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.
Thursday, October 27, 2011
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?
If you like this site, tell your friends.
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?
If you like this site, tell your friends.
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.
9-9-9
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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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.
9-9-9
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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Sunday, October 9, 2011
The Left-Wing Tea Party?, If He's So Unpopular Then Why Is He Winning?
Occupy Wall Street: Populism Abounds
For three weeks now, left-wing protestors, seemingly without a unifying cause other than anger at corporate greed have been demonstrating in New York at Wall Street. Their causes and complaints are varied, but can best be summarized as populist. They complain about the bank bailouts and crony capitalism. They seek higher (much, much higher) minimum wages, free college education for all and other benefits for the working and middle class.
Similar to origins of the Tea Party, this movement is fueled out of anger by people who don't feel like they've gotten a fair shake out of our economic system. But, obviously these protestors have a different cause than the Tea Party. Where the Tea Party has sought to minimize the size and scope of government, these protestors seek to expand it: more regulation of large businesses, more rights for workers. It is a classic populist revolt.
As of yet, very few on the political left have taken up the banner of Occupy Wall Street, although the unions are openly supporting them. But the right has certainly been taking aim. Presidential Candidate Herman Cain criticized the movement and made the incredible statement that if you aren't rich in this country, that it's your own fault for not working harder and achieving more (quite a bold statement in this economy.)
So what does this all mean? It's too early to tell. The movement, like so many other protest movements could become an entertaining but largely irrelevant distraction (I'm reminded somewhat of the protests that follow the G20 around the world.) It could become the "Tea Party of the left", a populist uprising that wreaks havoc on moderate members of the Democratic Party (I still contend that the Tea Party has hampered GOP success, not enhanced it.)
The larger lesson here can be assessed through the intersection of the Tea Party and the Occupy Wall Street protests. These protesters come from different worlds and have very different solutions to what ails the country. But the root of the protests are the same. First, crony capitalism and most specifically, the bank bailouts are a common root of their anger. It's interesting that activists from the right and the left are both energized about the same issue - money flowing from the government to large corporations - and for largely the same reasons. Secondly, the general economic malaise is breeding both movements. They have different solves, but both are mad about persistent unemployment and a lack of opportunity.
The problem for Occupy Wall Street is that unlike the Tea Party, they don't have a national platform next year. The Tea Party can influence, to some degree, the GOP nominee. President Obama has no real challenger for the Democratic nod, so disaffected liberals don't have a real choice unless a third party candidate emerges, and if one did, they would have to realize that supporting him or her would simply play into the hands of a GOP that they are at even greater odds with.
How Can President Obama Still Be Up in the Polls?
It's been a couple months since I've updated the President's polling numbers - I will provide a full update soon, but looking at his tracking numbers, his approve minus disapprove has slid further - into the -8% to -10% range. This would ordinarily imply, as re-election campaigns tend to be about the incumbent, a popular vote percentage in the range of 45-46%, which is similar to the amount that would be projected by current economic statistics.
So why is President Obama polling better than that?
He is basically dead even with Mitt Romney in national heads up match-ups (up in some polls, down in others.) He leads the rest of the field by healthy, but not overwhelming margins (around +5% against Perry, more than that against the rest of the field.)
I think there are a few reasons for it, some that GOP candidates can overcome in the months to come and some that are a bit of an intrinsic advantage to Obama.
(1) People Don't Like the GOP Field
There is a reason that Republicans keep trying to recruit new candidates (see Chris Christie.) They know that the public isn't enamored with the current crop. Romney is certainly the most acceptable general election candidate (as the polls above reflect), but even he tracks behind where he should. This is in part because in a GOP primary, the candidates (except Jon Huntsman) have all taken a hard turn right. If the GOP contest is settled early (and by the calendar, it certainly seems that it will), then they may have an opportunity to track back to the center and gain some traction. This will be most easy if the nominee is Romney.
