Saturday, December 24, 2011

Boehner's Cheap Suit, The State of the States

How to Do Absolutely Everything Wrong
Extending the payroll tax holiday is a poor idea.  I absolutely believe it, just as much as I believe that extending the Bush tax cuts are a mistake.  And for the same reason.  With a treasury leaking close to a trillion dollars this year, we can scarcely afford to be giving away revenues, especially since we lack any sort of coherent plan to get our budget back in balance.

The payroll tax holiday is an example of why "temporary" tax cuts are so insidious.  We saw it with the Bush cuts and we see it again.  The narrative goes something like this - someone (President Obama in this case) argues for a "temporary" tax cut, holiday, relief, you pick the name, based on the idea that returning this money to the economy will spur needed economic growth.  The supporters of this "temporary" tax cut say we should ignore the negative impact on deficits because, after all, this cut is temporary, so it won't effect our structural imbalance of revenues and spending.

So we pass the "temporary" tax cut, time rolls on, it gets close to the date of expiry, and lo and behold, suddenly those who were arguing for it want to extend it because "we can't raise taxes at a time like this".  Never mind that it was sold in as temporary - it's now "in the base".  And the beat goes on.  And so do the trillion dollar deficits.

Having gotten all that off my chest as to the policy associated with the payroll tax cut, the POLITICS of the matter are another thing.  And on this count, the GOP, specifically the House GOP have managed to do absolutely everything wrong in this debate.

First, they didn't communicate their wishes to their Senate colleagues.  As a matter of fact, a few weeks ago, it was John Boehner that refused to negotiate a compromise on the payroll tax cut, demanding instead that the Senate work it out.  Well, they did.  The agreement was a 2 month extension of the cut, paid for by increased fees associated with Fannie Mae and Freddie Mac.  Essentially, higher fees on mortgages to pay for payroll tax relief.

Then, after the Senate deal had passed with massive bipartisan majorities (the Senate vote for the plan of 88-10 reflected the support of 80% of the GOP caucus), the House GOP balked.  I don't think it was Boehner himself who wanted to raise a stink (as a matter of fact, I think he would have been happy to leave town), but regardless, the House was suddenly making it an issue that the tax cut didn't cover a long enough period of time (somehow 2 months creates uncertainty, but 12 months magically creates certainty) and they wanted the Senate to come back to negotiate a full year deal with them.

So, Boehner and the House GOP handed the keys to the Democrats.  They managed to simultaneously portray themselves as holding up tax relief for working Americans while making the Democrats look like the defenders of lower taxes.  And all for a battle that they could not possibly win.  And they did not.  They caved within 72 hours as Harry Reid outright refused to call the Senate back for more discussions until the House passed the plan.  And pass it they did.  Oh, sure, they got token concessions which change nothing about the underlying legislation in an attempt to save face.

But at the end of the day:
(1) The Democrats looked liked the heroes of lower tax rates for working and middle class Americans
(2) The Republicans looked like shills for the rich, defending the Bush tax cuts for upper income Americans at all costs but balking at more modest relief for the lower brackets
(3) The strengthened President Obama's standing in the polls by as much as 5%
(4) They got no substantive policy changes in return

That's a rare perfecta indeed.  I wrote earlier on how the GOP should have some concerns about the House due to its historically low popularity and the best Democratic performance in generic congressional polling since 2006 and apparently they are hell bent on making my writings come true.  John Boehner better get that caucus under control or he might have to try back out the "minority leader" title.

What State is the Best?
While the candidates in Iowa are certainly not taking a break for the holidays, the debates are done until after Iowa and the polling won't really resume until after Christmas, so I thought I'd take a little detour and talk about a subject I've been meaning to write about for some time. 

In this Presidential campaign on the Republican side, the principle of federalism has been raised repeatedly by the GOP candidates.  It is a unique aspect of our form of government that so much of the governing is left to individual states to decide.  Federalism at its best is 50 state laboratories trying out different policy approaches to see what measures up best.

But the 50 laboratories only matter if somebody is measuring the results.  So, I'm pleased to present my ranking of the most and least successful states in the US.

First, let's talk about my methodology.  There are many things that people would like about a state that are subjective.  Measuring a state's cultural achievement or the quality of its food would make for interesting debates on message boards, but would be entirely subjective.  Do you prefer blues music in Mississippi or grunge in Seattle?  Do you like the lobster in Maine or the soft shell crab in Maryland?  Is Texas football better than New York hockey?  These questions are fun, but ultimately can't be measured.

So, I stuck to 4 very clear objective measures:
(1) Median Income
Standard of living is determined, in large measure, by how much money the average person makes.  Median income demonstrates the strength of a state's economy probably better than any single metric.

(2) Educational Attainment
The percentage of adults who are college graduates is an easily accessible "end state" metric on education that allows for easy comparison.  You could argue that this measure under weights the impact of primary and secondary education in a state, but I would argue that the primary purpose of primary and secondary education is to prepare students for college.  Besides, rating metrics for those things get increasingly subjective.

(3) Crime
We all want to live in safe neighborhoods and crime is a clear indicator of a social problem.  Violent crimes per 100 residents normalizes for population and shows how safe states are.

(4) Population Growth

An excellent measure of the quality of a state is whether people are coming there or leaving there.  Granted, this metric biases positively to those states that see a lot of illegal immigration, but over time, even illegals will go to where the opportunity is, so I used 10-year population growth as the metric.

For each metric, the state with the BEST score (highest income, highest education attainment, lowest crime, highest population growth) received 50 points, the second best 49 points and so on.  The total of all 4 scores were added together to give a state its total score.

Using this methodology, an AVERAGE score would be 102 points.

The states ranked as follows:
1. Utah - 162 points
2. Virginia - 161 points
3. Colorado - 159 points
4. New Hampshire - 158 points
5. Vermont - 143 points
6 (tie). Washington - 142 points
6 (tie). Massachusetts - 142 points
8 (tie). California - 141 points
8 (tie). Connecticut - 141 points
10. Hawaii - 138 points
11. Maryland - 133 points
12. Wyoming - 132 points
13. Arizona - 129 points
14. Oregon - 128 points
15. New Jersey - 125 points
16. Alaska - 123 points
17. Minnesota - 120 points
18. South Dakota - 119 points
19 (tie). Georgia - 118 points
19 (tie). North Dakota - 118 points
21. Rhode Island - 114 points
22. Delaware - 109 points
23. Idaho - 106 points
24. Texas - 105 points
25. Pennsylvania - 104 points
26 (tie). Maine - 103 points
26 (tie). New York - 103 points
28. Wisconsin - 101 points
29 (tie). Nebraska - 100 points
29 (tie). Kansas -100 points
31. Illinois - 97 points
32. Nevada - 91 points
33. Montana - 90 points
34. North Carolina - 85 points
35. Iowa - 79 points
36. New Mexico - 77 points
37. Ohio - 76 points
38 (tie). South Carolina - 72 points
38 (tie). Missouri - 72 points
40. Florida - 68 points
41 (tie). Kentucky - 66 points
41 (tie). Oklahoma - 66 points
43. Indiana - 63 points
44. Alabama - 58 points
45. Tennessee - 55 points
46. Arkansas - 45 points
47. West Virginia - 44 points
48. Michigan - 43 points
49. Mississippi - 40 points
50. Louisiana - 36 points

Let's examine the top and the bottom five in a little more detail.  First, the top 5.

Utah doesn't lead the pack in any single category, but is solid in them all.  It is 6th best in crime, 11th best in educational attainment and population growth and 14th best in income.  Utah has been a real boom town as Salt Lake City has grown and diversified.  Far from being the stereotype of shows about plural marriages and backward ways, it is a thriving state with a broad economic base.  Maybe Jon Huntsman was on to something.

Virginia is similarly strong across the board, ranking 8th in income and education attainment, 10th in population growth and 17th in crime.  Once a tale of two states, with poor Richmond at one end and the DC suburbs at the other, both completely dependent on the government (Richmond for welfare, Northern Virginia for government jobs), Virginia has diversified greatly into high tech industries and boasts arguably the best university system in the country (UVA, Virginia Tech, James Madison and George Mason are all Virginia states schools and all top flight.)

Colorado is the 2nd most educated state in the union and the 4th fastest growing, but lags somewhat in the other categories, coming in at 13th in income and a middling 26th in crime.  Colorado's strength are the core of large media and communication companies centered in Denver.  It is also a regional transit hub and supports a lot of smaller manufacturing industry.  Similar to many fast-growing states in the Southwest, the source of some of its population growth is also a drag on its crime and income scores - high levels of illegal immigration.

New Hampshire
New Hampshire would be number 1 if I'd stopped at 3 categories - it ranks 3rd in educational attainment, 4th in crime and 7th in income.  But New Hampshire, like much of the Northeast, isn't growing much - it ranks a weak 32nd in population growth.  New Hampshire's libertarianism makes it a shopping haven for New Englanders as well as a bedroom community for many commuters into Boston.  It also sports a strong tourism industry...especially around this time in an election cycle.

Rounding out our top 5 is New Hampshire's much more liberal brother Vermont which, similar to New Hampshire, ranks 3rd in crime and 7th in education but a somewhat weaker 20th in income and 31st in population growth.  A popular tourist spot and organic farming hotbed, Vermont has continued to foster a stable economy, despite conservative protestations about its very liberal economic policies.

