"My misgivings increased as we got a better feel for the views of the commission’s co-chairmen. It soon became clear that Erskine Bowles, the Democratic co-chairman, had a very Republican-sounding small-government agenda. Meanwhile, Alan Simpson, the Republican co-chairman, revealed the kind of honest broker he is by sending an abusive e-mail to the executive director of the National Older Women’s League in which he described Social Security as being “like a milk cow with 310 million tits.” article by Noble Laureate in economics, Paul Krugman
"So you’re going to tell janitors to work until they’re 70 because lawyers are living longer than ever." - Paul Kurgman
Today we got the first report from the Obama created "Deficit Panel". announcing that the "beast is starved" and it proposes carrying out the Republican plan to cut taxes on the wealthy and cut benefits to working families. The tax rates for the bottom 40% of US citizens would go up while their benefits would be cut. Payroll taxes are already about 16% for working people (see note below, that figure is correct), higher than the new middle class rate, and it would apply to income up to $190,00 by 2020, while retirement is pushed back and benefits cut. Everyone but billionaires and millionaires would have less money to spend; the super rich will get most of the benefits of tax dodges rolled into lower rates.
Cutting social security benefits to the upper middle class will orphan the beast, as Bob Dole proved time and again. This is a plan to kill it, not save it. It is like asking the wealthy to support a library where they are unwelcome.
The panel did not address the three main problems this county faces: a corrupt government run by the lobbyists for bankers and the health care industry, massive income inequality that is crushing our economy, and a business friendly, freedom hating Supreme Court stacked with ideologues, including one from Monsanto who apparently committed perjury to get on the court and authored rulings to benefit his wife's industry.The panel promises us small ineffective government unable to address the results of inequality that are driving this nation to banana republic status, unable to respond to the next banking disaster, and unable to regulate those who are still able to gamble with our future. Small bad government that allows class warfare to continue unchecked is no worse than big government. Half the American people voted for good government that provide efficient public services, and the other half wants government to listen to them, but have no ideas that could work in ad democracy (except telling women what to do with their bodies). Nobody voted for small, crap, government.
I expect in the next week or so that some economists like Krugman and Stiglitz will discuss this proposal, but this my take on 11 November 2010. I will update the post with links to real economists when they are available, guys that take a bit more time to look for some good in this effort by former Clinton White House chief of staff Erskine Bowles and former Republican senator Alan K. Simpson. (update: Krugman's first response to panel is included below)
An important point to remember is that a benefit cut is a tax on those who received that benefit, and raising your retirement age reduces your benefits (fewer payments before you die), and that is also a "tax". If your taxes are cut by $400 a year and your benefits cut by $100 per month, the burden on you is greater; you are more taxed.
The proposal is aimed at cutting $3.8 trillion from deficits over the next decade, and as actually enacted, probably half that . Letting the Bush tax cuts expire completely would raise about the same amount of money over the next decade, so if you got a huge tax cut from Bush, you may like this proposal, but nobody else will. Retirement will be raised to 69, and you will lose your deduction for interest related to home ownership. There is much more and none of it fun reading. There will have to be pain, but most Americans would rather see a hedge fund manager that made a billion dollars last year (average pay for the top 25) take home "only" $250 million, before the benefits are cut to people earning less than $150,000. Those billions were not made in a vacuum or on one of the Marshall Islands. They are the work product of 300 million people.
A handful of Republicans will like parts of this, but working families will see it as a complete betrayal of those who have to get up in the dark, and come home in the dark, and mothers that have to leave their children in daycare so they can supplement their family's income . The BBC reported today that sales of watches costing more than $750,000 are up this year, as are the sales of handbags costing more than $25,000. The wealthy are not suffering, and they will not feel your pain under this proposal.
For the record, this is exactly the kind of "death panel" that Frank Wolf has proposed.
http://www.washingtonpost.com/wp-dyn/content/article/2010/11/10/AR2010111004029_pf.html
The plan would squeeze another $100 billion a year out of the tax code through a comprehensive strategy that would eliminate all of the expensive and popular deductions known as tax expenditures. The would include tax breaks for mortgage interest and employer-provided health care and special rates for capital gains and dividends.
