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Fact: Obama Victory In November Will Lead To Faster Economic Growth

By ALAN S. BLINDER - New York Times

CLEARLY, there are major differences between the economic policies of Senators Barack Obama and John McCain. Mr. McCain wants more tax cuts for the rich; Mr. Obama wants tax cuts for the poor and middle class. The two men also disagree on health care, energy and many other topics.

Such differences are hardly surprising. Democrats and Republicans have followed different approaches to the economy for as long as there have been Democrats and Republicans. Longer, actually. Remember Hamilton versus Jefferson?

Many Americans know that there are characteristic policy differences between the two parties. But few are aware of two important facts about the post-World War II era, both of which are brilliantly delineated in a new book, “Unequal Democracy,�? by Larry M. Bartels, a professor of political science at Princeton. Understanding them might help voters see what could be at stake, economically speaking, in November.

I call the first fact the Great Partisan Growth Divide. Simply put, the United States economy has grown faster, on average, under Democratic presidents than under Republicans.

The stark contrast between the whiz-bang Clinton years and the dreary Bush years is familiar because it is so recent. But while it is extreme, it is not atypical. Data for the whole period from 1948 to 2007, during which Republicans occupied the White House for 34 years and Democrats for 26, show average annual growth of real gross national product of 1.64 percent per capita under Republican presidents versus 2.78 percent under Democrats.

That 1.14-point difference, if maintained for eight years, would yield 9.33 percent more income per person, which is a lot more than almost anyone can expect from a tax cut.

Such a large historical gap in economic performance between the two parties is rather surprising, because presidents have limited leverage over the nation’s economy. Most economists will tell you that Federal Reserve policy and oil prices, to name just two influences, are far more powerful than fiscal policy. Furthermore, as those mutual fund prospectuses constantly warn us, past results are no guarantee of future performance. But statistical regularities, like facts, are stubborn things. You bet against them at your peril.

The second big historical fact, which might be called the Great Partisan Inequality Divide, is the focus of Professor Bartels’s work.

It is well known that income inequality in the United States has been on the rise for about 30 years now — an unsettling development that has finally touched the public consciousness. But Professor Bartels unearths a stunning statistical regularity: Over the entire 60-year period, income inequality trended substantially upward under Republican presidents but slightly downward under Democrats, thus accounting for the widening income gaps over all. And the bad news for America’s poor is that Republicans have won five of the seven elections going back to 1980.

The Great Partisan Inequality Divide is not limited to the poor. To get a more granular look, Professor Bartels studied the postwar history of income gains at five different places in the income distribution.

The 20th percentile is the income level at which 20 percent of all families have less income and 80 percent have more. It is thus a plausible dividing line between the poor and the nonpoor. Similarly, the 40th percentile is the income level at which 40 percent of the families are poorer and 60 percent are richer. And similarly for the 60th, 80th, and 95th percentiles. The 95th percentile is the best dividing line between the rich and the nonrich that the data permitted Professor Bartels to study. (That dividing line, by the way, is well below the $5 million threshold John McCain has jokingly used for defining the rich. It’s closer to $180,000.)

The accompanying table, which is adapted from the book, tells a remarkably consistent story. It shows that when Democrats were in the White House, lower-income families experienced slightly faster income growth than higher-income families — which means that incomes were equalizing. In stark contrast, it also shows much faster income growth for the better-off when Republicans were in the White House — thus widening the gap in income.

The table also shows that families at the 95th percentile fared almost as well under Republican presidents as under Democrats (1.90 percent growth per year, versus 2.12 percent), giving them little stake, economically, in election outcomes. But the stakes were enormous for the less well-to-do. Families at the 20th percentile fared much worse under Republicans than under Democrats (0.43 percent versus 2.64 percent). Eight years of growth at an annual rate of 0.43 percent increases a family’s income by just 3.5 percent, while eight years of growth at 2.64 percent raises it by 23.2 percent.

The sources of such large differences make for a slightly complicated story. In the early part of the period — say, the pre-Reagan years — the Great Partisan Growth Divide accounted for most of the Great Partisan Inequality divide, because the poor do relatively better in a high-growth economy.

Beginning with the Reagan presidency, however, growth differences are smaller and tax and transfer policies have played a larger role. We know, for example, that Republicans have typically favored large tax cuts for upper-income groups while Democrats have opposed them. In addition, Democrats have been more willing to raise the minimum wage, and Republicans have been more hostile toward unions.

The two Great Partisan Divides combine to suggest that, if history is a guide, an Obama victory in November would lead to faster economic growth with less inequality, while a McCain victory would lead to slower economic growth with more inequality. Which part of the Obama menu don’t you like?

Alan S. Blinder is a professor of economics and public affairs at Princeton and former vice chairman of the Federal Reserve.

By SUERTE GRINGO on Sep 4, 2008, 15:19 in Off Topic.

esanch36 says on Sep 4, 2008, 19:08:

look at history...anytime you get a democratically controled congress and a democratic prez, the economy goes to the shitter

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esanch36 says on Sep 4, 2008, 19:14:

if you honestly think that obama will really give low income people a tax cut your kidding yourself. He cant do that with all the government spending he will be doing.

