Relevant and even prescient commentary on news, politics and the economy.

Stimulus work project

I-15 CORE project as reported by ksl.com notes lots of jobs and local spending.

By Becky Bruce

UTAH COUNTY — The recession may not feel like it’s really over yet, but the Utah Department of Transportation’s I-15 CORE project is helping to the tune of more than a thousand jobs.

The I-15 CORE project has already created 1,000-plus jobs to date, and spokeswoman Heather Barnum says that number could double next summer.

Plus, Barnum says, it’s helping the economy in other ways.

“When you’re building a road you need aggregates, you need steel, you need trucks, even, on the project,” she said. “So we always try to look, where do we have things locally?”

As a result, 95 percent of the supplies used for the CORE project come from inside the state.

That doesn’t count boosts from other things, like workers stopping for lunch at a local café — all of which contribute to the local economy.

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Health Care thoughts: Comparative Effectiveness Research, Gender and Emotion

by Tom aka Rusty Rustbelt

Health Care: Comparative Effectiveness Research, Gender and Emotion

A key cost bending feature of PPACA (Obamacare) is comparative effectiveness research (see http://www.hhs.gov/recovery/programs/cer/index.html).

This research is designed to apply statistical, economic and clinical analysis to care and treatment to encourage effective care and block ineffective treatments.

It is highly likely, based on current research, the statisticians will recommend less screening and much less treatment for prostate cancer. As my doc says, “almost all old men die with prostate cancer, almost none of them die from prostate cancer.” Screening should likely be focused on younger men and more aggressive forms of the cancer.

With men being somewhat nonchalant about such matters, and prostate cancer being something less than a celebrity telethon issue, it is unlikely there will much of a fuss. Money can be saved and the resulting increased mortality will be slight.

At the same time, current recommendations about breast cancer are suggesting a lot less mammography, and there is an uproar.

(I must plead guilty to being protective and emotional, Mrs. R. will have annual mammography, despite a clean history and no risk factors, if I have to pay out of my own pocket.)

Breast cancer hits many women, hits many younger women, and the results are horrifying. The blowback from advocacy groups has been and will be fierce.

So can we get past gender and emotion to become more efficient and effective? I doubt it, and readily admit I am one of the culprits.

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Banks are your friends…smiled the crocodile

by Dan Crawford

Key players in the development of this story are judges in each state as they interpret state law defining proper ownership. Inquiry to two people who know courts predicted most judges would probably simply ignore technical discrepancies, but as the story develops these issues are gaining traction. Bypassing property laws is a big no-no perhaps.

Foreclosure mess ups in Florida as Yves Smith continues to follow the trail of difficulties with titles in 45 states.

GMACS letter to agents concerning foreclosures.

Fitch considering downgrading servicers as difficulties develop and homeowners contest foreclosures based on title problems.

JPMorgan Suspending Foreclosures as one of the big guys says oops.
By DAVID STREITFELD

In a sign that the entire foreclosure process is coming under pressure, a second major mortgage lender said that it was suspending court cases against defaulting homeowners so it could review its legal procedures

Update:
Seven banks asked to review procedures and docs by OCC under the heading Crocodile Grows

Best to keep in mind this image!!

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Drug wars in Juarez…and the cause—NAFTA, really.

by Stormy and Dan

Drug wars in Juarez…and the cause—NAFTA, really.

Mexico drug cartel in the Guardian:

Mexico’s main crossing point to the US has always had a seedy border vibe, but two decades ago it was envisaged as a showcase for a new economy built on free trade, manufacturing and cheap labour.

Factories drew migrants from all over Mexico but low wages kept families poor and often forced both parents to work, leaving children unsupervised. Secondary schools barely functioned, leading to a 50% drop-out rate. Today cartels and gangs find easy recruits amid the 50,000 ni nis, teenagers who neither study nor work. (bolding is mine)

The poverty in Juarez, the slave wages were brought about by NAFTA. Juarez is not only a violent drug town, it is also NAFTA heaven… As this article Die off: explains the hellhole for those who work there; a money maker for all the companies that outsourced:

There are a total of 350 foreign-owned factories in Juarez, the highest concentration in all of Mexico, and they employ 150,000 workers. The twin plant system-in Spanish, rnaquiladoras-was created by the United States and Mexico in 1965 so that Americans could exploit cheap Mexican labor and yet not pay high Mexican tariffs.

