Answers to the Fairness Quiz

The concept of “fairness” has been coming up a lot in my house. Generally, my son Isaac is complaining that “it’s not fair” that he has to eat the same dinner as the rest of the family. I’ve suggested that he appears to have a distorted concept what the word “fair” means.

A recent Wall Street Journal editorial had a “Fairness Quiz”, intended for President Obama. Reading the quiz it seemed to me that confusion about what constitutes fairness may be more widespread.

I decided to take the “quiz” (in bold) and included my answers below.

President Obama has frequently justified his policies—and judged their outcomes—in terms of equity, justice and fairness. That raises an obvious question: How does our existing system—and his own policy record—stack up according to those criteria?

Is it fair that the richest 1% of Americans pay nearly 40% of all federal income taxes, and the richest 10% pay two-thirds of the tax?

Yes. The top 10% possess 80% of all financial assets. Since they have 80% of the money it doesn’t seem unfair that they would pay 66% of the taxes.

Is it fair that the richest 10% of Americans shoulder a higher share of their country's income-tax burden than do the richest 10% in every other industrialized nation, including socialist Sweden?

Sure. There there is more income inequality in the US than “socialist” Sweden. Maybe the income inequality isn’t fair, but obviously it’s not unfair to the people that benefit from it.

Is it fair that American corporations pay the highest statutory corporate tax rate of all other industrialized nations but Japan, which cuts its rate on April 1?

No. It is widely acknowledge that the US corporate tax code is riddled with loopholes and special deals. If the code was streamlined then more revenue could be raised at a lower rate. Of course, the corporates that benefit from these loopholes want to make sure they are maintained. And they hire lobbyists.

Is it fair that President Obama sends his two daughters to elite private schools that are safer, better-run, and produce higher test scores than public schools in Washington, D.C.—but millions of other families across America are denied that free choice and forced to send their kids to rotten schools?

Yes. American kids are entitled to decent schools and we should endeavor to provide them. But wealthy people are going to want something better for their kids than we have the means to provide for everyone. People should be free to send their kids to private schools. And we shouldn’t be surprised that that expensive private schools are better than those paid for by taxpayers.

Is it fair that Americans who build a family business, hire workers, reinvest and save their money—paying a lifetime of federal, state and local taxes often climbing into the millions of dollars—must then pay an additional estate tax of 35% (and as much as 55% when the law changes next year) when they die, rather than passing that money onto their loved ones?

Taxes need to come from someone. Taxing dead millionaires doesn’t seem significantly less fair than taxing non-dead, non-millionaires. 55% does seem too high. 35% seems fair.

Is it fair that Treasury Secretary Tim Geithner, former Democratic Senate Majority Leader Tom Daschle, former Ways and Means Chairman Charlie Rangel and other leading Democrats who preach tax fairness underpaid their own taxes?

No. Everyone should pay the taxes they are required to pay under the law.

Is it fair that after the first three years of Obamanomics, the poor are poorer, the poverty rate is rising, the middle class is losing income, and some 5.5 million fewer Americans have jobs today than in 2007?

Is rising poverty fair? To whom? I don’t understand the question.

Is it fair that roughly 88% of political contributions from supposedly impartial network television reporters, producers and other employees in 2008 went to Democrats?

Yes. Working in television doesn’t mean you aren’t entitled to have an opinion about politics or mean that you should not be permitted to give money to whomever you choose.

Is it fair that the three counties with America's highest median family income just happen to be located in the Washington, D.C., metro area?

Once again I don’t understand the question. Is it fair to whom? Other counties?

Is it fair that wind, solar and ethanol producers get billions of dollars of subsidies each year and pay virtually no taxes, while the oil and gas industry—which provides at least 10 times as much energy—pays tens of billions of dollars of taxes while the president complains that it is "subsidized"?

Burning oil and gas come with a massive externality in that it is causing dangerous global climate change. The cost of dealing with this will be borne by it’s victims and is not factored into the cost of the commodities themselves. It is perfectly fair for a government to strive towards a tax and subsidy policy that seeks the maximum benefit (and tries to mitigate disaster) for it’s citizens.

Is it fair that those who work full-time jobs (and sometimes more) to make ends meet have to pay taxes to support up to 99 weeks of unemployment benefits for those who don't work?

The extended unemployment benefits were necessitated by chronic long-term unemployment caused by a massive financial crisis. The nation certainly benefited from the extra protections offered the unemployed as the economy recovered. Since taxes for the employed were not increased during this time (and they were, in fact, reduced) it seems perfectly fair all around.

Is it fair that those who took out responsible mortgages and pay them each month have to see their tax dollars used to subsidize those who acted recklessly, greedily and sometimes deceitfully in taking out mortgages they now can't afford to repay?