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dwmte7 says on Sep 4, 2008, 19:52:

common, esanch...the shitter is the trillion plus dollars already gone that's been spent on this damn war. the war that shouldn't have been. however, had that been spent killing o.bin ladin, i'd be ok with that. but our president decided he'd rather go after fricken saddam because he had threatened his father, than deal with reality, al qaida and bin ladin, and so mr. b is still sittin in his pakistani cave eating lamb and rice and plotting his next hit and the fuckin iraqis are still figuring ways to spend our money and kill their citizens.

so to try and play the defense of america card ain't even gonna work with me and my vote. we're so much more unsafe after this debachale (sp) in iraq, we might have just as well open the door to al qaida refugees.

dwmte

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SUERTE GRINGO says on Sep 4, 2008, 19:57:

John McCain just said the "Russians" invaded a small country for OIL!

“If you're gonna eat your crackers in bed, you're gonna have to sleep with crumbs."

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Lcacique says on Sep 4, 2008, 20:33:

I got a kick out of that one, too.

Hoy se nota en la floresta un ambiente de alegría. ¡Y el rumor de ranchería es mas dulce y sabe a fiesta!

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esanch36 says on Sep 5, 2008, 06:07:

your right...and im not defending bush...go ahead Bash him all you want and ill say bravo.

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dwmte7 says on Sep 5, 2008, 10:26:

poor bush....he wrote his own historic epitaph. RIP

dwmte

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tasco66 says on Sep 5, 2008, 10:35:

higher taxes for sure...

Not being bound to swear to the dogmas of any master

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ColombianoGringo says on Sep 5, 2008, 11:12:

Higher taxes if you make over a quarter million dollars a year.

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tasco66 says on Sep 5, 2008, 13:21:

Obama’s Reckless Tax Increase to “Save�? Social Security

A column in the Wall Street Journal discusses Senator Obama’s plan to boost the top tax rate on entrepreneurs and investors from less than 38 percent to more than 50 percent. This huge tax increase will significantly undermine incentives to both earn and report income. As a result, the author, formerly with the Social Security Administration, explains that behavioral responses will result in far less money than projected by “static�? revenue estimates:

Mr. Obama has recently veered sharply left. He now proposes to solve the looming Social Security shortfall exclusively with higher taxes. …Currently, all wages below about $100,000 are subject to a 12.4% Social Security payroll tax. But all wages above that amount are not subject to the tax. Mr. Obama wants to eliminate the cap, but, in a concession to taxpayers, exempt wages between $100,000 and $200,000. …Mr. Obama’s plan would keep Social Security in the black for only three additional years. Under his proposal, annual deficits would hit in 2020, instead of 2017. By the 2030s the system would still run an annual deficit exceeding $150 billion. Mr. Obama’s modest improvements to Social Security’s financing come at a steep cost. …The top marginal federal tax rates would effectively increase to 50.3% from 37.9%, equivalent to repealing the Bush income tax cuts almost three times over. If one accounts for behavioral responses, even the modest budgetary improvements from Mr. Obama’s plan are likely to be overstated. If employers reduce wages to cover their increased payroll-tax liabilities, these wages would no longer be subject to state or federal income taxes, or Medicare taxes. A 2006 study by Harvard economist and Obama adviser Jeffrey Liebman concluded that roughly 20% of revenue increases from raising the tax cap would be offset by declining non-Social Security taxes. Assuming modest negative behavioral responses, Mr. Liebman projected an additional 30% reduction in net revenues, leaving barely half the intended revenue intact. Mr. Obama’s plan would also dramatically raise incentives for tax evasion, further degrading revenue gains. Many high-earning individuals evade the Medicare payroll tax by setting up “S Corporations,�? paying themselves in untaxed dividends rather than taxable wages. John Edwards avoided $590,000 in Medicare taxes this way in the 1990s. …The U.S. already collects far more Social Security taxes from high earners than other countries do. Social Security taxes here are currently capped at about three times the national average wage — far above other developed countries. In Canada and France payroll taxes are levied only up to the average wage. In the United Kingdom, taxes stop at 1.15 times the average wage; in Germany and Japan at 1.5 times.

Obama also wants to let the Bush tax cuts expire, which means the top tax rate would rise even farther - to more than 55 percent. But the bad news may get even worse. It is unclear how Obama will “fix�? the alternative minimum tax. If his Social Security plan is any indication, he may propose to raise the top rate even further. What would all this mean? Simply stated, European-style tax rates will mean European-style stagnation.

Not being bound to swear to the dogmas of any master

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dwmte7 says on Sep 6, 2008, 21:11:

that way, they would become criminals and face the laws governing that. evasion is evasion, even when done within the contest of a given law, when proven that the act was to evade.

dwmte

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eywed says on Sep 10, 2008, 23:40:

Obama will not win , McCain's secert weapon is hard at work.

Ay Hombe!!!!!

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