When I practically drill the actual wages into someone’s head when discussing the issue, he or she will counter by saying that the cost of living is much cheaper in Mexico. This is not true. Along the border, Mexican prices on average run at 90 percent of U.S. prices. Basically, the only cheap thing in Mexico is flesh, human bodies you can fornicate with or work to death. What is happening in Mexico betrays our notion of progress, and for that reason we insist that each ugly little statistic is an exception or temporary or untrue. For example, in the past two years wages (2) in the maquiladoras have risen 50 percent. Fine and good. But inflation in that period is well over 100 percent.

Juarez is an exhibit of the fabled New World Order in which capital moves easily and labor is trapped by borders. There are a total of 350 foreign-owned factories in Juarez, the highest concentration in all of Mexico, and they employ 150,000 workers. The twin plant system-in Spanish, rnaquiladoras-was created by the United States and Mexico in 1965 so that Americans could exploit cheap Mexican labor and yet not pay high Mexican tariffs. Although the products that come from the factories are counted as exports (and thus figured into GDP), economists figure that only 2 percent of material inputs used in maquila production come from Mexican suppliers. All the parts are shipped to Mexico from the United States and other countries, then the Mexicans assemble them and ship them back. Two or three thousand American managers commute back and forth from El Paso every day

Workers who lose their jobs receive essentially no benefits beyond severance pay. Mexico has no safety net. Independent, worker-controlled unions barely exist, and anyone trying to organize one is fired, or murdered. (3) It is almost impossible to get ahead working in the maquilas. Real wages have been falling since the 1970s. And since wages are just a hair above starvation level, maquilas contribute practically nothing toward forging a consumer society. Of course, as maquiladora owners and managers point out, if wages are raised, the factories will move to other countries with a cheaper labor force.

And so industry is thriving. Half a million cargo-laden trucks move from Juarez to El Paso each year. Boxcars rumble over the railroad bridge. New industrial parks are opening up. Labor is virtually limitless, as tens of thousands of poverty-stricken people pour into the city each year.

There are few environmental controls and little enforcement of those that do exist. El Paso/Juarez is one of the most polluted spots in North America. And yet it is a success story. In Juarez the economic growth in 1994 it was 6 percent, and last year it registered 12 percent.

According to Lucinda Vargas, the Federal Reserve economist who tracks Mexico’s economy, Juarez is a “mature” economy. This is as good as it gets. With the passage of NAFTA, narcotraficantes began buying maquiladoras in Juarez. They didn’t want to miss out on the advantages of free trade.

In 1991, Nicholas Scheele, the head of the Ford Motor Company in Mexico, said in admiration of the government’s control, “But is there any other country in the world where the working class . . . took a hit in their purchasing power of in excess of 50 percent over an eight-year period and you didn’t have a social revolution?” Maybe you get something you don’t have to define as a revolution. There are over 200 gangs in Juarez.

Ok…now who is responsible for conditions in Juarez?

Business week notes:

Mexico’s Ciudad Juárez is one of the most violent places on earth. Drug gangs fight endless battles with each other and police in the streets and alleys of Juárez’ poorest neighborhoods. In the past 28 months this city of 1.5 million, across the Rio Grande from El Paso, has recorded 5,200 murders.

Even though Juárez is the center of Mexico’s war on drug dealers, it’s holding its own as the center of maquiladoras, the special zones Mexico developed 30 years ago to attract investment. “It’s a dual reality,” explains Bob Cook, president of the El Paso Regional Economic Development Corp., a group that encourages multinationals to invest on both sides of the border.

In return for building factories in the maquiladoras, multinationals get favorable tax treatment, pay low wages (sometimes as low as $4.21 a day)….(Dan here…and location, freedom from paying for schools and such, in gated industrial parks)

Blue chips like Johnson & Johnson (JNJ), Delphi Automotive, and Scientific Atlanta show no signs of leaving. El Diario, the local daily, is filled with help-wanted ads from Lear (LEA), Delphi, Siemens (SIE), and other companies.

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Rebecca Wilder…Financial Times/alphaville

Financial Times/alphaville’s Cardiff Garcia uses Rebecca Wilder’s post Evaluating the “excess” in the US corporate financial balance.

What to make of the excess savings (aka boatloads of cash) that remain on US corporate balance sheets?