(2) People Like Obama Personally
Don't underestimate the importance of personality on the race. While Obama's policies have become increasingly unpopular, he is still a popular figure. A good family man who speaks in a way that seems hip and relevant and at times even cool, Obama has the potential to outperform. The GOP can't and probably shouldn't do much to tarnish that image (it would likely backfire), but they can build up the personal bonafides of their own candidates. In this case, Romney is not the best guy, since he's a blue blood private equity guy. Herman Cain's self-made man story sells a whole lot better.
(3) Some of the Anger is from the Left
The Occupy Wall Street protests above highlight an important fact - part of President Obama's unpopularity is derived from the right (see the Tea Party), some from the center (who are just mad we are broke and the economy stinks) but some is clearly from the left. This group isn't going to back a GOP candidate, the best a Republican can hope for is that they are mad enough to stay home.
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For three weeks now, left-wing protestors, seemingly without a unifying cause other than anger at corporate greed have been demonstrating in New York at Wall Street. Their causes and complaints are varied, but can best be summarized as populist. They complain about the bank bailouts and crony capitalism. They seek higher (much, much higher) minimum wages, free college education for all and other benefits for the working and middle class.
Similar to origins of the Tea Party, this movement is fueled out of anger by people who don't feel like they've gotten a fair shake out of our economic system. But, obviously these protestors have a different cause than the Tea Party. Where the Tea Party has sought to minimize the size and scope of government, these protestors seek to expand it: more regulation of large businesses, more rights for workers. It is a classic populist revolt.
As of yet, very few on the political left have taken up the banner of Occupy Wall Street, although the unions are openly supporting them. But the right has certainly been taking aim. Presidential Candidate Herman Cain criticized the movement and made the incredible statement that if you aren't rich in this country, that it's your own fault for not working harder and achieving more (quite a bold statement in this economy.)
So what does this all mean? It's too early to tell. The movement, like so many other protest movements could become an entertaining but largely irrelevant distraction (I'm reminded somewhat of the protests that follow the G20 around the world.) It could become the "Tea Party of the left", a populist uprising that wreaks havoc on moderate members of the Democratic Party (I still contend that the Tea Party has hampered GOP success, not enhanced it.)
The larger lesson here can be assessed through the intersection of the Tea Party and the Occupy Wall Street protests. These protesters come from different worlds and have very different solutions to what ails the country. But the root of the protests are the same. First, crony capitalism and most specifically, the bank bailouts are a common root of their anger. It's interesting that activists from the right and the left are both energized about the same issue - money flowing from the government to large corporations - and for largely the same reasons. Secondly, the general economic malaise is breeding both movements. They have different solves, but both are mad about persistent unemployment and a lack of opportunity.
The problem for Occupy Wall Street is that unlike the Tea Party, they don't have a national platform next year. The Tea Party can influence, to some degree, the GOP nominee. President Obama has no real challenger for the Democratic nod, so disaffected liberals don't have a real choice unless a third party candidate emerges, and if one did, they would have to realize that supporting him or her would simply play into the hands of a GOP that they are at even greater odds with.
How Can President Obama Still Be Up in the Polls?
It's been a couple months since I've updated the President's polling numbers - I will provide a full update soon, but looking at his tracking numbers, his approve minus disapprove has slid further - into the -8% to -10% range. This would ordinarily imply, as re-election campaigns tend to be about the incumbent, a popular vote percentage in the range of 45-46%, which is similar to the amount that would be projected by current economic statistics.
So why is President Obama polling better than that?
He is basically dead even with Mitt Romney in national heads up match-ups (up in some polls, down in others.) He leads the rest of the field by healthy, but not overwhelming margins (around +5% against Perry, more than that against the rest of the field.)
I think there are a few reasons for it, some that GOP candidates can overcome in the months to come and some that are a bit of an intrinsic advantage to Obama.
(1) People Don't Like the GOP Field
There is a reason that Republicans keep trying to recruit new candidates (see Chris Christie.) They know that the public isn't enamored with the current crop. Romney is certainly the most acceptable general election candidate (as the polls above reflect), but even he tracks behind where he should. This is in part because in a GOP primary, the candidates (except Jon Huntsman) have all taken a hard turn right. If the GOP contest is settled early (and by the calendar, it certainly seems that it will), then they may have an opportunity to track back to the center and gain some traction. This will be most easy if the nominee is Romney.
