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The Morning Grumpy – 1/25/2012

All the news and views fit to consume during your morning grumpy.

1. After listening to Mitch Daniels’s rebuttal to President Obama’s State Of the Union address, I was reminded of an article I read a few weeks back in which Paul Krugman wrote, “Nobody understands debt“.

First, families have to pay back their debt. Governments don’t — all they need to do is ensure that debt grows more slowly than their tax base. The debt from World War II was never repaid; it just became increasingly irrelevant as the U.S. economy grew, and with it the income subject to taxation.

Second — and this is the point almost nobody seems to get — an over-borrowed family owes money to someone else; U.S. debt is, to a large extent, money we owe to ourselves.

The first will generate arguments with armchair libertarian economists, but the second point is worthy of discussion. Anecdotal evidence suggest that most Americans have no idea who is responsible for generating our current debt and to whom that debt is owed. Well, that’s why you should subscribe to The New York Times, they’ll help sort it out for you. During the debt limit fiasco of 2011, the New York Times charted our debt using data from the Department of the Treasury, Financial Management Service, and the Bureau of the Public Debt; Federal Reserve Bank of New York; Office of Management and Budget.

If that data is not simple enough for you, here it is in an infographic. Click here to embiggen.

2. A succinct analysis of why Mitt Romney (and people like him) should pay higher taxes.

Most of Romney’s income comes in the form of capital gains and carried interest, which have been taxed at 15 percent ever since the Bush tax cuts went into effect a decade ago. So it’s a good time to get a little wonky and ask why capital gains and carried interest are taxed at only 15 percent, while ordinary labor income is taxed at rates as high as 35 percent.

Capital gains are profits from investments, and a high level of investment is good for the economy. Low tax rates on capital gains encourage investment and therefore benefit the entire economy. But is this true? If it were, you’d expect to see some kind of long-term correlation between capital gains rates and the total amount of capital gains income. The lower the rates, the more the income. Let’s roll the tape.

The data do not support correlation between low capital gains tax rates and increased income.

3. How do private equity firms like Bain Capital make money? Financial gimmicks and manipulation of the tax code.

The real reason that we should be concerned about private equity’s expanding power lies in the way these firms have become increasingly adept at using financial gimmicks to line their pockets, deriving enormous wealth not from management or investing skills but, rather, from the way the U.S. tax system works. Indeed, for an industry that’s often held up as an exemplar of free-market capitalism, private equity is surprisingly dependent on government subsidies for its profits.

The system is broken.

4. Last night during his State of the Union address, President Obama said, “Teachers matter”.  He noted that a good teacher can increase the lifetime income of a classroom by over $250,000. Here’s the study that informs that remark.

The study, by Raj Chetty and John N. Friedman of Harvard and Jonah E. Rockoff of Columbia, all economists, examines a larger number of students over a longer period of time with more in-depth data than many earlier studies, allowing for a deeper look at how much the quality of individual teachers matters over the long term.

Replacing a poor teacher with an average one would raise a single classroom’s lifetime earnings by about $266,000, the economists estimate. Multiply that by a career’s worth of classrooms.

“If you leave a low value-added teacher in your school for 10 years, rather than replacing him with an average teacher, you are hypothetically talking about $2.5 million in lost income,” said Professor Friedman

Remarkable.

5. Courtesy of ThinkProgress, some facts to go along with the wild spin you’ll be hearing today as pundits and candidates interpret the President’s speech.

  • Since the last SOTU, the economy has created 1.9 million private sector jobs. [Source]
  • The top 1 percent take home 24 percent of the nation’s income, up from about 9 percent in 1976. [Source]
  • Private sector job creation under Obama in 2011 was larger than seven out of the eight years Bush was president. [Source]
  • The top 1 percent of Americans own 40 percent of our country’s wealth while the bottom 80 percent owns only 7 percent. [Source]
  • Thanks to the Affordable Care Act, 2.5 million young adults gained health insurance. [Source]
  • Last year, China spent 9 percent of its GDP on infrastructure. The U.S. spent 2.5 percent. [Source]
  • 2.65 million seniors saved an average of $569 on prescriptions last year thanks to the Affordable Care Act. [Source]
  • Union membership is at a 70-year low. [Source]
  • Unemployment benefits have lifted 3.2 million people out of poverty. [Source]
  • The United States used to have the world’s largest percentage of college graduates. We’re now #14. [Source]
  • One quarter of all contributions to federal campaigns come from 0.01 percent of Americans. [Source]
  • 47.8 percent of households that receive food stamps are working, because having a job is not enough to keep them out of poverty. [Source]
  • In the last three years, 30 major corporations spent more on lobbying than they paid in taxes. [Source]
  • 50 percent of U.S. workers make less than $26,364 per year. [Source]
  • Since 1985, the federal tax rate for the 400 wealthiest Americans dropped from 29 percent to 18 percent. [Source]

Fact Of The Day: Thorium could be a replacement for Uranium and coal. Pretty awesome research with potentially profound impacts on society.

