Zynga shares sunk 18% today after they released earnings showing they made 5 cents a share (excluding compensation costs for going public) on $311.2 million revenue for the quarter. What's interesting about Zynga is that they reported that they have 54 million daily users and 240 million monthly users. Count me among the monthly users-- my girlfriend and I occasionally like to play "Words With Friends", "Scramble With Friends" and "Hanging With Friends" on our Iphones. The problem for Zynga is that we've never paid for it, and Zynga hasn't really compelled us to. And considering they have so many users and so little revenue from them, almost everyone must feel the same way. Sure you can buy these games for 99 cents if you would like to be able to skip the 5 second ad after each play, but this has not been inconvenient enough for me to care. Zynga needs to improve their business model in order to be successful. I'd probably institute a policy where you can play each game 10 times a month, and if you'd like to play more, you have to pay the 99 cents. I don't know anyone who plays these games that wouldn't do that. This will also be Facebook's problem. It's great to have a product with wide reach--making that product profitable is the problem.
UHaul on the other hand has figured out a way to make free money in one of the most ingenious ways I've seen in a while. I recently rented a UHaul for my move from Chicago to DC. When I got in the vehicle, the gas tank was only a quarter of the way filled. I was told to return it at the location with that much gas left in the tank, or I'd be charged a $30 fee and $5 per gallon. Obviously, if I returned it on empty, this would make sense. They'd charge me $30, fill it up to a quarter tank, and charge me a premium on the gas. The genius of this business model isn't for that situation though. It's for someone who picks up the truck with a full tank of gas. The same rule would apply. But lets say the person returns it at just over 3/4s of a tank. They'd be charged the $30 and told what the $5 a gallon gas charge would be to get it back to a full tank. Only UHaul wouldn't have to actually put in any gas at all. They'd just tell the next person to return it at just over 3/4's of a tank. So they potentially made about $100 for doing nothing. If the next person returned it at a half tank, there's another $100 for doing nothing. If the next returns it at 1/4 of a tank, another $100. By the time someone returns it on empty, they would have charged $400 for the $40 charge of filling it up a quarter tank. I don't know if any rental car companies use this model (I've only ever gotten rental cars at full tanks) but it seems brilliant--and something they should consider doing themselves.
Wednesday, February 15, 2012
Friday, February 10, 2012
Happy Anniversary Barack And Mitt!
Five years ago today Barack Obama announced his bid for President of the United States. It's not very often that you recognize the historical significance of something while it is happening, but this was one of those times. Over the next couple years, I'd experience several more of these moments, but this is the one that I remember most vividly. It was the first time I fully realized that I was part of something far bigger than politics or even the presidency. Win or lose, we were making history, and the story of America could not be told without mentioning Barack Obama on February 10th, 2007 in Springfield, Illinois.
I had already been working on the exploratory committee in Washington DC for two weeks by the time he formally declared. We were the very definition of an upstart campaign. There were about ten of us in an office built for two. The workspace was narrow and when someone at the end had to get out, it was essentially like being in the middle of the row in a cramped movie theater. Everyone had to readjust to let the person through. Each of us had to bring our own laptop computers to work each day until the office space in Chicago opened up and we could make the move to the Windy City where we were promised computers would be waiting for us.
What many people don't realize about the announcement in Springfield was the hard work that went into making it go off without a hitch. Pulling off an event of that magnitude and significance would be difficult for even a fully staffed advance team, which we did not have. In the weeks leading up to the announcement I was sitting next to Alyssa Mastromonaco, the Director of Scheduling and Advance. I have never in my life seen anyone work so hard and under such stressful conditions. She was truly the unsung hero of that day five years ago, and deserves more credit than anyone for how well it turned out. She was asked to perform a miracle and she delivered.
Today, Mitt Romney also is celebrating an anniversary of sorts. Four years ago at CPAC he dropped his first presidential bid and today he speaks to them as the frontrunner for the Republican nomination for President. One would think that this must represent a huge sea-change in support for Romney. Unfortunately for him, it doesn't. In fact, he's slightly more disliked now than he was then, and he was really disliked then.
When Romney first announced his run in February 2007, he was viewed favorably by 48% of voters and unfavorably by 31%, a net of +17. One year later, in February 2008 when he abandoned his bid, Romney was viewed favorably by only 30% of voters and unfavorably by 44%, a net of -14. In total, Romney's net favorability dropped 31 points after a year of campaigning. When Romney announced his second run in June 2011, he was viewed favorably by 38% of voters and unfavorably by 31%, a net of +7. Today, Romney finds himself viewed favorably by 31% of voters and unfavorably by 47%, a net of -16. So in the last nine months of campaigning, Romney's net favorability has dropped 23 points, and is two points less than it was when he dropped out in 2008. So while Romney finds himself in a much different position at this year's CPAC with regards to getting the GOP nomination, he actually finds himself in a worse position if his goal is to actually get elected President. And considering that the more people see of Romney the less they like him, every day he campaigns for President actually hurts his chances more than it helps. That's a tough spot to be in. But either way, Happy Anniversary Mitt--at least you haven't dropped out yet.
I had already been working on the exploratory committee in Washington DC for two weeks by the time he formally declared. We were the very definition of an upstart campaign. There were about ten of us in an office built for two. The workspace was narrow and when someone at the end had to get out, it was essentially like being in the middle of the row in a cramped movie theater. Everyone had to readjust to let the person through. Each of us had to bring our own laptop computers to work each day until the office space in Chicago opened up and we could make the move to the Windy City where we were promised computers would be waiting for us.
What many people don't realize about the announcement in Springfield was the hard work that went into making it go off without a hitch. Pulling off an event of that magnitude and significance would be difficult for even a fully staffed advance team, which we did not have. In the weeks leading up to the announcement I was sitting next to Alyssa Mastromonaco, the Director of Scheduling and Advance. I have never in my life seen anyone work so hard and under such stressful conditions. She was truly the unsung hero of that day five years ago, and deserves more credit than anyone for how well it turned out. She was asked to perform a miracle and she delivered.