(2) People Like Obama Personally
Don't underestimate the importance of personality on the race. While Obama's policies have become increasingly unpopular, he is still a popular figure. A good family man who speaks in a way that seems hip and relevant and at times even cool, Obama has the potential to outperform. The GOP can't and probably shouldn't do much to tarnish that image (it would likely backfire), but they can build up the personal bonafides of their own candidates. In this case, Romney is not the best guy, since he's a blue blood private equity guy. Herman Cain's self-made man story sells a whole lot better.
(3) Some of the Anger is from the Left
The Occupy Wall Street protests above highlight an important fact - part of President Obama's unpopularity is derived from the right (see the Tea Party), some from the center (who are just mad we are broke and the economy stinks) but some is clearly from the left. This group isn't going to back a GOP candidate, the best a Republican can hope for is that they are mad enough to stay home.
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Sunday, October 2, 2011
Florida Does It Again, Obama's Income Problem, Of Light Bulbs and American Manufacturing
Why Can't Florida Just Behave? Maybe It Shouldn't.
Our process for nominating candidates for President is one of the oddest features of our Democracy. This is, in part, because of traditions which seem to run contrary to common sense and, in part, because the parties have struggled to decide what exactly they want the nomination to be: either a process by which the party faithful select a candidate that best represents their views or a more democratic (small d) process by which voters pick the best candidate to win a general election.
Presidents are nominated by convention delegates. In the Republican party, delegates are all selected by either caucuses - processes for the party faithful in which people must publicly declare the candidate support and primary elections, processes open to either registered Republicans or all voters (depending on the state), in which the choices are made privately. Democrats add the additional layer of complexity of "Super Delegates", elected members of the party faithful.
Even the details are confusing. Territories that have no representation in the general election such as Guam and Puerto Rico, get to select convention delegates. On the GOP side, some primaries are winner-take-all, similar to the electoral college in the general election and some are proportional to the vote (all Democratic primaries are proportional.)
Because of the complex and distorted nature of the process, I'm often loathe to criticize a detail about the process without first talking about the problems with the process in general. So, let's view the news this week about Florida moving its primary date in that broader context.
First, let me start with some grounding facts. The SEQUENCE of the primary and caucus calendar is critically important. You see, it is highly unusual for a race to go all the way through the calendar and still be competitive (the 2008 Democratic nomination fight being a very rare exception to this rule.) It's hard to stage a late rally because once the early results come in, the money flows only to the candidates that have performed well in the early states. So, except in the rarest of circumstances, it is much more important that New Hampshire's primary is EARLIER than California than that California has a lot more delegates than New Hampshire.
Iowa and New Hampshire have, for a long time, been afforded the "right" to go first on the primary and caucus schedule, the Iowa Caucuses being the first nomination contest of any kind and New Hampshire being the first primary. There isn't a lot of logic behind them getting to go first, other than that they always have. Proponents of the Iowa / New Hampshire gestapo argue that small states allow more obscure candidates the opportunity to build a retail campaign against bigger, better funded candidates, and they are right to a point. But why Iowa and New Hampshire? Why not Rhode Island and Hawaii? Why not Montana and Nevada? Iowa and New Hampshire aren't very representative of the country as a whole, except for both being somewhat swing states. They are not particularly diverse in any sense of the word, being heavily white and both having very focused economies. They largely exclude large urban hubs and have very specific political interests that tend to get too much focus because of their status.
So, I understand the state of Florida's desire to leapfrog the artificial calendar by moving up its primary date to January 31st next year. It is trying to have more stake in the game. Florida is certainly a meaningful state in a general election, it has diverse points of view (southern, urban, coastal all wrapped into one) as well as being ground zero for a whole host of political issues. The problem is, Florida's attempt won't work and will only serve to vastly accelerate the calendar. New Hampshire will leapfrog Florida by going earlier in January and Iowa will leapfrog New Hampshire by a week, pushing the first caucuses into early January or possibly even late December.
