The Best Promises Win

Make Them Explain the Bid
Obama's Tax Proposal

Long ago, I planned to renovate part of a two-family house. I would live in the second and attic floors and rent out the first floor. I found an architect to create the plans. I needed a contractor.

My architect asked three contractors, and I reviewed the bids. The high bid was twice the low bid. How would I choose between them? My architect said that they all were OK as far as he knew. Since I had no other information, I took the low bid. My architect would supervise, so why not the low bidder?

I reasoned like this. I had equally poor information about each bidder, only the price was different. If I made a mistake, at least I would spend less money, and I could fix things up later if I needed to.

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It was a mistake. This contractor cut a few corners. Some were visible along the way, and some only showed up years later when some pipes froze. He misread the plans, didn't run the pipes in the space allowed for them (insulated), but did run them in the wall (uninsulated). Maybe the middle bid would have worked out better. I'll never know.

The lesson for me is to find out the evaluations and why the bids are different. I would investigate a lot more if I did it today. I wouldn't go for the low bid, or any bid, until I understood how they came to their number. Just talking to them helps a lot. If they won't talk, I won't buy -- low bid, high bid, or whatever.

House Painter

Another time, I was talking to exterior house painters. One guy was very friendly and seemed knowledgeable. He looked around my house and gave a price, and I asked how he computed it. He said that he just knew. He painted a lot of houses, and this seemed like x men for y days.

I pressed on, because sometimes paint jobs run into problems, and I wanted some structure ahead of time to value and negotiate any changes that might be needed. In particular, was this the price for two coats? He said that the house needed two coats on the sunny sides, but just one coat on the shaded sides. He assured me that when they were painting, he would do two coats if the house needed it, for the original price. So, I could get a low bid and a second coat for free if needed.

I thanked him for the estimate, and I dropped him from consideration. First, he didn't answer my plain question about how he got to his price. "He just knew". Worse, he was willing to "throw in" a second coat on part of the house if needed.

No one cuts his profit by "throwing in" a major item. When a contractor treats an additional cost as a gift, "no problem", then it is because he isn't serious about it. He could promise anything he wanted to, because he wasn't going to do it anyway.

Election Promises

An election invites promises from the candidates. Herbert Hoover in the 1928 Presidential Campaign used the immortal slogan "A chicken in every pot and a car in every garage". He won the election. The promise was broken, as the Great Depression started 10 months later.

President George H.W. Bush, the father of our current President, said "Read my lips, no new taxes" as he accepted the nomination for President at the 1988 Republican Convention. It helped him win election. From Wikipedia:

[edited] As President, the elder Bush made no progress dealing with a House and Senate controlled by Democrats. Bush compromised to raise several tax rates as part of a 1990 budget agreement to reduce the national budget deficit. This reversal caused great controversy, especially among conservative Republicans. Technically there were no new tax items in this agreement, only rate increases.

It seems that politicians are deep thinking philosophers. When they break their promises, they explain that there are subtle problems in understanding their language. You can only determine what they meant earlier after they explain it to you later. Honest men, misunderstood.

All politicians promise to give something to you. Just one problem; they don't do the giving. When they have a choice of granting government favors to their corporate supporters, or giving the money to the "little guy", the little guy loses out.

A worse problem is that raising taxes reduces economic production and government revenue. Politicians want more money, and people want more jobs. Raising tax rates kills both. That has been the interesting lesson of the past 25 years. If politicians want to distribute more money, they have to spend less on political pork, and they won't.

McCain Should Admit It

Obama is promising gifts before an election. He says he is going to give that money to you, and spread the wealth around. These promises probably have worked for all of his career as a Chicago and Senate politician. He has made a bunch of promises: checks in the mail, money for college, mortgage payments, health care, and an expansion of government to give more to everyone (except the 5% who are supposed to pay for it all).

Ironically, a politician is at a disadvantage when he has some vision and scruples. McCain is a rare politician who seems to have a conscience. His military career probably had that effect - Country, Honor, Duty. I think it is hard for him to lie, although he sometimes does, and he has apologized for some past mistakes, a rarity. He does make promises like all politicians, but he seems constrained.

