Posts Tagged ‘Romney’

If you missed the debate …

October 5, 2012

Here’s a 90 second recap that tells you all that you need to know …

click to view

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Spanked! … Here’s why.

October 4, 2012

It was was fun watching the MSNBC post-debate show last nite.  No tingle up Chris Matthews’ leg.

CNN ran a “scientific poll” of debate watchers … Wolf Blitzer squirmed to rationalize the 67 to 25 Romney win.  Their panel’s  best excuse: “Must have over-sampled Republicans.”

Hmmm.

Suddenly over-sampling matters.

Both CNN and MSNBC were asking: “Why didn’t Obama bring his “A” game tonite?”

First, I think he did … but, for the sake of argument,  I’ll give the benefit of the doubt.

Still, I think pundits are missing the likely “why?”

My take: 3 things took Obama off the game his loyalists expected:

1. Benghazigate … while the topic wasn’t on the docket, I gotta believe that –- behind the scenes – that’s using up a lot of Obama’s energy.  Foreign policy in flames, caught lying, forced to play down nailing Bin Laden, CNN broke media ranks and started reporting the cover-up.  That’s gotta be taking a toll

2 Hampton speech … the Tuesday release of the factually flawed and racially divisive speech Obama gave in 2007 took “47%” off the table … if he had hit Romney with that, it would have opened the floodgates for a stream of dot points re: how Obama has been dividing the country … I bet Romney regrets that Obama didn’t bring it up.

3. $17,000 deduction cap … great play by Team Romney on Tuesday … sent Team Obama scrambling, diffused the “get specific” line, and left Obama with a weak argument: “Create jobs by taxing the rich”.

Collectively, I think that – behind the scenes – Obama was more focused on these 3 “distractions” than on the debate … and it showed.

* * * * *

For the record, I think Obama did bring his A game … he was holding a bad hand, being forced to defend his record … he wasn’t going head-to-head with the ladies of the View … and he had to go without his crutch …

As Bill Maher tweeted: “Maybe the guy does need a teleprompter”.

Michael Moore tweeted:“This is what happens when u pick John Kerry as your debate coach.”

Bottom line: The Emperor just wasn’t wearing any threads…

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How much can a family with 2 kids earn and still pay zero Federal income taxes?

September 25, 2012

The  answer is about $45,000

Reminder: Median household income is just a tad over $50,000

* * * * *
Here’s an analytical walk-through from the non-partisan Tax Foundation

Start with the answer: assume  a family of four making $45,000 in adjusted gross income.

Subtract a standard deduction of $11,600 and personal exemptions of $14,800 (four times $3,700) and the family’s taxable income is reduced to $18,600.

The family is taxed at 10 percent on their first $17,000 of income and at 15 percent for their remaining $1,600 of income, giving them a total tax liability of $1,940.

But, they allowed to deduct two tax credits of $1,000 for each of their two children.

And, they’re allowed to deduct an additional $214 due to the Earned Income Tax Credit, which is a credit designed to financially assist low to
moderate income working families.

Subtracting these tax credits from the family’s tax liability brings their $1,940 liability below zero.

However, since the child credits and Earned Income Tax Credit are so-called refundable tax credits, the family ends up receiving a check for $274 from the IRS for the remaining value of their tax credits.

For families who are eligible for other credits such as the child care credit, education credit, or the tax credit for purchasing a hybrid vehicle….. AGI can go higher than $45,000 with no tax liability.

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Ironic Twist

The same George Bush that the left demonizes is the President who signed the 10% marginal tax bracket, boosted the child credits, and introduced the refunable tax credits.

The irony: liberals should be praising him and conservatives should be dissing him.

If it weren’t for the evil Bush tax cuts, we wouldn’t be at the now famous 47% level of folks not paying Federal income taxes.

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Tomorrow: Who pays taxes and who gets the benefits?

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Flashback: About those 47% who don’t pay income taxes …

September 24, 2012

Romney sure caused a stir with his remark that 47% don’t pay Federal income taxes.

Well, the Homa Files was on this case over 4 years ago !

This analysis was originally posted on July 31, 2008 during the run-up to the election. It proves the point (ahead of its time) that less than half of all voters pay any income taxes now that “Make Work Pay” has been enacted (as part of the stimulus program). Think about it: the majority gets to demand more government programs that they don’t pay a cent towards. I think that’s scary. Very scary..

