Category Archives: Obamacare/ACA

The elephant in the room with the tax cut debate

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Update (12/1/12): While the essence of this blog post remains correct, the precise details of the discussions underway may be somewhat different — for example, the president has proposed a return of the estate tax on estates over $3.5 million.  This is just the opening salvo, of course, but it demonstrates how it’s a lot more than just a couple of percentage points of extra tax for the rich…

One of my favorite plays is Kiss me, Kate, which is about a theatrical troupe putting on a musical version of The Taming of the Shrew.  In Kiss me, Kate, the antics which take place off-stage are far more intense and interesting than those that take place in the play-within-the-play.

The current debate over partially extending the Bush tax cuts for another year has a lot in common with Kiss me, Kate: the debate that we see in public between the Republicans and Democrats is a faint reflection of the real debate that is taking place behind closed doors.  Because if nothing happens between now and January 1st, 2013, the biggest tax increase isn’t growing the top bracket from 35% to 39.6%, as most people assume.  No, it is the hike in the tax rate for dividends, jumping from 15% to 43.4% (12/1/12: could be slightly better or worse, depending upon if and how much social security and medicare taxes will be applied to it as well).  In second place will be the increase in the capital gains tax rate from 15% to 23.8%.

Clearly, there’s more at work than just a 4.6% bump in the top bracket.  That’s because there’s four different changes in taxes coming, all of which could make the tax law harsher for the very rich if the Bush tax cuts are not completely renewed on January 1st:

  1. The top tax bracket moves back to 39.6% from 35%
  2. Dividends  go back to being taxed at the earner’s normal rate, i.e., 39.6% for the top bracket.  Right now, they are taxed at 15%
  3. Capital gains (except for the poor) had been taxed at 15%, but will go back to 20%
  4. There will be a new 3.8% medicare tax which is applied, more or less, to all income above $250,000.  Previously, the medicare tax was 2.9% (as it remains for income below $250K), and it did not apply at all to capital gains and dividends.

Obama was not clear in his speech yesterday about whether he intends to move the rates for dividends and capital gains back to their pre-Bush levels.  But you have to assume it’s on the table.

So what does this mean? If you’re making under $250K, and just the lower tax brackets are held down, nothing changes much for you.  But as you go over $250K, the picture starts to change dramatically.

Let’s look at what happens to the typical “rich person” According to Wikipedia, the average 1%er (in 2007) had an income of (more or less) $2 million, and of that about 40% came from investments.  There’s a lot of variability in these numbers, so don’t take them as gospel. For example, the more money you make, the more of it that is likely to come from investments.

If you make $2 million next year, and 40% of that comes from investments, that’s $800K in investments that in 2012 would be taxed at 15%.  Assuming it’s capital gains, then you are now, in 2013, paying an additional 8.8% (23.8-15), or another $70K.  In addition, for your $1.2 million that’s not investment income, you’re going to pay an additional .9% in enhanced medicare on everything above $250K (around $9K), and finally the additional 4.6% in income taxes (about $55K), so your total tax increase is around $134K. And if some of your investment income is from dividends, the total tax increase could easily grow to $150K or more a year.

For people well beyond $2 million a year in income — like Mitt Romney’s top donors — the sting from the combination of the ACA’s new taxes and the hike in capital gains rates means a nearly 50% increase in the amount of taxes they will have to pay.  That’s enough to make it worthwhile to chip in $50K for a Mitt Romney fundraiser on Long Island and buy a  Super PAC a TV ad as well.

There are other wrinkles to the tax code that might push these numbers up or down a bit, and I’ve simplified the calculations, but in general the sizes of these numbers are dead on.  It’s just hard to generalize the effect of the changes in the tax law, and complicated to explain how they work.

But it’s these more complicated issues that are at the heart of a lot of the deep political battles.  The Democrats try to minimize the size of the tax hike on the rich to make it look fairly innocuous.  They say, “it’s just another 4.6% for a rich guy!” On the other side of the aisle, the Republicans avoid talking about these top tier changes so they don’t look like they are obsessed about catering to the rich.  They sure don’t want to say the battle is mostly about taxing dividends like capital gains.

In Kiss me, Kate, the play ends with the big money guys (loan sharks) landing on stage of the play-within-the-play (to sing Brush up your Shakespeare), finally revealing to that audience the scope of the antics backstage.  In our tax drama, the big money folks are content to stay out of the limelight, focused on moving the elephant out of the room and out of their way…

Why Obama should mischievously dog-whistle the Tea Party

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Roughly 24 hours ago, Buzzfeed posted an article that showed a picture of an Obama campaign sign and noted that one of its text fonts is based upon Cuban propaganda posters.  In the intervening 24 hours, the report exploded on Twitter, causing over 13 thousand people to view the article.

