.  In a different time and age, he would have been considered a VP candidate.  Instead he cited his own political party as the reason for leaving Congress.

As a Christian man, I have struggled with politics. I have concluded that every election is a war of words, and a war of ideas.  No party can justly claim Christ's dominion. Both parties fall well-short of his ideals.  To claim anything different would compromise the Gospel. Likewise, as if we are in the Garden of Eden, we are given choice, albeit man-made choices in a fallen world.  I think our Founding Fathers understood the dilemma.  Our Bill of Rights could have addressed anything in the first Amendment. The subject that addressed was religion.  It is my belief that religion was recognized as the critical component of our government and citizenry. But, one Christian church should not be favored over any other.  The Founders recognized that a relationship with God was a fundamental right. Americans take that right for granted.  Why is it that right of worshiping God had taken a back seat to all the gifts this great country has been blessed with?  Before we address the government and its variable short-comings, we must address the heart of man. 

Respectfully,

The Email...

If you can
When asked by a woman what kind of government the Constitutional Convention had given the people, Benjamin Franklin famously quipped, “A republic, madam, if you can keep it.” The warning was meant seriously, because like all the Founders, Franklin was well aware of the dangers that faced republics.

The principal danger, of course, was tyranny, which the Founders understood as the government depriving people of their God-given rights and liberties. The Constitution’s system of checks and balances was intended to make that more difficult, but if unscrupulous persons were elected to key positions in the government, tyranny remained a possibility. As a result, the Founders emphasized that the only real protection against tyranny was the character of the people elected to office.

But there was another, more indirect route that could lead to the collapse of the Republic: The loss of virtue among the citizens.

Government and virtue
Virtue is an old-fashioned and misunderstood word today. The Latin word virtus comes from the word vir, “man.” Virtue was thus literally manliness, the qualities that men should strive to achieve, such as valor, courage, temperance, prudence, loyalty, faithfulness, self-sacrifice, etc. Significantly, these “masculine” traits could only be exhibited in the service of the republic; they were not private but public qualities.

The Greek equivalent was arete, meaning excellence. It referred primarily to something that achieved its intended end. When applied to people, it referred to someone who had developed to their full potential.

What has this to do with government? As we have seen, the Greeks believed that the state existed to assist the citizens in the pursuit of virtue (arete), which was essential to a life of happiness (eudaimonia), the purpose of our existence.

The Roman concept of virtus was more directly related to government. The Romans believed that government officials needed virtus or they would abuse their power and rule out of self-interest, rather than putting their duty to the state ahead of themselves. Since the best school of virtus was the military, and all Roman men performed some kind of military service, important offices in government had minimum age requirements so that all eligible men would have completed their military service. That way, they would either have developed virtus or it would be known that they hadn’t; if the latter, they would be blocked from holding office.

Everyone involved with the state needs virtue if the state is going to function. In a monarchy, ultimately the king’s virtue is all that matters, since the final decision on any policy is his. As authority spreads more broadly, virtue must spread as well. In a republic, it must reach not simply office holders, but also those selecting office holders. If the latter lack virtue, the former certainly will as well.

Virtue and the Founding Fathers
These ideas were well known among the Founding Fathers. They all recognized the importance of virtue for the survival of the republic. To cite just a few examples from John Adams:

“Because power corrupts, society’s demands for moral authority and character increase as the importance of the position increases.”

“Our Constitution was made only for a moral and religious people. It is wholly inadequate to the government of any other.”

“Public virtue cannot exist in a nation without private, and public virtue is the only foundation of republics.”

Others among the Founders expressed the same ideas.

Why is civic virtue so important to a republic? If people think only about their own interests rather than the common good, they will elect people who will pander to them, who will put short term gain and power ahead of the long term good of the nation, and this will in turn lead to the destruction of liberty.

This was the point of a quotation wrongly attributed to eighteenth century Scottish historian Alexander Fraser Tytler:

"A democracy is always temporary in nature; it simply cannot exist as a permanent form of government. A democracy will continue to exist up until the time that voters discover that they can vote themselves largesse out of the public treasury. From that moment on, the majority always votes for the candidates who promise the most benefits from the public treasury, with the result that every democracy will finally collapse due to loose fiscal policy, which is always followed by a dictatorship."