If that were occurring, it wouldn’t be fair. The actual fate for people who haven’t been able  to pay their mortgages is that they’ve faced foreclosure and eviction. The system does not seem to be unfair to those people who have been fortunate enough to be able to keep their homes.

Is it fair that thousands of workers won't have jobs because the president sided with environmentalists and blocked the shovel-ready Keystone XL oil pipeline?

It’s certainly fair for the government to consider the environmental impact of an oil pipeline before approving it. And it would certainly be unfair, to the citizens within the pipeline’s path, for the project to be approved if the environmental assessment was not permitted to take place.

Is it fair that some of Mr. Obama's largest campaign contributors received federal loan guarantees on their investments in renewable energy projects that went bust?

If the reason for the loans is solely or primarily the donations, then that is not fair. If the actual criteria for approval of a project is some other, more fair system... well, then that would be more fair.

Is it fair that federal employees receive benefits that are nearly 50% higher than those of private-sector workers whose taxes pay their salaries, according to the Congressional Budget Office?

The real number is that total compensation is about 16% higher for federal employees than in the private sector. Much of that difference is due to better benefits packages for non-college graduates in government jobs.

Is it fair that a government job is one of the few ways for a high-school graduate to get health insurance? I guess that depends on your definition of fair.

Is it fair that soon almost half the federal budget will take income from young working people and redistribute it to old non-working people, even though those over age 65 are already among the wealthiest Americans?

Current beneficiaries payed into these programs for the entirely of their working lives. So long as the workers paying in now receive comparable benefits, the system is fair.

Is it fair that in 27 states workers can be compelled to join a union in order to keep their jobs?

If the salary, benefits, and other terms of the employment that make the job desirable were established due to the efforts of the union then it’s fair to ask that the people who receive those benefits to contribute to the union.

Is it fair that nearly four out of 10 American households now pay no federal income tax at all—a number that has risen every year under Mr. Obama?

It’s not true. Most every working American pays federal income taxes for Social Security and Medicare. Many households don’t earn enough to have to pay additional income taxes. But there’s nothing unfair about poor households paying any and all taxes the laws requires them to pay.

Is it fair that Boeing, a private company, was threatened by a federal agency when it sought to add jobs in a right-to-work state rather than in a forced-union state?

In 2010 Boeing received $19.4 billion in government contracts. The American taxpayers have been been more than “fair” to the Boeing corporation.

Is it fair that our kids and grandkids and great-grandkids—who never voted for Mr. Obama—will have to pay off the $5 trillion of debt accumulated over the past four years, without any benefits to them?

My kids benefit from the low tax rates we pay now. We will all benefit from an economic recovery. We do owe it to them to restore some fiscal sanity over the long term. Is it fair that they will will inherit the cost of substantial borrowing to deal with massive financial crisis caused by reckless millionaires? It is not.

But who ever said life was fair...

The Truth About Bain

Newt Gingrich's PAC has new video out about Mitt Romney’s role as the CEO of Bain Capital. If you haven’t seen it, here it is:



 

It’s obviously a hit piece. But the video is devastating. The bulk of it is regular people describing what Mitt Romney’s company did to their employers and their lives. They also talk about the obscene profits Romney and friends made pillaging these companies.

The counter-argument, that criticism of these kinds of corporate raiders is an attack on capitalism, is simply untrue. People who have ideas, build companies, create jobs, manage organizations, and really build things can be praised and respected. The financiers who don’t do the work, but who do make the investments and provide the capital to make businesses possible are vital. Without them most of us wouldn’t have our livelihood. I don’t begrudge them their big paychecks or their return on investment.

We can praise capitalism and still be appalled by the vultures that reap obscene rewards by preying on it.

The private equity firms like Bain Capital stand accused of not building great companies but of pillaging them. They boosted the stock price by decimating the workforce, routed the companies assets into their own pockets, had the companies borrow heavily to hand the cash over to the new owners and abandoned once-healthy companies to debt and bankruptcy. Making money by streamlining and rebuilding troubled companies is one thing. Making a fortune by gutting them is quite another.

Activities taken in pursuit of obscene wealth are not intrinsically virtuous. We’re all living amongst the wreckage of those who performed selfish acts for personal gain. We know the damage that can be done by financiers untroubled by morality or consequence. It is inconceivable that in the aftermath of the economic crash, and the bank bailouts, that we would choose to elect a ruthless corporate raider as our President.

Maybe there is another side of the story. If so, we need to hear it.

Romney needs to account for his actions at Bain. He needs to tell us the story of how he conducted his business. He needs to get beyond his phony talking points and tell us who Mitt Romney really is. If Romney is going to run on his business experience then we need to know he has experience improving the lives of working Americans and not in destroying them. We need know he’s on the side of the middle class an not just the ruling class.