In trying to answer this question, economist Rebecca Wilder has used data from the Fed’s latest flow of funds report to update the following graph, originally taken from JP Morgan research:

For the whole article follow the link.

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The Spitting/Splitting Moment: When Obama lost the New Dealers

by Bruce Webb

There is a great deal of chatter these days about how Obama lost ‘Progressives’, what Robert Gibbs derisively called the ‘Professional Left’ or the ‘Left of the Left’, and as an example you could read this from Peter Daou How a handful of liberal bloggers are bringing down the Obama presidency and the following key graph:

With each passing day, I’m beginning to realize that the crux of the problem for Obama is a handful of prominent progressive bloggers, among them Glenn Greenwald, John Aravosis, Digby, Marcy Wheeler and Jane Hamsher*.
Virtually all the liberal bloggers who have taken a critical stance toward the administration have one thing in common: they place principle above party. Their complaints are exactly the same complaints they lodged against the Bush administration. Contrary to the straw man posed by Obama supporters, they aren’t complaining about pie in the sky wishes but about tangible acts and omissions, from Gitmo to Afghanistan to the environment to gay rights to secrecy and executive power.

But a couple of things stand out here. First this is an awfully self-referential list, Digby aside it is pretty much the core of the Purity Party who were never on-board the Obama bandwagon to start with. Again Digby partially aside, these people are the modern descendants of the New Left which formed itself explicitly against the Old Liberals and organized itself around topics and principles pretty peripheral to the New Dealers and New Frontier types, anti-colonialism, the Green movement, gay rights all would have been acknowledged as important in principle, but not central. In particular you could be a straight down the line ADA Liberal without endorsing extreme environmentalism or Liberation Theology or marriage equality, there was nothing odd about a midwestern urban Catholic union worker liberal who rejected them all. That is the co-option of Progressive/New Left/Purity Party term of the term ‘liberal’ in the way Daou explicitly does here is to me off the mark, most of these people don’t meet the classic definition of ‘Liberal’ to start with.

But there is I think no doubt that Obama came into office with both New Dealers and New Democrats in his corner even as the Progressives Hamsher et al were already leery, and that we can identify what I am calling the Spitting (sic) moment that split the former two groups and mostly left the first group on the outside. And while the realities of politics today may never have allowed Obama to satisfy the FirePups entirely, the choice to alienate the New Dealers was freely made in the summer of 2009, Obama had a chance to reform the New Deal Coalition and even to drag Progressives along with him (as FDR did in the thirties,) but frankly he blew it, and badly. And the decision point was—-? To be discussed under the fold.

First the preliminary actionbuy cheap inflatables Batman Challenge. In the immediate wake of the 2008 election House Democrats made an immense move, they outsted John Dingell as Chairman of the House Energy and Commerce Chairman and replaced him with Henry Waxman, the latter being thought better able to shape and put through the Obama environmental and energy policies, an area in which Dingell, diehard supporter of Detroit and its auto industry, had been a drag for decades. In return Dingell got thrown a big juicy bone, he retained ownership of his signature issue, one he had introduced legislation on for fifty plus years, and continuing a legacy his father had begun even earlier, Universal Health Care. Specifically he was tasked with being lead author of a bill to be considered by all three committees with jurisdiction: Energy and Commerce, Ways and Means, and Education and Labor. And in due course what would be known informally as the Tri-Committee Bill and by number HR3200 was introduced to all three Committees on July 14th House Tri-Committee Healthcare Reform Bill Introduced Today

In the meantime the Senate HELP Committee at first under the daily leadership of Dingell’s comrade in arms Ted Kennedy (who had spent almost as many decades pushing health care as Dingell and who in the previous Congress(es) had introduced what was known as Kennedy Dingell: Medicare for All) and then after Kennedy’s health slipped under the leadership of his number two at HELP Chris Dodd worked away to put forth their own version Affordable Health Choices Act.

Before the end of the month HR3200 had been passed through the House Tri-Committees, although with some modifications to satisfy Blue Dogs on Energy and Commerce and AHCA had been approved by Senate HELP though watered down at the insistence of Senate moderates with the following end result:

House Tri-Committee: Ten year addition to budget $1.082 trillion. Total coverage non-elderly: 94%. Coverage for legal non-elderly: 97%
Senate HELP: Ten year addition to deficit: $597 billion. Total coverage non-elderly 88%. Coverage for legal non-elderly 90%.