It’s the HFs post that continues to get the most hits, and the topic is ‘hot’ this week because of Mitt’s smokin’ gun video.

So, here’s a flashback …complete with numbers and sources.

* * * * *

Despite the drumbeat of warnings from various sources, the prospects that a minority of voting age Americans will be paying Federal income taxes under the Obama tax plan doesn’t seem to arouse much visible public anxiety.

Why?

First, for those in the emerging majority that won’t pay any income taxes – or may even be getting government checks for tax credits due – the deal is almost too good to be true. To them, Obama’s plan must make perfect sense. So, why rock the boat?

Second, some people argue that low-earning people who don’t pay income taxes shoulder a regressive payroll tax burden to cover Medicare and Social Security. Yeah, but these programs – which are most akin to insurance or forced savings plans — offer specific individual benefits that are directly linked to each wage earner’s contributions.and the benefits phase down quickly as qualifying income increases. That is, they’re not as regressive as many people argue.

Third, most of the energetic criticism of Obama’s plan has centered on its redistribution intent — taking over $130 billion of “excess” income from undeserving rich people, and giving it directly to those who earn less and need it more.

Fourth, most folks just don’t believe that the numbers will really shift enough to create a voting majority of citizens who don’t pay income taxes. They’re wrong. Very wrong.

Here are the numbers … and why they should bother you.

* * * * *

Today, 41% of voting age adults don’t pay Federal income taxes

Based on the most recent IRS data, slightly more than 200 million out of 225 million voting age Americans filed tax returns. That means that 25 million adults – presumably low income ones – didn’t file returns and, of course, didn’t pay any income taxes. See notes [1] to [4] below

Of the 200 million voting age filers, approximately 68 million (33% of total filers) owed zero income taxes or qualified for refundable tax credits (i.e. paid negative income taxes). [5]

Add those 68 million to the 25 million non-filers, and non-payers already total 93 million – 41% of voting age adults.

* * * * *

Obama’s Estimates – Make that 49%
Not Paying Federal Income Taxes

Obama says (on his web site) that he will give tax credits up of $1,000 per family ($500 per individual) that will “completely eliminate income taxes for 10 million Americans”. And, he says that he will “eliminate income taxes for 7 million seniors making less than $50,000 per year.” [6]

Taking Obama’s estimates at face value, the incremental 17 million that he intends to take off the income tax rolls will push the percentage of non-payers close to 49% of voting age Americans — within rounding distance to a majority. [7]

* * * * *

And, Obama’s estimates are probably low,
so make the number 55% (or higher)

Since Obama’s basic proposal is for tax credits ($500 per person or $1,000 per family) – not simply deductions from Adjusted Gross Income (AGI) — they will have a multiplier impact on the amount of AGI that tax filers can report and still owe no taxes.

For example, a childless married couple that files a joint return can currently report about $17,500 in Adjusted Gross Income (AGI) and owe no income taxes. [8]

Under the Obama Plan, that couple’s zero-tax AGI is bumped up to $27,500 since their new $1,000 tax credit covers the 10% tax liability on an additional $10,000 of AGI. And, married couples filing jointly can keep adding about $10,000 to their zero-tax AGI for each qualifying dependent child that they claim. [9]

click table to make it bigger

click table to make it bigger

Based on the 2006 IRS data, approximately 25 million tax returns were filed that reported AGI less than $27,500 (the post-Obama zero-tax AGI) and required that some income taxes be paid. [10]

Assuming that 45% of those were for couples filing jointly, they represent over 22 million adults. For sure, these 22 million will come off the tax rolls – and they alone will be enough to create a non-taxpayer majority (51% of voting age adults),

click to make table bigger

And, there are more folks being pushed off the tax rolls. About 4.7 million childless individuals earn less than $13,750 (the post-Obama zero-tax AGI for childless individuals), and currently pay some Federal income taxes. This group will shift to non-payer status.

So would several million joint filers who can take advantage of the Child Tax Credit to report more than $27,500 and not pay Federal income taxes.

And, some portion of the 7 million Seniors that Obama says will have their taxes eliminated — that is the Seniors couples earning more than $27,500 (but less than $50,000) — and Senior individuals earning more than $13,750 (but less than $50,000).

