Ceteris Paribus
By Larry Doyle on February 27, 2009 at 12:45 AM in American Consumers, Commerce, Current Affairs, Democratic Party, Economy, Employment, Equity Markets, Joe Biden, Mortgage Crisis, Real Estate, Unemployment, Wall Street
Economic and budgetary analysis by their very nature often employ a “ceteris paribus” approach or similarly base line assumptions. Ceteris paribus, translated as “all other things being equal,” or base line assumptions are necessary given the fact that economic analysis has so many variables. Well, let me share with you that ceteris are NEVER paribus and base line assumptions are almost always skewed to bias the results in a desired direction.
***UPDATE: I was not aware at the time of my writing but it is reported that the Obama administration is projecting the economy will grow at a 3.2% GDP in 2010. That assumption is wildly optimistic. No respected economist would project that figure. Consensus has it in the 1.5-2% range. What does this mean? Well, lower growth means lower revenues, means higher deficits, means greater funding needs, means more borrowing, means higher government interest rates, means more “crowding out”, means slower growth for the economy going forward!!
There was little doubt about President Obama’s social agenda and economic platform during his campaign. While markets will somewhat discount campaign rhetoric, they do not discount economic reality. The markets are sending a strong signal that Obama’s economic proposals and proposed budget are anything but pro-growth. Obama Delivers $3.6 Trillion Budget Blueprint runs the risk of raising taxes at a time of economic distress. Raising taxes was a prime factor that increased the economic malaise in the 1930s. Obama is willing to take that risk as he sticks to his campaign plan and is pressured by the liberal wing of the Democratic Party.
We know that housing lies at the core of our economic crisis. Decreasing a mortgage interest deduction as proposed to fund his health care proposal will only serve to put further pressure on a large part of our nation’s housing market. I thought we were trying to stabilize housing.
Proposing a decrease in the deduction for charitable giving by the top 2% is not going to help increase — let alone hold — the level of giving when it is most badly needed. (Joe Biden needn’t worry about this given he has averaged $350 per year in charitable giving over the last ten years!! That’s right. Those stats are in his publicly filed tax returns). I thought we were trying to promote charitable giving.
Given that many small businesses file under the individual tax system as limited liability companies or Subchapter S corporations, Obama’s proposed tax increases will not serve to help employment. I thought we were trying to promote job growth.
Well, I can’t say that I’m surprised by Obama aggressively putting forth his agenda, but this is the redistribution of wealth that was hotly debated during the campaign.
I strongly believe the government should not focus on tax rates but rather tax revenues. What rates generate the most revenues and then spend it accordingly.
Additionally, if one thinks his tax increases are stopping at the top 2% or only those at 250k and above, let me share with you that these changes will effect those with taxable earnings of 208k. Well, 208k vs 250k. I mean it’s close. If you think he is stopping at that, guess again. The 2% Illusion is not reality!!
Obama is President so he writes the budget, but for every action there is a reaction and the markets are not reacting well.
Ceteris are NEVER paribus!
LD
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Does Obama know what he’s doing? I am so dumbfounded by this.
He does. At the same time his pathology don’t allow him to act differently. Just like many of us who have a pathological addiction to these blogs.
Larry, after reading your previous article — and those you referenced which I’d read earlier today — I’m convinced that many more than the top 2% will experience increased taxation. Such profligate spending doesn’t come without a huge pricetag. Ditto your comment about the private sector being elbowed by the government when it comes to access to credit.
The POTUS said those families earning under $250,000 will pay “not one dime” via taxation to pay for his lavish agenda. He’s a lawyer and they can be manipulative linguists. I suspect the truth is that many families earning less than $250,000 will pay thousands of dimes, not just one, making his remark technically correct.
And he did put the emphasis on ONE.
He’s not raising anything, except on the loathsome preferential treatment for equity managers/hedge funds. Those other top 2% income tax giveaways are set to expire, thank goodness. This is a very good budget and I think it will bear fruit. The biggest drops in the market today were in drug companies and insurers because the government intends to use it’s buying power after years of misuse from the Bush admin. No Democrat worth his or her salt would oppose this budget, or deem it anti-growth. I’ll assume you are a Republican.
