Relevant and even prescient commentary on news, politics and the economy.

"You didn’t build that!"

by Kenneth Thomas

Hilarious twist on “You didn’t build that!” UPDATED

The Atlantic Wire (via @NoBigGovDuh) has a great story on the dishonesty of Mitt Romney’s “You didn’t build that” ads. It turns out that at the Republican convention on Tuesday night, they plan to ramp it up again with a speech by a small business owner from Delaware, Sher Valenzuela, telling everyone how she did build it, not government.

Only one small problem. Actually, two.

First, Valenzuela’s business, First State Manufacturing, “received more than $2 million in federal loans and more than $15 million in federal contracts over the years,” according to the article. This included Small Business Administration money very early on, as well as federal disaster relief loans after 9/11 and loans from the American Recovery and Reinvestment Act. So, beyond the fact that she obviously didn’t build the roads and bridges and other infrastructure–which the President was actually referring to in his speech Romney has so grossly twisted in his ads–she benefited mightily from more direct government aid. Even a month ago, we knew that lots of companies Romney promoted with this tagline actually had gotten direct government support, too.

Second, a fast-thinking Redditor figured out that Valenzuela had not claimed www.firststatemanufacturing.com  for her website, and constructed his own parody of her there (h/t @NoBigGovDuh and Atlantic Wire). On the landing page we see Valenzuela displayed next to the words:

This refers to the company’s designation by Delaware in 2000 as a Disadvantaged Business Enterprise. As the “About” page concludes,

First State Manufacturing is proud of our heritage, and thankful for the help that government has given us along the way. Not to mention the current help government provides! We believe that to say otherwise would be ungrateful, hypocritical, and unpatriotic.

We’ll see on Tuesday night.

(For the humor-challenged out there, remember, this is not her site and not her words. It’s a parody.)

UPDATE: Here is something from Valenzuela’s own website: “Get federal dollars by being a minority-owned business.” Hypocrisy, anyone?

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Top Nine Contributors to the Candidates:

Top Nine Contributors to the Candidates:

1. SHELDON & MIRIAM ADELSON, CONSERVATIVE $38.8 MILLION
2. HAROLD & ANNETTE SIMMONS, CONSERVATIVE $15.7 MILLION
3. BOB PERRY, CONSERVATIVE $12.0 MILLION
4. NAT’l EDUCATION ASSC. LIBERAL (3 million members) $5.3 MILLION
5. SERVICE EMPLOYEES INTERNATIONAL UNION, LIBERAL
(2.1 million members) $3.7 MILLION
6. PETER THIEL, LIBERTARIAN $3.9 MILLION
7. FRED EYCHANER, LIBERAL $3.7 MILLI ON
8. CONTRAN CORP., CONSERVATIVE $3.0 MILLION
9, JERRY PERENCHIO, CONSERVATIVE $2.6 MILLION

Score: Libertarians: $3.9 million
Liberals: $12.7 million
Conservatives: $72.1 million

run75411 says:

Opposed to the other contributors, the unions gave roughly slightly more than $1.5 per member. Sheldon Adelson out contributed Liberal Contributors > 3:1. There must be a real need to break the back of Main Street. Interesting . . .

Top Nine Super PAC ContributorsThe Fiscal Times

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Romney Says Two Current Republican Governors Support Obama’s Reelection! Really.

Presumptive Republican presidential nominee Mitt Romney escalated his attacks on President Barack Obama’s welfare waivers Monday, suggesting that welfare recipients make up President Barack Obama’s political “base.”

In an interview with USA Today, Romney defended his much-criticized ads, which falsely accuse the president of removing the work requirement in welfare. He insisted that the spots were accurate and that Obama had pursued his policy as part of an electoral calculation.

“There’s no question in my mind that the president’s action was calculated to… shore up his base,” Romney said, according to an extended quote that USA Today provided to The Huffington Post. “Weakening the work requirement in welfare is an enormous mistake.”