So, post-Obama, the percentage of non-taxpayers will easily exceed 55% of voting age adults — a solid majority. It won’t even be close.

* * * * *

The Bottom Line – Why You Should Worry

An income tax paying minority of voting age adults isn’t just a possibility. Under Obama’s plan, it’s a virtual certainty. Based on the hard numbers, Obama’s plan will create a new majority — a powerful voting block: non-tax payers. UH-OH.

Again, for those in the emerging majority that won’t pay any income taxes – or may even be getting government checks for tax credits due – the deal is almost too good to be true. To them, Obama’s plan must make perfect sense. Count on their perpetual support for the plan.

But for those in the new minority, watch out if the new majority decides that more government services are needed, or that $131 billion in income redistribution isn’t enough to balance the scales.

The Tax Foundation — a nonpartisan tax research group – has repeatedly warned that “While some may applaud the fact that millions of low- and middle-income families pay no income taxes, there is a threat to the fabric of our democracy when so many Americans are not only disconnected from the costs of government but are net consumers of government benefits. The conditions are ripe for social conflict if these voters begin to demand more government benefits because they know others will bear the costs.” http://www.taxfoundation.org/research/show/1111.html

* * * * *

Sources & Notes

[1] The Census Bureau reported 217.8 million people age 18 and over; as of July 1, 2003.
http://www.census.gov/Press-Release/www/releases/archives/population/001703.html

http://www.census.gov/popest/national/files/NST-EST2007-alldata.csv

[2] The IRS reported 138.4 million personal tax returns filed in 2006.
http://www.irs.gov/pub/irs-soi/06in11si.xls

[3] The IRS reported that in 2006, approximately 45% of filed returns were by married couples filing jointly (i.e. 2 adults per return); 55% for individual filers (including ‘married filing separately’ and ‘head of household’). http://www.irs.gov/pub/irs-soi/06in36tr.xls

[4] Calculation: 138.4 million returns times 1.45 (adults per return) equals 200.7 million adults represented on filed returns

[5] http://www.irs.gov/pub/irs-soi/06in01fg.xls http://ftp.irs.gov/pub/irs-soi/06inplim.pdf

[6] http://www.barackobama.com/issues/economy/#tax-relief

[7] Analytical note: 93 million plus 17 million equals 110 million divided by 225 million equals 49%.

[8] Analytical note: $17,500 less a $10,700 standard deduction, less 2 exemptions at $3,400 each, equals taxable income of zero – so no federal income taxes are due.

[9] Analytical note: $27,500 less a $10,700 standard deduction, less 2 exemptions at $3,400 each, equals taxable income of $10,000, which at a 10% rate is a $1,000 tax liability that gets offset by the $1,000 Obama credit, reducing the tax liability to zero.

[10] http://www.irs.gov/pub/irs-soi/06in11si.xls

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Reprise: Who do income tax payers support – Obama or Romney?

September 19, 2012

We posted this last week, ahead of the curve …

Since the bruhaha erupted when Carter’s grandson leaked the pirated tape of Romney speaking to donors, I thought a repost was in order …

Bottom line: It’s not 100% taxpayers for Romey; 100% non-taxpayers for Obama … but there is a statistically significant difference.

* * * * *

Who do tax payers support – Obama or Romney?

That’s an easy one … but, the latest CNN poll was the first I spotted that divides the population along those lines … or, at least, sorta does.

CNN breaks the sample by those earning less than and more than $50,000 .

$50,000 is about the point where folks have to start paying Federal income taxes.*

No surprises in the data.

Romney has the edge among Federal tax payers.

Obama gets those who don’t pay Federal income taxes … by a whopping 57% to 42%.

Uh-oh.

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* P.S. Yeah, yeah, yeah about payroll taxes … but they are “insurance” payments with directly associated benefits.

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Who’s viewed more favorably – Obama or Romney? Biden or Ryan?

September 5, 2012

Well, well, well.

According to the most recent CNN poll, more likely voters (53%) view Romney favorably than view Obama favorably (51%).

And, more view Obama unfavorably (48%) than view Romney unfavorably (43%).

BTW: Ryan is viewed way more favorably than Biden

Think the mainstream media will pick up on these poll results?