Many of us are here are Clinton Democrats and therefore economic centrists.
Uh, the tax hikes he refers to are primarily a return to Bill Clinton’s tax policies with new taxes for hedge fund/equity managers, a policy I am sure Hillary would support.
Masslib, you saying it’s President Clinton’s tax policy is laughable.
It’s not even close.
What the hell are you talking about? Nearly all of the tax revenue in this bill is through letting Bush’s tax cuts expire, which would restore Clinton tax policy.
The bottom line in LD story is that “Ceteris Paribus” leads to faulty analysis. This includes the idea that CLinton’s game plan in 1993 is appropriate for today’s conditions. the Carbon Tax aspect of this plan will cripple the economy and disproportionately affect the poor. Think about how $4 gas crushed the working poor because it is coming back very soon. But hey at least they will have highly rationed government health care to help with their meds for depression and anxiety.
I mean, you are saying you are a Clinton “centrist” who doesn’t support what? A return to Clinton income tax policy? Cap and trade carbon taxes? Hell, Bill Clinton proposed a straight forward carbon tax, and if you’ve ever seen his CGI forums he is a huge supporter of cap and trade. There is nothing in here that Hillary herself would not have proposed if she were President.
masslib, I doubt Hillary would have out sourced the writing of the stimulus bill to Pelosi, Reid and Emanuel or permitted it to be passed with the pork. There is a difference between supporting ideals in principle while acting in a responsible way and ideology driven decisions which ignore economic reality. She supported the White House policy of the 1990s of vetoes on bills containing earmarks. Will Obama use his veto pen on unnecessary spending? As he said recently, he won. He owns this and only he will be held responsible for the outcome. Assumptions about what Hillary would have done won’t save his ( or our) ass.
Exactly. Just Google “Obama’s stimulus package” and note all the ads on how to cash in.
This isn’t about the stimulus bill. This is about the BUDGET.
Oh, I get it, the stimulus package has no effect on the budget … just a separate bucket of money we don’t have? Did you look at the two sentences and how they relate before you pressed “Add comment?”
Right. I’ve never understood the rational behind taxing their investment gains at 15%, unstead of applying ordinary income rates. That certainly met my own definition of preferential treatment. I don’t understand why ordinary business owners would feel any different about it.
…rationale…
Ordinary business owners didn’t feel differently. Most Americans had no idea hedge fund managers/private equity managers were getting such preferential treatment. The hedge/private equity market grew hugely over the past eight years and people became aware of the tax treatment and it’s extremely unpopular.
So when you understand it, then you will think differently. Okay?
OK, please explain who the lower 15% rate has benefited and in what way–leaving out hedge fund managers, who obviously enjoy pocketing more money even though it makes no sense.
There’s nothing to understand there, other than the fact that some very wealthy people in the financial industries have been getting preferential treatment from the government at the expense of all other taxpayers–including those who operate other types of businesses.
Masslib, ASSUME nothing. Trust no one. It’s China Town.
The POTUS’ comment “not one dime” likely means, contrary to conventional interpretation, that families earning under $250,000 will be taxed THOUSANDS of dimes to pay for his lavish agenda, not just ONE dime.
That is the truth when people like these use language. They use language to soothe their maligned conscience.
“I strongly believe the government should not focus on tax rates but rather tax revenues. What rates generate the most revenues and then spend it accordingly.”
VAT?
Didn’t someone on here post one time that Republicans give to charity in amounts 3 times greater than Democrats? I was astounded by the Biden revelation, really made me start to pull away from that “lovable clown” thing, as he is much more of a hypocrite than I ever imagined. Sad thing is a lot of good public works are sponsored by these charitable contributions of wealthy folks. My local hospitals have entire wings donated by those evil rich Republicans.
That’s not actually true. Indeed, the rich on average, give about 3% to charity. I’ve read Republicans on average give more money while Democrats volunteer more hours.
time is money.