On the bottom end:
Hurricane Katrina could get some of the blame, but Louisiana has been in decline for a very long time, with one of the worst permanent underclasses in America.  It's best ranking is in population growth, at 37th.  It ranks 41st in income, 44th in educational attainment and 46th in crime.  Louisiana, like many states in the deep south, lacks much of a middle class and has a very large underclass, which is mostly black.  Systemically bad schools and poor social institutions carry this problem from generation to generation.

Mississippi scores surprisingly well on crime, 20th best in the country, which keeps it out of the basement of the ratings, but other than that, the news is abysmal.  46th in population growth, 48th in education and 50th in income.  A poor, uneducated population that is leaving.  I lived in Mississippi and can personally attest that there is poverty in the Delta in a way I never would have thought possible in the United States.  My apologies to Haley Barbour, but this is a state failing on virtually all fronts.

The dismal state of Detroit and the contraction of the auto industry over the past decade have not been kind to Michigan.  It is 34th in income, 36th in educational attainment, 41st in crime and 50th in population growth.  In other words, people are leaving in mass and the ones leaving are largely the educated ones.  And who can blame them?  Have you seen Detroit lately?  Interestingly, it is a world away from Mississippi, but the fundamental problem is the same - lower skilled jobs (in Mississippi in agriculture, in Michigan in manufacturing) that have either moved elsewhere or gone away and a working class ill-equipped to do something else.

West Virginia
Appalachia has long been a location of heart-wrenching poverty.  Only a relatively low crime rate in this low population-density state keeps it out of the cellar - it's crime rate is 12th best in the nation.  Other than that, things are horrible - 49th in income, 49th in population growth and 50th in educational attainment.  It's a vicious cycle - lack of education keeps industry away and lack of jobs keeps people in disbelief that an education will benefit them.  The permanent underclass here is white and rural, rather than black and urban, but the problem is the same.

You could argue that Arkansas at least "wins the region" by ranking ahead of Mississippi and Louisiana, but things are still not great.  It is 22nd in population growth, buoyed by the continued strong growth around Wal-Mart in Bentonville and industrial growth in places like Fort Smith, but 40th in crime, 48th in income and 49th in education.  Bentonville is like a metropolis - Little Rock looks worse than Detroit.

So what can we learn about policy from all of this?
Using the imprecise metric of a "red" state being a state John McCain won in 2008, a "blue" state being a state Barack Obama won by more than his national average and a "purple" state being a state that Obama won but by less than his national average,

Of the 10 best states, 8 are blue, 1 is purple and 1 is red, but the red 1 is in the top spot.
Of the 10 worst states, 8 are red, 1 is purple and 1 is blue

The average ranking for a BLUE state is 17th
The average ranking of a RED state is 31st
The average ranking of a PURPLE state is 32nd

While there are certainly inherent socioeconomic differences from state to state, in my mind, this fairly well disproves the notion that conservative states are more business-friendly and drive greater growth.  By and large, liberal states are better places to live by the objective metrics.  Perhaps we should be paying more attention to what Mitt Romney did in Massachusetts rather than poo-pooing that experience.  And maybe, just maybe, Haley Barbour should stop lecturing Governors in New England and start listening to what they are doing.

The other thing interesting is to look at the exceptions.  Michigan is a rare underperforming blue state.  Why?  It made itself into a banana republic in the 70s by tethering its entire fate to the auto industry - an industry that has become more automated (requiring less workers), more diversified (foreign manufacturers and new entrants locating outside Michigan) and more cyclical (car sales crashed in the late 2000s.)

Utah, on the other hand, leads all states but is the only red state in the Top 10.  What are they doing right?  They've done tourism right, with winter sports growing in the United States and Utah being a very affordable location.  They've grown the options for nightlife well beyond anything imaginable 20 years ago.  And they've mined their inherent natural resources at a time when commodities are rising.

I'm a big believer that data rather than dogma tells you interesting things.  Have a different take?  I welcome your thoughts. 

Merry Christmas and Happy Holidays, everyone.

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Tuesday, December 20, 2011

A Brokered Convention? Only In Our Dreams, Endorsing Mitt Romney

The Fantasies of Political Wonks
In what can only be described as an unstable race for the Republican nomination this year, we have seen our share of twists and turns.  New leaders seem to emerge every week as the "anybody but Romney" crowd, a collection of social conservatives mad at has prior flip-flops and Tea Party activists, who are livid that a man whose health care plan was the model for Obamacare would even be considered, gyrate from candidate to candidate, looking for their perfect match.

All this unrest has caused a growing number of political observers to questions whether the GOP may be headed for a brokered convention, that is a convention that would start with no candidate having the majority of the delegates.  New rules requiring early primary states to award delegates proportionally rather than winner take all contribute to this theory.  George Will, long an advocate for alternative choices to the existing field has written a full column proclaiming the possibility.

It is an admittedly tantalizing thought for a political observer - the notion of a political convention that is not a carefully put together piece of public relations, as all of them have been for almost 50 years, but rather a true meeting of party members to figure out what the heck they are going to do.  And the unpredictability would be fascinating - a winner could emerge out of the current field or an entirely new face could ultimately get the nod.

The only problem is that it simply isn't going to happen.  In order for a brokered convention to take place, you need at least three strong candidates that last most of the primary race.  If you have two, somebody wins a majority and gets the nomination - if you need proof of this, look no further than 2008 where two strong candidates for the Democratic nomination battled to the bitter end but did not produce a brokered convention.

Who would those 3 candidates be?  Clearly Mitt Romney will be one of them.  Newt Gingrich might be a candidate, but only if he wins Iowa, a situation that looks increasingly unlikely.  His supporters are likely to abandon en mass if he has a poor showing in the first two states.  Rick Perry?  It's possible if he pulls off a miracle in Iowa.  He's the best funded of the "not Mitt's" and well organized.  But he and Gingrich would be able to survive if they are both in the race, they will have to consolidate to one.   Jon Huntsman?  Can't break out of single digits.  Michelle Bachmann?  Been there, tried that, back down to 10% or so.  Rick Santorum?  Has never been above 6%.  Ron Paul?  He can raise money and fight to the end, but will he be a credible candidate garnering a lot of delegates?  Maybe, but I have to imagine that other than his core supporters, sooner or later the GOP crowd will realize how much of a disaster he'd be as the actual nominee and shy away.

So it appears likely to be Romney vs. somebody, that somebody being whoever can consolidate most of the opposition.  A three-way race coming out of the first 4 races that could lead to a brokered convention seems highly unlikely. 

Mitt Romney for the GOP Nomination
For whatever it's worth, I have decided to support Mitt Romney for the GOP nomination.  He is not the ideal Presidential candidate.  The criticisms of his flip-flops are utterly fair, as he has been all over the map on a whole host of social and economic issues.  But when I consider the alternatives, I think he is by far the best candidate, by virtue of his public and private sector experience, his strong leadership in a divided Massachusetts and the relatively low risk he would pose on foreign affairs.  Consider the alternatives:

Newt Gingrich - a good idea guy but a horrible leader.  Heck, nobody in Congress when Newt was leading it wants him and he was run out of town.  Also a caustic, arrogant man would make a horrible GOP candidate in the general.

Rick Perry - sorry, your IQ has to be higher to ride the ride.  Nice story in Texas, but he has been an utter disaster as a candidate.  Pass.

Michelle Bachmann - aside from her highly radical views, she has demonstrated zero leadership capability in the house and I'd be scared to death if she made it to the White House.

Ron Paul - I respect the consistency of his conservative philosophy, but once you get over enjoying the things he's been right about (The Fed, Iraq, etc.) you realize that he is quite a radical.  He would completely remove us from the world stage and cut even the most basic government programs. 

Rick Santorum - the champion of right-wing social engineering is on my list of least-favorites.  He has shown well in the debates, but his views would take us back 30 years of social progress.

Jon Huntsman - I thought very seriously about throwing my support behind Huntsman, but he is too far gone to have a chance.  If I got to individual pick the nominee, the former Utah Governor, former Ambassador to China and politically moderate Huntsman would be my guy.  But he can't win.  And in the choice between Romney and the other viable alternatives, I pick Romney every time.

Only a couple of weeks until the actual votes start getting cast!

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Thursday, December 15, 2011

Can Mitt Romney Deliver the One-Two Punch?

In a nomination fight that thus far has been appropriately centered around the debates, tonight's debate is the highest-stakes contest yet, for a number of reasons.  First, it is the last time that all of the candidates will be on stage together before the first-in-the-nation caucuses in Iowa on January 3rd (there are two additional debates between the Iowa Caucuses and the New Hampshire primary.)  Second, being a weekday evening debate on Fox News, it is highly likely to get amongst the highest viewership of any of the recent debates.  Third, support is still very soft among the Republican electorate for all of the candidates and so significant shifts in the polling are still not only possible but highly probable.  The question is in what direction.

Mitt Romney has been quietly making headway over the course of the past week.  He hasn't scored any big knockdowns against Newt Gingrich, but Gingrich's support has slowly started to soften as potential voters begin to evaluate him on his own merits rather than as simply the latest "not Romney" choice.  Also, both Romney and Rick Perry have considerably stronger ground organizations and greater financial resources and are spending like crazy to unseat Newt.

We could see an epic moment that moves the polls.  But if we don't, what will happen over the course of the next couple of weeks?

