First presidential debate shows lots of fuzzy logic

Oct. 3 marked the first presidential debate between standing President Barack Obama, Democrat, and Republican candidate Mitt Romney. Covered topics included the economy, health care, and the role of government.

Talking about the economy, Obama stresses the need for increased educational opportunities, reducing the federal budget deficit and reforming the current tax code “to make sure that we’re helping small businesses and companies that are investing here in the United States.”

Romney would like to see energy independence for North America, more trade relations with foreign nations and the promotion of small business, a balanced budget and “make sure our people have the skills they need to succeed and the best schools in the world.”

They say the devil’s in the details.

Obama decries Romney for saying that he will “close loopholes and deductions” without specifying what those may be, but the only examples cited from his own plan were ending tax incentives for offshoring jobs and owning corporate planes.

Romney pressed the issue that Obama’s tax plan does not provide the help he says it does.

“You think, well, then why lower the rates? And the reason is because small business pays that individual rate. Fifty-four percent of America’s workers work in businesses that are taxed not at the corporate tax rate but at the individual tax rate. And if we lower that rate, they will be able to hire more people,” said Romney.

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Economics Professor Lance Howe said, “It is important to remember that many U.S. small businesses operate in a very competitive environment to the point that after covering the cost of business, their economic profits are zero. This means that when you increase the tax on a business, owners don’t just dip in to some of their extra profits to cover the increase. … Instead, this will increase the cost to businesses, increasing the price of their goods or services. When prices rise, people buy less, so businesses sell less than they did before the tax. When businesses make or sell less, they reduce the number of employees (or their wages) and other inputs like machines. This is how a tax increase can lead to fewer people working.”

Obama’s tax plan, as discussed in the debate, sends its own mixed messages over his support of small business. On one hand, he would like to decrease the corporate tax rate to 25 percent. On the other, he would like to increase the tax rate of those who earn $250,000 or more per year.

Obama cites Clinton-era economic growth as an example of why Romney’s proposed tax rate cuts for individuals who earn over $250,000 per year should not be done. However, there were some major extenuating economic changes during the Clinton administration. As Howe puts it, “The pro-growth policies under the Clinton administration, which coincided with the end of the cold war in 1991, included 300 free trade agreements and comprehensive bipartisan welfare reform that significantly reduced federal entitlement spending.”

The Clinton era also saw the slow burn towards the financial crisis that helped put Obama in office.

As discussed on a 2008 Frontline investigative report, Congress pushed through the Commodity Futures Modernization Act in 2000 with the support of former President Clinton and former Federal Reserve chairman Alan Greenspan. This act loosened restrictions on highly risky trading practices. In addition, both the Clinton administration and Congress declined to curb the rise of “sub-prime” mortgages, eventually leading to the “sub-prime mortgage crisis.”

On Medicaid, Medicare, and Social Security, neither side has a clear-cut edge. Obama cites $716 billion in savings of Medicare costs from clamping down on private insurance charges and reducing prescription costs for seniors by $600, though he doesn’t state over what period of time. A CNN analysis says that while seniors do save money through the Affordable Care Act, all won’t necessarily save $600 on medications.

However, Romney responds by citing Richard Foster, Chief Actuary of Medicare and Medicaid, saying, “Some 15 percent of hospitals and nursing homes say they won’t take anymore Medicare patients under that scenario.”

“We also have 50 percent of doctors,” he continues, “who say they won’t take more Medicare patients.” According to the Boston Globe, this is a reference to an investigative television piece done in North Carolina cited in the August 2012 edition of Forbes magazine.

In addition, neither candidate faces the problem of Social Security. George Mason University economics professors Tyler Cowen and Alex Tabarrok’s book “Modern Principles of Macroeconomics” states that a well-known but not-widely discussed problem with the Social Security program is that the government’s current Social Security account is propped up in large part by the Baby Boomer generation, who are now reaching retirement age.

As they begin to retire and claim their entitlements, thus not putting any more money into the system, the amount of new workers coming into the system won’t be enough to make up the loss in revenue. This means that the government will be going into debt to pay for their checks.

For a man whose father was an economist, it would seem Obama is slipping on his fundamentals.