McCain just can't match Obama's promises. He looks at the situation, and tries to explain that lower taxes will bring in more government revenue, and that a smaller government will free up resources for more satisfying jobs.

It may seem like a deal with the Devil, but leaving more resources in the hands of productive citizens is going to produce more production, lower prices, and more jobs than handing out walking-around money. McCain is not giving the well-off more money. He is letting them keep more of what they have earned. They do better investing that extra money than the Government does. The society gets more jobs and higher wages, than if the government hires more office workers.

Obama says he will give you everything. This is all a smiling promise with no downside. He will make the rich give you the money. This will be the first time in history that any government will take from the rich, rather than be manipulated by them.

I think Obama can promise everything because he isn't serious. It will all work out, or maybe it won't, but he will be President, and he can worry about it then.

McCain should admit that he can't compete in the giveaways. His sense of reality prevents him from promising everything. Obama clearly makes the bigger promises.

Tax Complications

Barack Obama has promised a "tax cut" for everyone, except for the 5% of taxpayers who have large incomes and are supposed to pay more. The tax "cuts" are refundable, meaning that the government will send a check up to $500 per taxpayer (or $1000 per family) if the "cut" is greater than the taxes paid. Even if no tax was originally paid.

This is not a tax cut in the usual sense. People with more income will pay people with less income, and will pay for most of government in addition.

I said "people can apply for", because the taxpayer (or non-taxpayer) does not get the money automatically. He needs to document the expenses that are favored for a tax rebate, and file a more complicated tax return.

This is like the $20 off coupons that retailers hand out. Just collect all the paperwork, clip the coupons, do the math, send it in, and get the refund. Your tax preparer will charge a bit more for the service, or you can study the tax booklets yourself.

Some people will lie about eligibility, just as they currently lie about extra dependents to get current tax deductions. The temptation to lie is greater, because they can walk away with a check, not just a reduction in the tax owed. The government will spend even more money trying to catch them, or checking up on you.

Taxes will be made more horribly complicated. Obama proposes phase-outs and rate changes along with the cuts. The cut you get this year may be reclaimed in following years by inflation and any increasing family income.

The chart below is from American.com: The Folly of Obama’s Tax Plan. It shows the Marginal Tax Rate for our current tax law and under Obama's plan. Marginal Rate means how much income you get to keep out the next $1000 for each income level.

Obama says he will give you $1000 plus other amounts. The downside is that these benefits "phase out" (reduce gradually) as income increases. So, either you don't get the full benefit, or the benefit disappears if you earn more in the next year. If you lose $500 in benefit, it feels the same as paying $500 more in tax.

From the graphic, for example, say you get a raise from $30,000 to $35,000. Current law takes $1000 of that $5000, a marginal tax rate of 20%. Obama's proposal takes $1750. You give back an extra $750 of whatever benefit was originally granted to you, because something is being "phased out", for a marginal tax rate of 35%.

The original tax gift feels great. The high marginal rate is a gotcha. Just when you are happy to make more money, you will find out that you owe more tax. Just hope you didn't spend it already. I'm not happy with Obama's plan or with the current tax law. We should have simpler, understandable tax laws, not a grab-bag that hides who is paying what. Everyone should pay less tax and know what they will keep if they work hard to earn more money. You shouldn't need a tax accountant for a $35,000 income.

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A Few Words About Policy
July 2009 - Easy Opinions

Where are the policy papers, Obama's/Congress's research on healthcare reform and other vast programs?

Where are the plans that Obama supports, in writing so that they may be analyzed and criticized in a reasonable manner? Hiding the details as a political tactic is fraud on the public.

Or, are Obama and the Democrats putting down all of the odd thoughts and biases that they picked up over the years.

We should ask loudly, how do our representatives know that their legislation will help, or solve anything? The legislative language is less important than the research that should show that the legislation will be of good effect.

Further, people are writing bills, in detail. Where are the research papers that support the writing of the bills? This research has to be there. We need to see it.

The Congress and Obama should proudly present the careful research that supports their proposed rearrangements of our country. Obama is a Harvard trained law professor. He should be up to the task.