Will the GOP tax plan be good for you? Graphs tell the story.

The GOP is promising their massive tax cuts will spur economic growth and increase wages. This is the “trickle-down economics” theory, based on the idea that when wealthy people have more money, they invest in companies that can now expand, hire more people and increase sales and wages.

It’s an interesting theory. But does trickle-down economics actually work in practice? Fortunately we have nearly 100 years of data on what happens to the economy and wages as tax rates change.

// Does the economy grow?

Since 1929, the top marginal tax rate has gone from a high of 94% under Roosevelt down to a low of 31% under George Bush Sr. And there is evidence that as you drop the marginal rate to 70% from 91%, indeed GDP does increase (1963-1981). But when Reagan cut the top marginal tax rate to 50% in 1981, we saw no change in economic growth. When he cut it again to 33% in 1988, the economy actually contracted.

Since Reagan’s tax cuts, we have seen three other changes to the top marginal tax rate. And a clear pattern emerges.

  • When Clinton raised the top rate to 39.6%, GDP increased.
  • When Bush Jr. dropped it again to 35%, GDP decreased.
  • When Obama raised it back to its current 39.6%, GDP increased.

Based on this brief analysis, it appears the optimal top marginal tax rate is about 50%. When you drop below 50%, you hurt economic growth. When you increase it, you improve economic growth. So it’s likely that a drop to 37% top marginal tax rate will lead to slower economic growth, not faster.

// Will it increases wages?

The theory is that when wealthier people have more money, they expand their business investments creating jobs and demand for workers, which raises wages. But when we look at how wages have grown since 1967, we see a different patterns. When the top tax rate was 70%, the top 20% of families had wage growth about the same as everyone else.

But look at 1982, when the top tax bracket fell to 50%. You can see how the blue line (wealthiest 20%) suddenly rockets away from the crowd. Wages for everyone are still increasing modestly, but the clear winner is the top 20%. Then in 1988, when the top bracket drops to 33%, we see the top 20% pull away even more, and especially the top 5% (black dotted line). In 2003, when the top tax rate drops to 35%, we now see the top 21%-40% of families (brown line) also start to pull away from the pack.

What you don’t see is the bottom 60% enjoying any of these gains. Why is the wealth not trickling down to everyone? Because when employers have more money, they don’t hand it out as pay raises out of the goodness of their hearts. They pay what the market will bear and keep the rest for their stockholders and owners.

// So what does trickle-down economics do?

So lower taxes don’t create jobs and don’t increase wages. What do they do?

The main thing lower tax rates do is make the wealthy more wealthy. Fortunately it doesn’t really hurt the bottom 60%. Their wages continue to increase modestly. And it does appear to help the middle class too, likely educated business professionals who now have more money to spend. But the truly wealthy, the top 20%, just accumulate more wealth.

We can see in this graph how much of the pre-tax income goes to the top 0.1% (that’s the top 1 in 1,000 families). The spikes are because so much of their income comes from the stock market, so when things are bad (2002, 2009) their pre-tax income suffers. But it recovers quickly when the stock market improves.

As the top marginal tax rate declines, the extra money gets trapped in the hands of the wealthy. They, in turn, invest in the stock market. We should expect to see the stock market explode if the GOP tax plan is approved. Again, anything below a 50% top marginal tax rate appears to be a magic number.

// Conclusion

There’s no evidence lowering taxes increases the economy or wages. There is a lot of evidence that it makes the wealthy wealthier while doing very little for the poor. Trickle-down economics is a fairy tale.

So will the new tax rate be good for you? If you’re in the top 40% of income earners, you will probably see your wages increase especially if you invest in the stock market which should have a bullish couple of years ahead.

But if you’re in the lower 60%, it will have virtually no effect. It won’t create jobs but it likely won’t kill many jobs either. And it won’t raise wages either.

The main benefits fall to the wealthy. The data is clear.

If you like these graphs, you’ll love my new book “Storytelling with Graphs” which I hope to publish soon. Subscribe to this blog to be alerted when it’s available.

Dataviz – How will a 20% import tax affect the U.S. and Mexico?