Today, Mitt Romney also is celebrating an anniversary of sorts. Four years ago at CPAC he dropped his first presidential bid and today he speaks to them as the frontrunner for the Republican nomination for President. One would think that this must represent a huge sea-change in support for Romney. Unfortunately for him, it doesn't. In fact, he's slightly more disliked now than he was then, and he was really disliked then.
When Romney first announced his run in February 2007, he was viewed favorably by 48% of voters and unfavorably by 31%, a net of +17. One year later, in February 2008 when he abandoned his bid, Romney was viewed favorably by only 30% of voters and unfavorably by 44%, a net of -14. In total, Romney's net favorability dropped 31 points after a year of campaigning. When Romney announced his second run in June 2011, he was viewed favorably by 38% of voters and unfavorably by 31%, a net of +7. Today, Romney finds himself viewed favorably by 31% of voters and unfavorably by 47%, a net of -16. So in the last nine months of campaigning, Romney's net favorability has dropped 23 points, and is two points less than it was when he dropped out in 2008. So while Romney finds himself in a much different position at this year's CPAC with regards to getting the GOP nomination, he actually finds himself in a worse position if his goal is to actually get elected President. And considering that the more people see of Romney the less they like him, every day he campaigns for President actually hurts his chances more than it helps. That's a tough spot to be in. But either way, Happy Anniversary Mitt--at least you haven't dropped out yet.
Thursday, February 9, 2012
Quick Romney Thoughts
Romney's pushback that he originally vetoed the bill requiring hospitals to provide emergency contraception to rape victims seems worse than the actual charge he's defending. Basically he's arguing that yes, he mandated that catholic hospitals provide emergency contraception; but at least he showed a callousness toward rape victims in the process! I don't think this argument is a political winner.
The mortgage settlement announced today puts Romney in a tough spot. If he says its a good deal, he's acknowledging it as a win for the Obama administration. If he says it was too hard on banks, he reinforces the narrative that he's more concerned about them than underwater homeowners. If he says it didn't go far enough for underwater homeowners, he's going against the financial community who are easily the largest contributors to his campaign. His interview on Cavuto today showed how difficult this issue is for him. He compared the settlement to "cash for clunkers" and then immediately segued to Dodd-Frank. He must really hope this issue just goes away.
Speaking of banks, how annoyed would you be if you were a shareholder of Credit Suisse? They just posted a $698 million loss in the 4th quarter and yet their executives managed to donate $277,250 to Romney's campaign, making them his 4th largest contributor. Maybe they should spend a little less time at Romney's campaign fundraisers and a little more time making sure their company isn't hemorrhaging cash. But then it might just be an investment to get Romney as a client. He recently closed his Swiss bank account with UBS, and they might be pitching their services if he's looking to open up a new one after the campaign ends.
I'll be interested to see how Romney deals with Santorum's rise. Thus far, Romney has attacked every challenger from the right, particularly on immigration. When Perry jumped in, Romney went after him daily on his support of the Dream Act. When Gingrich started to rise, he aggressively went after him on his support of allowing some undocumented immigrants to stay in the country. Santorum simply doesn't provide these same type of opportunities. Romney has recently been going after him for being a "Washington insider" but that attack line rings hollow from someone who has by far the most Congressional endorsements and is at this very moment in DC at a $10,000 a plate lobbyist fundraiser. Eventually I think Romney is going to have to start attacking Santorum from the left. A risky strategy in a Republican primary, but perhaps the only one available to him. He needs to make the argument that while people may like Santorum's views, they are so outside the mainstream that he will be unelectable in November. While this tact may hurt him in primaries in the South and Midwest, he hasn't fared well there anyway, and it should help him in the more moderate delegate-rich states on the coasts that he absolutely needs. Also, this strategy has the benefit of allowing an easier turn to the general election. If you've spent the last few months seeming comparatively reasonable against your primary opponent, it makes people think that you are reasonable, even if all you'd been doing is denouncing his "ridiculously extreme" views and replacing them with your own "simply extreme" views.
The mortgage settlement announced today puts Romney in a tough spot. If he says its a good deal, he's acknowledging it as a win for the Obama administration. If he says it was too hard on banks, he reinforces the narrative that he's more concerned about them than underwater homeowners. If he says it didn't go far enough for underwater homeowners, he's going against the financial community who are easily the largest contributors to his campaign. His interview on Cavuto today showed how difficult this issue is for him. He compared the settlement to "cash for clunkers" and then immediately segued to Dodd-Frank. He must really hope this issue just goes away.
Speaking of banks, how annoyed would you be if you were a shareholder of Credit Suisse? They just posted a $698 million loss in the 4th quarter and yet their executives managed to donate $277,250 to Romney's campaign, making them his 4th largest contributor. Maybe they should spend a little less time at Romney's campaign fundraisers and a little more time making sure their company isn't hemorrhaging cash. But then it might just be an investment to get Romney as a client. He recently closed his Swiss bank account with UBS, and they might be pitching their services if he's looking to open up a new one after the campaign ends.
I'll be interested to see how Romney deals with Santorum's rise. Thus far, Romney has attacked every challenger from the right, particularly on immigration. When Perry jumped in, Romney went after him daily on his support of the Dream Act. When Gingrich started to rise, he aggressively went after him on his support of allowing some undocumented immigrants to stay in the country. Santorum simply doesn't provide these same type of opportunities. Romney has recently been going after him for being a "Washington insider" but that attack line rings hollow from someone who has by far the most Congressional endorsements and is at this very moment in DC at a $10,000 a plate lobbyist fundraiser. Eventually I think Romney is going to have to start attacking Santorum from the left. A risky strategy in a Republican primary, but perhaps the only one available to him. He needs to make the argument that while people may like Santorum's views, they are so outside the mainstream that he will be unelectable in November. While this tact may hurt him in primaries in the South and Midwest, he hasn't fared well there anyway, and it should help him in the more moderate delegate-rich states on the coasts that he absolutely needs. Also, this strategy has the benefit of allowing an easier turn to the general election. If you've spent the last few months seeming comparatively reasonable against your primary opponent, it makes people think that you are reasonable, even if all you'd been doing is denouncing his "ridiculously extreme" views and replacing them with your own "simply extreme" views.