First, let's understand that while history doesn't indicate that either Iowa or New Hampshire individually is particularly predictive of outcomes, it is almost impossible to win the nomination without winning one of the two.  Looking back at competitive GOP nomination fights starting in 1972 (when Iowa's caucus moved up to its current position), here is how the eventual nominees fared in the contests (I've excluded re-election campaigns where there wasn't meaningful competition - in those cases, the nominees obviously won both contests.)

1976 - Gerald Ford - won Iowa and New Hampshire
1980 - Ronald Reagan - lost Iowa, won New Hampshire
1984 - Not Competitive
1988 - George H.W. Bush - lost Iowa, won New Hampshire
1992 - George H.W. Bush - won Iowa and New Hampshire
1996 - Bob Dole - won Iowa, lost New Hampshire
2000 - George W. Bush - won Iowa, lost New Hampshire
2004 - Not Competitive
2008 - John McCain - lost Iowa, won New Hampshire

So of the 7 nominees in competitive races, 2 won both races and the other 5 won at least one of the two.  4 of the 7 won Iowa and 5 of the 7 won New Hampshire.

Clearly, you can afford to lose one of the two and still get the nod, but winning without at least one of the two hasn't been done in recent history.

Mitt Romney, for all of his soft support, is still a huge favorite to win in New Hampshire.  He has a geographical advantage, being Governor of a neighboring state, he is popular with moderates and independents that have a huge influence on the primary race in New Hampshire's open primary system and he has an average of about a 10 point lead in the polls there.

So Mitt can clear his long-uncertain path to the nomination if he finds a way to land a knock-out punch in Iowa.  But Iowa is very unpredictable at this point.  Newt Gingrich still leads on paper in 2 out of the 3 polls published this week, although Romney leads the third.  But Newt's ground game being week could be very damaging in notoriously hard-to-poll-for caucuses, given that getting a caucus vote involves getting someone to a meeting place and having them stay for hours at a time to be publicly counted, not simply getting them to show up to a poll to vote.  And Ron Paul, darling of the Tea Party and libertarians everywhere, is lurking in the wings with his rabid supporters, consistently only a few points out of the lead.  And rest assured, his supporters WILL show up.  Mitt Romney, though his supporters are soft, has a fantastic ground organization to turn out the would-be supporters.

It's actually close to a pick 'em race in Iowa given all these factors.  A Romney win in Iowa would probably come close to ending the race after New Hampshire, since his one-two punch would be almost impossible to overcome, even if he lost South Carolina.  A Ron Paul win would make for an entertaining showdown between Romney and Paul down the road, as Paul is almost certainly in it for the distance, but few take Paul's chances at winning the actual nomination seriously, and it would likely be a complete disaster for the GOP if it happened.  A Newt win in Iowa sets up a pick 'em horse race for the nod.  So the outcome of Iowa is critical to the whole thing.

Can Romney deliver the one-two punch and sew up the nomination?  Tonight may be our first indicator.

Wednesday, December 7, 2011

When You Can't Beat Mr. Generic

Is Newt Gingrich the front-runner in the GOP race?  It's a close call.  Gingrich has healthy leads in the early caucus and primary states, with the exception of New Hampshire and leads nationally.  The latest polling averages, which are somewhat in flux following Herman Cain's exit, but are trending towards Gingrich as a result of that line-up change are as follows:
Iowa: Gingrich +14%
New Hampshire: Romney +12%
South Carolina: Gingrich +21%
Florida: Gingrich +24%
Nationally: Gingrich +13%

If the primaries were all held today, I have no doubt that Gingrich would be the nominees.  But, as a friend of mine is fond of saying, if the election were held today, we'd all be a bit confused, because we thought it was scheduled for later.

Romney still leads in the betting money, although the gap has narrowed.  He is now 46% to win the nod on Intrade, with Gingrich up to 35%, Jon Huntsman at 8% and Ron Paul at 7%.  4% belongs to the collection of "all other" that includes Bachmann, Perry, Santorum and whatever other also rans you want to throw in the mix.

So, it's a 4-way race, but really a 3-way race if you exclude the crazy money behind Ron Paul (not going to happen...I'll give you those 15:1 odds all day long, just send your checks in), maybe a 2-way race if you don't think Jon Huntsman has a shot (I'm not ready to totally write him off, but I would consider those odds optimistic, to say the least.)

So, is Gingrich the front-runner?  Not clearly yet, but he's trending that way.  You can forgive the betting public for not being full believers yet - they've seen a lot of people lead the polls briefly and fade fast.  Gingrich seems a little more sticky than Trump, Bachmann, Perry and Cain and he is certainly better known.

But let's play along for a second.  Let's say Newt gets the nomination.  He has a big problem in the general.  People like him a whole lot less than a "generic" Republican.

The polls bear out the huge headwind.  President Obama is at the low point of his popularity, with his approve minus disapprove floating around the -10% range.  In other words, if the election were today and it were an up or down vote on Barack Obama, the President would lose by 10 points.

If you pit the President against an unnamed Republican, he fares pretty close to that 10 point margin.  The latest Rasmussen tracking poll (the only recent poll pitting Obama against an unnamed Republican) shows the President trailing "Mr. Generic" by 8%.

But the President won't be running against Mr. Generic.  If he runs against a different Mr. G, Mr. Newt Gingrich, he fares a whole lot better.  Against Newt, the President leads by an average of 5% nationally in recent polls.  He leads comfortably in the critical swing state of Colorado.  He leads by healthy margins in Iowa and New Hampshire.  He is ahead in Florida.  He's even in John McCain's Arizona.

If this is what Newt Gingrich looks like against Obama when Obama's approval rating is this bad, how ugly would this map look for Gingrich if the economy recovers or Obama's popularity recovers?

What the heck is the GOP thinking?

Saturday, December 3, 2011

Romney Needs Some Offense, Cain Exits Stage Left, A Republican President and Democratic Congress?

Defense Doesn't Work When You Are Behind
Playing it safe in a Presidential primary is a great strategy when you are sitting on a big lead and simply waiting out the clock until the actual voting begins.  Mitt Romney has been doing it basically since the start of the primaries.  Sure, he took on Rick Perry during Perry's momentary surge on immigration.  He definitely fired away at Herman Cain's 9-9-9 plan when it briefly looked like Cain might be a contender.  But he never really got down and dirty, stretching Reagan's 11th Commandment to Republicans (to not attack other members of your party), because, well, up until now he didn't have to.

From the very early contenders, one-by-one, anyone approaching being able to challenge Romney has done a good job of disqualifying himself or herself.  Trump didn't run.  Bachmann flubbed very basic facts.  Perry talked and acted downright stupidly.  Herman Cain...well, more on that later, but let's just say he made a few errors.  But the wily old former Speaker of the House Newt Gingrich?  He's made virtually no errors so far.

Sure, he consulted for Fannie Mae.  Yes, he's been twice divorced, at least once under very ugly circumstances.  But he's been teflon so far.  Conservatives like Romney because he is one of them, his views on immigration notwithstanding.  Party elites are starting to take him seriously, because he's played the game in Washington before and presumably knows how to run a campaign.  And Newt stayed above the fray in all the debates, refusing to say a negative thing about the other contenders, largely because they allowed him to get away with that and never challenged him directly.  The debates, which have been probably more critical this year than in any prior election cycle, are his home field.

Romney is still the betting favorite.  Intrade odds peg Romney's chances at the nomination at 49%, Newt's at 35% (Huntsman and Paul are at 6%, Perry at just under 3%.)  This is largely because Romney has been a steady-Eddie, always near the top of the polls, while other candidates rise and fall.  And he's been my favorite for the nomination from the get-go.

Not anymore.  For the first time, I have serious doubts about Romney's ability to win the nomination.  Before you think I'm one of those commentators that jump their predictions based on the latest polls, go back and read my writing when Bachmann, Perry and Cain had their surges.  In all 3 cases, I stated that I strongly believed that they would fade quickly and that Romney would be back on top.  But Newt is different.

First of all, we've had two debates since he surged to the lead in the national polls and, rather than start to fade, as the other short-lived leaders of the race did, Newt is actually strengthening.

Secondly,  Newt is strong in all the key early states except New Hampshire (Romney still comfortable owns that one) and could very well sweep Iowa, South Carolina and Florida by decisive margins, which would make overcoming his momentum extremely difficult.  At this writing, his poll averages in the 4 early states are +14% in Iowa, -18% in New Hampshire, +23% in South Carolina and +24% in Florida.

Third, time isn't on Romney's side this time.  We are 31 days from the Iowa Caucuses.

Romney has to do SOMETHING to go on offense and change the trajectory of the race.  And right now, he's doing all the wrong things.  He turned down a chance to debate Gingrich one-on-one this month, allowing Huntsman to steal the thunder of an event that will now undoubtedly erode Romney's support, regardless of the outcome (if Gingrich performs well, he will solidify his support, if Huntsman outperforms him, he will steal moderate votes from Romney.)  He was an absolute train wreck this past week in a one-on-one interview with Fox News anchor Bret Baier, one of the few he has given.

There is a full-field debate tonight and Romney really needs to push hard on offense to change the trajectory of the race.  If Iowa were today, Romney would be on a path to lose.

Herman Cain, We Hardly Knew You
Comedy writers everywhere shed a tear today when it was learned that Cain would likely announce today in Atlanta that he was dropping out of the Presidential race.