Mitt Romney Suggests Obama Welfare Waivers Are A Tactic To ‘Shore UpHis Base’, Luke Johnson, Sam Stein, Huffington Post, today

Two current Republican governors support Obama’s reelection?  Wow. That’s a very big political story! And apparently it’s true!  Since two of the five governors who requested the waiver that Obama granted in order to fire up his base are Republicans (presumably expecting that Obama would grant the waiver requests in order to fire his base), those two Republican governors must be in cahoots with Obama. 

And since virtually no one—members of Obama’s now-fired-up base, included—even knew of the waiver requests and the waiver grants until the Romney campaign made sure they and everyone else (including Romney’s base) did, it seems that the Romney campaign also wants to fire up Obama’s base.  Not to mention their own.

Didn’t know that Obama’s “base,” er, base, had been clamoring for welfare waivers. Then again, I didn’t know that Utah’s and Nevada’s Republican governors were part of that base.  I mean, who knew?
Oh, brother.  

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Student loan crisis and return on investment

Not enough Vowels or Numbers is lifted from Robert’s blog:
;
Maureen Tcacik wrote

In the years since the Bankruptcy Reform Act passed in 1978, the nominal price of college tuition has risen more than 900 percent. Over the same period the median male income – again, nominally – has risen 165 percent. And since the percentage of the workforce boasting a bachelor’s degree has expanded from less than 20 percent to nearly a third, I don’t have to convince you that the median de facto return on investment on those diplomas has diminished greatly over the same years.

Via Kathleen Geier (Too many vowels and too kind to Tcacik — also I have just read Geier’s excerpts).

I think I could maybe be convinced indeed that there are some serious calculations of the return on investment in which return on investment (on debt for college) has diminished.  But that claim isn’t demonstrated by the numbers given in the article, because two key numbers are missing.  One is the effect of a college degree on salaries which has vastly, vastly increased since 1978. The other is the opportunity cost of lost labor income and labor market experience. 

The increase in this cost is roughly along the lines of the increase in median wages (but is lower).  The issue is that if A increases proportionally less than B then A+B increases proportionally less than B.

The nominal cost of getting a college degree has *not* increased 9 fold — in 1978 a far the larger part of the cost was the opportunity cost.  I think this is still more than half.  I think the total cost of tuition fees plus lost earnings plus lost labor market experience has roughly roughly doubled.

The implication of the reference to the fraction with diplomas is clearly that the college/just high school wage differential has declined due to increased supply of college graduates.  But that differential has vastly increased.  It was very low in 1978 (which happens to be the year I went to college).  I wasn’t there (didn’t take the course) but I know freshmen in introductory economics were told that they would have gotten a better return on the total cost (tuition fees plus lost wages) investing in treasuries and labor market experience.

This ceased to be true in the 80s with a huge huge increase in the college wage premium.  Salary with a diploma minus salary with just a high school diploma divided by salary with just a high school diploma much much more than doubled. It remains very high.

Note also that inflation wasn’t helping students in 1978.  The high expected inflation lead to high nominal interest rates.  The people who made out like bandits at the banks’ expense were people who had borrowed before inflation was high — basically home owners who signed fixed interest rate 30 year mortgages in 1973 and before.

(Dan here….slightly edited for readability).

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Not many flee because of taxes…Dow Jones gets real

by Linda Beale

Dow Jones video admits there’s not much other than anecdotal tales that even millionaires readily move from one state to another to avoid taxes

OK.  Admittedly long title.  But you get the point.  The anti-tax gurus are forever saying that states (and countries) can’t increase taxes from our historically very low point because those that would pay them are the rich and the rich have the means of moving away.

But do they?  There are lots of things that come into whether one is willing to move or not–from weather to family to friends to business to custom to, yes maybe, taxes.   So if a gazillioinaire moves to another state and then is asked–did you do it to save on taxes?, he might say yes (he knows his views may influence policy inordinately) but it might not even have been a factor or it might have been a minor factor or it might even in unusual circumstances have been the primary factor.