Wednesday, February 8, 2012
The Progressive Deduction Model For Millionaires
The fairness of the U.S. system of taxation has recently become a hot-button political topic. The release of Romney's 2010 tax return showing he paid less than 14% of his income to the IRS brought the issue to the forefront; and President Obama making the Buffett Rule the centerpiece of his State of the Union ensured that the debate over equitable taxation will be sticking around for a while. According to public opinion polls at least, this is a fight that the President certainly wants to have. Almost any proposal that requires millionaires to pay a higher tax rate has overwhelming support, whether through a Buffett Rule or a millionaire's surtax. Unfortunately, despite support from their own rank and file, Republican congressional leaders have blocked any effort to make the wealthiest Americans pay their fair share.
If Republicans in Congress refuse to raise marginal tax rates on the wealthy, then what about taking away deductions? Unlike raising rates, this option appears to have very little public support. The resistance to this makes sense. The primary function of tax deductions is to promote "the good" as determined by the public. People generally believe that you should not be penalized for, nor deterred from home-ownership, charitable giving, going to college, medical expenses and saving for retirement; so we have deductions pertaining to all these things. I tend to agree with this as well.
So if we can't raise marginal rates on millionaires or take away their deductions, what can we do? I think I may have a solution: progressive deductions for millionaires. The biggest problem with tax deductions is that they are regressive: the wealthy get larger tax breaks than the middle class for the exact same deductions and in the exact same amounts. For example, a person making $80,000 that donates $5,000 to charity would save $1,250 in taxes; however a person making $1,000,000 that donates the same amount would save $1,750 in federal taxes--$500 more! This is because deductions shave money off the top, and therefore the taxes saved are from the person's highest marginal tax rate. This seems unfair. Certainly you don't want to dissuade millionaire's from giving to charity, etc. But should they get a vastly larger break than average people for doing so?
It seems like one fix to this issue is to change the way millionaires factor in deductions; by shaving them off the bottom of their income instead of the top. Then have them start calculating their tax in the bracket of whatever bracket their deduction falls in. I'll give you a couple examples:
Individual A Stats: AGI: 1,000,000 Deductions: $200,000 Taxable Income: $800,000
Total Taxes/Rate On Full Income With No Deductions: $326,761/32.68%
Total Taxes/Rate As Currently Structured With $200,000 Deduction: $256,761/25.68%
Total Taxes/Rate In The Progressive Deduction Model: $272,232.50/27.22%
The Methodology Of The Progressive Deduction Model: $200,000 (the amount of the deduction) falls in the 33% tax bracket of $178,650 – $388,350. Therefore, the filer would pay the first $388,350 of their taxable income in this bracket and as normal pay 35% on the rest of the $411,650.
Individual B Stats: AGI: 1,000,000 Deductions: $40,000 Taxable Income: $960,000
Total Taxes/Rate On Full Income With No Deductions: $326,761/32.68%
Total Taxes/Rate As Currently Structured With $40,000 Deduction: $312,761/31.2%
Total Taxes/Rate In The Progressive Deduction Model: $316,731/31.67%
The Methodology Of The Progressive Deduction Model: $40,000 (the amount of the deduction) falls in the 25% tax bracket of $35,350 – $85,650. So the filer would pay the first $85,650 of their taxable income in this bracket. Then they would follow the brackets as normal.
In each of these examples the millionaire paid a slightly higher effective tax rate in the Progressive Deduction Model than they currently do, but without raising the top marginal rate, imposing a surtax, or ending/capping deductions. While it would minimize the impact of deductions for the wealthiest, it wouldn't do so in such a way that it would seriously deter things like charitable giving.
I don't want people to think this is a cure-all to the problems of tax inequality. There are so many problems that need to be addressed I could blog forever on the subject (and just might). This just seems like a reasonable step that could be taken to get us (however slightly) closer to the goal of fairness in our tax system.
One other note: I am not an economist. If anyone who reads this sees problems with my methodology, or wants to praise it, please do so in the comments section.
If Republicans in Congress refuse to raise marginal tax rates on the wealthy, then what about taking away deductions? Unlike raising rates, this option appears to have very little public support. The resistance to this makes sense. The primary function of tax deductions is to promote "the good" as determined by the public. People generally believe that you should not be penalized for, nor deterred from home-ownership, charitable giving, going to college, medical expenses and saving for retirement; so we have deductions pertaining to all these things. I tend to agree with this as well.
So if we can't raise marginal rates on millionaires or take away their deductions, what can we do? I think I may have a solution: progressive deductions for millionaires. The biggest problem with tax deductions is that they are regressive: the wealthy get larger tax breaks than the middle class for the exact same deductions and in the exact same amounts. For example, a person making $80,000 that donates $5,000 to charity would save $1,250 in taxes; however a person making $1,000,000 that donates the same amount would save $1,750 in federal taxes--$500 more! This is because deductions shave money off the top, and therefore the taxes saved are from the person's highest marginal tax rate. This seems unfair. Certainly you don't want to dissuade millionaire's from giving to charity, etc. But should they get a vastly larger break than average people for doing so?
It seems like one fix to this issue is to change the way millionaires factor in deductions; by shaving them off the bottom of their income instead of the top. Then have them start calculating their tax in the bracket of whatever bracket their deduction falls in. I'll give you a couple examples:
Individual A Stats: AGI: 1,000,000 Deductions: $200,000 Taxable Income: $800,000
Total Taxes/Rate On Full Income With No Deductions: $326,761/32.68%
Total Taxes/Rate As Currently Structured With $200,000 Deduction: $256,761/25.68%
Total Taxes/Rate In The Progressive Deduction Model: $272,232.50/27.22%
The Methodology Of The Progressive Deduction Model: $200,000 (the amount of the deduction) falls in the 33% tax bracket of $178,650 – $388,350. Therefore, the filer would pay the first $388,350 of their taxable income in this bracket and as normal pay 35% on the rest of the $411,650.
Individual B Stats: AGI: 1,000,000 Deductions: $40,000 Taxable Income: $960,000
Total Taxes/Rate On Full Income With No Deductions: $326,761/32.68%
Total Taxes/Rate As Currently Structured With $40,000 Deduction: $312,761/31.2%
Total Taxes/Rate In The Progressive Deduction Model: $316,731/31.67%
The Methodology Of The Progressive Deduction Model: $40,000 (the amount of the deduction) falls in the 25% tax bracket of $35,350 – $85,650. So the filer would pay the first $85,650 of their taxable income in this bracket. Then they would follow the brackets as normal.