The GOP rules will "punish" Florida for its move by stripping it of half of its delegate votes at the convention. But, as I said, timing is far more important than delegate count, so Florida is likely willing to make that trade-off and be happy.
What this all means practically is that the GOP nomination fight just got put into overdrive. We are probably only two and a half to three months from the first nominating contests. This leaves only a couple of weeks for would-be candidates like Chris Christie (who has said "no" at least 100 times to a run, but keeps getting asked anyway) or Sarah Palin (who has said "maybe" at least 100 times and few care about at this point) to decide. It also means that polling, which has been not very relevant up to this point will suddenly become very meaningful.
How could we solve this for future races? It will only come with true national nomination reform. A system that I favor would consist of 4 sets of primaries spread over 5 months. Month 1 would consist of a rotating, random selection of 2 of the 14 smallest states. Month 2 would consist of the remaining of the 14 smallest states. Month 3 would have the next 12 smallest states and so forth. This would allow underfunded candidates to practice retail politics early on to build their campaigns, but would also assure that the nomination doesn't get decided until the last month, since the majority of delegates would be selected on the last nominating contest.
So far the parties have shown little willingness to do real electoral reform, so expect more fireworks this cycle and next. I'll keep you posted on where the Presidential calendar sits as states react, but the likely calendar at this point looks as follows:
Iowa Caucuses - January 9th
New Hampshire Primary - January 17th
Florida Primary (1/2 delegates) - January 31st
Minnesota Caucuses, New Jersey and and Missouri Primaries - February 7th
Nevada Caucuses - February 18th
Wisconsin Primary - February 21st
South Carolina, Arizona and Michigan Primary - February 28th
Super Tuesday (8 primaries) - March 6th
Income Growth, THE Critical Metric
In terms of statistical significance, there is no more predictive statistic of Presidential election outcomes than income growth in the Presidential election year. The equation is pretty simple (derived by simple linear regression of the results of all elections since World War 2):
Incumbent Parties Percentage of the Two-Party Vote = 45% + 3.3% * real disposable income growth in the election year
This equation, since World War 2, has been wrong by an average of only 2.5% across all the elections and has been predictive within 1% in half of the elections.
The wild swinging 1988 3-way race between the first Bush, Bill Clinton and Ross Perot? The equation was right within 1%.
The famous Gerald Ford 33 point comeback that fell just a touch short in 1976? The equation was perfectly predictive.
John Kerry's anemic candidacy versus a weakened George W. Bush? The equation was within 1%.
There have been some notable outliers to this equation. In 2000, by the equation, Al Gore should have received just over 53% of the two-party vote. In actuality, he received just over 50%, ultimately tipping the balance of the election to George W. Bush.
In 1952, Thomas Dewey radically underperformed versus Harry Truman, getting only 44% of the 2-party vote when he should have received 54%.
But, by and large, the rule holds.
Income growth is hoovering around 0% right now. Granted, it isn't the election year yet, but if the economy doesn't improve, history would tell us that President Obama would be headed towards a range of 42.5% - 47.5% of the popular vote, a range that would have him losing the electoral college in virtually any model that I can discern.
Of course, the GOP could nominate another Thomas Dewey. But if I were President Obama, I wouldn't bank on it.
Why Are Things That Make So Much Sense So Hard?
Okay, light bulbs are a minor issue in the grand scheme of things, but it is symptomatic of the larger scary right-ward turn of the GOP since the Tea Party started gumming up the primary works.
In 2007, a bi-partisan majority passed the Energy Independence and Security Act, signed into law by President George W. Bush. The law, over a period of several years, required light bulbs to become at least 30% more efficient than traditional incandescent bulbs.
30% was a very modest increase - there are at least 3 sets of existing technology that easily meet that standard - Halogen Filled Incandescents, Compact Fluorescent Lights and Light Emitting Diodes. The law was technology agnostic -- in other words, any lighting technology that met the standard for efficiency was equally acceptable.