There’s been a lot of talk about Trump imposing a 20% tax on imports from Mexico to help pay for the wall. I don’t quite get this logic because it means U.S. businesses will be paying those taxes, and thus paying for the wall, not Mexico.

Anyway, as this conversation continues I thought it would be useful to really understand how much business goes on between the U.S. and Mexico, so I created this infographic. The U.S. is Mexico’s biggest trading partner, buying 73% of Mexico’s exports (Source). The pie charts, scaled to show absolute size of exports, show how crucial exports to the U.S. are for Mexico. But Mexico is the U.S.’s second-largest customer (behind Canada), so it would be damaging if Mexico retaliated with their own import taxes (Source). But Mexico clearly has more to lose.

mexico-exports-pie-charts

Notice also that most of the products that will get this new tax are cars, trucks and auto parts. About $100 billion according to this source, or about a third of their exports into the U.S. Is this just part of Trump’s strategy to force U.S. automakers to bring more jobs back into the U.S.?

Storytelling with Graphs cover

If you like this graph, you’ll love my new book “Storytelling with Graphs” which shares all my secrets for drawing insights out of data and displaying data to tell a story. I’m hoping to publish it in the next few months. Subscribe to this blog to be alerted when it’s available.

About the author: Bruce Gabrielle is author of Speaking PowerPoint: the New Language of Business, showing a 12-step method for creating clearer and more persuasive PowerPoint slides for boardroom presentations. Subscribe to this blog or join my LinkedIn group to get new posts sent to your inbox.

 

Does Trump have Enough Momentum after Super Tuesday? Graphs Tell the Story

Trump is on a high after winning 7 states on Super Tuesday and now leads the GOP race. But does he have enough momentum to win 1,237 delegates?

Actually, he doesn’t. Look, he only won 42% of the delegates on Super Tuesday while Cruz won 37% – pretty close. In 2012, Romney won 54% of the Super Tuesday delegates. In 2008, McCain won 57% of them. In fact, Trump only won 34% of the popular vote compared to Romney’s 41% in 2008. So Trump doesn’t stack up too well with recent history.

Slide2And Trump currently has 46% of all delegates, still shy of the 50%  he needs to clinch the nomination. But in 2012, Romney held 50% of all delegates by Super Tuesday, and in 2008 McCain held 54%. Trump does not have the same momentum Romney and McCain had with GOP voters.

Slide3In fact, Trump has proven to be very beatable. He does well in states that hold open primaries, where Independents and Democrats are allowed to vote in the GOP race. He’s won 10 of 11 times there (4 by just a few percentage points). But in states that hold closed primaries or caucuses, where only registered Republicans can vote, Trump is only 1 for 5.

Slide5There are 1,682 delegates left in 8 caucuses, 17 closed primaries and 14 open primaries. If Trump continues to do well in open primaries, including winning key winner-take-all states, but not in closed primaries or caucuses (even winning Florida and Ohio), I project he will fall short of the 1,237 goal. In fact, 3 delegates from each state are “unbound” and can elect to vote for whichever candidate they want at the Republican convention.

Slide6

So, it appears Trump simply doesn’t have enough momentum to propel him over the 50% goal line. This will end up a brokered convention and we might even see Jeb! Bush and Scott Walker back in play. Tune in to see if my projections were right.

And if you like my graphs, look for my new book “Storytelling with Graphs” due out later this year.

Storytelling with Graphs cover

About the author: Bruce Gabrielle is author of Speaking PowerPoint: the New Language of Business, showing a 12-step method for creating clearer and more persuasive PowerPoint slides for boardroom presentations. Subscribe to this blog or join my LinkedIn group to get new posts sent to your inbox.

Will Trump Win GOP Primary Race? Graphs Tell the Story.

Trump was narrowly defeated in Iowa, where he was the favorite just days before the election. Cruz won (some say “stole”) and Rubio surged into a breathing-down-your-neck third place. The actual vote was quite different than the polls predicted. What happened?

Iowa polls versus resultsThis is an important question because if the polls were wrong about Trump winning Iowa, could they be wrong about Trump winning in New Hampshire, and perhaps even the GOP presidential nomination?