Democrats, for the most part, are not as rich as Republicans.
People don’t need charity. They need jobs and health care.
Where is the evidence that supports the tired and over used claim that Republicans are richer than Democrats? The members of the U.S. Congress actually demonstrate the opposite of that claim.
masslib: I just remember the comparisons during the GE when it was revealed how little Biden gave, and that Obama began charitable giving only in his last year or two in the Illinois Senate, and then it was all to TUCC. I could believe the disparity because of church contributions. My daughter’s in-laws are conservative Christians, Republican to the core, and every single one of them tithes 10% to their church.
Speaking of revelations during the GE, does anyone remember that, when Obama’s financials were revealed, neither he nor Michelle had any stock positions anywhere in their account of personal holdings?
Is it wrong that I take some satisfaction in the fact that my prezbo supporting brother’s tax bracket just went to 39%?
How does he feel about it?
Oh, he won’t be happy when he figures it out - which probably won’t be until his accountant tells him how much he has to fork over.
He was complaining about what he had to pay under Bush and I again had to wonder in what parallel universe Obama supporters lived. I warned him this would happen but he voted for for the dipstick anyway.
But otherwise he’s a good guy and my little bro, so I haven’t rubbed his nose in it. Yet.
Hey Larry, why can’t we talk about the whopping tax cuts that 95% of Americans are getting. Thirteen bucks a week is a considerable windfall for us working slobs. That means that the filthy rich 5% are going to be justly punished and forced to finally pay their fair share for the multitude of government goodies that Obama the Great has promised to lavish upon his faithful. It all sounds so wonderful, especially when Sham Wowbama is delivering the message from his burning bush, whoops, I meant bully pulpit.
I’m not an economist so correct me if I’m mistaken. Isn’t it obvious that increasing taxes on productivity (Those evil 5%) will cause an equal increase in the cost of products? Won’t cap-and-trade taxes create an increase in the price of the energy that heats our houses, fuels our autos and delivery systems, and drives our factories? As consumers won’t we end up paying more for EVERYTHING that we need, so won’t we demand more money for our labor to make up the difference? Won’t the tremendous burden that the wicked Anti-Santa Obama has placed on the market in his quest to deliver presents to the good children (those that voted for him), and lumps of high sulfer coal to the bad children (those that oppose him), eventually bankrupt this country? And won’t the tremendous increase of money that will be funneled to Washington actually come out of all of our pockets, and our children’s pockets, effectively erasing any gains from the ridiculous and insulting tax cuts that Obama continually tries to bribe us with? Is there anything wrong with this calculus?
I think you misunderstand a few concepts regarding taxation and its impact on the economy. When a company pays higher taxes, it means that in order to keep the rate of return the investment demands, the products will be priced higher to achieve the correct margin. Taxing income from individuals does not change the cost of products. The only downside of taxing rich individuals is that there will be less capital for investment which does create jobs. Taxing individuals with low income, impacts consumption because most low income people save very little. As we see right now, low consumption has a very negative impact on the GNP. Production must slow down if there are no buyers for the products.
The bottom line is that taxes are detrimental to the economy if the taxes are not spent for roads and other infrastructure or education or health care. Some might disagree that investing in education or health care is not beneficial to the economy, but maintaining an educated and healthy labor force is very important to the economy. Taxes for war and “security” is the worst expenditures.
The intervention of the government in education and health care just raises the cost of providing those services. It skews or maligns the barter or trade between stakeholders, “certeris being paribus.”
War is good but only if you win and if you take over or annex the territories won. Warring just to straighten a political system of a foreign entity is stupid. As an American I would like to tax Iraqis at least 40 pc of their GDP. I know, probably worse than Saddam.
The problem with MassLib philosophy is that government intrusion in private markets, business and economy inject very high levels of inefficiencies costing large amounts of of losses in many areas of endeavor. Just for an estimate, government intrusion into the private market can cost as much as 50 pc reduction of GDP. Now is impossible to assert that without a lot of caveat but in general a product or service will not spin out other innovations and new methods because the government intervention will hamper motivating factors.