This is a common-sense law and one that is very much in line with how government can support good energy policy. It is very similar to car efficiency standards (which have existed since the 1970s), water-use standards for toilets and faucets (in place since the 1980s) and a whole host of other things that the government regulates in order to drive improved efficiency.
The case for government involvement is simple -- it is one of accounting for externalities. A externality is an effect that is caused by an individual's actions that have impact on something other than the individual. In the case of a light bulb, I may make an economic choice to use incandescents instead of CFL bulbs based on the cost of the bulbs and the cost of energy. But the cost of energy doesn't reflect the environmental impact of the sulfer and CO2 generated when the coal my power company uses in burned. In an ideal world, things would be priced based on their total effect, but they are not.
Even without the ban, CFL and LED sales have been on the rise. The economics for CFL's are compelling, to the point that virtually every private business have replaced most incandescent light fixtures with CFL's with no incentive (try finding a hotel that isn't 100% CFL these days.) LED's are still very expensive, so they have not yet had broad adoption, but their costs are rapidly coming down and I have no doubt that in 10 years, they will be the common-use standard, given their extremely low energy consumption and their long-life.
CFL's have their drawbacks still. They are not cost-effective for short-use applications like closets, since, like incandescents, they burn out faster with rapid on/off cycles, but are more expensive per bulb than incandescents. They don't work well in highly vibratory environments, such as light fixtures on ceiling fans. And many CFL's have a warm-up time before they reach full light output, making them disadvantaged in applications such as bathroom fixture lighting, where you generally want immediate light output.
In my house, we use CFL's everywhere where it makes sense to do so, such as the bedrooms, the living room and the family room. We use halogen incandescents primarily in the bathroom and closets, although I will be looking to upgrade everything to LED's when the economics get there (LED's do not have a warm-up time.)
The whining by Michelle Bachmann and others in the Tea Party about the government regulating light bulbs is non-sensical. She has said that Thomas Edison had a pretty good invention with the incandescent light. That's true, the same way the typewriter was a great invention. But nobody is advocating buying typewriters now that technology has moved on. And her claim that American manufacturing is hurt by the law is equally ignorant. First off, incandescents will still be available - halogen incandescents easily meet the standard. Secondly, incandescents have largely moved overseas for manufacturing for exactly the same reason that CFL's are largely manufactured overseas: labor is still cheaper in China than the US.
Technological advance is something to embrace, not to fight. We should be figuring out how to be competitive in making CFL's and, more importantly, LED's (which will be the future) not trying to keep people using old technology that is inefficient.
It's amazing how advocates for the free market have no clue how markets actually work.
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Our process for nominating candidates for President is one of the oddest features of our Democracy. This is, in part, because of traditions which seem to run contrary to common sense and, in part, because the parties have struggled to decide what exactly they want the nomination to be: either a process by which the party faithful select a candidate that best represents their views or a more democratic (small d) process by which voters pick the best candidate to win a general election.
Presidents are nominated by convention delegates. In the Republican party, delegates are all selected by either caucuses - processes for the party faithful in which people must publicly declare the candidate support and primary elections, processes open to either registered Republicans or all voters (depending on the state), in which the choices are made privately. Democrats add the additional layer of complexity of "Super Delegates", elected members of the party faithful.
Even the details are confusing. Territories that have no representation in the general election such as Guam and Puerto Rico, get to select convention delegates. On the GOP side, some primaries are winner-take-all, similar to the electoral college in the general election and some are proportional to the vote (all Democratic primaries are proportional.)
Because of the complex and distorted nature of the process, I'm often loathe to criticize a detail about the process without first talking about the problems with the process in general. So, let's view the news this week about Florida moving its primary date in that broader context.
First, let me start with some grounding facts. The SEQUENCE of the primary and caucus calendar is critically important. You see, it is highly unusual for a race to go all the way through the calendar and still be competitive (the 2008 Democratic nomination fight being a very rare exception to this rule.) It's hard to stage a late rally because once the early results come in, the money flows only to the candidates that have performed well in the early states. So, except in the rarest of circumstances, it is much more important that New Hampshire's primary is EARLIER than California than that California has a lot more delegates than New Hampshire.
