Romney’s “Word Problem”

My reaction to last night’s policy debate was just published on nationalmemo.com.

Here’s the link:

http://www.nationalmemo.com/mitt-romneys-fuzzy-debate-math/

I’ll be posting more on national memo soon.

The full text of today’s short article is after the break.

Mitt Romney’s Fuzzy Debate Math

Let’s take him at his word, and see how the numbers add up.

Today’s pop quiz in Presidential arithmetic:

If you have a $1.3 trillion annual deficit, and you are going to make it shrink to zero, how many new jobs will the economy have to create? Show your work.

If we start with Romney’s assertion that his policies will lead to twelve million new jobs over four years and give the government extra tax revenue, how close will that come to plugging the gaping hole in our annual budget? Not very close. If we assume that those jobs pay $40,000 per year and that each new job pays 20% in Federal taxes, the total additional revenue is just $96 billion in 2016.

That doesn’t come close to the $1 trillion currently projected deficit plus the $300 billion in additional spending Romney proposes for the military and insurance company subsidies he’s “returning” to Medicare.

Never mind that there’s a problem lowering the top tax rate to 28% from 35% will cost $250 billion in revenues, but plugging that hole by taking away the $165 billion in top earners’ deductions simply doesn’t work. Then there’s an even bigger problem making his tax cut of $5 trillion “revenue neutral” while giving the middle class “tax relief.”

But back to taking him at his word, even if it’s not worth the paper it isn’t printed on.

Let’s imagine those new jobs are really good jobs. How good do they have to be?

At a 25% Federal tax rate on all the new income, the average new job would have to pay a mere $433,333 per year to plug the gap. Sign me up for one of those new jobs, please.

Or maybe his policies will magically create more jobs than he’s assuming. If the new jobs were those $40K per year jobs each paying 20% in taxes, we’d need 162.5 million new jobs. For those playing along at home, that’s more jobs than the current civilian labor force, which stood at 154.6 million last month.

The bottom line?

Romney’s real word problem is that when he talks numbers, the numbers never add up.

Howard Hill is a retired investment banker who created a number of groundbreaking deal structures and analytic techniques on Wall Street, and later helped manage a $100 billion portfolio.  He writes and blogs at mindonmoney.wordpress.com.

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9 Responses to Romney’s “Word Problem”

  1. jivko says:

    I have another quiz quiestion. Do you think that family making 250k pretax in a big city with mortgage and two kids IS RICH and WEALTHY and needs to pay more?

    • hhill51 says:

      First, I think you need to recognize that the family you speak of pays ZERO additional tax under the Obama tax proposal. Maybe you made a mistake, and meant to say $350K, in which case the rate on the additional $100K would go up from 35% to the Clinton era rate of 39%. Can that family afford the extra $4,000 per year?

      My guess, they can afford it more easily than the current Medicare users can afford the extra $600 per year that Romney says he’ll do on “day One”…. And far better than future Medicare recipients can afford the $6K per year of additional cost Romney’s Medicare “saving” will cost.

      But the reality is that Romney will get his tax cuts and spending increases, but won’t get the big spending cuts, leading to roughly doubling the annual deficit, IMO>

      • jivko says:

        No, I didn’t make a mistake by writing 250k. I used it because that is where I think the middle of the middle class is. 2 individuals with decent education and good job making 80k-120k a pop. Plus some 50k investment income because they had the mistake to be prudent not rack up loans, and saved and invested. Throw house and 2 kids. 3.5k for mortgage, 2k to 3k for childcare /they don’t qualify for governmental childcare assistance because they are wealthy/. 2k for food, basics, utilities, health insurance /no food stamps and gov healthcare help for the wealthy/. 100k annual in taxes./fed, state, sales, payroll, medicare/. That’s where the top of the bottom is. No entertainment, no vacations, no home and/or cars maintenance/repairs, no fuel. The wealthy, rich and fortunate have a couple of thousands left to save for kids’ education and retirement and keep the house and the family rolling and enjoy their big fortunes. They cannot enjoy much though, because they often work 60-80h per week so they can stay rich. BTW the 33% bracket that will go to 36% starts at 217k not 250k. 3.8% additional Medicare starts after 250k. Do I have to mention what the effective range of the AMT is? And that most of the exemptions, credits, and deductions are phased out or/and are not applicable? And that we will conveniently forget to index the numbers for inflation and it will get worse in just a couple of years. $4k additional in taxes for the wealthy? This is like $7-8k pretax and almost like having one more child in the household. No brainer.