So it’s good to see a Dow Jones/Wall Street Journal video that admits that is the case.  Not unsurprisingly (since it is, after all, a Wall Street Journal video) the title is “millionaires fleeing taxes” (Aug. 27, 2012), and the blurb underneath states (as though it were fact) “when states raise taxes, millionaires move out”.  But that isn’t really what the video interview says.

The video admits that there are no good studies that show that millionaires actually move from one state to another because of tax increases.

Yeah, elderly wealthy move to Florida, but that isn’t necessarily to avoid taxes and in fact may well not be related to taxes at all.  Yeah, there are anecdotal stories that people move because of taxes, but there’s no real proof.  The video acknowledges that there are many other reasons for choosing where to have one’s primary residence, and that manipulation of residence can create problems.  As the video says, “You can show residency in a state by living there a certain amount of time. …. You have to be very very careful, though.  States are being very aggressive about collecting from everybody and determining who actually lives there.”

cross posted with ataxingmatter

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Medicare Cuts: What is the Fight About?

by Run75411

“Water For Elephants”

carrying water for elephants” is a phrase that means carrying a heavy load, much like carrying a secret that you can’t tell even someone you love wholeheartedly, just as in the end Jacob does for his wife
.
An elephant drinks 25-75 gallons of water a day far more than any man would be able to carry at any given time. http://angela-michelle.hubpages.com/hub/Water-For-Elephants “Water for Elephants” Sometimes when you get older . . . things you think on and wish on start to seem real. And then you believe them, and before you know it they’re part of your history.”

Most recently former NY Lt. Governor Betsy McGaughey in the WSJ (August 8th) commented on the ACA in “ObamaCares’s Phoney Deficit Reduction” choosing to carry water for the Republican candidates Romney and Ryan with the hope she can convince voters that President Obama’s ACA will not reduce the cost of Medicare and instead will rob the Medicare TF. By her words alone, Ms. McGaughey cannot change the numeric of Medicare expected and occurring reduced growth and costs resulting from the passage of ACA. In her, Romney and Ryan’s mines the logic of how the robbery of benefits and the Medicare is all too real even when the proof of the opposite is self-evident. The three will have to do double time if they are to provide enough water to conflate the ACA to the public if in fact they are to make them believe the illusion.

Ms. McGaughey critiques CBO Director Elmendorf’s and the JCT’s analysis (letter to House Leader John Boehner) on the impact of repealing the ACA, what it means to the country in increased costs, and then conflates the cuts to the Advantage Program and other parts of Medicare as actual cuts in benefits to Medicare recipients. The ACA states Medicare benefits cannot be reduced for Medicare recipients.

As operated by commercial insurance companies, the Advantage Program intent was to provide competition to Medicare and separate from Medicare. As Betsy believes and everyone else imagines, private commercial insurance can provide similar benefits at a lower cost and more efficiently. Except the Advantage Program did not do so and has out spent Medicare by an average of $1000 or 7% to 18% (dependent on who you read) more and in total for similar Medicare benefits.

                                        Ezra Klein , “Romney’s right: Obamacare cuts Medicare by $716 billion. Here’s how.”  
                                  Note: HMO is health maintenance organization; PPO is preferred provider organization.
   http://www.washingtonpost.com/blogs/ezra-klein/wp/2012/08/14/romneys-right-obamacare-cuts-medicare-by-716-billion-heres-how/ 

                  

The very same CBO Director who wrote about the impact of repealing the ACA to House Leader John Boehner and the resulting increased costs was also a part of the CBO team which pounded the final nail into the “Hillarycare” coffin resulting in its demise in Congress. Healthcare then was 20% of the cost of what it is today. I doubt Director Elmendorf has lost any of his boldness since Clinton. So, who is right?