In each of these examples the millionaire paid a slightly higher effective tax rate in the Progressive Deduction Model than they currently do, but without raising the top marginal rate, imposing a surtax, or ending/capping deductions. While it would minimize the impact of deductions for the wealthiest, it wouldn't do so in such a way that it would seriously deter things like charitable giving.
I don't want people to think this is a cure-all to the problems of tax inequality. There are so many problems that need to be addressed I could blog forever on the subject (and just might). This just seems like a reasonable step that could be taken to get us (however slightly) closer to the goal of fairness in our tax system.
One other note: I am not an economist. If anyone who reads this sees problems with my methodology, or wants to praise it, please do so in the comments section.
Tuesday, February 7, 2012
The Lack Of A Rallying Effect And Romney's Electability Argument
Typically in primaries, and certainly Republican primaries, there is a large rallying effect around the frontrunner after the first few states have anointed someone. In 2008, for example, John McCain, hardly the favorite son of conservatives, broke away from the pack immediately following his New Hampshire victory and was the defacto nominee a few weeks later when he won Florida.
In many ways, this primary follows that playbook. Romney won Iowa (at least for a few days), won New Hampshire, won Florida, and won Nevada. The GOP Establishment have all pretty much signed on and Romney rolls out new endorsements daily. With a record of 3-1-1 in the first 5 primaries, including significant victories in the last two prior to tonight, the race should be over. Everything seems to be going according to type, except for one thing: There has not been a rallying effect by the rank and file around Mitt Romney.
Given all the metrics, GOP primary voters should already be busy attempting to justify Romney's past liberalism while begrudgingly casting their meaningless primary vote for him over the long-shot "purer conservative" in an effort to support party unity. Not only is this not happening, he is actually losing support. Tonight's results, with Santorum winning Missouri and Minnesota, cement even further the idea that there is a deep distrust of Romney among the conservative grassroots.
In some ways I think the lack of a rallying effect around Romney is a reaction to the McCain nomination in 2008. Despite conservative dislike of McCain for his support of immigration and campaign finance reform, Republicans were able to put aside their differences because they were told over and over again that only he could win in November. And then he got walloped.
But at least McCain's electability argument made sense. He was a likeable warrior, a decorated veteran, and had developed over the course of decades a reputation for "straight talk." Even his vulnerabilities in the primary would serve him well with key constituencies in a general election: Latinos supportive of his efforts on immigration reform and elites concerned about the influence of money in politics.
Romney's electability argument however makes no sense at all, and seems primarily aimed at convincing the inside-the-beltway-crowd and political reporters--two groups obsessed with the things voters don't actually care about, like tactics and strategy. Romney's argument for electability centers primarily on his better-than-the-others fundraising ability and organization. For example, look at this quote from Romney strategist Eric Ferhnstrom: “The key is who has the organization that’s strong enough to keep going from state to state to state... As you look at the field, the answer to that is obvious. It’s Mitt Romney.” Shouldn't "the key" be that you have a better candidate with better ideas? But that's precisely Romney's problem; no one believes that he is a very good candidate and his campaign doesn't even try to convince people of it. It truly is a testament to their organization that they've convinced the media that press releases with fancy headers and having the most wealthy friends is what truly wins Presidential races; and the candidate just isn't that important. Unfortunately for them though, that argument hasn't filtered down to actual voters yet.
In many ways, this primary follows that playbook. Romney won Iowa (at least for a few days), won New Hampshire, won Florida, and won Nevada. The GOP Establishment have all pretty much signed on and Romney rolls out new endorsements daily. With a record of 3-1-1 in the first 5 primaries, including significant victories in the last two prior to tonight, the race should be over. Everything seems to be going according to type, except for one thing: There has not been a rallying effect by the rank and file around Mitt Romney.
Given all the metrics, GOP primary voters should already be busy attempting to justify Romney's past liberalism while begrudgingly casting their meaningless primary vote for him over the long-shot "purer conservative" in an effort to support party unity. Not only is this not happening, he is actually losing support. Tonight's results, with Santorum winning Missouri and Minnesota, cement even further the idea that there is a deep distrust of Romney among the conservative grassroots.
In some ways I think the lack of a rallying effect around Romney is a reaction to the McCain nomination in 2008. Despite conservative dislike of McCain for his support of immigration and campaign finance reform, Republicans were able to put aside their differences because they were told over and over again that only he could win in November. And then he got walloped.
But at least McCain's electability argument made sense. He was a likeable warrior, a decorated veteran, and had developed over the course of decades a reputation for "straight talk." Even his vulnerabilities in the primary would serve him well with key constituencies in a general election: Latinos supportive of his efforts on immigration reform and elites concerned about the influence of money in politics.
Romney's electability argument however makes no sense at all, and seems primarily aimed at convincing the inside-the-beltway-crowd and political reporters--two groups obsessed with the things voters don't actually care about, like tactics and strategy. Romney's argument for electability centers primarily on his better-than-the-others fundraising ability and organization. For example, look at this quote from Romney strategist Eric Ferhnstrom: “The key is who has the organization that’s strong enough to keep going from state to state to state... As you look at the field, the answer to that is obvious. It’s Mitt Romney.” Shouldn't "the key" be that you have a better candidate with better ideas? But that's precisely Romney's problem; no one believes that he is a very good candidate and his campaign doesn't even try to convince people of it. It truly is a testament to their organization that they've convinced the media that press releases with fancy headers and having the most wealthy friends is what truly wins Presidential races; and the candidate just isn't that important. Unfortunately for them though, that argument hasn't filtered down to actual voters yet.
Would You Do Your Job For An 87% Pay Cut?
Would you do your job for an 87.3% pay cut? That may sound like an absurd question, but it is precisely what an average married couple with a child on the way in Washington DC must decide. Let’s use the hypothetical example of Mary and Joe, a middle-class married couple living in DC.
