Preparing for election year politics

Politics continue to heat up and the economy will likely remain the hottest topic going into this year’s elections. The informed voter will brush up on economics to be able to sift through the facts, half-truths, and distortions offered up by both parties. Here are some things to consider.

Now is not the best time to drastically cut government spending despite the seeming attractiveness of doing so. Government spending is a key component of GDP and continued GDP growth is essential to a full economic recovery. That’s not to say we should increase government spending to raise GDP as a matter of normal policy. But you can’t make drastic cuts right now without dealing a major blow to the labor market, which is still on shaky ground. You can do so when the economy is doing well and the unemployment rate is below 6 percent.

Now is not the best time to raise taxes either, even on the rich. Our tax system is such that it makes some people look rich who aren’t. Small business owners typically report business income as personal income. For this reason, tax returns can be misleading. Taxable income of $250,000 a year isn’t much if it’s business income that’ll be put back into the business to maintain, grow, and expand it. Despite appearances on tax returns, the owner of a $250,000 a year business likely isn’t rich.

When there’s talk about raising taxes on the rich that doesn’t mean increasing rates on all of their income, only the portion of it over a certain amount. The United States has marginal tax rates, which means the higher rate applies only to the income above the lower margin of the tax bracket. Everyone pays the same tax rate on the first $10,000, $20,000 and so on, regardless of how much they make in total. So if you raise taxes on people making more than $1 million a year, if they make $100,000,001 they’ll pay the higher rate on only $1. Sometimes people tell tales of a mysterious friend who decided not to take a higher paying job because they would bring home less after taxes because they’d be in a higher tax bracket. Those tales are just that—tales. They will, however, bring home a smaller portion of the additional income, which is important.

Obamacare will not bankrupt the nation. Mostly this is because the Supreme Court isn’t likely to uphold the constitutionality of it. There’s no precedent for the individual mandate and the broader implications of it are chilling—a point likely to be outlined in the opinion once rendered. It can’t be passed off as a tax because supporting policymakers were emphatic it wasn’t during policy debates. The Court will not be ready to grant the executive branch the power to mandate the purchase of a good or service in the private market. For those who liken it to government mandated auto insurance, that’s an apples and oranges comparison. State governments are not limited on such matters by the 10th Amendment to the U.S. Constitution, but the national government is. State governments are limited by state constitutions, which vary. The question will be whether the U.S. Constitution empowers the national government to mandate individuals purchase health insurance or any other product, not whether various state constitutions empower state governments to mandate purchase of automobile insurance. Such matters are decided by state courts. Less important is that automobile insurance is required as a condition of driving an automobile; a health insurance mandate would be a condition of simply being alive. The Court will have to answer the question of whether the power to regulate interstate commerce gives the national government the power to mandate participation in interstate commerce. The answer will most likely be no.

But even if it were yes, Obamacare wouldn’t bankrupt the country. A common myth is mom and pop stores with a handful of employees will be forced out of business because they can’t afford to provide health insurance. Fact is the employer mandate applies only to those with more than 50 employees. Those with 50 or less are exempt. While increasing health insurance coverage is likely to increase demand for healthcare, driving up prices, increasing the number of healthy people in the insurance pool is likely to put downward pressure on insurance prices. While the net effect of these and other factors is largely unknown, the probability of health care reform bankrupting the country approaches zero.

An important consideration about the economy this election year is that democrats and republicans want the same thing: a strong economic recovery and solid economic growth moving forward. They just disagree on the best policies to make that happen. Each party has its preferences, economic and otherwise, and will seek to wrap as many as possible in economics, promising prosperity if their side wins and disaster if the other side does. The informed voter will sift through the rhetoric and be prepared to critically evaluate statements from both sides. This is especially important for independents, who aren’t wed to one party or the other. Hardcore ideologues on both sides are going to vote the party ticket.

With the general elections 9 months away, there’s still time to read an economics textbook or enroll in an economics course to get prepared. The key is to find an unbiased source, which means looking outside the political rhetoric and arguments made by partisan groups seeking to advance this or that cause or candidate. Perhaps the worst place to get your information is a campaign ad. A rule of thumb: If both sides of a contentious issue are not presented, the source should probably be dismissed as biased.

Dr. Robert Carreira is director of the Center for Economic Research at Cochise College. If you have any questions on the economy, please contact the CER at (520) 515-5486 or by email at cer@cochise.edu. Check out the CER’s website at www.cochise.edu/cer.