The best way to counter supposition and conjecture by Romney, Ryan, and Ms. McGaughey is to present detail about the cuts and to what they are related , the same as the actual cost of the Advantage program in relation to Medicare. The planned reduction in Medicare costs come from three areas, which also include the government sponsored Advantage program.

                                SOURCE: Medicare Payment Advisory Commission Report to Congress, March 2008.
                               “Medicare Advantage”; Kaiser Foundation http://www.kff.org/medicare 

30.2% of the planned reduction in Medicare costs will come from the elimination of Advantage subsidies as I stated above. The ACA also applies the same rules to the Advantage insurance programs it applies to hospitals by tying reimbursement (or fees) to quality of outcomes instead of a fee for the number of services provided.

34.8% of the reduction in cost comes from revised calculations in the reimbursement of hospitals for provided services. Hospitals not only give up the pay-for-services cost model to embrace better quality outcomes for services cost model; but, they move to electronic record keeping (which proved to be cost effective with the VA, Longman “Best Care Anywhere“), and the bundling of payments eliminating multiple billings and forcing a split of the total compensation. Knowing the increase in patients coming from the addition of the uninsured, there is also the influx of an aging baby-boomer population, which also influenced hospitals to accept the changes.

35% of the reduction result from a combination of smaller cuts in extra funds ( ~5%) given to hospitals to cover the uninsured (not needed as more people will be covered), reductions in homecare providers (~8%), fraud reduction, etc..

The $716 billion is far larger than the initial $449 billion first reported. In 2010, the CBO arrived at an estimate of savings of ~$449 billion starting from 2012 onwards and covered 6- 7 years from when the bill takes full effect in 2014 to 2019. The second estimate of savings was the result of John Boehner’s request for a review of the costs and gains realized from the repeal the ACA in its entirety. The second review covered the period from 2014 to 2022 and resulted in the $716 billion. http://www.brookings.edu/blogs/up-front/posts/2012/08/15-medicare-cuts-galston “Medicare Cuts: What is the Fight About?”


And what of other things implied?

– Healthcare spending was 17.9% of GDP in 2010 and will rise to 19.6% in 2021. Neglected and a part of the article from which this snippet of CMS information was pulled is this: Current projections also do not include potential drops in spending through health care delivery reforms, such as the accountable care organizations and medical homes being promoted by the health law.” In other words, the author projections of $ and % are being made as if the ACA did not exist. The author of this particular article is an MBA and not an economist or a doctor. Quelle Surprise?

– “Repeal also would reduce government spending, lower taxes, and undo the evisceration of Medicare; all good results.” I guess it is still unclear how Medicare is to be eviscerated under the ACA when Obama will plow the results back into Medicare, and the CMS has lengthen the TF out to 2024-2029. Comparing this to Romney wishing to end Medicare and Ryan wanting to keep the very same reductions as the ACA and take the savings for tax breaks, who is eviscerating what?

Healthcare Costs have been decreasing for years? Maybe not so long and since 2009/2010 at the earliest?

Secretary of Heath Kathy Sebelius made the comment in an article that a family of 4 paid ~$6,000 for private insurance in 2000 and ~$12,000 for similar insurance in 2009. http://www.voxxi.com/kathleen-sebelius-affordable-care-act/ “Public Needs To Get Their Facts Straight” Part of this is due to increased administrative costs and much more is a reflection of increased healthcare care costs which insurance and Medicare reflects.

Medicare has had slower growth because it has taken the necessary actions to control much of the costs associated with healthcare through pilot programs, negotiations, etc. The results of its actions are clear in the S&P Indices. The increase in enrollment of healthier patients over the last two recessions has contributed to the slow down; however, it is the ACA which started hospitals and doctors to begin to plan for full implementation and take the steps necessary to meet ACA goals for commercial insurance.

spending per enrollee slowed to 4.2% annually, as compared with 4.5% among private payers. After large increases in enrollment due to two recessions and the increasing numbers of Americans with disabilities are accounted for, growth of Medicaid spending per enrollee was relatively slow (less than 3% per… http://www.nationaljournal.com/healthcare/both-obama-and-romney-medicare-plans-fail-to-solve-the-cost-problem-20120816Medicare and Medicaid Spending Trends and the Deficit Debate”