So an economy ran by the arm of the government reflects very much our current dilemma with Obama. To run a government heavy economy like the one MassLib wants to run it is just expensive as hell and everyone has to pay pay and pay some more.
A free health care system would cost approx. 50 pc of the one we presently have. Or less. Maybe 75 pc less.
What about the illusion of 2%? Some of the provisions of the stimulus bill, as pointed out by LD, will have an effect on small businesses and families earning under $250k. The next time you file an itemized tax return with the reduced interest deduction allowed on your mortgage and allowed less for charitable deductions, you will find your refund reduced or the amount owed in taxes have increased no matter what your income is. I don’t know if this bill provides for increased gas tax, but this has been proposed several times by Obama. OPEC had reduced production and the price/gal of gas will go up. Obama’s idea of increasing gas tax to discourage unnecessary travel will hurt economies is cities like mine which rely on tourism to increase income. It will hit the poor and middle class hardest as it did when the price went up to $4/gal a few months ago. There will be more money for TARP soon since economists are predicting more foreclosures on toxic loans. The housing crisis isn’t being addressed and in order to fix the mortgage you hold on your house, you will be forced to declare bankruptcy under chapter thirteen which means any other debt you owe will be reduced or forgiven and that will hurt the economy even more. I’m personally in favor of universal health care and some of the other programs, but it has to be done in a responsible way. He should spend the next four years fixing what is wrong and the Democrats in congress should be more patient with their agenda. They will bankrupt the country if they don’t pull back and use some common sense.
How does this health care plan affect Congress, political appointees and civil “servants”?
Are we still to foot the bill for their subsidized insurance and pensions? Forcing Congress and highly paid Cabinet and political appointees to pay for their own private insurance would certainly reduce the high cost of “entitlement” programs.
What good is an education if corporations continue to offshore high paying jobs and bring in increasing numbers of H-B1 visa workers?
Shaw Wowbama!!! that is rich and now one of my favorite monikers for the the new president bozo!!!!!
I don’t understand how anyone can look at the numbers and think raising taxes is the answer or lowering taxes was the problem.
The total individual income tax collected by the federal government in 2009 will be just under $1 trillion with 40% of that coming from the top 2% ($250,000+) at a tax rate of 35% we get a total revenue of $400 billion. Now remember we will have a $1.7 trillion deficit this year. (Bush’s “slashing” of taxes was from 39% under Clinton to 35%) If you increase the Bush tax cut back to the Clinton days you produce an 11% revenue increase on top wage earners for $44 billion. Doesn’t do much to affect the deficit. If you double the tax rate on top earners and double the corporate tax rate (sounds like a prescription for depressing business growth and increasing unemployment to me) you only get another $700 billion still leaving us a $1 trillion budget deficit. If you just triple the tax rate on $250,000 + earners to an imaginary 105% of earnings (and this increase doesnt affect peoples production) we still have a $900 billion deficit.
Now remember under Bush the domestic federal spending (excluding defense and debt service) increased 180% from 2000 to 2009 from $1.1 - $3.0. About 3 times the rate of inflation. By comparison Clinton in his 8 years increased this spending from $820 billion to 1.1 trillion about 40%. If Bush would have followed Clinton’s SPENDING example, even with the tax cuts, we would cut the deficit $1.4 trillion, 30 times the revenue lost from the tax cuts.
So is the problem that taxes on the rich are too low or that government spending is way, way too high? Bush’s blunder was increasing spending and Bambi and the dems are doubling down on that blunder.
http://www.usgovernmentspending.com/#usgs302
“About 3 times the rate of inflation.” I meant 6 times…
First of all, for every dollar of wealth, 1% owns $0.40 the next 19% owns $0.51 cents, and then the rest, 80% owns $0.09 — and for every tax dollar, 2% pay $0.40 and the rest pay $0.60 cents. It doesn’t take a genius to see that those with fewer dollars (people that fall in the mid-range, not totally poor) are carrying the weight of the taxes collected by the government.
wealth distribution link
But do the top 1 pc and 19 pc restrict in any way the freedom of the rest 80 from enjoying the fruit of their contributions. No. Everyone tax payer or not is not denied the free use of all the benefits of government services, infrastructure and GDP.
