The Colonel's Forum

Taxes are a big issue. They affect government revenue, which affects the budget. They also affect our bank accounts, so they have an influence on how we spend or save money, which affects the economy.  We pay lots of them:  income taxes to the federal, state, and sometimes city government. There's the payroll tax (which funds medicare and social security); sales taxes, property tax, capital gains tax. Today's statistic is a table of statistics (below). These show the effective federal tax paid based on income level. Your "effective" rate is what you pay after you take all the deductions - it's your net tax liability.  The chart shows a couple interesting things. It shows that the top 20% pretty much all pay a 20% effective tax rate.  It shows that the less money you make, the less you tend to pay in taxes. It also highlights that rich people tend to get their income from capital gains and interest, which is taxed at 15%.  We can change the top rate from 35% ba...

With part 20 in the series, I am starting a segment on the middle class. Today's number is 281% - that's the starting point for this discussion.  Since 1979, the top 1% have seen a 281% increase in their after tax income, 10 times what the middle fifth has seen, and triple what the top 80% of families have seen.  Put simply, the rich are getting MUCH richer while the middle class is getting screwed. The GOP will tell you that Obama and the Dems talk in terms of class warfare. That's an exaggeration of course, but it's not entirely inaccurate, and there's a reason. Take a look at this chart. The red line at the top is the income gains of the wealthiest 1% of Americans since 1979: Over the past 30 years, the wealth gap in this country has increased dramatically. We all know that money runs modern politics, and if you look at this chart and don't think that the top 1% are using their money to protect the status quo, you're just nuts. Of course they are...

For the 3rd chart in this economic focus, let's start to get personal.  This one shows unemployment, which is absolutely worse than it was 4 years ago (8.2% today, closer to 7% in 2008).  There is also recent evidence that many people are giving up the search for jobs, which is terrible news. But look at the graphic.  Look at the turn around (late 2009), and the recent trend (downward).  Now I need to geek out for a moment and show off this shiny new MBA I have so we can talk about NAIRU - the non-accelerating inflation rate of unemployment.  Basically what you need to know is that there is a certain level of unemployment BELOW which you have so many people in the workforce, and such intense competition for workers that wages and prices are driven upwards, resulting in accelerating inflation, which is bad.  You almost always want a tiny bit of inflation, but you want the rate to be steady, not accelerating.  And what is NAIRU for the US?  Righ...

Yesterday we began our focus on the economy series with a look at GDP.  While that's an interesting measure and one that most economists use, it's actually the GROWTH (or decline) in GDP that is an indicator of the direction the economy is heading. Today's chart is the % change in GDP, and do note the zero line on the "y" axis here - anything above it is positive growth in the economy, anything below it means the economy is shrinking. GDP growth has also been frustratingly slow. This is better than four years ago, though, when GDP was tanking. The real GDP growth rate for the past three years, moreover, is similar to the most of the growth years of the Bush administration, and today it's growing at just about 2%.  More importantly, the positive trend would be interpreted by most economists to say that the economy is better off today than it was 4 years ago.

Today is the start of a series where I'll take a detailed look at the economy.  One of the common themes on both sides of this election is "are you better off than you were 4 years ago?"  I think that's pretty subjective, and it's typically a stretch to give the President either credit or blame for what's happened.  Still, politics is personal, voters love this framework, so I'll attempt to put some concrete numbers behind it. Today's chart tracks Gross Domestic Product, or GDP, which is a measure of the total output of the US economy.  The number is $13.6 trillion, which is our projected 2012 GDP.  It was $13.4 trillion in 2008, so that's an increase which is good.  So, based on economic output, we are better off today than we were 4 years ago.  That's just one measure though, so stay tuned in the coming days as we look at a few more.

In episode #7 we talked about jobs, but what about the economy as a whole?  Which party has a better history when it comes to economic growth?  Let me put on my financial adviser hat. Over the five decades since John F. Kennedy was inaugurated, $1,000 invested in a hypothetical fund that tracks the Standard & Poor’s 500 Index (SPX) only when Democrats are in the White House would have been worth $10,920 in February of 2012. That’s more than nine times the dollar return an investor would have realized from following a similar strategy during Republican administrations. A $1,000 stake invested in a fund that followed the S&P 500 under Republican presidents, starting with Richard Nixon, would have grown to $2,087 on the day George W. Bush left office. So, if you like a good return on your investments, and I do, vote Obama/Biden.  Or to put it in terms my GOP leaning friends might better understand "If you vote Romney/Ryan, you're anti-business!"

Let's continue the jobs theme for today's statistic.  Thanks to Bill Clinton for researching this one for me :-) 42,000,000 - private sector jobs added to the economy under Democrat Presidents over the last 52 years. 24,000,000 - private sector jobs added to the economy under GOP Presidents over the last 52 years. Think he's full of it?   Politifact says his numbers are accurate . In case you're wondering, that's 24 years of Democrats, 28 years of Republicans, going back to (and including) Kennedy.  The Democrats achieved that number with 4 fewer years in the oval office, and this includes Obama's 4 years which were the worst recession during the period. Mitt Romney said " this election is about jobs ."  I agree.  If you can look at these numbers and honestly convince yourself "Romney's financial plan is not at all like Nixon, Ford, Reagan, Bush, Bush; he'll buck the trend," then I can't help you.

Today's number is 4,500,000 - the number of private sector jobs created over the past 29 months.  It doesn't take a genius to look at this graph and see how Obama turned around a negative jobs situation upon taking office.  Mitt Romney claims his time at Bain Capital resulted in the creation of 100,000 jobs, but the Washington Post awarded him 3 Pinocchios for that claim.  For those who don't know how private equity firms work, Bain actually invented a model that is very popular called a leveraged buyout; buying existing firms with money mostly borrowed from banking institutions and using the newly bought firms' assets as collateral, and selling them off in a few years.  A side effect of this is often bankrupting the company or shutting down factories/stores to make the firm more profitable.  It actually makes perfect business sense, to the point that the model has become widely adopted in the finance industry.  You just need to not care about the poor s...