It will soon be forgotten that for a brief period, Cain actually led in the national polls for the nomination.

The guy who gave us 9-9-9, comically uninformed answers to questions about foreign policy and a sordid set of allegations around his dealings with women will likely soon be gone from the race, a month before the voting even started.

As I said a few weeks ago, is there any doubt left that Tim Pawlenty is kicking himself for dropping out of this race?

Throw Out All Them Bums
President Obama's approval has dropped into the low 40s and we appear to be set up for a very competitive race for President only because of an exceptionally weak GOP field.  He has some hope in the form of a slightly improving economy and the likelihood that he will face either a polarizing figure (Newt Gingrich) or a wish-washy flip-flopper (Mitt Romney) in the general.  And he will have lots of money.  He's still a very slight betting favorite to win re-election, but at this point the outcome of the Presidential race is anyone's guess.

The story that isn't making any headlines, but could loom large in the 2012 races is the anti-incumbent and therefore largely pro-Democratic sentiment with regards to House races.  Generic polling favors Democrats (by a point or two) for the first time since 2008.  The GOP has tough turf to defend, holding virtually all the swing districts.  I'm not ready to say that the Democrats have a good chance to take back the House - redistricting puts them at a disadvantage, as does the large majority the GOP currently holds, but the possibility for significant gains by the Dems next November is looking like a real possibility for the first time. 

The Senate still looks bleak for the Democrats, with a very tough map to defend.  If they could eek out holding onto a narrow majority, it would be a huge victory for them, but that would basically mean winning almost all of the swing races.

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Saturday, November 26, 2011

Forget Hillary Clinton, How to Balance the Budget by Doing Nothing

It Isn't Going to Happen
It seems that not a week goes by that some journalist or political commentator finds the need to discuss the possibility of President Obama dumping Vice President Joe Biden to put Secretary of State Hillary Clinton on the ballot as his VP candidate in 2012.

The case goes something like this - Biden is flub-prone and doesn't do a lot for the ticket.  Secretary Clinton is wildly popular, as evidenced by a myriad of polls that show her respect.  Plus, you get the bonus of having the still-beloved ex-President Bill Clinton out, more actively fighting for the ticket.

All interesting, but it isn't going to happen.  It is nearly unprecedented for a sitting President to stand for re-election with a new Vice-President.  FDR did it, but it was after two full terms in office.  Gerald Ford ran with a different guy (Bob Dole) than the sitting VP (Nelson Rockefeller), but that was an unusual administration, as neither Ford nor Rockefeller had stood for election for either office (Ford had been appointed VP by President Nixon after Spiro Agnew's resignation in 1973, Rockefeller was appointed by Ford after taking the reins from Nixon after his Watergate resignation.)  McKinley ran for re-election with a new VP (one Teddy Roosevelt) but his original VP, Garrett Hobart, had died in office. 

To find a situation where a sitting President ran for a second term with a new VP candidate when his first-term VP candidate was still alive, you have to go all the way back to Ulysses S. Grant in 1872.  Simply put, it isn't done.

And with good reason.  Vice Presidents have only a marginal impact on Presidential races - after all, can you name one race that was largely decided on the basis of the VP candidate?  And don't say 2008 - Sarah Palin isn't what sunk John McCain, a sour economy did. 

What would the upside to President Obama be?  He would look disloyal and weak.  And that big benefit that Clinton would supposedly bring to the ticket?  Can you name a single swing state he would win BECAUSE of Clinton?  Does Clinton fundamentally change the key issues or the reasons President Obama has high disapproval numbers?  And does anyone really think Clinton would be as popular as she is now if she were a candidate for public office, re-subjected to the scrutiny the press reserves for politicians? 

It isn't going to happen, Pete Dupont (the former governor of Delaware and one-time Presidential aspirant, who is the latest to purvey this theory), so let's just stop talking about it.

The Solution: Do Nothing!
Think the deficit problem is incredibly complex and that the failure of the super committee just shows how intractable our deficit problem is?  Nonesense!

Let me show you how easy it is to balance the budget.  And our politicians don't even have to do a thing.

Here's the simple math.
This year's deficit is estimated to be around $1.099 trillion.

All you have to do is the following:
1. Let the Bush tax cuts expire (all of them) - $400B per year
That's right, the Bush tax cuts (really Bush-Obama cuts at this point) cost the treasury about $400B per year.  Of this, about $100B is associated with the cuts to the top bracket, the rest associated with the cuts to the Clinton bracket.  By doing nothing, and allowing the "temporary" cuts to expire at the end of this year, the treasury will collect approximately $400B more.

2. Let the Obama tax cuts expire - $110B per year
President Obama's "temporary" reduction in Social Security taxes by 2% for this year is costing the treasury $110B, as general revenues are being used to cover the gap in the social security trust fund.  Just allow the cut to expire, and that's $110B more in the coffers.

3. Don't extend unemployment benefits beyond statutory maximum - $44B per year
Under ordinary circumstances, people get unemployment benefits for 6 months.  Since the recession started, Congress has been routinely extending those benefits for 2 full years.  Stopping this practice would trim $44B in cost from the budget.

4. Allow the Iraq war to wind down - $159B per year
The Iraq war is costing us a lot of money in both direct costs to the military and costs to the contractors.  The troops are scheduled to leave.  This should be easy spend to wind down.

5. Don't "fix" the alternative minimum tax - $120B per year
The alternative minimum tax was created to keep the very wealthy from using loopholes to reduce their tax rate too far.  The AMT amount was not indexed to inflation, but Congress routinely passes "fixes" aimed to keep the AMT focused squarely on the very wealthy.  Allowing it to not index, as current law allows, would essentially take those same loopholes away from upper-middle class taxpayers.  This yields $120B per year in savings.

6. Allow the Sequester Cuts - $120B per year
Since the deficit panel failed, the automatic "sequester" cuts of $120B per year are scheduled to kick in in about 14 months, with 50% applying to defense and 50% applying to non-entitlement domestic spending.  These cuts happen automatically, unless Congress acts to change the law.

Total savings from doing nothing: $953B per year.

Okay, I didn't totally solve the deficit - there would still be a $146B shortfall.  But $146B is a mere 1.0% of GDP, a rate at which the overall debt would decline significantly (we can expect GDP growth plus inflation to be equal about 5-6%, even using conservative estimates, meaning a 4-5% reduction in the effective debt levels.)

The approach is balanced ($323B in spending cuts and $630B in tax "increases", with all the tax increases being the expiration of "temporary" cuts.)

And all the government has to do to make it happen is nothing.

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Friday, November 18, 2011

There Will Be Blood, Why Does Every Budget Action Have to Be Such a Drama?

The Guns Turn to Newt
 Poor Mitt Romney.  Do you remember that girl or guy that you really liked in high school?  The one for whom you did sweet things.  You let her (or him) copy your homework.  You gave her a ride when she needed one.  You were always there as a shoulder to cry on.  But you were always the best friend, never the boyfriend.  She liked you, but she was always falling in love with some other guy, never appreciating what was right in front of her.

Mitt Romney was a Republican that managed to win in Massachusetts.  While there, he governed as conservatively as that blue state can be governed.  He worked across the aisle - because he had to.  He had a record of restraining spending and taxes.  He was popular, with Republicans and Democrats alike.  He left office with a strong economic record.  He's also a well-spoken, smart, good lucking (and amazingly young looking for his age) guy who was successful in business before he was successful in government.

But it appears poor Mitt can't ever close the deal to get that elusive date with the GOP girl. 

First, Donald Trump, a blow hard who was utterly unqualified in almost every way to be President led poor Mitt in the polls.  That's okay, Mitt must've thought, every girl wants to date a wild man once before she settles down with a stable guy.  Donald's time came and went quickly.

Then Rep. Michele Bachmann, straight out of the lunatic wing of the party surged ahead of him in the polls.  That's okay, Mitt must've thought, everybody wants to date a pretty face, but that girl will come back to me once she realizes she can't carry on an intelligent conversation with the congresswoman.  And leave Michele the GOP girl did.

Next, the GOP girl had a fling with Texas Governor Rick Perry.  Old Mitt must surely have thought, hey, I know that southern twang is sexy, but is she every going to notice the guy right in front of her?  I mean, this guy is an idiot once you get past his accent and hair!  Oh well, surely she'll come around to me next.

But it wasn't Mitt next.  Tired of dating politicians, the GOP girl decided she wanted a smooth talker.  You know, who'd been out in the world.  Someone who could turn a phrase and tell a joke.  Herman Cain was boyfriend number 4, right up until he sexually harassed her.  Mitt was there for the GOP girl, a shoulder to cry on.  Maybe, at long last, he'd get that date.

But it was not to be, at least not yet.  The GOP girl decided she wanted a father figure.  The wise, intelligent guy who'd been around the block.  She wanted a date with Newt Gingrich.

And Mitt waited and waited.....

Gingrich is already ahead in some national polls and only 2 points behind in New Hampshire (New Hampshire!) in one poll.  Will he fall like the last 4 challengers to Romney?  It's too early to tell.  I said to bet on Romney from day 1 and I'm still betting on him to take the nod in the end.  So are the Intrade betters, who peg Romney's chances at winning the nomination at 69%.