I’m betting not.

* * * * *

CNN Question #4:

We’d like to get your overall opinion of some people in the news. As I read each name, please say  if you have a favorable or unfavorable opinion of these people.

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Did the Supreme Court help Obama or Romney ?

August 17, 2012

Pundits – all of whom mis-predicted the Supreme Court decision – were largely split re: whether the decision would boost Obama’s or Romney’s Presidential chances.

Well, based on this week’s NYT-CBS poll, the SCOTUS decision was a boost for Romney:

28% said they were more likely to vote for Romney … only 13% said that they were more likely to vote for Obama … that’s more than 2 to 1.

Fair to say that the SCOTUS decision was a force boosting Romney into a dead heat in the election poll.

 

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SCOTUS & Politics

From the same poll, a majority felt that  the SCOTUS decision was based on personal or political views rather than the law.

That can’t be good …

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A good day for Team R&R …

August 16, 2012

On Monday, I laid out the Brer Rabbit strategy that I thought Team Romney was implementing.

Note: Pundits are now calling it “Political Jujitsu”

The essence: name Ryan and lure Team Obama into the Medicare trap … get them to repeat their claim that Ryan wants to throw granny off a cliff … and then bang …  counter attack and put ObamaCare on the table.

Team Romney probably didn’t expect help from others , it got some.

First, a video of Erskine Bowles – you know, of Simpson-Bowles fame – went viral.

The video shows Bowles (a Democrat) praising Ryan and his budget.

“Have any of you all met Paul Ryan? We should get him to come to the university. I’m telling you this guy is amazing. … He is honest, he is straightforward, he is sincere. And the budget that he came forward with is just like Paul Ryan. It is a sensible, straightforward, serious budget and it cut the budget deficit just like we did, by $4 trillion. … The president as you remember, came out with a budget and I don’t think anybody took that budget very seriously. The Senate voted against it 97 to nothing.”

click to view vid
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* * * * *
On cue, the Dem talkers started ripping on Ryan.

As soon as they did, Team Romney launched the counter-attack …  reminding folks that Medicare funds were being raided to pay for ObamaCare … taking Medicare funds away from seniors and sprinkling them to others.

click to view vid

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* * * * *

On cue, the Dem talkers denied that Obama would ever consider raiding Medicare.

Oops.

Tape on file shows Pres. Obama telling Jake Tapper of ABC that he would, he did, and he’d make it stick.”

TAPPER: One of the concerns about health care and how you pay for it — one third of the funding comes from cuts to Medicare.
PRESIDENT BARACK OBAMA: “Right.”

TAPPER: Are you willing to pledge that whatever cuts in Medicare are being made to fund health insurance, one third of it, that you will veto anything that tries to undo that?
OBAMA: Yes.

click to view vid

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That’s called “hoisting yourself by your own petards.”

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An adult choice … just might work.

August 13, 2012

First, the disclaimers: (1) I’m rooting for Romney and (2) I was hoping for Marco Rubio.

Why Marco.

Simple.

As H.L. Menchken is oft-quoted:

“No one ever went broke or lost office underestimating the intelligence of the American public.”

I think the majority of people who vote are poorly informed – accepting politicians’ focus group tested  talking points — and cast their votes based on habit, group association or superficial candidate characteristics.

So, I figured that Rubio – a cool, good looking, young, articulate Latin guy – could deliver Florida, sway some Hispanics and make some single women swoon.

In other words, strictly a vote-getting maneuver.

Morning after, I like the Ryan pick.

Why?

He’s squeaky clean.  The Team Obama muckrakers will go crazy trying to find dirt on the guy.

He’s very smart … knows the details, not just the storylines … won’t get Palinized

He’s very articulate … he’ll shred Biden in the VP debate … in fact, I’d love to see him go up against Obama with a neutral moderator (think back to Ryan’s performance in the infamous healthcare summit).

He’s all-Midwest … an area the GOP has to win … puts Wisconsin in play.

He’s Catholic … maybe the bishops will stand behind him on freedom of religion

Fiscal conservatives love him … remember 2010?

What’s the downside?

Yeah, Medicare.

Dust off the “throw Granny over the cliff ad”.