Mary and Joe make the median household income in Washington, DC of $58,526. While they live reasonably comfortably, at the beginning of each year they set out a budget. First, they calculate their net income; how much they will have after all taxes are paid. Since they file their tax returns jointly, take the standard deduction for both federal and DC taxes, and receive all of their income from wages, they calculated that their net on the year would be approximately $45,948.90. Because they are cautious, they presumed the payroll tax cut would expire and factored in the entire 6.2% rate on their earnings.
Oddly, not only do Mary and Joe make the exact median household income in DC, their essential expenses each amount to the exact average for DC residents (Shocking!). Below is their list:
Average Rent Cost In DC: $18,252/year
Average Gas & Electric Cost In DC: $3,120/year
Average Food Costs For Mary And Joe On A Moderate Cost Plan: $6,938.40/year
Roundtrip Public Transit On Work Days For Mary And Joe, Assuming Lowest Fare Possible: $1,950/year
All in all, the total that Mary and Joe will have to spend on these essentials comes out to $30,260.40. That leaves them with $15,688.50 to spend on household goods, entertainment, shopping, and other assorted items. While they may not be able to afford the vacation they’ve always dreamed of this year, Joe and Mary are happy with the result.
One day in May, after coming home from work, Mary tells Joe the good news: they’re having a baby! With the baby due in early January, Joe and Mary decide they should start early on next year’s budget. They sit down at the table and it doesn’t take long before they realize they have two options, and neither is particularly good.
Option 1. Mary and Joe both continue to work and put the baby in a daycare center in DC. Since their income hasn’t changed much over the years, they start with the assumption that they will make about the same as this year: $58,526. Again they plan on filing jointly and taking the standard deduction. This time however, they will also take a dependent exemption in addition to their personal exemptions, bringing the federal income tax owed to $4,430.40. Since they plan on putting the baby in a day care center, they deduct $3,000 from the taxes owed because of the Child Care Tax Credit and another $1,000 because of the Child Tax Credit. This brings their federal income tax bill down to $430.40. In DC, they’d owe $3,008, but DC also provides them a child care tax credit of $960, bringing the amount owed to the District of Columbia down to $2,048. After deducting Social Security and Medicare taxes, Mary and Joe calculate that their net income with a baby would be approximately $51,570.45.
From the net income, they deduct the essential expenses for themselves that they had done previously and find that they now have $21,310.05. Then they make a list of the essential items they will need for the child.
Average Food Costs For Baby On Moderate Cost Plan: $1,732.20/year
Average Cost Of Disposable Diapers: $800/year
Average Cost Of Baby Clothes: $720/year
This leaves Mary and Joe with $18,057.85. They start to think about the toys they can buy for the baby, as well as the fancy crib and nice stroller. And after all that, they’d still would have enough money to comfortably buy household goods and maybe even afford some date-nights! But wait, Mary pointed out, in order for both of them to work, they’d need to put the baby in day care center. And this is where Mary and Joe realized they have a problem.
Average Cost Of Day Care In Washington, DC: $18,200
Including the cost of day care, they would now be $142.15 in debt on just the essentials: rent, food, utilities, transportation to and from work, day care, diapers and baby clothes. They decided to create a second option where one of them would quit their job and stay at home with the baby to see if that would make more financial sense.
Option 2: Mary and Joe both happen to make the exact same amount of income, so if one quit it would cut their household AGI exactly in half to $29,263. Again they plan on filing jointly and taking the standard deduction, as well as personal exemptions and a dependent exemption. This brings their federal income tax owed to $596.30. However, they qualify for the $1,000 nonrefundable Child Tax Credit, bringing their tax liability to $0. They also qualify for the refundable Earned Income Tax Credit of $1,890. So they actually will receive $1,890 from the IRS after they file their income tax return. Their DC taxes would amount to $1,014.28, but they qualify for the DC Earned Income Tax Credit of $756. So in total, they’d owe the District of Columbia $258.28. Factoring in all taxes combined, including Social Security and Medicare taxes, brings their total tax liability to $606.91. This would leave Mary and Joe with a net income of $28,656.09.
Cutting the cost of transportation to work in half and eliminating the cost of day care saves Mary and Joe a total of $19,175. Subtracting the rest of the necessities of rent, food, utilities, diapers, and baby clothes from their net income leaves them with a debt of $3,878.54.
The total difference in the two scenarios is that if both stayed in their job it would net an extra $3,736.39 than having one quit to stay at home and take care of the child. In other words, the job that paid $29,268 now nets you just 12.8% of that, so to keep it after having a baby you’d be taking over an 87% pay cut.
The example of Mary and Joe highlights some fundamental issues, that while exacerbated by DC’s high cost of living, are certainly going on across the country. The first issue is that this couple, solidly in the middle class, were doomed to go in debt the minute they decided to have a child, simply by purchasing the basic essentials for themselves and the baby. In truth we may already be at the point where only the wealthy can afford to have a child, and if we aren’t there yet, we are certainly headed in that direction. The second issue is that in Washington, the costs associated with being able to go to work if you have a child are basically equivalent to the income generated from working. The cost of day care is so high that it is essentially driving productive people out of the workforce. The third issue is that this situation is bad for the economy as well as government tax revenues. In the case of Mary and Joe, the federal government went from receiving $430 in income tax to paying out $1,890, a federal revenue hit of $2,320. Medicare and Social Security taxes went to $2,238.63 from $4,477.25. The tax revenue to Washington, DC went from $2,048 to $258.28, a difference of $1,789.72. Excluding payroll taxes, the total revenue hit to the federal government and to DC was $4,109.72.
One potential fix would be to increase the child care tax credit. It seems possible that if structured well, it could not only help parents who want to stay in the workforce but could also increase government revenues if more parents continued their jobs. However, this would only be tinkering at the edges and do little in places like DC where day care costs are sky-high.
I think the best solution would be for states to create public day care centers, modeled after the public education system. And hey, while were at it, make public school hours 9-5, so that parents don’t have one more obstacle to remaining in the workforce.