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The six current tax brackets would be replaced by three brackets with rates of 8 percent, 14 percent and 23 percent. The corporate tax rate, currently the highest in the industrial world at 35 percent, would be reduced to 26 percent.
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Farmers and federal retirees would see reductions in payments. And Social Security, the income support program for retirees, would be subject to major changes, including lower benefits for the wealthiest 50 percent of recipients and a higher retirement age.
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The retirement age is set to hit 67 under current law; the Erskine-Simpson plan would raise it to 68 in 2050 and to 69 by 2075.
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In addition to reducing benefits, the plan proposes to ensure Social Security's solvency by raising the payroll taxes that finance the program. While the rate would be unchanged, the amount of income subject to tax would gradually rise from $106,800 this year to about $190,000 in 2020.
Note 1: "Why do you say that payroll taxes about 16% when my pay check says they are half that"?
Because, while only half the payroll taxes are shown on your pay stub, and you are taxed on that amount, you have to earn both that amount and that amount again so that your employer can pay the other half. You pay taxes on (half) the taxes, but would not pay taxes on real estate taxes you pay. Only workers pay taxes on taxes. The only money that your employer has is the money that you and other workers earn. There is no money to pay for your health care or payroll taxes, unless you earn it. The day you don't earn both halves, you will be laid off. When employers say that they pay for health care or your 401k, they really mean that it is not (currently) taxed. You still have to earn every penny of it, employer don't earn money with one employee so they can give it to another, and they don't bring money from home to pass out. They are, in that sense, like the government, they have the money that you earn (or pay in taxes) there is no other money.
Note 2: The editors of the NY Times have written a generally favorable review of the panel's report. Their incomes being likely over $1 million, their views are expected.
http://www.nytimes.com/2010/11/11/opinion/11thu1.html?_r=1&hp
Note 3: Paul Krugman responded to the outrageous views of the deficit panel, link and his views follow.
http://krugman.blogs.nytimes.com/2010/11/10/unserious-people-2/
Paul Krugman
November 10, 2010, 1:43 pm
Unserious People
OK, let’s say goodbye to the deficit commission. If you’re sincerely worried about the US fiscal future — and there’s good reason to be — you don’t propose a plan that involves large cuts in income taxes. Even if those cuts are offset by supposed elimination of tax breaks elsewhere, balancing the budget is hard enough without giving out a lot of goodies — goodies that fairly obviously, even without having the details, would go largely to the very affluent.
I mean, what’s this about? There is no — zero — evidence that income taxes at current rates are an important drag on growth.
Oh, and they’re talking about raising the retirement age, because people live longer — except that the people who really depend on Social Security, those in the bottom half of the distribution, aren’t living much longer. So you’re going to tell janitors to work until they’re 70 because lawyers are living longer than ever.
Still, I guess this is what it takes to get compromise, if by compromise you mean something the center-right and the hard right can agree on.
Update: It’s here. And it really is that bad. The idea that co-chairs of a commission whose charge is fiscal sustainability should take it upon themselves to (a) declare that federal revenue must not exceed 21 percent of GDP — that’s right, putting a cap on receipts and (b) call for reducing the top rate from 35 to 23 is just awesome.
Note 4: David Stockman, budget director in the first Reagan administration and the architect of Reagan’s supply-side economic policies, says let the tax breaks expire (article).
Stockman has been calling for Congress to take serious and immediate steps to start closing the $1.25 trillion fiscal 2011 budget deficit through a series of unconventional actions, beginning with allowing the Bush tax cuts to expire, as they are scheduled to at the end of the year. One of his more cogent arguments has been that since about half of us don’t pay income taxes anyway (that is to say, many people earn/pay 16% or so payroll taxes, but little income tax. Tje deficit panel does not propose cutting payroll taxes, so many people would see no tax decrease at all, and), letting taxes rise on the other half would be “progressive” (in tax parlance, this means it would hit hardest those with greater means to pay).
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