31 December 2012

On Social Security

I've previously made my views on Social Security very clear.  So it will be no surprise that I am glad that the Administration has apparently withdrawn its offer of a few weeks ago to include a change in how the COLAs are calculated ("Chained CPI"), which amounts to nothing more or less than a long term stealth benefit cut to a program that should be increased, not cut. Were that terribly dumb idea actually put into effect, Social Security, which is the primary income for more than 70% of retirees, would gradually cease to do its most essential job, which is to keep the elderly out of poverty. I am totally intransigent on this point: if Democrats agree to this, they will have betrayed their constituency and forfeited any claim to being the party of Progressives.

Now, it also appears that the payroll tax holiday will not be extended. And here, I hope, my view is consistent. I also applaud that outcome. Along with Bernie Sanders, I and many other Progressives were deeply suspicious of the idea of using a payroll tax cut as a stimulus measure in the first place.

The key to Social Security is that it is and always has been self-funded. (This also true, but not entirely true, of Medicare, but let's keep the focus on Social Security). Taxes are paid into the Trust Fund, which uses the funds, including past surpluses, to pay benefits. The tax is regressive, in that it is levied essentially only on wages and salaries, and only up to a certain level. There is no maximum benefit, per se,  but there is, effectively, because you only receive benefits based on the amount of income that was taxed, and that's capped, currently at $110,000. Of course, the General Fund has always, in effect, borrowed the surplus, but this is not, as many people seem to think, commingling. It is actual debt, in the form of US Securities, whose full faith and credit is a critical factor in the financial health of America. So that the idea that Social Security is a house of cards because it only has a bunch of IOUs is a pernicious and frankly profoundly stupid canard: if politicians were to allow the debt to the Trust Fund to be defaulted upon, it would be indistinguishable from defaulting on our national debt to China or other creditors. And it would amount to theft from the American people themselves. All of which is why I repeat Ronald Reagan's comment whenever this subject comes up: Social Security has nothing to do with the deficit. 

Not only that, but the very idea that Social Security is even a problem right now is ridiculous. Under current projections, it is solvent to 2033 (used to be 2037, but there was that not-too well-advised payroll tax holiday... possible only because Social Security was, in fact, so fiscally healthy). Any insurance or pension system that could show it was solvent with current income and surplus to 2033 would be declared solid gold and would have no competition.

So right wingers and ill informed Democrats who crow about how Social Security is "unsustainable" and "going broke" just don't know what they're talking about. Or they're deliberately lying, which I suspect is often the case.

Since the long term health of Social Security is important, however, I am glad to see that payroll taxes, which are its funding source, are going to go back to their statutory intended level after the first of the year. We do need stimulus, no doubt about it, but this is bad policy. 1) Tax cuts are relatively ineffective as stimulus, as any rational economist will tell you; and 2) if a program's long term viability is a policy issue, cutting its funding makes no sense.

So then, you may ask, what should we "do about" Social Security. (So glad you asked).

The most obvious fault of Social Security is that it is a social insurance system funded by taxes, but that those taxes are not progressive. We need to make a decision as a society that we are going to provide a buffer against poverty for all our citizens, and continue the guaranteed income to all payees that makes the whole system popular. (After all, if it were just welfare, it would be SSI, which we already have, for the indigent elderly and disabled, thanks in part to that notorious liberal, Richard Nixon, but that's another issue). Having committed ourselves to Social Security as a benefit system more or less in its current form, we need to enhance the way in which its paid for. I actually think that Roosevelt's plan to fund it separately from general tax revenues was pure genius. Americans hate income tax but they by and large don't resent paying for Social Security (or Medicare). But there are some improvements that could be made. Here's my idea:

The portion that employers pay should remain essentially the same, except for two major changes. First, the cap on wages and salaries subject to tax should be lifted. Not raised. Removed. All compensation should be subject to the tax. (Benefits would remain capped, based on current levels, and the difference would fund the surplus necessary to keep the program solvent forever, which this scheme would accomplish). The other big change would be that no form of deferred income
should be exempt from either income tax or payroll taxes.should be exempt from either income tax or payroll taxes. (Stock options, in-kind perks, fancy schemes to treat income as dividends or carried interest, etc. -- all of which should be addressed in more comprehensive tax reform anyway). If it's compensation, it's taxed. Period.

Now, the portion of Social Security (and, incidentally, Medicare) taxes paid by the employee should be handled a bit differently. I would like to see the same lifting of the cap on income subject to tax, and the same application to all compensation. But for incomes up to $110,000, I would like to see tiered rates, so that those who are earning less than a defined "middle class threshold" income should pay at a lower marginal rate, while keeping benefits the same. This is a recognition that there is  a component to the program that comprises social welfare. Again, I'm proposing that the benefit system be capped, but that all compensation be taxed. For compensation above a certain level, perhaps $75,000, the payroll tax rate would go to maximum, and stay there above the present cap. The system would be adjusted so that current levels of income to the trust fund would be generated from the taxes on compensation below some level, say $150,000, and taxes on compensation above that level would pay for a trust fund surplus, to keep the program solvent forever. 