Mary and Joe make the median household income in Washington, DC of $58,526. While they live reasonably comfortably, at the beginning of each year they set out a budget. First, they calculate their net income; how much they will have after all taxes are paid. Since they file their tax returns jointly, take the standard deduction for both federal and DC taxes, and receive all of their income from wages, they calculated that their net on the year would be approximately $45,948.90. Because they are cautious, they presumed the payroll tax cut would expire and factored in the entire 6.2% rate on their earnings.
Oddly, not only do Mary and Joe make the exact median household income in DC, their essential expenses each amount to the exact average for DC residents (Shocking!). Below is their list:
Average Rent Cost In DC: $18,252/year
Average Gas & Electric Cost In DC: $3,120/year
Average Food Costs For Mary And Joe On A Moderate Cost Plan: $6,938.40/year
Roundtrip Public Transit On Work Days For Mary And Joe, Assuming Lowest Fare Possible: $1,950/year
All in all, the total that Mary and Joe will have to spend on these essentials comes out to $30,260.40. That leaves them with $15,688.50 to spend on household goods, entertainment, shopping, and other assorted items. While they may not be able to afford the vacation they’ve always dreamed of this year, Joe and Mary are happy with the result.
One day in May, after coming home from work, Mary tells Joe the good news: they’re having a baby! With the baby due in early January, Joe and Mary decide they should start early on next year’s budget. They sit down at the table and it doesn’t take long before they realize they have two options, and neither is particularly good.
Option 1. Mary and Joe both continue to work and put the baby in a daycare center in DC. Since their income hasn’t changed much over the years, they start with the assumption that they will make about the same as this year: $58,526. Again they plan on filing jointly and taking the standard deduction. This time however, they will also take a dependent exemption in addition to their personal exemptions, bringing the federal income tax owed to $4,430.40. Since they plan on putting the baby in a day care center, they deduct $3,000 from the taxes owed because of the Child Care Tax Credit and another $1,000 because of the Child Tax Credit. This brings their federal income tax bill down to $430.40. In DC, they’d owe $3,008, but DC also provides them a child care tax credit of $960, bringing the amount owed to the District of Columbia down to $2,048. After deducting Social Security and Medicare taxes, Mary and Joe calculate that their net income with a baby would be approximately $51,570.45.
From the net income, they deduct the essential expenses for themselves that they had done previously and find that they now have $21,310.05. Then they make a list of the essential items they will need for the child.
Average Food Costs For Baby On Moderate Cost Plan: $1,732.20/year
Average Cost Of Disposable Diapers: $800/year
Average Cost Of Baby Clothes: $720/year
This leaves Mary and Joe with $18,057.85. They start to think about the toys they can buy for the baby, as well as the fancy crib and nice stroller. And after all that, they’d still would have enough money to comfortably buy household goods and maybe even afford some date-nights! But wait, Mary pointed out, in order for both of them to work, they’d need to put the baby in day care center. And this is where Mary and Joe realized they have a problem.
Average Cost Of Day Care In Washington, DC: $18,200
Including the cost of day care, they would now be $142.15 in debt on just the essentials: rent, food, utilities, transportation to and from work, day care, diapers and baby clothes. They decided to create a second option where one of them would quit their job and stay at home with the baby to see if that would make more financial sense.
Option 2: Mary and Joe both happen to make the exact same amount of income, so if one quit it would cut their household AGI exactly in half to $29,263. Again they plan on filing jointly and taking the standard deduction, as well as personal exemptions and a dependent exemption. This brings their federal income tax owed to $596.30. However, they qualify for the $1,000 nonrefundable Child Tax Credit, bringing their tax liability to $0. They also qualify for the refundable Earned Income Tax Credit of $1,890. So they actually will receive $1,890 from the IRS after they file their income tax return. Their DC taxes would amount to $1,014.28, but they qualify for the DC Earned Income Tax Credit of $756. So in total, they’d owe the District of Columbia $258.28. Factoring in all taxes combined, including Social Security and Medicare taxes, brings their total tax liability to $606.91. This would leave Mary and Joe with a net income of $28,656.09.
Cutting the cost of transportation to work in half and eliminating the cost of day care saves Mary and Joe a total of $19,175. Subtracting the rest of the necessities of rent, food, utilities, diapers, and baby clothes from their net income leaves them with a debt of $3,878.54.
The total difference in the two scenarios is that if both stayed in their job it would net an extra $3,736.39 than having one quit to stay at home and take care of the child. In other words, the job that paid $29,268 now nets you just 12.8% of that, so to keep it after having a baby you’d be taking over an 87% pay cut.
The example of Mary and Joe highlights some fundamental issues, that while exacerbated by DC’s high cost of living, are certainly going on across the country. The first issue is that this couple, solidly in the middle class, were doomed to go in debt the minute they decided to have a child, simply by purchasing the basic essentials for themselves and the baby. In truth we may already be at the point where only the wealthy can afford to have a child, and if we aren’t there yet, we are certainly headed in that direction. The second issue is that in Washington, the costs associated with being able to go to work if you have a child are basically equivalent to the income generated from working. The cost of day care is so high that it is essentially driving productive people out of the workforce. The third issue is that this situation is bad for the economy as well as government tax revenues. In the case of Mary and Joe, the federal government went from receiving $430 in income tax to paying out $1,890, a federal revenue hit of $2,320. Medicare and Social Security taxes went to $2,238.63 from $4,477.25. The tax revenue to Washington, DC went from $2,048 to $258.28, a difference of $1,789.72. Excluding payroll taxes, the total revenue hit to the federal government and to DC was $4,109.72.
One potential fix would be to increase the child care tax credit. It seems possible that if structured well, it could not only help parents who want to stay in the workforce but could also increase government revenues if more parents continued their jobs. However, this would only be tinkering at the edges and do little in places like DC where day care costs are sky-high.
I think the best solution would be for states to create public day care centers, modeled after the public education system. And hey, while were at it, make public school hours 9-5, so that parents don’t have one more obstacle to remaining in the workforce.
Sunday, February 5, 2012
All Signs Point To Recovery
The BLS jobs report released on Friday morning understandably gained a lot of attention. In January, the US economy gained 243,000 non-farm payroll jobs and the unemployment rate dropped from 8.5% to 8.3%, blowing away analyst expectations. As if the top-line numbers of the report weren't good enough, the jobs numbers from November and December were revised upward by a total of 60,000.