You see, even though Newt has been in the race since jump street, he has never really been tested.  All of the other candidates have been playing nice with Newt because, up until now, he hasn't represented a threat.  Don't count on that next Tuesday.  Romney and company will be going for the jugular and we'll have to see how Newt stands up to the pressure.  He has a checkered past, personally (some ugly divorces and infidelity), politically (remember, he was ousted from the speaker's seat in shamed disgrace) and professionally (how'd those big consulting deals with Fannie Mae go?) and we can expect to be reminded of that directly.

There will be blood....and the President is in the White House laughing about how a guy with 42% approval might be a favorite to win a second term.

Another Last Second Budget Move, Another Bipartisan Deadlock
Congress has passed another interim spending measure, attached to a so-called "minibus" appropriations bill that funds a few smaller departments (Agriculture, Transportation, HUD, Justice and Commerce) while extending funding for all other government agencies for another month, setting up yet another lovely drama for December, just before the Christmas break.  The bill is called a "minibus" because it combines several departments, but not all the departments as would be the case in an "omnibus" bill.

With this backdrop, the deficit reduction Super Committee appears deadlocked, although they may reach another magical, dramatic, 11th hour compromise (sarcasm intended.)  Even if they don't, the ominous sounding automatic cuts to discretionary and defense budgets won't even take effect until 2013, so Congress will have plenty of opportunity to change the law to avoid the cuts and kick the can down the road again.

The choices to solve the deficit are simple.  I wish everyone involved would put just 1% of their hubris aside and actually negotiate in good faith.  The GOP ISN'T going to get a deal that doesn't involve tax increases.  And the Dems AREN'T going to get all the money from the rich while not touching entitlements.  It doesn't work that way.

Where is that third party when you need it?

Wednesday, November 9, 2011

Why the CBO Won't Use GOP Growth Estimates, Red State Socialism

Do Lower Taxes Mean Higher Tax Revenues?
The idea that you can cut tax rates and gain higher revenue by increasing economic growth is not a new idea.  President John F. Kennedy argued for the reduction of top marginal rates in order to spur economic growth (albeit when top marginal rates were over 90%.)  Ronald Reagan famously fought for lower rates, to the consternation of his eventual Vice President and Successor to the Presidency, George Herbert Walker Bush, who, in perhaps the most famous political quotation of the past 30 years, called Reagan's plan "Voodoo Economics".  Economist Arthur Laffer sketched a curve on a napkin for Reagan once that showed tax revenues declining after a point when you increase rates.

I've written extensively before on this topic.  But it is becoming a burning issue today.  Congressional Republicans are attempting a very nuanced method of proposing a path to financial sustainability.  We all know that they have been in favor of significant spending cuts (other than defense spending.)  They have also opposed any tax increases.  Their latest line of argument is that they are supported increased revenue by supporting decreased taxes.  They have been bemoaning the fact that the non-partisan Congressional Budget Office (CBO) refuses to consider increased revenues as a result of increased economic growth from tax cuts.

At the extremes, the GOP hypothesis is easy to understand.  The so called Laffer curve, which shows tax revenues going up quickly when the first few taxes are instituted, then flattening out and eventually declining makes sense in that we would all agree that a 1% tax will generate more revenue than a 0% tax, since 0% will always yield no money and 1% will always yield at least some money.  Similarly, a 100% tax, I think we would all agree would crush an economy.  So the question isn't if the Laffer curve theoretically works, it is if it is meaningful in the range of taxes that we are talking about in this country.

From 1934 through today federal taxes have ranged between 4.8% of GDP (in 1934) and 20.9% of GDP (in 1944).  For most of post-World War 2, they have stayed in a relatively narrow range between 14.4% (in 1950) and 20.6% (in 2000).   Taxes right now are right at the lowest level they have been since World War 2, at 14.9% of GDP in both 2009 and 2010.

Utilizing the tax data (from the CBO) and GDP growth data (from the BEA) I went searching for a correlation.  The scatter plot of the two data series is below:

It is very hard for me to see any sort of correlation in these data, but there is a mild one.  A simple regression line shows that higher taxes do, in general lead to economic growth.  For every 1% increase in taxes as a percentage of GDP (approximately a 7% tax increase at today's rates), there is a reduction in GDP growth by about 0.6%.  This relationship explains only about 12% of the total difference between GDP growth in the years shown.

The Pre-World War 2 and World War 2 data may distort the information for a couple of reasons.  Prior to World War 2, government spending was at such a low level (keep in mind, there was no Medicare or Medicaid) and economic growth was so distorted from the great depression that the data may not be meaningful.  Similarly, World War 2 itself was a period of unprecedented and unequaled government spending which would likely distort the statistics.

If I limit the data to 1945 and beyond, the scatter plot looks as follows:
As you can see from this chart, there is no correlation in the Post-World War 2 data.  A regression line explains exactly 0% of the variation.  In other words, there is no meaningful evidence in the range that we are currently operating in that level of taxes within that range (from 14% to 21% of GDP) has any impact on economic growth whatsoever.

I'm fully prepared for a deluge of comments from the right on this chart.  I'd ask this - send me numbers not arguments.  If I'm not looking at the data correctly, I'd love to discuss it.  What I'm not interested in is partisan talking points.  The evidence, of yet, doesn't bear them out.

No wonder the CBO won't score the GOP's budget proposals with big extra growth assumptions backed in: there is no evidence it will happen.

Why the Republican States Are Socialist Republics
Okay, I'll admit it, the headline is deliberately extreme to grab your attention.  Plus, I thought conservatives would already be seeing red (no pun intended) after reading my above post on taxation that I'd just go ahead and get all the anger out of the way at once.  The issue I'm bringing to light is about how federal money gets collected and how it gets spent.

You see, the dirty little secret is that most conservative states are heavily subsidized by the federal government at the expense of most liberal states.  It isn't a deliberate conspiracy and there are many reasons.  Firstly, conservative states tend to, in general, be a lot poorer than liberal states.  Mississippi, Alabama, Arkansas, Louisiana, etc. all have very high rates of poverty and low incomes while states like California, Connecticut, New York and New Jersey tend to sport lots of high income individuals and while all have pockets of heavy poverty, it is nothing like the level seen in the deep south.  Secondly, conservative states tend to be smaller (think of all the red flyover states) and due to the structure of the Senate (two senators per state) therefore get a disproportionate share of the federal dole.  Finally, our system of agriculture subsidies tends to favor red states, since big ag tends to live in red states and receives big dollars from the government for growing crops (or not growing crops.)

For purposes of this exercise, I'm going to categorize states as "red", "blue" or "purple".  A "red" state will be a state that voted for the Republican Presidential candidate in the last 3, a "blue" state one that has voted for the Democrat in the past 3 cycles and a "purple" state one that has split its Presidential vote.

By that measure, the following 18 states are categorized as blue:
Washington, Oregon, California, Hawaii, Minnesota, Wisconsin, Michigan, Illinois, Pennsylvania, Maryland, Delaware, New Jersey, New York, Connecticut, Rhode Island, Massachusetts, Vermont and Maine

The following 22 states are categorized as red:
Alaska, Arizona, Utah, Idaho, Montana, Wyoming, North Dakota, South Dakota, Nebraska, Kansas, Oklahoma, Texas, Missouri, Arkansas, Louisiana, Mississippi, Tennessee, Alabama, Kentucky, Georgia, West Virginia and South Carolina.

The following 10 states are categorized as purple:
Nevada, Colorado, New Mexico, Iowa, Indiana, Ohio, Virginia, North Carolina, Florida, New Hampshire

There are probably some quibbles you could make with this list.  It seems weird to not have Pennsylvania on the list of purple states.  It's also odd that Indiana qualifies but Missouri (a traditional swing state does not.)  But minor questions aside, I think most would agree that in general this methodology generates a good breakdown of the country. 

The figures below use research from The Tax Foundation, which is publicly available here.

On average, for every $1 in federal taxes paid, the states receive the following benefits by category:
Red States: $1.40
Purple States: $1.10
Blue States: $0.94

The figures don't appear to average to $1 since the blue states that pay heavy taxes relative to their benefits are much larger than the small states that receive a disproportionate share of the benefits.

The most subsidized states?
New Mexico (a purple state) because of the cost of Indian reservations and systemic poverty in rural areas plus a large number of military bases and Mississippi (a red state) because of extreme poverty - they receive $2.03 and $2.02 respectively for each dollar in taxes paid.

The most subsidizing states?
New Jersey (a blue state) due to high levels of wealth and relatively few urban areas and Nevada (a purple state) due to heavy taxation on gaming revenues - they receive $0.61 and $0.65 respectively.

So if we are going to have a conversation about smaller government, let's start with a discussion about state equality.  If every state only received the level of government benefits that New Jersey and Nevada do, we could balance the budget today.

Saturday, November 5, 2011

Is Cain Imploding On Purpose?, The Big Map: Electoral College 2012

Could You Have Scripted This?
I don't know if Herman Cain has ever sexually harassed anyone.  I'm not even sure exactly what the former head of the National Restaurant Association is accused of.  Sexual harassment is a very broad charge that can mean a lot of things to a lot of people.  Is Cain accused of distasteful jokes or outright blackmail?  Where things he said or did unwise or illegal?  Nothing is clear.

Many years later, people still have arguments about Clarence Thomas and the veracity of Anita Hill's allegations.  But Anita came forward.  She faced the man she was accusing.  She was specific in her charges, faced cross-examination and made her case. The Thomas confirmation hearings may not have been any fun to the parties involved, but they had a fundamental sense of fairness.