26 December 2012

To WH: don't back down on Hagel nom

 This is my e-mail to the White House contact site today.
Never thought I'd be writing to the White House urging them to stand behind a Republican (potential) cabinet nominee, but the Right Wing attacks on Chuck Hagel should be resisted resolutely. Hagel is as honest and straightforward as they come in politics, and his position on reasoned restraint towards Israel's Right Wing government, and a rational and cool review of America's relations with Iran, are EXACTLY what is needed right now. Assuming Hagel is in fact the president's choice, he should not back down. 
This opinion is a reflection of the comments of Colonel Lawrence Wilkerson on Ian Masters's show on Sunday, the 23rd. See ianmasters.com .

Too late for Grand Bargain/Great Betrayal, plenty of options for can kicking

I often disagree with Matthew Yglesias, but in this instance, I think he's got it just about exactly right. 

Apart from the relatively brief likely effect of Market nervousness from now until after the 1st, I think the way things have turned out in these negotiations is actually better for the prospects for long term benefit to the American people than if some deal had been struck this month. 

I fully expect that the Bush tax cuts for the under $250K income cohort will be extended or made permanent, and some version of can kicking will occur, but the fact that the idiotic plan to permanently cut Social Security under the so-called chained-CPI scheme, or other ill-advised cuts to essential services, will not be occurring, is a very definite plus. We in the reasoned liberal community can try like hell to sound the voice of reason and keep these terrible ideas from resurfacing, while lobbying for more revenue from progressive tax reforms, including a modest financial speculation tax, reform to increase tax rates on capital gains, dividends, and carried interest (possibly with a floor to protect middle class investors), real reform (i.e., elimination) of overseas tax havens, elimination of corporate and Agribusiness welfare, restoration of substantial estate tax, and a lifting or raising of the cap on income subject to payroll taxes. If anything like the bulk of these could be enacted sometime in the next decade, we could easily put this country on the road to quite sustainable fiscal health, and maintain the essential services which are an obligation of the government to its people, based on years of regressive taxes to pay for them, every bit as much as its bonds and securities are obligations to the investors who've purchased them. 

21 December 2012

The Price of Civilization

Jeffrey Sachs of the Earth Institute (Columbia University) laid it out really well in an interview Thursday with Ian Masters (ianmasters.com). Allow me to very briefly summarize, with a bit of my own panegyric thrown in for good measure:  

The current budget negotiations are a case of both parties toying around the edges of a much more fundamental problem, which is that, in thrall to a destructive Right Wing ideology, this country is no longer paying the price of civilization. Our infrastructure is crumbling, we are not investing in the energy resources of the future or the social systems and services (education, preventive health options, housing for aged and poor, transportation, etc.)... that would be necessary for us to have the kind of robust democratic civilization we once strove for. Obama and the Republicans are arguing about a revenue rise of 0.7% of GDP vs. 1% of GDP when what we really need is to increase revenues substantially to pay this price. And hysterical concern over debt, when the world clamors to buy our debt and money is practically free, is beyond stupid right now. 

Major corporations and rich people are avoiding all social responsibility. They ensconce their money in foreign tax havens, and live in a privatized world, while the country as a whole has lagged far behind other developed countries in these essential government functions.

Rich people have essentially all the power, over both parties, and until the people demand that government start paying attention to the needs of the many, not just the few, we will have an oligarchy and a society in decline, resembling ever more and more a third world country: with a wealthy elite and a rapidly declining standard of living for everyone else. Eventually, America’s ability to carry on the technological innovation and cost of being a superpower will also collapse, if we don’t go back to forcing everyone with means to pay a fair share of the price of civilization, and for those with the most means to pay the largest share. This is how it works; and nothing else will work. Period. 

President Obama has failed to lead. He has the right rhetoric, but he tries to accomplish policy goals through backroom negotiations, not by taking the case to the people and asking them to make the policymakers do it, which is how these kinds of reforms (both Roosevelts, Kennedy, Johnson), have been accomplished in the past. If he doesn’t change course soon, things will continue to get worse, and the proposals being discussed now will actually make matters worse than just letting the stupidly named “fiscal cliff” happen, which would at least bring in Clinton era revenues for a while. Of course, there are much better ways to do it (such as really eliminate tax havens and subsidies to oil, tax media companies for use of airwaves, impose a transaction tax on speculation, bust up big banks, raise top marginal tax rates a lot, increase payroll tax cap, impose carbon tax, convert the ACA to single payer, restore estate tax and some excise taxes… in other words make those who have benefited most from the American economic system pay the real costs of maintaining it). But none of this can be made to happen by negotiating with people who hate the very idea of commonweal, and whose goal is only to protect the narrow, selfish interests of plutocrats. Only sweeping leadership… a broad and emotionally charged appeal to the masses to force change; in other words what people were hoping for when they voted for Obama in the first place… would have any chance of achieving what we must do.

We can’t give up, even if this president will not or cannot do what is needed. We have to work to elect people who understand what we’re up against, and make them do it. There is no other way.