Here’s my take: Medicare is the GOP’s equivalent of Brer Rabbit’s briar patch.

I think they want it on the table.

But, you say, they’ll lose seniors.

Not so fast.

I think that bomb will be easy to diffuse … and as a bonus, it puts ObamaCare back in play:

If you are on Medicare, your benefits will not be cut. Period

In fact, Romney & I will do our best to repeal ObamaCare and restore the $500 billion of Medicare cuts that are in the law.

Think about it.

What good is Medicare if doctors stop accepting Medicare patients?

What good is Medicare if some Washington bureaucrat decides that you’re too old to get your bad hip replaced?

Romney & I won’t let that happen. Period.

I think that this is going to get interesting …

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“You PE guys are a bunch of vampires … have any loose change?”

May 16, 2012

Monday was a great  day in the rough & tumble day in the world of presidential politics and candidates’ hypocrisy.

* * * * *
Monday morning

President Obama’s campaign launches an ad, “Steel,” attacking Mitt Romney’s record on job creation.

The two-minute ad focuses on GS Technologies, a steel mill in Kansas City that was bought by Romney’s private equity firm Bain Capital and went bankrupt soon after.

According to the Washington Post, the ad paints Romney as out of touch with the needs of the local workers and concerned only with Bain’s own profits.

“We view Mitt Romney as a job destroyer … a vampire. They came in and sucked the life out of us.”

          click to view
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* * * * *
Monday afternoon

In rapid response mode, the Romney campaign also released its own web ad, “American Dream,” focused on a successful steel company invested in by Bain:

          click to view
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* * * * *
Monday evening

According to the Weekly Standard, President Obama attended a fundraiser Monday evening in New York City  hosted by Hamilton E. James, the chief operating officer and president of Blackstone —  “one of the world’s largest private equity fund businesses”

This fundraiser-of-the day had a particular irony to it since earlier in the day Obama criticized private equity investors as vampires.

* * * * *

You just can’t make this stuff up …

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2012 campaign bumper stickers …. game on

April 13, 2012

In case you were off the planet yesterday, Hillary Rosen — reportedly a DNC adviser —  dissed  Ann Romney (and millions of stay-at-home moms) that Mrs. Romney — a mother of 5 and cancer survivor — has no cred re: economic issues because she  “hasn’t worked a day in her life”.

Oops … stepped in it.

According to the Washington Post, Team Romney quickly seized the opening:

The Romney campaign’s quick reaction to Rosen’s comments — Ann Romney Twitter feed, Fox News hit, conference call — speak to an operation that is ready for the minute-by-minute battle that is modern presidential campaigning.

Romney’s operation won a measure of respect for their handling of the slipup by Rosen.

Already there’s a Romney  bumper sticker available for sale.

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Buffett, Romney & the Give Back to Society Rate

January 30, 2012

The cameo by Buffett’s secretary at last night’s SOTU address, and Mitt’s released tax returns have re-elevated the issue “coddling the rich” with low tax rates (compared to their secretaries).

Last fall, when we dissected Buffett’s taxes, we coined a  measure: the GBSR™ – “Give Back to Society Rate

We defined the GBSR™ as the sum of taxes paid plus charitable contributions – since those are all money that’s supposed to be going to the common good, albeit administered by different organizations – divided by AGI.

We crunched the numbers and concluded that Buffett pays about $7 million in Federal taxes, about $3 million in state taxes, and about $20 million to charities … for a total of $30 million … which dived by his $63 million AGI … gives a GBSR™ of almost 50% (47.6% to be precise).

We concluded that Buffett may not be the piker that he claims to be.  And, maybe he should stop causing trouble for other folks by constantly whining about the tax code.

In Romney’s case, his release says that he made $21 million … paid $3 million in taxes … and donated $3.7 million to charities.  So, his tax rate may sound meager @ 14%, but his GBSR™ is almost 32% – and that’s not counting state & local income taxes.  My bet: add S&L taxes in and Mitt ‘s GBSR™ is way over 40%, too.

So, it just may be that the tax code is leading fat cats to do the right thing – it’s just that they’re giving much of their dough to private charities instead of the Feds.

Do you blame them?

* * * * *
Here’s the original HomaFIles post:

Squeezing Buffett’s numbers … Part 5 (and done !)
Homa Files 10/21/2011

OK, today should about do it.