        Do not get me wrong. I am not rooting for Romney for his plan /if there is any/ nor I am saying this because I am just anti –Obama. My point is that some folks’ definition of rich, wealthy and middle class needs some serious work.
        BTW it is very easy to save $600 an year. Just cut the cable TV and get an HD antenna or cut the data plan on your cell and you will save more.

      • hhill51 says:

        I appreciate that you took more time and thought with this comment. I agree completely that a family making $250K total in a high priced urban area are just near the upper end of the working class, and frankly, threatened by the long-term strategy that has been in place for several decades to drive them to the wall while maximizing profits and taxes taken from them.

        I actually have a far different definition of rich. To me, being rich is having a lot of money, not making a lot of money. I saw it first-hand when I made a lot of money and lived next door to people who had similar income, but from investments. I paid twice the tax rate they did, and I used a much larger portion of my income to hire other people to do the things I couldn’t because I worked so much. And that’s not counting the dry cleaners, vehicles, tips to parking lot attendants, etc. that I paid out of my after-tax dollars. My neighbors tended to stiff even plumbers for weeks or months when they had them out for repairs. It was kind of disgusting. The one thing they were not was job-creators.

        Anyway, that level of fix to the tax system isn’t likely any time soon, but at least we need to examine how we’ve set it up to keep distributing every bit of the improvement in our economy to fewer and fewer people. That kind of economic structure always ends badly.

        hh

  2. William Kinsolving says:

    Howard, I just had to put this up on VF!

    William

    On Thu, Oct 4, 2012 at 1:31 PM, Mind on Money wrote:

    > ** > hhill51 posted: “My reaction to last night’s policy debate was just > published on nationalmemo.com. Here’s the link: > http://www.nationalmemo.com/mitt-romneys-fuzzy-debate-math/ I’ll be > posting more on national memo soon. The full text of today’s short article > i”

  3. Henry says:

    Howard – congratulations on your publication! While you, as usual, have an interesting way of looking at the numbers, the problem I am having is that neither candidate is presenting a rational plan for solving the looming, massive deficit and total debt problems. Is Obama’s math any better?

  4. Conscience of a Conservative says:

    I’m afraid I have to take the other side here, Howard.
    No I’m not a fan of Romney, I just think both candidates hide from specifics and are not forthcoming.

    In the context of what Presidential debates have become, for lack of a better word Romney won, but I’m not sure what the prize is, since it’s highly doubtful minds or votes got changed.

    As far as jobs, I don’t see how either candidate has a clue.
    Raising taxes is not pro growth, and just today was reading about France’s pigeon protests(Entrepreneurs are not welcome in France), Cutting interest rates to zero, does little to help anyone who does not have primary access to money, savers are getting hurt, consumer borrowers see little to no benefit(depending if they qualify for top tier mortgage financing or credit card debt), investment’s in solar and wind seem more like mal-investment and cutting regulations on banks is not likely to lead to growth but filching of assets.

    By the way, if one is pro free trade which is what I am, Obama is dangerous, but based on Romney’s rhetoric on China, one has to be truly concerned. He could be far worse.

  5. Bob says:

    Seems a bit shallow. How about savings of taking 12 billion and defendants off of social programs… $400B? And 150million earners making more $ thus more taxes. How about program cuts?

    • hhill51 says:

      If you assume that 12 million people getting jobs translates into $400 billion in savings to the Federal government, you’re putting a price tag of over $30K of benefits per year on each unemployed person. If benefits were actually that high, then no one in their right mind would take a minimum wage job (or two such jobs as many do). After all, with the minimum wage at 7.25 per hour and assuming 52 weeks at 40 hours a week, that’s only gross pay of $15K per year.
      .
      A decent job paying $40K per year gives nowhere near $30K of net benefit after taxes, transportation, child care costs, clothing for the workplace, etc.
      .
      I think you need to re-work your estimates. It might help to look at the national budget. You’ll see, for example, that TANF (the program that used to be Aid to Mothers with Dependent Children) is barely above $10 billion a year. Surely you’re not saying there’s another 39 times as much in other benefits, and that every recipient is just milking the system, are you?

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