– And the Pink Cadillac Tax? The ACA does impose a tax on plans exceeding $27,000 and typically carried by executives in the rarefied levels of management. They can always shuck it off and go to one of the insurance exchanges for a cheaper plan with no tax. There is also an excise tax on plans with premiums exceeding $10,200 for individuals or $27,500 for a family tax Other taxes include Increase Medicare tax rate by .9% and impose added tax of 3.8% on unearned income for high-income taxpayers.

So what is the Fight About? It is about whether Romney/Ryan can eliminate Medicare and repeal the ACA, and keep the same proposals President Obama put in play for Medicare but using the savings from it elsewhere (tax breaks – think SS surplus) rather than within Medicare, as both are opposed to Obama plowing the savings back into Medicare. http://www.brookings.edu/blogs/up-front/posts/2012/08/15-medicare-cuts-galston “Medicare Cuts: What is the Fight About?”

References:


Maggie Mahar Health Beat Blog

http://www.cbpp.org/cms/index.cfm?fa=view&id=3161 Federal Government Will Pick Up Nearly All Costs of Health Reform’s Medicaid Expansion

http://www.washingtonpost.com/blogs/ezra-klein/wp/2012/08/14/romneys-right-obamacare-cuts-medicare-by-716-billion-heres-how/ ” Romney’s right: Obamacare cuts Medicare by $716 billion. Here’s how
http://www.drugchannels.net/2011/08/cms-bright-future-for-drug-spending-in.html CMS Bright Future for Spending . . .
http://www.cms.gov/apps/docs/ACA-Update-Implementing-Medicare-Costs-Savings.pdf
Affordable Care Act Update: Implementing Medicare Cost Savings
http://www.ajhp.org/content/69/5/405.abstract Projecting future drug expenditures—2012
http://www.brookings.edu/blogs/up-front/posts/2012/08/15-medicare-cuts-galston Medicare Cuts: What Is the Fight About?
http://www.kff.org/medicare/upload/2052-11.pdf Medicare Advantage
http://factcheck.org/2012/06/romney-obama-uphold-health-care-falsehoods/ Romney, Obama Uphold Health Care Falsehoods
http://www.voxxi.com/kathleen-sebelius-affordable-care-act/ Public Needs . . .
http://www.reuters.com/article/2012/06/12/us-usa-healthcare-spending-idUSBRE85B1DI20120612 Government forecasts modest health spending growth
http://online.wsj.com/article/SB10001424052702303768104577462731719000346.html?mod=WSJ_hps_LEFTTopStories ” Steep Rise in Health Costs Projected”
http://www.nejm.org/doi/pdf/10.1056/NEJMp1204899 “Medicare and Medicaid Spending Trends and the Deficit Debate”
http://www.urban.org/UploadedPDF/412419-Containing-the-Growth-of-Spending-in-the-US-Health-System.pdf “Containing the Growth of Spending in the U.S. Health System”

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Is the Growth of Manufacturing Production a Mirage?

by Kenneth Thomas

Is the Growth of Manufacturing Production a Mirage?

A lot of people lament the decline in manufacturing employment, which has fallen by about 1/3 since 2000. As Upjohn Institute economist Susan Houseman points out in the linked article, we’re talking about 5.5 million lost manufacturing jobs in that time frame. Here’s what it looks like in long perspective

Graph of All Employees: Manufacturing

Instead of recovering as it did in previous recessions, after the 2001 recession manufacturing employment continued to fall, as Houseman points out.


But a number of commentators, including Matthew Yglesias and some more conservative ones cited by Houseman, have argued that what we really ought to be looking at is manufacturing output, which has risen steadily except for small blips during recessions.

Graph of Industrial Production: Manufacturing (NAICS)

What’s wrong with needing fewer people in manufacturing due to greatly increased productivity?
 