One part of the explanation is late-deciders, those voters who don’t make a decision until the week before the vote, or even the day of the vote. Oh, if a researcher calls and asks who they favor, they will give an answer. But some are not committed to that answer all the way through to the voting booth. They change their minds.

Surveys find anywhere from 25% to 45% of voters are still undecided a week before they vote. In 2012 entrance/exit polls (NY Times, CNN), researchers asked people as they were going into the vote (or leaving) “when did you make your decision?”. On average, 32% of voters made their decision THAT WEEK.

Slide3

Yikes! So there are a lot of people who answer polls months before they vote, but don’t stick with their choice on election day. They don’t decide until the last minute.

In Iowa, we see that nearly ONE HALF of voters didn’t make their choice until the week before the election. And the later they decided, the less likely they were to vote for Trump. Instead, they tended to favor Rubio (28%) and Cruz (22%). Of those who decided in the last week, only 15% selected Trump.

Slide4

That makes sense, doesn’t it? Many studies found the people who supported Trump were also the most convicted. Trump recently bragged he could shoot someone and not lose his supporters. One CNN reporter quipped “If Donald Trump punched a baby in the face, Trump’s supporters would say that baby had it coming.” But that also means if you weren’t swept up in Trumpomania three months ago, you aren’t likely to be swept up on voting day.

We saw the same thing in 2012. Ten days before the Iowa caucus, polls had Rick Santorum at just 8%. But he surprised with 25% of the vote! That’s, in part, because 39% of voters were undecided until the last minute. And among those undecided voters, 35% chose Santorum.

Slide5

The undecided voter will play a bigger part in the Republican race than in the Democratic race. We see that the polls were very accurate for Bernie and Hillary. But we also see that only 20% of voters were undecided heading into the Democratic caucuses. Again, this makes perfect sense. There are only two candidates, so it’s easier to differentiate their personalities and policies. And they are relatively divisive personalities. You either love or hate Bernie’s socialist ideas. And you either love or hate Hillary’s brash style. Nearly 60% had made up their minds several months ago!

Slide6

But it’s different for the Republicans. There are still 8 strong candidates duking it out, and it’s not so easy to distinguish their differences. You are likely to stay undecided longer and vacillate up to voting day. But as candidates drop out and it’s easier to distinguish the remaining candidates, voters will rally behind Cruz and Rubio – not Trump.

A Feb 4, 2016 survey by Public Policy Polling found that in a 3-candidate or 4-candidate race (Trump, Cruz, Rubio, Bush – strangely, they didn’t include Carson) voters rally behind Marco Rubio and vault him ahead of Trump.

Slide7And that’s one problem with the polls over the past several months: asking someone to choose among 14 candidates. That’s not how the primaries will play out in the coming months. Candidates will drop and we’ll be asked to choose from three or four candidates, not 14. Of the 8 remaining candidates, we’ll see more drop out after disappointing results in New Hampshire — probably Fiorina and Christie.

Those who remain will face a budget crisis – it’s expensive to keep campaigning beyond New Hampshire. Christie and Kasich each have less than $5 million in the bank (compared to $50 million for Cruz and $25 million for Rubio). Ben Carson recently slashed half his staff because of dwindling funds. Donors don’t like to keep spending money on a long shot. By mid-March we’ll be down to three or four candidates.

What does this mean? It means the January polls are not going to be good predictors of the Republican primary results. There will be a lot of people deciding on the last day. And those people not already committed to Trump won’t be easily swayed on the day of voting.

As the field winnows down, voters will migrate to the remaining candidates – likely Rubio and Cruz – and not the Donald.

New Hampshire will be a critical battleground. Trump has a commanding lead in the polls (29% vs 12% for both Rubio and Cruz). But in 2012, 46% of voters decided the week before the primary elections and all indications are that it will be similar this year.

Paul, Huckabee and Santorum have already dropped out, thinning the field – where will their supporters go?  Independent voters in New Hampshire can choose to vote in the Democratic or the Republican contest, further clouding where the votes will land. Strong showings by Cruz and Rubio in Iowa are likely to sway undecided GOP voters to put their votes “where they will count”. In fact the latest poll shows Rubio is up to 19% (Trump is still at 29%), illustrating the effect of the late deciders.