After a recap, I’ll drop my conclusion on you … my very surprising conclusion

First. a recap to get everybody on the same page.

In Part 1, we looked hard at Buffett’s effective income tax rate (17.4%), and showed how he could get to that low rate by offsetting practically all of his ordinary income with $23 million in deductions.

This conclusion debunks the popular pundit point that he gets to the rate by having practically all of his income in capital gains and dividends.

In Part 2, we showed that about $20 million of the deductions are probably charitable contributions – a device that rich folks use to (1) do good things and (2) to manage down their tax liabilities.

Better to give to a cause that you believe in, right? Why give it to the government and have it waste the money?

In Part 3, we agreed that Buffett’s tax rate as a percentage of his taxable income is probably less than his secretary’s – partially due to his capital gains being taxed at a comparatively low rate, but mostly because he shelters his ordinary income with charitable deductions.

And, we showed how ordinary earners can get to a rate lower than Warren’s … just by donating a huge chunk of their income to charity. Not realistic, but mathematically possible.

In Part 4, we showed that Buffett’s tax rate as a percentage of AGI is only 11% …. about half of the estimated rate for our hypothetical secretary surrogates.

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Now, my first reaction when I stared at the taxes to AGI rate was “Wow, Buffett’s right – he’s nothing but a coddled piker.”

But now, I’m not so sure.

On one hand, his paying a rate (to taxable income) that’s 5 points less than his secretary doesn’t seem fair. Especially since he gets to the rate by exploiting some dreaded tax loopholes, aka. “deductions”.

The situation seems even worse when you consider his taxes to AGI rate – a mere 11% – less than half of his secretary’s rate (I suspect).

Gotta jack up taxes, right?

Not so fast.

Let’s construct another measure: the GBSR™ – “Give Back to Society Rate

Since I’m coining the measure, I’ll define the GBSR™ as the sum of taxes paid plus charitable contributions – since those are all money that’s supposed to be going to the common good, albeit administered by different organizations – divided by AGI.

OK, so what’s Buffett’s GBSR?

Well, based on my estimates, Buffett pays about $7 million in Federal taxes, about $3 million in state taxes, and about $20 million to charities … for a total of $30 million … which dived by his $63 million AGI … gives a GBSR™ rate of almost 50% (47.6% to be precise).

Now, let’s pretend that Buffett’s secretary profiles like our $100,000 ordinary earner above. Her charitable deductions would be at most $5,700. Otherwise she wouldn’t be taking the standard deduction, she’d itemize.

So, her GBSR™ @ $100,000 AGI is 27.5% ($5,700 + $21,709 = 27,409 / $100,0000 = 27.5%).

That means that Buffett’s GBSR™ is almost twice his secretary’s.

Hmmm.

Maybe he’s not such a bad guy and I should stop ranting about him.

And, maybe he should stop causing trouble for other folks by constantly whining about the tax code.

It just may be that the tax code is leading to the right answer.

Just have to look around the trees to see the forest.

AMEN

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About those top secret transcripts …

January 19, 2012

I’m hoping that Romney simultaneously releases his birth certificate, college transcripts and tax returns. …

Frankly, I don’t really care about Mitt’s tax returns.

Pretty predictable: a gazillion dollars of investment income – dividends, cap gains and tax shelter LPs … 15% effective tax rate … maybe lower since charitable deductions will be at least 10% of income – his required tithing to the Mormon church.

P.S. Don’t remember Obama donating 10% to charities …

P.P.S. Mitt wouldn’t be hiding income from the church, would he?

I’m still more interested in grabbing a peek at the President’s college transcripts … glad that they got brought up again in Carney’s presser yesterday: Carney Dodges Question About Obama’s College Transcripts

OK, call me petty, but I’d like to know:

  • Was Obama’s undergrad GPA higher than George Bush’s?  After all, Obama is proclaimed to be the smartest president ever … the other was, well, dumb old George Bush.  Wouldn’t it be a hoot if Bush outscored Obama?  Remember when Bush’s GPA was revealed to be higher than Kerry’s?  Oops.
  • Did Obama have grades and LSATs comparable to other Harvard Law admits? I’m betting under on the grades and a push on the LSATs.
  • What courses did Obama take as an undergrad? Taught by whom? Would expect lots of poli-sci and philosophy from radicals (think Cornell West types) … little math & science (oops) … zero business or economics.