Similarly, Michael Novak argues in his book, The Spirit of Democratic Capitalism, that modern liberal democracies are built on a three-legged stool of economic freedom, political freedom, and moral restraint (i.e., virtue). If any one collapses the stool will fall, which leads inevitably to the loss of liberty and thus to tyranny. In other words, if we fail to live lives of virtue, we invite government intervention and thus lose our liberty.

Virtue and the nation today
Unfortunately, this is the state of the United States today.

We have lost the virtue of chastity courtesy of the sexual revolution, and so we have as a consequence abortion on demand, an HHS mandate to pay for birth control (including abortifacients) and sterilization even if it violates our consciences, and the destruction of the family particularly among poor and minority communities.

We have lost the virtue of self-control, so we spend recklessly on immediate gratification both on the personal level and in all levels of government.

We have lost the virtue of self-sacrifice, so we are consistently self-seeking and look to someone else to pick up the tab for our lifestyle and choices.

We have lost the virtue of service, so the political classes are typically out for power, spend as much time fundraising as legislating, and give themselves generous pensions when they are voted out of office or, more likely, retire. And they pass laws that permit them to keep any money they raise for an election campaign whether or not they actually run for office.

And we are losing our liberties.

The Constitution insists that all important (and some relatively unimportant) appointments of the executive branch must be approved by the Senate, yet there is an increasing number of non-Constitutional “czars” who run important divisions of the executive branch without any senatorial approval or oversight.

We have a President who issues executive orders in areas that he has acknowledged are properly the responsibility of Congress, thereby violating separation of powers. His excuse? A gridlocked Congress. But the Constitution mandates that Congress pass the laws, not the President. If the people don’t like what Congress is doing (or is not doing), then they can elect new representatives and Senators. The President has no right to intervene. Short circuiting the legislative process amounts to rule by decree, which violates the letter and spirit of the Constitution by eliminating the checks and balances built into the system. And it spells the end of the republic, which by definition is rule by representatives, not by a single executive.

We have unelected bureaucrats establishing policies such as the HHS mandate that violate our fundamental liberties, with the willing support of those who benefit and who thus put their “right” to free contraception over another’s right not to be forced to subsidize someone else’s behavior in violation of deeply held religious beliefs.

We have a Senate that will not vote on a budget because any vote could be politically embarrassing and thus threaten the majority party’s hold on power. And the continuing resolutions to keep the government running have the government borrowing forty cents of every dollar we spend.

We have a Federal Reserve that is printing money at a breakneck pace so we can spend now and sell our children into debt slavery down the line rather than doing what we need to do now to prevent default and economic collapse. If or when that happens, some form of dictatorship will follow.

And we as a public sit back and acquiesce in all that is going on. We’re like Hezekiah, who on being told that Judah would be destroyed and his own children go into exile, said that it was good because he would not experience the trouble himself.

The way back: virtue
The only solution is to recover our virtue and reject the nonsense about cultural and moral relativism that has eaten away at the foundations of our society. Without that, as everyone from Aristotle to the Founders to Michael Novak has argued, the republic is doomed.

We will talk about how to do that in the next article.

Small Ball, Market, Iran

Small Ball
Stock trades have been successful. Of the last nine trade, eight have made money.  The most successful for the trades included a a series of puts and call options on CLF.  There have not bee many home run pitches to swing at, so small ball has been the theme. Getting runners on base, and then figuring out a way to score the runners.

There is something to be said about limit order trading.  It has become a preferred method of executing trades.  A range-bound stock offers entry and exit points... albeit small, there is profit to be made. REXX and KOG have also been trades. In this case options are not an option. Instead, opening positions on the low-end range... and selling on the high-end range has worked.

A broker at Schwab suggested using StreetSmart Software to execute more profitable trade.  This will be something that requires more research, and more time.

Market
The market appears to be range bound... and will remains so until after the 2012 Election cycle.  There is uncertainty on a numbers of fronts. Most notably, control of the House and Senate is up for grabs. However, the Iran Question appears to be a looming concern. And the next President (whomever it is) will need to form a diplomatic team. Finally, there must be a concerted effort to keep spending power in middle class America. Whether the 1% realizes it or not, a vibrant middle class is needed to make America work. There must be a reasonable access to education, and more importantly participation in the American Dream.

More on Iran
As fate would have it the radical mullahs in Iran are becoming increasingly out-of-touch with the people who long for democratic reforms. It is critical that this hand is played well, and the very people who can cause change from the inside out...  Most people will agree that the average people in the middle east want basic political freedoms, and a chance to participate in the 21st century.