Digging deeper in the January report provides even more encouraging news. 44,000 jobs were created in the leisure and hospitality industry, signifying that people are feeling more confident in their personal financial situation and therefore more willing to spend on restaurants and other non-essential services. 50,000 jobs were created in manufacturing, with most occurring in the production of durable goods. The 22,000 jobs in metal fabrication and machinery production is a good indicator that demand is up for base materials and equipment used in construction--an extremely positive macroeconomic sign and also good news for the beaten-down housing market. On top of that, 21,000 jobs were added in construction in January, an exceptional amount considering it was in a winter month.
While the January jobs report was very good, I have to say I was surprised at the shocked reaction by analysts when it was released. The positive signs have been trickling out for almost a month as companies released their quarterly earnings and forecasts. Leading up to the jobs report, almost every indicator from companies that serve as macroeconomic bell-weathers showed the US economy was on a solid upward trajectory. Caterpillar Inc, the world's largest manufacturer of construction and mining equipment reported a 60% increase in earnings in the last 3 months of 2011 and forecast a certainly-low-balled 25% rise in earnings over the course of 2012. Manufacturers of base metals have also recently seen a significant uptick in sales and made positive forecasts for the year. Alcoa, the worlds largest aluminum supplier, serving in its traditional role of kicking off earnings season, topped revenue forecasts by $300 million in the 4th quarter despite historically depressed aluminum prices. The company also projected demand for aluminum to increase 7% in 2012. Steel manufacturers Nucor and Steel Dynamics both released far better than expected 4th quarter earnings and projected the trend to continue in the 1st quarter of 2012. Whirlpool Corporation, the world's leading appliance manufacturer, saw 4th quarter profits rise 20%. Even more encouraging for the domestic housing market, their profits in North America tripled on the quarter and they expected up to a 3% increase in shipments for the continent in 2012.
Economists are understandably skittish about proclaiming that we are truly seeing a burgeoning economic recovery. But they can't deny the data, and the data suggests that this is precisely what is happening. Jobs are being created, but more importantly, they are being created in sectors that point to long term economic growth: durable goods manufacturing and construction. The earnings reports by companies in these sectors (which are key indicators of macroeconomic trends) provided a sneak peek to the booming January jobs report.
Certainly the economy is still fragile and rife with potential pitfalls. Europe looks to be heading toward a recession and their handling of Greece's debt crisis has managed to do the impossible--make the US Congress seem efficient. Even if the Greece situation is resolved, there are numerous other countries in the Eurozone on deck to potentially default, starting with Portugal. I do remain optimistic that Europe will come up with a short-term solution to the debt problems plaguing many of its members (though I'm much less optimistic about the prospects of certain member-countries implementing necessary structural changes to get on solid footing long-term). However I also believe that the US economy is sufficiently decoupled from Europe that even a prolonged recession there won't significantly stifle the domestic recovery.
In my view, all the evidence throughout the month of January pointed to significant improvements in the US economy, in both the short-term and long-term. The jobs report released on Friday was simply the final verdict being read. I expect 2012 to be a good year domestically, with significant employment gains and GDP growth. I also expect that the long-languishing housing market will start to pick up over the next few months. I may simply be an optimist, but the view looks pretty good from here.
Digging deeper in the January report provides even more encouraging news. 44,000 jobs were created in the leisure and hospitality industry, signifying that people are feeling more confident in their personal financial situation and therefore more willing to spend on restaurants and other non-essential services. 50,000 jobs were created in manufacturing, with most occurring in the production of durable goods. The 22,000 jobs in metal fabrication and machinery production is a good indicator that demand is up for base materials and equipment used in construction--an extremely positive macroeconomic sign and also good news for the beaten-down housing market. On top of that, 21,000 jobs were added in construction in January, an exceptional amount considering it was in a winter month.
While the January jobs report was very good, I have to say I was surprised at the shocked reaction by analysts when it was released. The positive signs have been trickling out for almost a month as companies released their quarterly earnings and forecasts. Leading up to the jobs report, almost every indicator from companies that serve as macroeconomic bell-weathers showed the US economy was on a solid upward trajectory. Caterpillar Inc, the world's largest manufacturer of construction and mining equipment reported a 60% increase in earnings in the last 3 months of 2011 and forecast a certainly-low-balled 25% rise in earnings over the course of 2012. Manufacturers of base metals have also recently seen a significant uptick in sales and made positive forecasts for the year. Alcoa, the worlds largest aluminum supplier, serving in its traditional role of kicking off earnings season, topped revenue forecasts by $300 million in the 4th quarter despite historically depressed aluminum prices. The company also projected demand for aluminum to increase 7% in 2012. Steel manufacturers Nucor and Steel Dynamics both released far better than expected 4th quarter earnings and projected the trend to continue in the 1st quarter of 2012. Whirlpool Corporation, the world's leading appliance manufacturer, saw 4th quarter profits rise 20%. Even more encouraging for the domestic housing market, their profits in North America tripled on the quarter and they expected up to a 3% increase in shipments for the continent in 2012.
Economists are understandably skittish about proclaiming that we are truly seeing a burgeoning economic recovery. But they can't deny the data, and the data suggests that this is precisely what is happening. Jobs are being created, but more importantly, they are being created in sectors that point to long term economic growth: durable goods manufacturing and construction. The earnings reports by companies in these sectors (which are key indicators of macroeconomic trends) provided a sneak peek to the booming January jobs report.
Certainly the economy is still fragile and rife with potential pitfalls. Europe looks to be heading toward a recession and their handling of Greece's debt crisis has managed to do the impossible--make the US Congress seem efficient. Even if the Greece situation is resolved, there are numerous other countries in the Eurozone on deck to potentially default, starting with Portugal. I do remain optimistic that Europe will come up with a short-term solution to the debt problems plaguing many of its members (though I'm much less optimistic about the prospects of certain member-countries implementing necessary structural changes to get on solid footing long-term). However I also believe that the US economy is sufficiently decoupled from Europe that even a prolonged recession there won't significantly stifle the domestic recovery.