C’mon …. be honest … wouldn’t you like a peek, too?

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Timing is everything …

January 18, 2012

Interesting op-ed in the WSJ over the weekend: The Truth About Bain and Jobs

The article’s punch line: Job creation and destruction are both relentless. The small difference between the two is what we call prosperity.

Painstaking research by economists Steven J. Davis and John Haltiwanger revealed a side of America’s dynamism that isn’t always pretty.

Between 1977 and 2005, years roughly overlapping Mr. Romney’s business career, some 15% of all jobs were destroyed every year, even as total jobs grew by an average of 2% a year.

Job creation and destruction are both relentless, the authors showed in paper after paper.

The small difference between the two is what we call prosperity.

Good point !

For me, a second point hit very close to home:

Nobody—not even those whose billions were earned in private equity  —envisioned the astounding rise in business values in the gilded ’80s and ’90s.

When Mr. Romney was asked by his boss to start Bain Capital in 1983, the Dow was at 1086.50.

When he left on Feb. 11, 1999 to run the Olympics, it was 9363.46.

His is not the only recent fortune owed partly to this accident of timing (Warren Buffett’s and many others come to mind).

Indeed, if we’re being honest, Mitt here is representative of a generation of professionals whose serendipity it was to have spent the 1970s on our education and then to be spit into the job market just as one of history’s great economic liftoffs was taking place.

But, when private-equity investors sniff a profit opportunity, they are probabusually one step ahead of everybody else.

Of course, I like the swipe at Warren Buffett who, in my opinion, is way over-rated.

But, the author reminds me that I owe a lot to timing, too.

As Grandma Homa used to say: “Sometimes it’s better to be lucky than to be smart.”

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But people still like him … oh, really?

January 16, 2012

According to the NY Times

A CNN poll released Friday found that 49 percent of Americans have a favorable view of President Obama and 49 percent an unfavorable view.

Hmmm.

For comparison, 43 percent of Americans have a favorable view of Mitt Romney and 42 percent an unfavorable view.

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Re: PE firms … some academic findings.

January 13, 2012

Punch line: Private Equity has found itself under the media spotlight the past couple of days, thanks to Newt’s shots at Romney.

At the risk of burdening the hysteria with facts, here are the results of some academic studies reported by Business Week

PEs most common strategy is simple: buy an undervalued company, usually with borrowed money to juice returns. Whip it into shape. And after five years or so, sell it back to the public, paying off the debt and keeping the profits.

Private equity firms genuinely unlock value through “strong incentives to management, strong oversight, and operational consulting.” They force bad managers and deadwood employees to look elsewhere for work.

The PEs also benefit from special tax breaks, including the “carried interest” rule that allows them to treat their profits as lightly taxed capital gains.

More specifically …

  • According to Preqin, a London-based data provider, 25 percent of the dollars going to private equity funds from 2009 to 2011 came from public pension funds. That included teachers in Texas, California, and New Jersey. A second big chunk of investment comes from college endowment funds
  • Studies show that private equity firms are excellent at generating returns for their investors … An analysis of 598 buyout funds that existed between 1984 and 2008 found that even after fees, their weighted-average returns to outside investors were 1.27 times the returns on the Standard & Poor’s 500-stock index over the same periods …
  • A Harvard Business School working paper looked at the employment patterns of 3,200 firms targeted by private equity from 1980 to 2005 … the study concludes that in comparison to the control group, the PE firms’ employment shrank “less than 1 percent” in the two years after a deal.

Ken’s Take: The emerging backlash against private equity will likely have some  unintended consequences.

Question: What if the PEs stop investing in failing companies because they get skewed if they either do the necessary restructuring (i.e. shutter plants and jettison deadwood employees) or fail to turn the failing firms around.

Answer: The failing firms fail and all jobs are lost … or the Feds step in and make taxpayers subsidize inefficient, non-economic businesses.

I’d rather have PEs take the risk with private capital …

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Reprise: How Beef-Loving Voters Can Get Tofu for President

January 11, 2012

Ken’s Take: This is from the HomaFiles archives – one of my favs.