Iowa and New Hampshire have, for a long time, been afforded the "right" to go first on the primary and caucus schedule, the Iowa Caucuses being the first nomination contest of any kind and New Hampshire being the first primary. There isn't a lot of logic behind them getting to go first, other than that they always have. Proponents of the Iowa / New Hampshire gestapo argue that small states allow more obscure candidates the opportunity to build a retail campaign against bigger, better funded candidates, and they are right to a point. But why Iowa and New Hampshire? Why not Rhode Island and Hawaii? Why not Montana and Nevada? Iowa and New Hampshire aren't very representative of the country as a whole, except for both being somewhat swing states. They are not particularly diverse in any sense of the word, being heavily white and both having very focused economies. They largely exclude large urban hubs and have very specific political interests that tend to get too much focus because of their status.
So, I understand the state of Florida's desire to leapfrog the artificial calendar by moving up its primary date to January 31st next year. It is trying to have more stake in the game. Florida is certainly a meaningful state in a general election, it has diverse points of view (southern, urban, coastal all wrapped into one) as well as being ground zero for a whole host of political issues. The problem is, Florida's attempt won't work and will only serve to vastly accelerate the calendar. New Hampshire will leapfrog Florida by going earlier in January and Iowa will leapfrog New Hampshire by a week, pushing the first caucuses into early January or possibly even late December.
The GOP rules will "punish" Florida for its move by stripping it of half of its delegate votes at the convention. But, as I said, timing is far more important than delegate count, so Florida is likely willing to make that trade-off and be happy.
What this all means practically is that the GOP nomination fight just got put into overdrive. We are probably only two and a half to three months from the first nominating contests. This leaves only a couple of weeks for would-be candidates like Chris Christie (who has said "no" at least 100 times to a run, but keeps getting asked anyway) or Sarah Palin (who has said "maybe" at least 100 times and few care about at this point) to decide. It also means that polling, which has been not very relevant up to this point will suddenly become very meaningful.
How could we solve this for future races? It will only come with true national nomination reform. A system that I favor would consist of 4 sets of primaries spread over 5 months. Month 1 would consist of a rotating, random selection of 2 of the 14 smallest states. Month 2 would consist of the remaining of the 14 smallest states. Month 3 would have the next 12 smallest states and so forth. This would allow underfunded candidates to practice retail politics early on to build their campaigns, but would also assure that the nomination doesn't get decided until the last month, since the majority of delegates would be selected on the last nominating contest.
So far the parties have shown little willingness to do real electoral reform, so expect more fireworks this cycle and next. I'll keep you posted on where the Presidential calendar sits as states react, but the likely calendar at this point looks as follows:
Iowa Caucuses - January 9th
New Hampshire Primary - January 17th
Florida Primary (1/2 delegates) - January 31st
Minnesota Caucuses, New Jersey and and Missouri Primaries - February 7th
Nevada Caucuses - February 18th
Wisconsin Primary - February 21st
South Carolina, Arizona and Michigan Primary - February 28th
Super Tuesday (8 primaries) - March 6th
Income Growth, THE Critical Metric
In terms of statistical significance, there is no more predictive statistic of Presidential election outcomes than income growth in the Presidential election year. The equation is pretty simple (derived by simple linear regression of the results of all elections since World War 2):
Incumbent Parties Percentage of the Two-Party Vote = 45% + 3.3% * real disposable income growth in the election year
This equation, since World War 2, has been wrong by an average of only 2.5% across all the elections and has been predictive within 1% in half of the elections.
The wild swinging 1988 3-way race between the first Bush, Bill Clinton and Ross Perot? The equation was right within 1%.
The famous Gerald Ford 33 point comeback that fell just a touch short in 1976? The equation was perfectly predictive.
John Kerry's anemic candidacy versus a weakened George W. Bush? The equation was within 1%.