We are owed the truth of what was going on at Bain Capital. If even a part of Romney’s vast fortune came from pillaging of successful companies, raiding employees’ pensions to scoop up additional millions, and destroying jobs to feed his personal greed, then Romney is unfit to be President.

He owes us the true story. And it better be good.

"I Like Being Able to Fire People"

Romney really stepped in it on the eve of what is supposed to be his big win tomorrow in the New Hampshire primary.

“I like being able to fire people” is a line that is sure to haunt him. He’s not talking about his Bain Capital days - during which he surely did fire a lot of people. But the comment reveals him to be someone deeply out of touch with our times and the modern climate. Nobody with any experience with unemployment or a shred of compassion for those who have actually lost their jobs would think to say those words.

What Mitt is actually talking about is health insurance. He likes being able to “fire” his health insurer. This too is deeply misguided. The services a health insurer provides is paying your medical bills. When you’re staring at huge medical bills, that your insurer has refused to pay for, being able to “fire” your insurance company isn’t going to be much comfort.

If you do “fire” your insurance company, well, then you and your family won’t have health insurance. And if Mitt Romney has his way, then nobody will be obligated to sell you a new insurance policy on account of the “pre-existing condition” that caused the trouble in the first place.

Mitt Romney might “like being able to fire people.” That won’t get people to like him.

1st In the Nation Primary

One of the great joys of being political junkie and New Hampshireite is, of course, the cyclical spectacle that is the nation’s first presidential primary. I had expected that much of 2011 would have been spent talking in events and using this space for some eyes-on observations of contenders and characters vying to be our next president.

But. As it turns out... not so much... I didn’t manage attend a single town hall, didn’t hear any stump speeches, didn’t have a  single candidate sighting. This outcome stems in no small part from the fact that my focus and attention have been directed elsewhere. But also reflects the nature of the campaign.

My natural loyalties tend towards the Democrats and I love me some Obama. I’ll happy vote for his renomination and would even if there was competition - which there isn’t. No drama there.

The Republican nomination battle has been a wonderful show. I’ve been following the ebbs and flows of that contest with a mixture of schadenfreude and slack-jawed amazement. But even there the action hasn’t been in New Hampshire. My Granite State perch hasn’t improved the view.

Normally, in a contest this open I would expect something of an ongoing carnival atmosphere. Battling visibility events, a town square occupied with supporters from different camps, phones constantly ringing with campaign calls and pollsters, and lots of candidates coming to town are all part a robust campaign season. Not this year.

There have been a few appearances by candidates and near-candidates. Sarah Palin and Donald Trump both popped into the gourmet goodies shop beneath my office during their flirtation phases. A visiting Parisian relative happened upon Rick Perry offering up his ignorance of evolution during a downtown stop. Yard signs have popped up most everywhere. But the season’s been relatively quiet.

Perhaps this is as it should be. The unfair influence of the New Hampshire is an regular complaint. This time the campaigns have been national affairs from the start. The fortunes of the candidates have been tied the televised debates and, more importantly, the post-debate media-spin, and the blogospheric reaction. The rise of Herman Cain certainly had nothing to do a great ground operation. Gingrich's flame-out was unrelated the efforts of local organizers.

I’m a fan of the traditional first ballots cast by the good citizen’s of Iowa and New Hampshire. More than ever, it appears we’ll just be the first to ratify decisions that have already been made by the parties as a whole.

Soon it'll be all over. It feels like it never really begun.

2012 Political Predictions

Rick Perry wins easily in the Iowa caucus. Then he scores a narrow victory in the New Hampshire primary. This effectively ends the GOP primary and Governor Perry is the GOP nominee.

Perry chooses Governor Nikki Haley as his running mate.

Obama wins the general election with 52% of the votes.

Democrats gain seats but Republicans remain the majority in the House.

Republicans gain a narrow majority in the Senate.

Republicans Can't Do Anything

Republicans can’t let the country reach the debt ceiling! That would trigger a US debt default, an economic collapse, a constitutional crisis, and a deep depression. Republicans will have to raise the debt ceiling...

Republicans can’t vote to raise the debt ceiling! The government already borrows too much money. Republicans can only raise the debt ceiling if there is also a comprehensive plan to reduce the deficit by trillions of dollars...

Republicans can’t vote for a comprehensive deficit reduction plan! A deficit reduction agreement will require us to increase revenue. Republicans are the anti-tax party. They can’t vote to raise taxes. Republicans will have to let the country hit the debt ceiling.

But...