Houseman argues that the increased productivity is a mirage, due to a single industry, computers. She writes:

Real value added in the computer industry grew at a staggering rate of 22 percent per year from 1997 to 2007 and 16 percent per year from 2000 to 2010. In contrast, average growth of real value added in the rest of manufacturing was just 1.2 percent per year from 1997 to 2007; real value added in the rest of manufacturing was actually about 6 percent lower in 2010 than at the start of the decade.

With that kind of growth, many multiples of GDP growth, we must be an export powerhouse in computers and electronics, right? (Insert joke here.)*

Of course we aren’t, so where does that gigantic growth rate come from? If you remember the debates over inflation that gave us the Boskin Commission, you will recall that one of its criticisms of Bureau of Labor Statistics Consumer Price Index (CPI) data was it did not adequately account for improvements in quality over time. Houseman argues that the huge increases in computer power and semiconductor processing speed are what are beneath the apparently massive growth in productivity in the industry. In other words, the price deflators used to calculate real growth are the real reason productivity is apparently growing so rapidly in computers.

If Houseman is right, it means that falling manufacturing employment really is a problem; we have not become so productive that we simply need fewer manufacturing workers. And the fact that productivity is growing by leaps and bounds, yet our trade deficit in electronics keeps getting worse, seems to me to be strong evidence that she is on to something.

From the Austin Lounge Lizards song, “The Drugs I Need.”*

cross posted with Middle Class Political Economist

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Lid Blowing Off Romney Tax Secrecy

by Kenneth Thomas

Lid Blowing Off Romney Tax Secrecy

Gawker (via Eman at Daily Kos) dropped a bombshell yesterday when it released over 950 pages of confidential documents from 21 Bain Capital-related investment vehicles, all of which Mitt or Ann Romney invested in. It made all 48 documents into a single searchable one here so that others could take a look and see what nuggets it might contain.
 
Romney previously claimed that his Cayman Island funds had to be located there in order to attract foreign investors, who invested via the Caymans so they would not be subject to U.S. taxes on their earnings, and that he did not reduce his tax bill as a result of his Cayman holdings. The newly released documents confirm that among these 21 funds, two set up a total of five so-called “blocker corporations” which allow U.S. non-profit entities to legally pretend to be foreign (i.e., Cayman) corporations in order to avoid the 35% “unrelated business income tax, which was created to prevent nonprofit groups from undertaking profit-making ventures that compete with taxpaying companies,” as the New York Times reports. The still-unanswered question is whether Romney’s huge 401-k, valued between $20 million and $102 million on financial disclosure forms, is one of the entities that invested in a blocker corporation, which would then refute Romney’s assertion that his Cayman investments had not reduced his tax.
 
The two Bain funds with blocker corporations are Bain Capital Asia Fund LP (mentioned in the Times article; 3blockers) and Bain Capital IX Coinvestment Fund (2 blockers).
 
A second issue that has been raised is that various Bain entities converted management fees to carried interest (via Ryan Grim).

While people know that the carried interest loophole (which makes management compensation into capital gains) exists and is legal, the issue raised by Professor Victor Fleischer of University of Colorado Law School is that private equity firms have come up with a way to make fees that are unarguably management fees subject to ordinary income (35% tax) into capital gains (15% tax) by “waiving” the fees in exchange for virtually certain future profit, so that the extremely slight economic risk is disproportionately small compared to the tax gain. Fleischer argues that this is flat out illegal and concludes: “Mitt Romney has not paid all the taxes required under law.” Not all experts agree. We can look forward to more argument on this issue in coming days. Even if it is legal, it is morally even less defensible than the carried interest loophole.
 
In the end, we are still left with the fact that the tax system for the 1% is different from that for the rest of us. Whether Romney releases more tax returns or not, that issue is not going away. And the drip, drip, drip of new information makes me think he will eventually cave in.

cross posted with Middle Class Political Economist

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