True, all that activity doesn’t really mean a whole lot  (perhaps 13 thousand people have a fondness for fonts!), but we have to put it in the broader context. It’s just another in an endless stream of crazy, made-up Tea Party rumors about Obama.  The ones that say Obama will put an end to our way of life because: he’s not a US citizen, he’s a secret muslim and plans to bring 100 million muslims to the US, he’s a devotee of any number of radical prophets, he’s planning to steal the election by having illegal aliens vote, and if we fail to stop him he’ll use a second term to (a) put conservatives in FEMA concentration camps, (b) use “Fast and Furious” to convince people to repeal the second amendment, (c) socialize healthcare and drive doctors out of business, (d) put the US under United Nations rule, (e) implant microchips in each of us,  and on and on. And there’s that shout-out-to-Castro font issue…

Up until recently, the Obama team took some of these seriously (at least the press reaction to them seriously) and went out of its way to refute them.  But for the font issue, Obama press secretary Ben LaBolt simply said “your GOP operative should have had the courtesy to stay sober before noon.”  (Memo to LaBolt: it’s always 5 o’clock somewhere!)

But rather than just laughing at the Republican’s third rail of crazy, the Obama campaign should treat the GOP’s obsession as the exploitable weakness it is.  The people at the top of the their ticket have a hard time grappling with the insanity down below. Did you see how the Romney campaign flip-flopped about whether the Affordable Care Act has a penalty or a tax?  He couldn’t admit that he had raised taxes in Massachusetts, but he so desperately wanted to claim that Obamacare raised them nationwide.  That causes the Romney campaign to look like it’s trying to have it both ways, dimming its luster with the undecided voters.

But it’s not just Romney’s record that can cause him grief.  It’s the fact that he’s fighting a campaign on two fronts: one is to secure enough of the middle-ground to win the election, while the other is to retain enough enthusiasm from the Tea Party that they work for and vote for him in the election. (Gary Johnson stands ready to pick up any pieces Romney drops.)  Lose either the base or the middle, and the election is lost for Romney.  By exploiting ideological differences between the two, the Obama campaign can apply pressure to the Romney camp until it fractures.

To do this, Obama campaign should find a way, once a week or so, to invent some ridiculous conspiracy about themselves.  Then, all they have to do is dog whistle it to the Tea Party in an oblique way. Normal, sane people won’t notice a crazy plot at all, but the dog whistle will get the Tea Party all worked up about the new threat to their freedom and they’ll take it from there. Obama could even give it an extra nudge now and then by commenting on and denying the rumors. Eventually, the Tea Party agitation will bubble to the surface and force the Romney campaign to make a choice between the two groups it needs to win.

Imagine, if you will,  the President giving a speech and making an offhand remark that we should consider redesigning our paper currency so it’s easier for blind people to use.  He could point out that other countries have done this, like France (or any other “godless, socialist” country he cares to name). He could add in that while some people have suggested going to an all electronic currency and eliminating cash, he feels that’s not practical for the foreseeable future.  Nice and innocent, and people would mostly ignore it as an irrelevant issue; all they’ll hear is yada yada nice to blind people yada yada.

But the Tea Party will immediately pounce on it as a covert attempt to force everyone to hand over their cash.  They’d “know” that Obama wants to turn our country into an IRS monitored, all cashless society.  A few days after the obsession has taken root, a casual comment from Obama that he is sure Romney doesn’t share in this strange paranoia would force Mitt to figure out how to look sane while not pissing off the far right.  ”Reince” and repeat, as they say.

The key to winning the election is widely held to be getting the votes of the moderates in the middle. If those undecided voters come to believe that the Republican party has become the official party of tinfoil-hat wearing crackpots, those election-deciding moderate voters will pull the lever for the Democrats in November. 

All Obama needs to do is get in touch with his inner birther and dog-whistle the kind of tune the Tea Party likes dance to.

How did Twitter react to the Supreme Court Ruling on Obamacare?

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If you use Twitter, there’s no surprise that last week’s supreme court decision about the Affordable Care Act (aka Obamacare) is a hot topic.  So what’s everyone talking about?  I analyzed tweets from 6/28/2012 through the end of 7/3/2012:

Click on image to enlarge

Does this mean that Twitter was  almost 2 to 1 (29%:18%) against Obamacare? Not quite — a lot of the humor was directed at anti-ACA folks (mostly, it seems, about them moving to Canada in protest).  Still, it’s clear that the anti-ACA tweeple have been more active.

It will be interesting to see if, in a week or so, whether this intensity keeps up …

Notes:

To do this analysis, I did a statistically valid sampling of over 500 tweets from the nearly 500K tweets that contained keywords related to the act and the supreme court ruling.  I read each and every one of them (and sometimes followed the links in them to be certain of the intent).  I then assigned them to one of the categories you see above (and discarded ones that were not on the topic).  This sampling is designed to give each score a +/- 5% interval at 95% confidence.

There are several sources of bias, of course.  One is “volunteer bias”, which means that you cannot infer what the typical user of Twitter thinks, only what the typical tweet says.  There is also a risk of an analysis bias, in that I’m reading the tweets and assigning them to the categories the best that I can.  Sometimes, though, sarcasm and sincerity are hard to tell apart!