Debt Ceiling Explained

One problems with the current debt ceiling debate is that there appears to be widespread confusion about what exactly we are talking about. Much of the reporting focuses on the horse race and the daily-back-and-forth of the negotiations. Less effort has been expend trying to explain what the debt ceiling is, why we might wish to see it raised, and what will happen if we do not. It’s boring. It’s complicated. It involves absurdly large sums of money that we can’t really relate to. Worst of all, the topic is, currently, very political. Just wading in to try and understand it means getting caught in the crossfire of accusations.

But it’s important we understand what’s going on and what is at stake. Really important.

At the basic level, the debt ceiling is a pretty simple concept. The US government borrows lots of money to meet its various obligations. The debt ceiling was created by a law passed in 1917 and it determines the total amount of debt the government can have. It’s the limit on the US government’s credit card. It’s a self-imposed limit. The debt limit was created by an act of congress. It can be, and regularly is, increased by congress.

The US has reached the limit. We’ve borrowed all of the $14.3 trillion allowed. Unless the debt ceiling is increased, or a portion of the debt is paid off, the United States government can not borrow any money, at any rate, for any purpose. Ever.

Is that such a bad thing? If I’ve maxed out my credit card shouldn’t I try and pay some of it off instead of trying to increase my limit? Shouldn’t government balance its budget and live within its means?

In general, the answer is “yes”. The government should try to balance its budget. But it is also vitally important that government not cut off its own ability to borrow. There are times when we’re going to want to run a deficit.

For example:

Suppose the United States were to become involved in a war in another country. We might want to be able to conduct the war, and incur the inevitable expenses, even if we have not collected the taxes to pay for it all in advance.

Imagine we had an economic crisis. We might want our government to be able respond to that crisis and borrow money to support institutions that are essential to our economy and our future prosperity.

What if we had a period of very high unemployment? When the economy is in bad shape people need more government support but tax collection is falling as people lose their jobs. Without deficit spending the government has to cut back sharply just when people need it most.

Maybe we think that low taxes are a good idea in and of themselves. If we think low taxes increase liberty and prosperity and are important to economic growth, we might decide to keep taxes low and run a deficit rather than increase taxes to balance the budget.

How will we handle advances in medical science? We can live longer and healthier lives. But medical advances come at a considerable cost. We might choose these advances that improve and extend our lives and livelihood over a clean balance sheet.

Nature can be full of surprises. When there is a tornado, or a flood, or a drought we look to government to help mitigate the disaster.  A government that can’t borrow money won’t have the resources to deal with the unexpected.

And of course there is no guarantee that these issues will crop up one at a time. We might have to deal with several problems all at once.

A government that can not borrow money will be unable to deal with military conflict, ideological rigidity, an aging population, or any form of natural or economic calamity. This will create long-term difficulties.

There are times when we will want to run a deficit. Both of our major national parties agree that right now is one of those times. This spring the Republican controlled House and the Democratic Senate agreed to an annual budget that calls for $1.3 trillion in deficit spending.

That $1.3 trillion represents 44% of the federal budget. For every dollar the government spent $0.56 came from taxes and revenue and $0.44 was borrowed. If the debt ceiling is not raised then the United Stated government will not be able to meet 44% of its obligations.

It is difficult to overstate the implications of a sudden 44% federal contraction. Every month the federal government makes around 80 million payments to a wide variety of individuals and institutions. Soldiers, senior citizens, hospitals, doctors, contractors, federal employees, suppliers, researchers, law enforcement, holders of public debt, etc...  Every one of these recipients is getting money from the federal government because a law was passed saying they are entitled to it. Behind each of these payments is a program, an appropriation, a law or a budget agreement that is just as real, lawful, and binding as the debt ceiling law.

If the debt ceiling is not raised then 44% of those obligations can not be paid. Each one of those recipients is entitled to the money. They are entitled to sue the government seeking the funds that we are contractually obligated to pay them. The government will have no means of meeting its obligations and it will default.

In addition to national default. All the people expecting to get all of those billions of dollars will, suddenly, not be getting them. Employers won’t be able to make payroll, hospitals will not be able to pay their bills, federal employees won’t get their paychecks and won’t be able to pay their mortgages.

Running up against the debt ceiling would not be one-time event. It would be a permanent condition. The debts, obligations, and needs we have in 2011 are not going to go away in 2012 or 2013. Millions of federal contractors and employees who are not getting paid and are suing the government will make things worse. The international community will rapidly withdraw its funds from the US. They will invest in other nations that have not abandoned their obligations.

Failure to raise the debt ceiling would be like the economic collapse of 2008 combined with a permanent government shutdown.

So... we should raise the debt ceiling.

The good news is that the economic cataclysm can be averted by calling a vote to avert it.

The bad news is that many of our elected representatives are refusing to do so.