The problem is clearly identified and explained correctly by to77. We need to accept the fact that government is messing up with us. They are taking us over. Bossing us around. Squashing and crushing the American entrepreneurial spirit.
Since Ronald Regan government began to mess with the citizens of this country by formulating formulas that skewed reality and created a false construction of the economy. At the end each formula made those who ran the financial and industrial assets extremely rich and made the common citizen a victim of clever marketing dysfunctions. Greenspan was the worse cancer of all of them. A cancer of the brain. This whole house of cards has to collapse our system back to pre-Regan conditions in order to level off the losses of common citizens. Not that it will happen.
that’s irrelevant. the point is you can’t collect enough taxes from $250,000+ to get us out of the hole. I don’t give a damn about the top 1-2% whatever, the issue is raising their taxes doesn’t solve the problem. this is liberal class envy, blame game. the solution is government has to stop spending. Having the top tax rate at Clintonian levels garners you another $44 billion big deal.
Bush went on a federal domestic spending spree that is only matched by FDR and look where we are, how is upping the ante going to make things better?
It happens when administrations care only to see positive numbers in GDP, etc. A mantra brought by Regan and carried forward ever after. Government becomes no amoral but immoral, and abandons Christianity as the philosophical rule. The results are these so called ‘recessionary cycles’ where so called ‘corrections’ happen. Like you say, Bush took it up by believing the war in Iraq would have positive results in all fronts, but I knew it would not be that way only because Iraq is a completely different culture. Now, today per se we are enjoying a little bit of benefit from the war in that oil prices have dropped. But if Obama keeps taunting the oil business we could be crushed. I keep thinking that as unthinkable as it may be, the end game will have to be the institution of a Federal tyranny, a possible revolution and the break up of the union.
In other words, either the Federal government quits, like you are asking, which is doubtful except once totally bankrupted, or IT TAKES US HOSTAGE and institutes a socialist state right after a prolonged period of nightly curfews and complete hijacking of individual rights. Those to me are the two options that project from what you said.
First my response wasnt to you it was for r2d2 ridiculous breakdown of this percent, that percent blah, blah… that is what is irrelevant..
Second, I am not as apocalyptic about it as you, I think the answer is simple: cut spending about 20% and cut taxes on corporations in exchange for expansion and new hires. every $ spent on a new hire or infrastructure can be subtracted from taxes. if every dollar collected in corporate taxes was spent instead by the company to provide a new $35,000 job we would create instantly 1 million new jobs.
Without an apocalyptic ending the Fed gov or the Obama administration will never let go of a process that benefits them politically for one that would benefit us.
But I believe you’ve got it. And I agree with you.
“First of all, for every dollar of wealth, 1% owns $0.40 the next 19% owns $0.51 cents, and then the rest, 80% owns $0.09 — and for every tax dollar, 2% pay $0.40 and the rest pay $0.60 cents.”
It’s interesting how you did carry out your equation equally. Here’s the reality, the top 1% “owns” 40% of the wealth and they pay 40% of the taxes, the top 25% “owns” 90% of wealth and pays 87% of taxes the top 50% of wage earners “own” 95% of the wealth and pay 97% of all taxes. The lower 50% own 5% and pay 3%.
Not the draconian difference you were hoping to portray.
The US is facing Bankruptcy.
Also, Jonathan Hoenig, a Fox Biz contributor, just gave Obama a collective F for his budget. Even if you took ALL the taxable income from the top 1& of Americans, you couldn’t balance this budget. We are so screwed.
We are already bankrupt and have been for awhile. Since the American public went to a negative net-worth, we have been bankrupt. If we look at the reality, We are a third world country with a first rate military.
