“Election Day Winners and Losers” by John Edward

John Edward, a resident of Chelmsford who earned his master’s degree at UMass Lowell and is an adjunct professor of economics at Bentley University, has previously contributed columns urging readers to vote NO on Question 1, Question 2 and Question 3. Today he preemptively discusses who stands to win and who stands to lose in this Tuesday’s election:

By the time you read this, the election results may be in and you will know who won. I wrote this column before the election confident in knowing who would lose.

A few months ago, I met with a local elected official to discuss his position on a specific issue. When I pointed out problems his policy would cause for veterans, he responded by offering an exemption for veterans. When I described the negative impact his policy would have on some senior citizens, he immediately suggested an exclusion for senior citizens. Then I explained how his policy would harm low-income families. He had nothing to say.

Later that day I described my exchange with the politician to a friend. The response was – duh, veterans and seniors vote. While I considered this a cynical perspective, I had to admit there was some truth to it. Not only do low-income earners vote in lower numbers, they do not have the capacity to form powerful lobbies or raise big money.

When Paul Tsongas was running for President, he referred to candidate Bill Clinton as a “pander bear.” It was meant as criticism. Now it seems as though candidates believe pandering is a required strategy when running for office.

A focal economic issue at the national level is what to do about the tax cuts passed by President George W. Bush that expire at the end of this year. It became a litmus test to establish a candidate’s credentials. Most candidates fell into one of two camps. Either they supported “middle class” tax cuts but opposed the idea of extending the cuts for the “very wealthy,” or they wanted everyone to get the tax cut.

How can individuals making $200,000 or families making $250,000 be middle class? President Obama has proposed extending the tax cuts all the way up to those income levels. Based on U.S. Census data from 2009, households fall into the following income classes:
– Lowest fifth: have incomes up to $20,450
– Next to lowest: incomes between $20,450 and $38,530
– Middle fifth: $38,530 – $61,800
– Next to highest: $61,800 – $100,000
– Highest fifth: over $100,000
The top 5 percent of households have $180,000 or more in income.

Allowing the tax cuts to expire for incomes above the proposed levels would only affect the top 2.5 percent of income earners. The so-called middle class tax cuts would benefit people who are really upper class.

Inequality in the United States is greater than it ever has been. Taxpayers in the upper class may not feel wealthy because they are so far behind the super wealthy. An extensive academic study using 2007 tax return data showed the top 1 percent of households made almost 25 percent of all income while reporting earnings of $400,000 or more. Back in the 1970s, the same group made only 9 percent of all income.

The super wealthy have in turn fallen way behind the super-duper wealthy. The top .01 percent made more than ten million dollars, and some made a lot more. That group earned less than 2 percent of annual income for the entire period between World War II and the “Reagan revolution.” Now they make 6 percent of income.

Most households in the highest fifth can afford a modest increase in taxes. If the goal is to promote economic growth, tax cuts for the wealthy are not effective. If the objective is fairness, a progressive income tax is necessary to offset regressive taxes like social security and state and local taxes.

However, those are not winning arguments because the best way to win an election is to pander by proclaiming commitment to the middle class. Candidates pledge their allegiance to fight for “working families.” If they want to sound like a populist, they will say they stand up for Main Street, not Wall Street.

Meanwhile, average incomes for the lowest fifth have decreased by 4 percent in the last two decades. Over the same period, the top 5 percent of income earners enjoyed a 73 percent increase. Many low-income earners buy into the myth that class mobility is easy in the United States even though public policy has eroded those opportunities.

In Massachusetts, we had ballot questions and races that focused on economic issues. Taxes were at the forefront. Tax policy gives candidates an opportunity to burnish their credentials with the middle class – as broadly defined by the candidates, and the media.

On state taxes, candidates either took the side of the overly burdened taxpayer, or the overly burdened budget. Either we need to cut tax rates now, or we have to wait until the economy recovers and then cut taxes.

Some taxpayers are burdened; some taxpayers are not. Some people can absorb cuts to state and local budgets, others cannot.

The candidates for Governor pandered to the middle class by proclaiming at least their desire to lower taxes. Did you hear any of the candidates talking about how regressive taxes are in Massachusetts? Did any of them mention the latest analysis by the Institute on Taxation and Economic Policy that shows the wealthiest people in our Commonwealth pay state and local taxes at only half the rate of the bottom half of income earners?

Well, actually, one candidate did talk about it – Jill Stein. She did not win the election. Those who aspire to be in the middle class, those who are most in need of more effective public policy, were the big losers.

There is a better way to construct economic policy. I will discuss that in my next column.

6 Responses to “Election Day Winners and Losers” by John Edward

  1. kad barma says:

    Fair points on the demographic impact of various tax policies still fail to capture the full picture if the discussion is not allowed to extend to spending. Right now, the Democrat administration and Congress have created a debt burden that is staggering and unprecedented. Arguing the fairness of who gets left to pay for it all completely skips assessing culpability for fiscal recklessness and malfeasance. If you should prefer to point out that the Republicans started it, then I shall conclude that I have made my point.