Herman Cain's accusers have not stepped forward.  We know no specifics of the allegations against him.  There is no evidence offered, no cross examination.  It is a charge that, for lack of some kind of evidence, or at least a live witness or two, probably shouldn't bear on our decision-making in the Presidential election.

Except that we live in the real world.  In the real world, in a Republican primary, being charged with sexual harassment could make you look very beatable, especially by a formidable machine like the Obama campaign.  And in the real world, you aren't strictly innocent until proven guilty, once a charge has been made, however thin the evidence, you have to respond.

And except for that fact that Herman Cain seems to be doing everything in his power to inflict maximum damage on his campaign from this charge.  He has bungled things at every turn.  He has not been forthcoming with the facts (that he was accused at one point and that the charges were settled.)  He has claimed memory lapses (would you FORGET having settled a law suit about sexual harassment?)  He has given contradictory accounts.  It is vintage Herman Cain (see abortion, see border fences, etc.), except that none of this is cute or endearing when you are charged with something serious.

It makes me wonder if Cain is looking for a way out.  He was supposed to make a few points, land a few speaking gigs and have the ear of the American people for a time.  In his wildest dreams, maybe he'd land a gig at Fox News.  He wasn't supposed to WIN.  I don't think Cain want to be President, perhaps never did.  Maybe this is his way out.

Will all of this cause the troops to rally around Romney?  Probably not -- the Tea Party just can't stand the guy and some mainstream Republicans are starting to find his constant flip-flopping annoying at best and revealing of a lack of character at worst.  But Romney is still what they are going to get.  Perry continues to look less and less attractive the more he talks.  There has been talk of a "Newt rally" but it is stalled around 12% and he comes with all kinds of baggage and not much likability.  Ron Paul is way outside the GOP mainstream.  The other candidates are struggling to stay even in the low single digits.  It's going to be Mitt.  Don't say I didn't tell you so.

The Big Map
If it is Romney, then we have an interesting race on our hands.  National polling is close, but the state-by-state battles are fascinating.  If it's anyone other than Romney, just color the grey states blue right now.  But in Romney vs. Obama, it is a broad battleground, mostly among states that Obama won in 2008.

The map below was created with the help of, which is a great site that has a lot of electoral college information on it.

So, we can see that there are 190 electoral votes at this point that are reasonably firmly in the Obama column and 169 that are reasonably firmly in the Romney column with 179 electoral votes up for grabs.  Note that all the swing states listed are states Obama carried in his victory in 2008, except for Arizona, which is looking closer this time since one John McCain is not on the ballot.

Let's examine these swing states one-by-one.  Note that my "advantage" is often the current leader in the polls, but not always, as I consider history and trend as well.

Florida - 29 Electoral Votes
Voting History: Last 5 elections - 2 Democratic, 3 GOP (voted for Bush in '92, winners otherwise)
Vote Versus National Vote in 2008: +4.4% Republican
Trending: Republican (slightly)
Current polling: Pick 'Em
Advantage: Romney, but weakly

Pennsylvaina - 20 Electoral Votes
Voting History: Last 5 elections Democratic (voted for Gore, Kerry and 3 winners)
Vote Versus National Vote in 2008: +2.5% Democratic
Trending: Republican (slightly)
Current polling: Obama up by an average of +5%
Advantage: Obama, fairly strongly

Ohio - 18 Electoral Votes
Voting History: Last 5 elections - 3 Democratic, 2 GOP (voted for winner every time)
Vote Versus National Vote in 2008: +2.6% Republican
Trending: Republican (slightly)
Current polling: Obama up by an average of +4%
Advantage: Obama, but weakly

Michigan - 16 Electoral Votes
Voting History: Last 5 elections Democratic (voted for Gore, Kerry and 3 winners)
Vote Versus National Vote in 2008: +9.3% Democratic
Trending: Democratic (strongly)
Current polling: Obama up by an average of +6%
Advantage: Obama, strongly

North Carolina - 15 Electoral Votes
Voting History: Last 5 elections - 4 Republicans, 1 Democrat (voted for Bush in '92, Dole and 3 winners)
Vote Versus National Vote in 2008: +6.9% Republican
Trending: Democratic (moderately)
Current Polling: Romney up by an average of +1%
Advantage: Romney, but weakly

Virginia - 13 Electoral Votes
Voting History: Last 5 elections - 4 Republicans, 1 Democrat (voted for Bush in '92, Dole and 3 winners)
Vote Versus National Vote in 2008: +0.9% Republican
Trending: Democratic (strongly)
Current Polling: Romney by average of +2%
Advantage: Romney, but weakly

Indiana - 11 Electoral Votes
Voting History: Last 5 elections - 4 Republicans, 1 Democrat (voted for Bush in '92, Dole and 3 winners)
Vote Versus National Vote in 2008: +6.2% Republican
Trending: Democratic (strongly)
Current Polling: None available
Advantage: Romney, moderately

Arizona - 11 Electoral Votes
Voting History: Last 5 elections - 4 Republicans, 1 Democrat (voted for Bush in '92, McCain and 3 winners)
Vote Versus National Vote in 2008: +15.7% Republican
Trending: Unclear due to McCain's presence on 2008 ticket
Current Polling: Obama by an average of 5%
Advantage: Romney, but weakly

Wisconsin - 10 Electoral Votes
Voting History: Last 5 elections - 5 Democrats (voted for Gore, Kerry and 3 winners)
Vote Versus National Vote in 2008: +6.7% Democratic
Trending: Democratic (moderately)
Current Polling: Obama by an average of 6%
Advantage: Obama, moderately

Minnesota - 10 Electoral Votes
Voting History: Last 5 elections - 5 Democrats (voted for Gore, Kerry and 3 winners)
Vote Versus National Vote in 2008: +3.0% Democratic
Trending: Republican (moderately)
Current Polling: None available
Advantage: Obama, but weakly

Colorado - 9 Electoral Votes
Voting History: Last 5 elections - 2 Democrats, 3 Republicans (voted for Dole in '96 and 4 winners)
Vote Versus National Vote in 2008: +1.7% Democratic
Trending: Democratic (moderately)
Current Polling: None available
Advantage: Obama, but weakly

Iowa - 6 Electoral Votes
Voting History: Last 5 elections - 4 Democrats, 1 Republican (voted for Gore and 4 winners)
Vote Versus National Vote in 2008: +2.3% Democratic
Trending: Flat
Current Polling: Obama by an average of 3%
Advantage: Obama, but weakly

Nevada - 6 Electoral Votes
Voting History: 3 Democrats, 2 Republicans (voted for winner every time)
Vote Versus National Vote in 2008: +5.3% Democratic
Trending: Democratic (moderately)
Current Polling: Pick 'Em
Advantage: Obama, but weakly

New Mexico - 5 Electoral Votes
Voting History: 4 Democrats, 1 Republican (voted for Gore and 4 winners)
Vote Versus National Vote in 2008: +7.9% Democratic
Trending: Democratic (moderately)
Current Polling: None available
Advantage: Obama, but weakly

All of this would give Obama, very hypothetically a win in the electoral college of 290-248.

If you flip all the "weak" Obama states to Romney, Romney wins 293-245.

If you flip all the "weak" Romney states to Obama, Obama wins 358-180.

Bear in mind, it is WAY early...Romney hasn't even competed in his first primary as of yet.  And there are signs out there that there may be swing states in New England that I'm not even considering - New Hampshire could be in play as the most moderate state near where Romney is from, so theoretically could be other states in the region.  These changes could change the whole composition of the map.

But, very early on, I think we can say that we already have a horse race.  Unless the GOP nominates someone else.

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Thursday, October 27, 2011

The Wholly Ridiculous Perry Tax Plan, Did Tim Pawlenty Bow Out Too Soon?, Deficit Plan PR Wars

A Very, Very Bad Plan
There are some things to love about the concept of a flat tax.  Our current income tax system is overly complicated, causing a huge cost of enforcement, large scale fraud (or at least graying of the tax law) and places an efficient time and financial burden on tax payers.  A true flat tax, that eliminated all the itemized deductions and at least carved out an exemption for the first $20K or $30K of income (so we aren't taxing working class people into poverty) would probably be preferable to our current system, particularly if it was structured to encompass existing payroll taxes.  It has the drawback of, on face, making the system less progressive, but the reality is that our existing code really is regressive in many cases, because of the myriad of tax credits and deductions that distort the stated rates.  Besides, by exempting, say, the first $30K in income and setting a tax rate of say, 20%, the progressive nature of the code would be preferred, since a wage earner of $30K would pay an effective rate of 0%, an earner making $60K would pay an effective rate of  10% and an earner making $150K would pay an effective rate of 16% and so on.

So shouldn't I love Rick Perry's plan that applies a flat tax of 20% and exempts the first $12,500 in income for individuals?  Absolutely not.  Perry's plan combines all of the worst drawbacks of a flat tax while gaining none of the advantages.  His plan lets taxpayers CHOOSE between the existing system and his new system.  This means that all of the loopholes and carve outs stay for those who benefit them.  It doesn't get rid of the cost of enforcement, since any number of taxpayers may continue to pay under the old system, if it benefits them.  It doesn't reduce the burden on taxpayers for preparing their returns, since you would need to do your taxes both ways in order to determine which one was more beneficial.  Even in the "flat tax" option, it leaves carve outs to deduct state income taxes, charitable deductions and home mortgage interest. 