There have been some notable outliers to this equation. In 2000, by the equation, Al Gore should have received just over 53% of the two-party vote. In actuality, he received just over 50%, ultimately tipping the balance of the election to George W. Bush.
In 1952, Thomas Dewey radically underperformed versus Harry Truman, getting only 44% of the 2-party vote when he should have received 54%.
But, by and large, the rule holds.
Income growth is hoovering around 0% right now. Granted, it isn't the election year yet, but if the economy doesn't improve, history would tell us that President Obama would be headed towards a range of 42.5% - 47.5% of the popular vote, a range that would have him losing the electoral college in virtually any model that I can discern.
Of course, the GOP could nominate another Thomas Dewey. But if I were President Obama, I wouldn't bank on it.
Why Are Things That Make So Much Sense So Hard?
Okay, light bulbs are a minor issue in the grand scheme of things, but it is symptomatic of the larger scary right-ward turn of the GOP since the Tea Party started gumming up the primary works.
In 2007, a bi-partisan majority passed the Energy Independence and Security Act, signed into law by President George W. Bush. The law, over a period of several years, required light bulbs to become at least 30% more efficient than traditional incandescent bulbs.
30% was a very modest increase - there are at least 3 sets of existing technology that easily meet that standard - Halogen Filled Incandescents, Compact Fluorescent Lights and Light Emitting Diodes. The law was technology agnostic -- in other words, any lighting technology that met the standard for efficiency was equally acceptable.
This is a common-sense law and one that is very much in line with how government can support good energy policy. It is very similar to car efficiency standards (which have existed since the 1970s), water-use standards for toilets and faucets (in place since the 1980s) and a whole host of other things that the government regulates in order to drive improved efficiency.
The case for government involvement is simple -- it is one of accounting for externalities. A externality is an effect that is caused by an individual's actions that have impact on something other than the individual. In the case of a light bulb, I may make an economic choice to use incandescents instead of CFL bulbs based on the cost of the bulbs and the cost of energy. But the cost of energy doesn't reflect the environmental impact of the sulfer and CO2 generated when the coal my power company uses in burned. In an ideal world, things would be priced based on their total effect, but they are not.
Even without the ban, CFL and LED sales have been on the rise. The economics for CFL's are compelling, to the point that virtually every private business have replaced most incandescent light fixtures with CFL's with no incentive (try finding a hotel that isn't 100% CFL these days.) LED's are still very expensive, so they have not yet had broad adoption, but their costs are rapidly coming down and I have no doubt that in 10 years, they will be the common-use standard, given their extremely low energy consumption and their long-life.
CFL's have their drawbacks still. They are not cost-effective for short-use applications like closets, since, like incandescents, they burn out faster with rapid on/off cycles, but are more expensive per bulb than incandescents. They don't work well in highly vibratory environments, such as light fixtures on ceiling fans. And many CFL's have a warm-up time before they reach full light output, making them disadvantaged in applications such as bathroom fixture lighting, where you generally want immediate light output.
In my house, we use CFL's everywhere where it makes sense to do so, such as the bedrooms, the living room and the family room. We use halogen incandescents primarily in the bathroom and closets, although I will be looking to upgrade everything to LED's when the economics get there (LED's do not have a warm-up time.)
The whining by Michelle Bachmann and others in the Tea Party about the government regulating light bulbs is non-sensical. She has said that Thomas Edison had a pretty good invention with the incandescent light. That's true, the same way the typewriter was a great invention. But nobody is advocating buying typewriters now that technology has moved on. And her claim that American manufacturing is hurt by the law is equally ignorant. First off, incandescents will still be available - halogen incandescents easily meet the standard. Secondly, incandescents have largely moved overseas for manufacturing for exactly the same reason that CFL's are largely manufactured overseas: labor is still cheaper in China than the US.
Technological advance is something to embrace, not to fight. We should be figuring out how to be competitive in making CFL's and, more importantly, LED's (which will be the future) not trying to keep people using old technology that is inefficient.
It's amazing how advocates for the free market have no clue how markets actually work.
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