Quote Of the Day: “A conservative is a man with two perfectly good legs who, however, has never learned how to walk forward.” – Franklin D. Roosevelt

Song Of the Day: “Kiss Me On The Bus” – The Replacements

Follow me on Twitter: @ChrisSmithAV

Email me links, tips, story ideas: chrissmithbuffalo[@]gmail.com


  • Jesse

    “it just became increasingly irrelevant as the U.S. economy grew, and with it the income subject to taxation.”

    Or… just use the Fed to “slowly” inflate the currency so a trillion here doesn’t mean as much as a trillion there. Never mind the fact that wages don’t go up as quickly, so us in the middle class suffer a consistent, hidden tax. Apparently debt doesn’t matter.

  • Jesse

    Forgot to add: Thorium link = sweet, thank you.

  • Chris, please explain how “money we owe ourselves is not a problem? The government creates this problem by printing money out of thin air, devaluing the currency and causing inflation in the process, while lowering the standard of living of Americans. The analogy you suggest is just a game of semantics that hides the real problem.

    Claiming that a lower capital gains tax rate has not led to higher income really misses the big picture. There are many extraneous factors involved in that equation, such as inflation, debt, fiat money, the overall economic health of the country (or the perception thereof0, etc. It is quite possible, and probable, that a higher tax rate on capital gains would negatively affect the economy.

  • Jim

    Good luck getting those poor teachers replaced by good teachers past the teachers unions.

  • KevinP

    Is it just me or does comparing Obama’s Presidency to what has to be one of the worst Presidents in our nations history setting the bar a little bit too low? Everything is about Obama compared to Bush. How about compared to Clinton or Reagan instead?

  • Republican response to State of the Union = Just try and get a Republican, Tea Bagger or Birther or some inbred, racist deadneck to admit 32% of our current budget is to pay for Bush/Cheney spending our national wealth like a crack Ho with a credit card. HOW could you degenerates forget 2 wars, tax cuts for the rich and Medicare Part iDiot were never paid for? All I hear is more spin, more propaganda, more whinny excuse or blaming the Black guy. Not anymore, it’s ACCOUNTABILITY time.

    None too soon because the hypocrites are thick as thieves. Mitch Daniels is talking like a fiscal conservative but I can’t help but remember the reckless economics during his stint as George W. Bush’s budget director… In 2 years he increased the deficit by 200 BILLION and laid the ground work that would add TRILLIONS! (I wonder if any of those dumb@$$ Conservative wackos even KNOW that?)

    Gov. Mitch Daniels speaking for all Republicans whined about dividing a nation or the politics of envy and Class Warfare because they were never VICTIMS of the Top 1%, ONLY BENEFICIARIES!

    Open your eyes and look at the Bush/Cheney catastrophe… The rich guys spit in American faces, pulled down Americans pants, f***ed Americans in the @$$ for 8 years and stole our wallet before they left in 2008. Any American citizen with half a brain is VERY angry, demanding accountability but Republicans don’t see it that way. They liked the violations so much they want MORE!

    I think we need to focus on those in the TOP 1% who made their fortunes on the backs of American workers… with American ingenuity, technology, ideas… using infrastructure paid for by the American taxpayer… And how did they repay us? The silver spoon, trust fund baby m’f***er’s moved all our jobs to Asia, fouled our environment with stuff that would make a bill goat puke and turned our politicians into a stable of high priced prostitutes.

    It used to be called bribery, collusion and all those crimes covered by the RICO Act. How come they can get away with a white bred corporate crime wave of epic proportions but our jails are filled by pot smokers? WHY IS THAT? These Wall Street guys ruined our economy with their reckless policies and deregulation, so why aren’t the American PEOPLE standing up to them?

    There’s only a few thousands of them but there’s MILLIONS of us. There’s 48 MILLION of us living below the poverty level. Probably another million+ non-violent offenders ruined by the Convict Lease System. That’s a fight I’ll take… what about the rest of you wimp, apathetic, wussies? JOIN THE CLASS WAR NOW! Occupy Wall Street and hold the greed stricken, power mad, evil money changers accountable for their crimes. I am somebody spoact.blogspot.com