Worst of all, it would amount to a massive decrease in federal revenue.  How can I be so sure?  Think about it.  If I have an option between the old system and Perry's new system, which system would I choose?  The answer, of course, is the one under which I pay less taxes.  There would be no taxpayers that would pay more...and many who would pay less (those who would owe less under Perry's new system.)  It's simple math that you can't have no one pay more and lots of people pay less and not collect a lot less.

Worse still, Perry eliminates taxes on capital gains and dividends, meaning he is effectively not taxing the investing class and relying entirely on taxes on wages.  This makes the system massively more regressive than our existing system.

This is a far inferior system to Herman Cain's 9/9/9 plan, although that has flaws too, which I have previously discussed.  It is completely unserious.  He has absolutely zero in specific budget cuts to offset the revenue, instead only a broad statement that he wants to get federal spending down to 18% of GDP.  Even if that were possible without either massive cuts to military spending or serious changes to entitlement programs (one of those two would be necessary), to get to a balanced budget at 18% of GDP, we'd need Clinton-era tax levels, not rates even lower than the ones today.

It's fine to believe in lower taxes.  But lower taxes should be a byproduct of lower spending.  So if you want to cut taxes by slashing Social Security, Medicare or Defense, then say so.  There is no free ride.

Shame on the conservative blogosphere for embracing Perry's plan.  A flat tax debate would be a great debate to have in this country.  But let's debate a real plan, not a PR gimmick.

I probably shouldn't waste much more digital ink on Perry.  Between this and his ridiculous identification with birthers this week, I think he is pretty well done as a national candidate.  Frankly, I think GOP primary voters were done with him even earlier.

Where is Tim Pawlenty When You Need Him?
75% of the GOP seems to want someone other than Mitt Romney to be the nominee, judging by his stuck-in-neutral poll numbers.  Perry has effectively flamed out.  Michele Bachmann's brief surge is a distant memory.  Herman Cain looks unready for the national stage on many levels.

If he were still in the race, wouldn't Tim Pawlenty seem like a logical guy to go to?  Sure, he once supported Cap and Trade.  But his conservative bona fides are a heck of a lot better than Romney's and Pawlenty has the credibility of a successful governor.  Does anyone else think he would be a player if he hadn't dropped out so early?

A Tax Increase by Any Other Name...
The PR leaks around the deficit reduction super committee's work are coming fast and furious (perhaps a bad term to use after watching Janet Napolitano get grilled this week over the botched operation by that name.)  First, the Democrats leak that they had proposed a $3 trillion deal that included significant entitlement cuts but also significant tax increases.  Now the GOP leaks a $2 trillion counter proposal that contains a lot of the same cuts, but no tax increases, although it has some enhanced revenues from increased federal fees.

At least they are talking and passing specific proposals back and forth, but it seems like we are at the same log jam - the GOP simply won't accept higher taxes, no matter what.

How about some creative solutions to get to a solution that both sides can stomache?

How about a proposal that tax the cuts, doesn't raise taxes now, but includes a poison pill that would have tax increases kick in in 2013 or 2014 if the deficit isn't brought down to x% of GDP by those years?  The GOP still controls the House, so they could argue that they aren't really voting for a tax increase since they won't let spending drive deficits that high.  And Democrats could claim victory in that they kept tax increases on the table but just pushed them out to later to help the weak economy.

Some type of creative compromise will be necessary to get something on the table that can pass.  We'll see if the super committee is up to the task.

Saturday, October 22, 2011

Fireworks in the Desert -- Does It Matter That Only Romney is Credible?, Another Dictator Dead

The GOP Clash Demonstrates One Thing: There Are Very Few Serious Candidates
The saying in political circles these days is that Herman Cain peaked one hour before the start of the CNN Republican debate this past weekend.  Clearly, Cain did not give a great account of himself.  He managed to make, what is ostensibly a very simple tax plan (9% income tax, 9% corporate tax, 9% national sales tax) into a very confusing topic for the viewer and drew fire from all sides at the start of the debate.  Some of the criticism was, frankly, odd for a Republican forum.  Michele Bachmann criticized the plan as being to regressive: she is right, but this is the first time that I've heard the Tea Party advocate argue the virtues of a progressive tax system.  Romney criticized it as double taxation, pointing out that Nevada residents would have to pay their own state sales tax in addition to the national tax.  He is also right, but his point is sort of beside the point.  We pay multiple taxes at almost every level now.  Income is taxed with SSI taxes and income taxes at both the federal and state level.  We already have federal taxes on things like gasoline, alcohol, tobacco and firearms that are in addition to state-level sales taxes.

I was on one level very surprised to see the GOP candidates so roundly dismiss what is a pretty GOP idea -- a flatter tax code and a shift away from income-based taxes to consumption-based taxes.  I guess everyone shoots for the front-runner of the week.

Cain did himself absolutely no favors in the debate, mumbling on about Apples and Oranges, rather than focusing the debate on the simplicity of his plan and the complexity of the existing plan.  He also was completely backed into a corner, trying to continue to argue that this plan won't make taxes go up on lower-income Americans, when it is obvious on face that it will (a point Rick Santorum and Rick Perry made at great length.)  Of course, Rick Perry is now turning around and promotion a flat income tax designed to "broaden the tax base", which is exactly the same thing, but never we mind that.

Just when it looked like Cain was going to be completely cooked and roasted, Romney and Perry turned on each other in a series of exchanges that, in a less civil day, might have ended in a fist fight.  Perry accused Romney of hiring illegal immigrants (he hired a landscaping company which employed illegals, hardly a first) and Romney fumbled completely by stating that of course he asked the lawn company to fire them since he was running for public office, seemingly implying that he wouldn't have cared otherwise.  Perry kept pointing his finger at Romney.  Romney kept chiding Perry for interrupting him, even begging moderator Anderson Cooper to intervene at one point. 

In total, it was the worst showing for the GOP field as they looked like a bunch of bickering school children.  Romney clearly had his worst performance, losing his cool in a way I had not seen in previous debates.  Cain looked like an utterly unserious front-runner.  Perry looked like a guy who has lost all momentum and is just trying to gin up controversy to keep himself relevant.  If there was a winner, it was Newt Gingrich, whose professorial, intelligent responses played a lot better against this backdrop than they had in previous debates.

In spite of Romney's poor performance, it is abundantly clear to me that he is the only credible candidate in the field.

Cain?  If the anchor to your campaign is a tax plan and you can't explain it, you are in big trouble.  People might forgive some of the downright ignorant things Cain has said on foreign policy, his utterly confusing responses to questions about social issues and his borderline racist comments about Muslims if he was rock solid on economic policy.  But Cain would be a train wreck in a general election campaign.

Perry?  The more that even Republican hear him speak, the less they like him.  Does anyone really think this is the guy to bring down Barack Obama?

Gingrich?  He WOULD be credible -- if he didn't carry so much baggage.  He's a smart guy and a great debater.  He explains his positions in a clear, well thought out manner.  But if he ever became a serious threat in the polls, his sketchy personal past and long history in Washington would be a club over the head of his poll numbers.

Bachmann?  Please.  Crazy doesn't win general elections.

Santorum?  If the lynchpin of your campaign is that you've won in a swing state and the reason you aren't in office is that you lost re-election in that swing state by 18%, you aren't starting in a great place.  Besides, he comes off horribly bitter.  Nobody takes him seriously.

Paul?  His loyalists love him, but the day the GOP nominates an anti-war, pro-drug and prostitution legalization, pro-gay marriage (sort of) libertarian, I'm investing in snow plow dealerships in hell.

Huntsman?  Is he still running?  Regrettably, Jon Huntsman is a very serious and well qualified candidate.  He just can't get the GOP to pay attention to him.

All of which leaves Romney as the guy with the most credibility.

The key question is whether that will matter to the GOP in this nomination cycle.  It didn't matter when they nominated Christine O'Donnell in Delaware, Joe Miller in Alaska and Sharon Angle in Nevada in 2010.  Do they want to win or do they want a Tea Party loyalist?  We shall see.

Qaddafi Dead
The death of Libyan Dictator Muammar Qaddafi (or Gaddafi if you like that spelling) is good news to the world.  Qaddafi was an awful dictator, hated by his people and well known for making crazy and offensive UN speeches that delegates would walk out of.

You can criticize President Obama at great length on many domestic topics, but to the surprise of many, he has been a rock-solid leader on foreign policy.

The GOP can say all they want that he bows too much or isn't strong enough, but the facts tell a different story.

Osama Bin Laden is dead.  So are scores of Taliban and Al Qaeda leadership.
Muammar Qaddafi is dead.
The Iraq War is essentially over with the last US troops leaving in the next couple of months.
Our position in Afghanistan is strengthened (albeit we still need an exit strategy.)
We have a new, comprehensive, nuclear weapons reduction treaty.
We have new free trade deals spanning the globe.

Did President Bush have 1/10th this amount of accomplishment in 8 years?