The original article was inspired by Clinton’s win over elder Bush (the Perot factor), younger Bush’s win over Gore (the Nader factor), and Jesse Ventura’s gov win in Minnesota.

The analysis has relevancy these days, given the way that the not-Romney vote is being carved thin among many conservative GOP presidential contenders.

* * * * *
Excerpted from WSJ: How Beef-Hungry Voters Can Get Tofu for President, March 14, 2003

Those odd ducks who scrutinize returns, calculate how each additional candidate affects the others’ chances and analyze strategic voting are hard at work. I refer, of course, to mathematicians.

Yes, there is a mathematics of elections.

Research has identified various voting systems world-wide in which, paradoxically, becoming more popular can make a candidate lose, abstaining gives your preferred candidate a better chance, and picking a winner means accepting someone a majority of voters don’t want.

This last paradox characterizes the U.S. system of plurality voting (vote for one; the top vote-getter wins). It works fine when there are two candidates, but with three or more, plurality voting can come up short.

For a democracy, the mathematicians’ most robust result is chilling. “It’s surprisingly difficult to identify a voting system that accurately captures the will of the people”.

* * * * *

The Election

So as not to inflame passions with current political examples I’ll illustrate his point with food.

You and two colleagues are planning an office party, and the caterer offers chicken, steak or tofu. You poll 17 invitees:

5 people prefer chicken to steak to tofu.

2 people prefer chicken to tofu to steak.

4 people prefer steak to tofu to chicken.

4 people prefer tofu to steak to chicken.

2 people prefer tofu to chicken to steak.

One organizer tallies the ballots by the plurality method, counting only first-place votes. Chicken wins (7 votes), while steak is last (4 votes).

A second organizer uses “approval voting,” in which voters mark all acceptable choices (everyone’s top two choices are acceptable). Now steak wins with 13, tofu gets 12 and chicken is last with 9.

The third organizer uses a point system that gives their first choices 2 points, second choices 1 and last picks 0. Now tofu wins with 18, steak gets 17, chicken 16.

The ‘winner’ changes with the choice of election procedureAn ‘election winner’ could reflect the choice of an election procedure” rather than the will of the people.

* * * * *

It gets better. Thanks to a mathematical property called non-monotonicity, in some voting systems, ranking a choice higher can defeat it.

In a plurality-with-runoff system, the two candidates with the most first-place votes face one another in round two.

This time, we invite other departments to our office party, and get this first-round result:

27 prefer chicken to steak to tofu.

42 prefer tofu to chicken to steak.

24 prefer steak to tofu to chicken.

Chicken (27 votes) and tofu (42) reach the runoff. Assuming steak fans maintain their preference and give their second-round votes to tofu, tofu wins the runoff.

That seems fair.

But what if four people in the group of 27 chicken lovers are last-minute converts to vegetarianism and, in round one, prefer tofu to chicken to steak, like the group of 42?

Now steak (24 first-place votes) and tofu (46) make the runoff, in which steak beats tofu 47 to 46. Tofu’s late surge turned its win into a loss.

* * * * *

Such paradoxes tend to occur under specific but far from unusual circumstances.

With plurality voting, the most common is when two centrists face an extremist. The majority splits its vote between the centrists, allowing the fringe candidate to squeak in. In Minnesota’s 1998 governor’s race, Hubert Humphrey got 28% of the vote, Norm Coleman 34% and Jesse Ventura won with 37%, even though most voters ranked him last.

* * * * *

Thanks to such outcomes, scientists say what’s most needed is “a way for voters to register their second and third choices … especially in primaries, where there tends to be a large field.” Both a ranking system (give candidates 4, 3, 2 or 1 point) and approval voting accomplish that.

The U.N. chooses a secretary-general by approval voting. “It is particularly appealing in elections with many candidates … If your favorite candidate is a long shot, you can vote for both him and a candidate with a better chance without wasting your vote on the long shot. Approval voting would do a lot to address the problem of presidential-primary victors not being the choice of most voters.” Approval voting could well make more people (especially supporters of long shots) feel their ballot matters.

Still, no system is perfect. As Nobel-winning economist Kenneth Arrow proved mathematically in 1951, no voting system is guaranteed to be free of paradoxes in a race with three or more candidates, except one — a dictatorship.


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