Trump will still be a formidable candidate throughout these primaries. But I expect undecided voters will put their weight behind Rubio and Cruz, especially as the field thins, and Trump’s results will be lower than the polls predict in most states. Come back later to see if I’m right.

And if you like my graphs, look for my new book “Storytelling with Graphs”, which shares all my secrets for analyzing data, choosing and designing graphs, and even using storytelling principles to make graphs more engaging. It should be released early this year.

Storytelling with Graphs cover

About the author: Bruce Gabrielle is author of Speaking PowerPoint: the New Language of Business, showing a 12-step method for creating clearer and more persuasive PowerPoint slides for boardroom presentations. Subscribe to this blog or join my LinkedIn group to get new posts sent to your inbox.

Could Donald Trump Ever Be President? Graphs Tell the Story.

Could Donald Trump ever be president of the United States? Recent polls have him the #1 candidate for the Republican party at 22%, 12 points ahead of his closest rival Jeb Bush. Pretty scary.

The answer is an unqualified no, he’ll never be president. Here’s why.

When the party chooses a presidential candidate, they want someone with the best chance of winning the election. Hard-core Republicans will vote for any reasonable Republican candidate. And hard-core Democrats will vote against them. So to start, they want a candidate who is popular in the party.

The more important battle is over independent voters, who make up 43% of all voters. But it’s not favorability they are concerned about, because independents tend to be moderate, easily swayed by good arguments that appeal to their self-interests. No, it’s their level of unfavorability. Which candidates do independent voters hate? Which ones will they oppose and never ever under any circumstances vote for?

If we look at a history of U.S. presidential elections, we see that the candidates most likely selected to represent their parties are rated high on FAVORABLE by their own party’s voters, and low on UNFAVORABLE by independent voters.

2008

In 2008, both the Republicans and Democrats were looking for presidential candidates. Hillary Clinton had the most support from Republican voters. But that didn’t earn her the nomination because she also had the least support among independent voters. And both parties chose the candidate favorable to their own party, and low on unfavorable with independent voters: Obama and McCain. (source)

2012

In April 2011, there were 16 presidential candidates. Trump was rated favorable by 58% of Republicans. But he was rated unfavorable by 57% of independents – not electable. Mike Huckabee had the most support from Republican voters, but Mitt Romney had less opposition from independents and was chosen the Republican presidential candidate. (source)

2016

And how about this year? Well, the numbers may change as we learn more about the candidates. But as of August 2015, Trump is once again in that quadrant with high Republican support but high opposition among independent voters. In fact, Jeb Bush is in that same quadrant! Even though Trump and Bush are the front-runners right now to get the Republican presidential nomination, it’s very likely that neither one has enough support to win an election.

So who are the candidates with high Republican support and little objection from independents? They are Ted Cruz, Scott Walker and Marco Rubio. Rand Paul is in the hunt as well. Carly Fiorina could also be a contender if she could get more Republican support; independents have little objection to her. (source)

And what about the Democratic party? Well, Hillary Clinton is considered the front-runner. But 60% of independent are opposed to her so she may be unelectable. The one with the right balance of support from Democrats and lack of opposition from independent voters is Bernie Sanders. (source) But he’s not a strong candidate, just outside of that magic quadrant. In fact, the Dems don’t seem to have any candidates with the right mix of high party support and low independent voter opposition.

Things are likely to change before the election. But at this point, my prediction is Bernie Sanders will be selected for the Democrats although he’s not super-popular among Dems. And notorious Tea Party trouble-maker Ted Cruz may actually be popular enough to get the Republican nod. But Trump has virtually no chance of representing the GOP. Check back in 2016 to see if I was right.

About the author: Bruce Gabrielle is author of Speaking PowerPoint: the New Language of Business, showing a 12-step method for creating clearer and more persuasive PowerPoint slides for boardroom presentations. Subscribe to this blog or join my LinkedIn group to get new posts sent to your inbox.