The Bush’s policy of having tax cuts on the wealthy to stimulate the economy didn’t work. It concentrated wealth in the upper sectors of the economy. This was the class war that had been going on for the last 8 years. Wealth does not “trickle down”. It didn’t work under Reagan and it didn’t work under Bush. It stimulated deficit spending in the households using their houses as a piggy bank and credit card use to accumulate things which are only representations of wealth, but not true wealth. The difference is that Bush put Reaganomics on steroids and here we are with another and bigger mess.
Do the tax cuts need to expire on the wealthy? Yes. Is it going to be enough to cover the deficit? No. However, that is less money the government has to borrow.
If we do nothing we are screwed with a crumbling infrastructure and no new investments in the future. If we do something we are probably screwed too, but at least we won’t be standing still and might have something in place for the future to pick up again.
Business as usual is not going to work. We are the largest most powerful nation without high speed rail, without any investment in technology for the future, and without some type of general health care for our citizens. We spend more money on health care and have little to show for it. Our business models have gotten into maximizing profits for the short term instead of long term growth.
Here it is, folks!
S&P 500 financial sector ETF falls 8% in pre-open trade
ECONOMIC REPORT
GDP revised to 6.2% rate of decline in fourth quarter
Worst quarter since 1982 as spending, investment and exports drop sharply
http://www.marketwatch.com/news/story/GDP-revised-decline-62-fourth/story.aspx?guid=%7BF68D38CA%2D2BAE%2D45B0%2DA247%2D760432E0BF1A%7D
well said, LD
More on LD’s astute assessment in his post:
Obama’s Deficit Plans May Use Over-Optimistic Growth Forecasts
http://www.bloomberg.com/apps/news?pid=20601109&sid=ao4T6YQIFoRE&refer=news
The reason we got a liar for president is that the government is in the habit of lying to us on a regular basis. Obama is perfect for federal government agencies.
My guess would be that raising taxes on small businesses will result in jobs lost, not jobs gained.
But what do I know?
If I were already struggling with regulation, shrinking pools of purchasers, and higher costs of shipping, etc., I would not be adding labor costs.
Can anyone give me a lowdown on the mortgage interest deduction decrease? Is it decreased for all or a certain income or what?
As I understand it, the proposal is for a decrease for those in the 35% tax bracket and the deduction goes to 28%.
Okay, wait just a minute!
The Obama [Joe Cool] administration predicts 3.2% growth in 2010, but also 10.3% unemployment in 2010?
How does this work, I wonder, since we’ve got 7.6% unemployment as of January 2009 and a negative growth rate of 6.2% for the 4th quarter of 2008.
Good Bloomberg article, h/t to Barry Ritholtz at The Big Picture. Must read.
http://www.bloomberg.com/apps/news?pid=20601039&refer=columnist_reilly&sid=av_BTw3JLGOs#
too bad most people werent listening to what obama was really saying all thru the primaries and election. ie; i will have a civilian force that is as well armed and as powerful as the military. (hence millions to LaRaza and ACORN.. his civilian army?.. in the stimulus. payoff for helping him cheat to win the election?) in his book he says “if the political winds shift in a ugly direction, i will stand with the Muslims” hence his plan to overturn our right to bear arms.(leaving us unprotected) now he wants the Fairness Doctrine to take away our right to free speech. now i hear the dems want to change the amendment that only allows a president to serve 2 terms. what the hell is going on here and where will this end? we need to stay vigilant.
and keep fighting.we must take back our beloved country.
fire all those in washington and start over with some real americans
I must have missed the bit about Obama’s private army.
I do seem to recall something about letting the Bush tax cuts expire, lowering taxes for 95% of all Americans, repairing the nation’s crumbling infrastructure, funding alternative energy development, providing financial assistance to students, restoring the public school system, extending health insurance to disadvantaged children, expanding rail transportation, etc. I remember him saying equal pay for equal work would become law. He also said something about closing Gitmo, setting a short time-table for pulling troops out of Iraq, and focusing anti-terror efforts on Afghanistan, as we should have done in the first place.