    Our government is out of control, burdening the public with crushing debts to pay for corruption, graft and patronage. Unfortunately, since profligate legislators don’t apparently allow for the public to control the spending, the only thing reasonable voters have left to do is to block the assessment of taxes. I, for one, understand clearly the logic you put forward here. I would agree with it 100%. Except for the fact that any dollar I allow to flow to Congress seems to be spent many times over, and I am at the end of my patience.

    I’m voting to cut taxes at every opportunity. I’m voting to extend tax breaks at every opportunity. Not because of fairness, but because the only way to reach a reasonable discussion on responsible public spending is to cut the hogs off by not being stupid enough to keep filling the trough.

    Tough times ahead, but they don’t get better as long as the racketeers can keep bilking us via taxation. The madness has to stop somewhere. I vote here and now.

  2. John Edward says:

    You are correct to point out this country is facing a serious debt problem, although it is certainly not unprecedented. However, indiscriminate tax cutting is neither a solution nor a “way to reach a reasonable discussion.” Further, while I will not claim Republicans started it, they should not escape culpability.
    During World War II the budget deficit was much larger, relative to GDP, than now. When Ronald Reagan took office, the national debt was 32% of GDP. By the time he left office it was 65%. When George W. Bush took office, we had a budget surplus. Even before the Great Recession kicked in, we started seeing large structural deficits again, as we had under his father.
    The deficits under FDR were justified by the War. It also created a powerful fiscal stimulus that finally pulled us out of the Great Depression.
    The vast majority of economists felt the stimulus packages offered by both President Obama and his predecessor were urgently needed. Many economists, including myself, thought an even bigger stimulus was called for. Now we have independent analysis saying if it were not for the stimulus, GDP would be much lower and unemployment would be much higher.
    I wish the money were spent more wisely. I regret instances of waste, fraud and abuse. However, a few anecdotes about wasteful government spending do not even come close to the amount of money you would have us cut. I would argue there is even more waste fraud and abuse in corporate America. Give them even more tax breaks — I don’t think so.
    Finally, your attempt to send a message is not only way too blunt, it may not have the effect you desire. A recent study by a conservative think tank showed that cutting taxes often leads to MORE spending. Borrowing is less painful than taxes and once that spigot opens up why not borrow more.

  3. Bill C says:

    I know John very well and Kad Bamma are very aligned in our thinkng.

    John – Seems that Kad Bamma and I have a dilemma that you have not responded to. Both of us are using the only tool we have in out toolkit to affect change. Using our vote against any increase in taxes and where we can, vote to decrease taxes and take the heroin away.

    In your response, you write:

    However, indiscriminate tax cutting is neither a solution nor a “way to reach a reasonable discussion.”

    There are always 2 ways to skin a cat. Offer us your ideas at a solution and/or any way to reach some reasonalble solution here.

  4. Michael Luciano says:

    I assent to former Reagan OMB director David Stockman’s assessment that extending the Bush tax cuts (for everyone) would be very irresponsible. Tax cuts, for all intents and purposes, equals spending. And like spending, there are times when tax cuts are appropriate and times when they are not. Cutting taxes now would be an instance of the latter. While I am sympathetic to kad barma’s view that “the only way to reach a reasonable discussion on responsible public spending is to cut the hogs off by not being stupid enough to keep filling the trough,” there is no reason to believe that this would change the way we/government spend. China, Japan, and the UK still buy our debt, and the Fed is once again revving up the printing press for another $600 billion bonanza (which will fail in its goal, of course). If anything, relinquishing tax revenue would probably lead to more borrowing/money printing, making the situation worse. It’s all the Fed knows.

  5. Bill C says:

    Once again.. No alternative solution offered, just a statement that cutting taxes is not the “right” solution. Let’s stipulate that you are correct in your thinking. Please offer some kind of alternative method (other than cutting taxes) to reach some reasonalbe solutions.

    One of the most effective problem soliving techniques I’ve seen used at an executive level is called “Ask why 5 times”. Now, granted this was used in the dreaded private sector. However, it was at the executive level, where it can sometime be as petty, political and nasty as in politics. Try it sometime.. see where you end up.

    In 2000, #43 committed to the voters he would “change the ways of Washington”. We voted him in. The only reason he wasn’t thrown out in 2004 was because the Dems offered up John Kerry to lead this great nation. Pleeeeaaase. Bush didn’t win, the alternative was a disaster and although Bush was aweful there was no way we were betting the farm on Kerry.

    Along comes a breath of fresh air (or Hope and Change as he called it). The country says “maybe this guy gets what we want”… NOPE! Leave MA aside for a minute. The rest of the country slapped our President upside the head on Tuesday with a sledge hammer…

    So, until someone does some hard work as President again… (like leading the nation)… we will conitinue to swing this pendulum back and forth….

  6. John Edward says:

    Bill C responds:
    Offer us your ideas at a solution and/or any way to reach some reasonalble solution here.

    In my last Lowell Sun column (as in the last one that will be published in that paper) I took the initiative and suggested a specific area where significant cuts are called for. When is the last time you called Rep. Golden or Rep. Tsongas and offered specific suggestions for programs/expenditures that are not good investments and should be cut? Or just told them how important you think it is that they cut spending. Don’t say the politicians are not listening when you are either not saying anything, or saying something so obtuse they will not know what you want. You have tools. Use em.
    Also, deal in ideas and not rhetoric. Be constructuive, not divisive.