In my view, all the evidence throughout the month of January pointed to significant improvements in the US economy, in both the short-term and long-term. The jobs report released on Friday was simply the final verdict being read. I expect 2012 to be a good year domestically, with significant employment gains and GDP growth. I also expect that the long-languishing housing market will start to pick up over the next few months. I may simply be an optimist, but the view looks pretty good from here.
Romney As Defender Of Religious Liberty Clashes With His Record
Last night in his speech after winning the Nevada caucus, Mitt Romney said "President Obama orders religious organizations to violate their conscience; I will defend religious liberty and overturn regulations that trample on our first freedom." Romney was of course referring to the new Obama administration policy that universities, hospitals, and charities that provide health insurance to employees must have plans that cover contraception, regardless of their religious affiliation. Despite the fact that 95% of Catholic women use contraception and 85% support expanding access to birth control, Romney and many other Republicans have jumped on the issue. Romney, however, is a particularly ineffective spokesperson as a defender of religious exemptions for contraceptive coverage, and his record shows that he has a startling disregard for religious liberty in general.
In 2002, the year before he became Governor of Massachusetts, Romney's predecessor, Republican Governor Jane Swift, signed into law a bill that would mandate contraception coverage in health care plans offered by employers in Massachusetts, including Catholic universities and hospitals. One would think that this policy, so similar to the one he is now criticizing that was put in place by President Obama, would have outraged Romney and he must have immediately attempted to overturn it when he became Governor months later. The truth of course is that he didn't, nor did he ever even speak out against the 2002 law. In fact, in 2005 Romney's administration mandated that Catholic hospitals provide emergency contraception to victims of rape, with Romney himself saying that in his "heart of hearts" he believed that all rape victims should have access to emergency contraception. I guess now Romney believes that his "heart of hearts" carries a deep anti-first amendment bias.
The other problem with Romney's new-found attempt to be the self-appointed defender-of-religious- liberty is that he has repeatedly supported and proposed policies that would legitimately impede the free exercise of religion. In 2005, for instance, Romney raised the ire of civil libertarians when he suggested that the federal government should wiretap mosques. You would think that Federal government intrusion of this magnitude into places of worship would be a far greater example of a policy that would "trample on our first freedom" than requiring Georgetown University to offer health care plans that cover the birth control pill.
Romney's enthusiastic support for religious liberty also did not extend to Park51, a planned mosque and community center in New York City. After weeks of conservative outrage from Sarah Palin and Newt Gingrich, and a poll showing that the construction of the Islamic center was unpopular, Romney, true to form, did the politically expedient thing and came out against it. It seems Romney's pronouncement last night that he would "defend religious liberty" applies only when doing so would be politically popular, and just as importantly, have the requisite tea-party approval.
Romney's lack of regard for religious tolerance also became an issue during his previous presidential run. In 2007, an attendee at a Romney fundraiser reported that Romney ruled out the possibility of appointing a qualified Muslim to a cabinet position, saying that people who practice Islam would only be considered for positions "at lower levels of my administration." Romney's reported statement that a person's religious beliefs would automatically disqualify them from serving in a top administration post is not only outrageous on its face, but certainly violates the tenets of religious freedom that he professes to support.
In the coming weeks I expect Romney to continue his line of attack that President Obama has shown a blatant disregard for the first amendment and its guarantees of free expression of religion. If history has shown us anything, its that Romney is particularly adept at latching on to and speaking passionately about the issue dejeur, regardless of his own previous just-as-passionate statements on the other side of the issue. But if Romney is going to speak out in favor of a broader religious exemption on contraception, he should at least have to explain his own broad exemptions to the ideals of religious liberty and tolerance he now professes to be defending.
In 2002, the year before he became Governor of Massachusetts, Romney's predecessor, Republican Governor Jane Swift, signed into law a bill that would mandate contraception coverage in health care plans offered by employers in Massachusetts, including Catholic universities and hospitals. One would think that this policy, so similar to the one he is now criticizing that was put in place by President Obama, would have outraged Romney and he must have immediately attempted to overturn it when he became Governor months later. The truth of course is that he didn't, nor did he ever even speak out against the 2002 law. In fact, in 2005 Romney's administration mandated that Catholic hospitals provide emergency contraception to victims of rape, with Romney himself saying that in his "heart of hearts" he believed that all rape victims should have access to emergency contraception. I guess now Romney believes that his "heart of hearts" carries a deep anti-first amendment bias.
The other problem with Romney's new-found attempt to be the self-appointed defender-of-religious- liberty is that he has repeatedly supported and proposed policies that would legitimately impede the free exercise of religion. In 2005, for instance, Romney raised the ire of civil libertarians when he suggested that the federal government should wiretap mosques. You would think that Federal government intrusion of this magnitude into places of worship would be a far greater example of a policy that would "trample on our first freedom" than requiring Georgetown University to offer health care plans that cover the birth control pill.
Romney's enthusiastic support for religious liberty also did not extend to Park51, a planned mosque and community center in New York City. After weeks of conservative outrage from Sarah Palin and Newt Gingrich, and a poll showing that the construction of the Islamic center was unpopular, Romney, true to form, did the politically expedient thing and came out against it. It seems Romney's pronouncement last night that he would "defend religious liberty" applies only when doing so would be politically popular, and just as importantly, have the requisite tea-party approval.
Romney's lack of regard for religious tolerance also became an issue during his previous presidential run. In 2007, an attendee at a Romney fundraiser reported that Romney ruled out the possibility of appointing a qualified Muslim to a cabinet position, saying that people who practice Islam would only be considered for positions "at lower levels of my administration." Romney's reported statement that a person's religious beliefs would automatically disqualify them from serving in a top administration post is not only outrageous on its face, but certainly violates the tenets of religious freedom that he professes to support.
In the coming weeks I expect Romney to continue his line of attack that President Obama has shown a blatant disregard for the first amendment and its guarantees of free expression of religion. If history has shown us anything, its that Romney is particularly adept at latching on to and speaking passionately about the issue dejeur, regardless of his own previous just-as-passionate statements on the other side of the issue. But if Romney is going to speak out in favor of a broader religious exemption on contraception, he should at least have to explain his own broad exemptions to the ideals of religious liberty and tolerance he now professes to be defending.
Subscribe to:
Comments (Atom)