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Sunday, October 16, 2011

Cain Ahead in the Polls but Romney Way Ahead in the Betting, The Meaning of 9-9-9

Who Exactly is the Favorite?
Frequent readers to this space can't exactly be surprised by the Jupiter-gravity speed fall of Texas Governor Rick Perry from frontrunner to near afterthought in the GOP race.  After all, I'd been warning you for weeks: Rick Perry is this year's Fred Thompson, Rick Perry is a great concept for the GOP but a horrible candidate, Rick Perry is not ready for prime time.  Certainly none of this stopped the talking heads from immediately appointing Perry the guy to beat as soon as he led in the polls.  But they stopped talking about him just as fast as his numbers crashed, instead focusing on the new guy at the top in national polling: former Godfather's Pizza CEO Herman Cain.

Cain is ahead in the national polls modestly and leads in several early states.  The primary and caucus calendar is a dynamic thing, thanks to Florida's decision to go early, but ultimately it should settle down to the first 5 races still being Iowa, New Hampshire, Nevada, South Carolina and then Florida.  The "early 4" will do whatever it takes to move their debts to preserve their early status and will all therefore set calendar dates earlier than Florida's accelerated January 31st date.  South Carolina has already moved its date up to January 21st, Nevada to January 14th.  Iowa and New Hampshire have not yet set their dates, but the mostly likely dates are for Iowa to go January 3rd and New Hampshire to go January 7th, although there is some possibility that New Hampshire will attempt to go in December, as they are extremely unhappy with the notion of having only a four-day gap between Iowa and them.

These states all have different dynamics.  Iowa and Nevada are caucuses, which require participants to donate money, invest significant time and openly declare their support for candidates - in other words, these are events that only the most devoted party members participate in.  New Hampshire, South Carolina and Florida are primaries, which, at a minimum, allow open access to any member of the party that wishes to participate and require only the few minutes it takes to go cast a vote.  Add to this the further wrinkle of primary rules - New Hampshire has what is known as a "semi-closed" primary - Republicans and Independents can participate in the GOP primary but Democrats cannot.  South Carolina has an "open" primary, meaning anyone of any party can participate in its GOP primary (they cannot participate in both primaries, but that is largely irrelevant this year as President Obama faces no real opposition for the Democratic nod.)  Florida has a "closed" primary - only registered members of the GOP can participate.

So, with 4 different kinds of elections in the offing in the first 5 contests, polling gets extremely tough.  Caucuses are notoriously hard to poll for and open primaries are generally harder to get a read on than closed primaries.  All of that said, let's assess the latest polling numbers both nationally and in the likely first 5 states:

Latest Average of Averages for National Polls:
Romney - 20.5%, Cain - 19.2%, Perry - 13.7%, Paul - 8.6%, Gingrich - 7.6%, Bachmann - 4.8%, Santorum - 1.9%, Huntsman - 1.6%

While Romney still leads marginally over Cain nationally, all the dynamics would seem to favor Cain.  Perry has been in decline and his support, almost vote-for-vote, has been going to Cain.  Paul has been a relatively constant at that level, with a small, but very loyal demographic backing his libertarian views.  Gingrich has been on the rise, mostly at the expense of the other minor candidates.  The other candidates don't have enough support to be worth taking, but to the extent that they fade, it is likely that Bachmann and Santorum's supporters would go to Cain, while Huntsman's would go to Romney, based on their ideologies.

So, for now, call it basically a wash between Romney and Cain, with Cain gaining and Romney relatively constant (he's been in the low 20s virtually the whole election cycle.)

Averages by State:
Iowa (only 1 recent polls): Romney 26%, Cain 20%, Paul 12%, Perry 11%, Bachmann 11%, Gingrich 5%, Santorum 5%, Huntsman 1%

New Hampshire (3 recent polls): Romney 40%, Cain 15%, Paul 12%, Huntsman 6%, Perry 5%, Gingrich 4%, Bachmann 3%, Santorum 1%

Nevada (no recent polls)

South Carolina (no recent polls)

Florida (no recent polls)

So, as things stand now, Romney would be poised to take the first two contests, which would give him considerable momentum going into the next 3.  Cain is live in Iowa, but Romney appears to be a lock in New Hampshire, which neighbors his home states of Massachusetts. 

You would think Nevada is fairly neutral ground (a moderate state but a caucus structure), South Carolina would heavily favor Cain (or anyone else polling well against Romney, being a conservative electorate) and Florida would be a fairly neutral state (classic large-state swing contest.)

So to have the momentum to mount a serious charge, anybody other than Romney (for now, we'll say Cain) needs to win in Iowa.  Expect the next couple of months leading up to the caucus to be fast and furious in that regard.

While on face, Romney is the favorite, the betting odds might surprise some.  Here are the latest odds from our friends at Intrade:
Romney to win nomination: 68.5%
Perry to win nomination: 12.4%
Cain to win nomination: 8.9%
Someone else to win:10.2%

How can Mitt Romney be such an overwhelming betting favorite when he is only a marginal leader in the polls?  And how can Perry be ahead of Cain when all the numbers look like he's sunk?

The answer is pretty simple.  One is that nobody buys the Cain phenomenon yet as a lasting trend.  Donald Trump led the GOP field in the polls at one time.  Then it was Michelle Bachmann.  Then Rick Perry.  Now Herman Cain is on the verge of it.  Through it all, Mitt Romney has plodded along with his 20-25% support.  It's starting to look like the GOP is going to date a lot of super models but marry the girl next door (note: this analogy has nothing to do with the good looks of the candidates for those who may not be able to connect the dots.)

I've been predicting Romney to get the nod from the get go.  Seems like the smart money is coming around to that.

Since Cain is, at least for the moment, polling strongly in the GOP race, it is worth spending a little bit of time discussing his cornerstone proposal, a fundamental change in the tax code that he has been touting as his "9-9-9 plan". 

Before I dissect the plan, let me give Cain credit.  I'm not a fan of the 9-9-9 plan in a lot of ways.  But at least Cain has proposed something meaningful.  Can you tell me the tax plan of Mitt Romney or Rick Perry?  That's because they don't have one.  So, while I don't agree, I appreciate that Cain is actually contributing to the dialogue rather than just spouting platitudes about not raising taxes.

9-9-9, at its essence, is a replacement of most of our existing taxes: corporate, individual income and payroll with a 9% tax on corporate profits, a 9% tax on individual incomes and a 9% sales tax.

Let me start by providing context to the discussion.  There are two important decisions to be made relative to taxation.  The first is HOW MUCH the government should collect in taxes.  This should (but often isn't) be related to how much you want the government to spend.  In other words, how many bills do I need to pay and therefore what do I need to collect in taxes?  The second decision in a tax code is WHO should pay the taxes and in what proportion.

Cain has stated that his plan was designed to be initially neutral to what the current tax code collects.  I am unable to independently verify that claim, but not able to disprove it either.  You see, it's such a fundamental change in the method of collection (the addition of a national sales tax, a major change in the corporate tax structure) that I simply lack adequate data and study at this point to verify whether it is revenue neutral or not.  So, for purposes of this debate, let's assume that it is, or, if it isn't that Cain would adjust it to be a 10-10-10 plan or an 8-8-8 plan to compensate.

On the issue of who pays, there is some good but a lot of bad.

In our current tax code, the people that pay are the upper-middle class.  The most heavily taxed money is income that is between $85K and $106K.  This income is subject to a federal rate of 28% plus an effective payroll tax of about 15% (considering both the employer and employee share, which you have to, since they both, in essence, come out of the employee's pocket), for a combined rate of about 43%.  This is higher than the 39.6% effective rate paid on very high incomes (over $383K). 

Also paying are US-centered businesses that are in non-capital intensive industries - think software companies and small retailers.  They pay an effective rate of 35%.

The people who don't pay much are:
The working and lower middle classes with children - 47% of the population is able to avoid all income tax through exemptions and deductions and therefore pay only an effective payroll tax of around 15%.

Investors and the non-working rich - capital gains and dividend income is taxed at only 15%.

Businesses that have foreign operations, qualify for energy-efficient tax credits or have heavy capital needs that they can leverage accelerated depreciation - GE famously paid no federal taxes last year and they are not alone.  By shoveling profits to foreign affiliates, taking advantage of accelerated depreciation laws and getting givebacks from the government for investing in green energy, many companies can reduce their effective tax burden to close to zero.

This doesn't seem like a great system in total.  Under Cain's system, the people who would pay most heavily would be:
The working class and the lower-middle class - those who effectively live "paycheck to paycheck" and spend all of their income would be hit fully with both the income and the sales tax and pay an effective rate of 18%. 

Who would be hit the least?  The investing class and corporations, who would pay a mere 9%.

It doesn't seem like a good system to me.  And it isn't because I'm opposed to a less nuanced tax structure.

I'd propose instead, that a better system would be to ditch the sales tax (which is regressive in that it hits the poor a lot harder) and exempt the first $30K per year in individual income from taxation (you shouldn't be taxing people into poverty.)  Beyond that, I'd be fine with a flat tax rate with no deductions (no home mortgage deduction, no charitable contribution deduction, etc.)  I'd treat all investment income (capital gains, dividends, etc.) the same as any other income and nix the corporate tax.  This way, you'd eliminate all the balance sheet and income statement gain playing and tax the money at receipt.  In reality, the rates would likely have to be a lot higher than Cain's 9%, under a system such as mine, the likely rate would need to be 20% or so, but that would beat the heck out of having some pay 43% and some pay nothing.

Tax reform is a debate we have been putting off way too long.  I thank Herman Cain for getting us started even if I don't like his plan.

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