Now in comparing the two bills a few things stuck out. One although the bills were clearly the work product of Dingell on the House side and Kennedy on the Senate side neither final product had much resemblance to the previous Congress’s Kennedy-Dingell Medicare for All, instead both bills met Obama’s campaign promise that if Americans liked what they had, they could keep it, which meant preserving the role for private insurers in the system. Two each bill included a robust public option, also part of Obama’s platform. Three each already came pre-compromised with the moderates in both parties, particularly Senate HELP. And four, and most important, the HELP Bill was missing huge chunks. Where the Tri-Committees were able to work across jurisdictional lines, each presumedly taking the lead on the section under the jurisdiction of each of the three, Senate HELP did not have jurisdiction over either the Medicare or revenue components, both under the jurisdiction of Senate Finance. Which brings us to the decision point:

Senate Finance Committee Baucus bucked. Instead of merging the appropriate pieces of the Tri-Committee and HELP Bills and then appending his version of the Medicare and funding parts, he simply asserted ownership of the entire bill. Nope he would just scrap EVERYTHING and craft his own version from scratch. What is more he would do this NOT under regular Committee order where the Senate Finance Sub-Committee on Health Care and its Chairman Rockefeller would have a major voice, but instead form a working group that would move direct to a final deal on his terms. In effect he spit right in the face of both Dingell and Kennedy, tough shit that they had spent a combined 100 years on this and that Kennedy was clearly in his last months of life, this was going to be the Baucus Bill or maybe the Baucus-Grassley Bill. And with a third mouthful he spat right in the face of Rockefeller and by extension all Democratic progressives and liberals, this bill would be shaped by what was originally a Gang of Seven that included four Republicans and then when Hatch dropped out by a Gang of Six evenly split between the parties and expressly sidelining anyone to left of center. Instead HCR would be shaped by two Conservadems, one moderate Dem, two Conservative Republicans, and one moderate Dem. I discussed the make-up of the Gang of Six in this post from July 29, 2009 Was it a Gang of Seven. Note that it doesn’t just flout the concept of majority rule, and ignores the ideological makeup of the Democratic caucus, it systematically excludes the interests of large and/or coastal and/or urban States.

It was a straight out power grab by Baucus. And out of some bizarre desire for Senate Comity above all things (Reid) or an equally bizarre belief in accomplishing some mythical, mystical Post-Partisanship (Obama) the Majority Leader of the Senate and the President of the U.S. simply turned over the keys to the HCR car to a guy representing less than 1/3rd of 1% of the American population. Which if it had worked would have been okay, although you can bet the final product would have been a lot crappier from a liberal perspective than either HR3200 or Senate HELP, but it didn’t, instead the Committee deadlocked for almost half a year forcing first Baucus and then Reid to produce their own versions just in time to get bogged down by the Christmas Holidays. What had been at the introduction of the Tri-Committee Bill and Senate HELP a one month process to be finished prior to the August 2009 recess instead dragged into the next year and with it sucked all of the enthusiasm out of the New Deal faction of the Democratic Party. A group who had spent much of that late Summer and Fall defending the Obama Administration against the Purity Party Progressives, surely in the end he wouldn’t just sell us out!

But Obama did. And along the way showed additional contempt for Liberals by agreeing to a Catfood Commission almost as loaded to the center-right and right as the Gang of Six, and seemingly devoted to tearing away the centerpiece of the New Deal in the name of Social Security ‘Reform’ and ‘Fiscal Responsibility’. The only thing lacking was a ‘No Dogs, Irishmen or New Dealers’ sign on the South Lawn. How do you get the New Dealers back on board? How do you close the Enthusiasm Gap among those who were among your biggest boosters and defenders during the HCR fiasco? How about stop pissing on FDR’s grave and telling us you are just watering the flowers?

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Blue investing?

by Dan Crawford

Institutional Investor reminds us of a vital area not in the news, but drawing enough committed money to attract even hedge funds.

Angry Bear has carried posts on the 1989 experiment with privatization of water utilities in Britain, the strange world of WTO rules regarding water supply, ownership, and provision of sewerage, and the big companies involved in development of water (European owned)resources. Ignored in the US media for a few years now that US drought (2007) doesn’t demand attention, the issues will be coming back to domestic attention as money chases profits.

Since water is a central part of living, perhaps we will pay attention again.

The world is getting thirstier. The World Bank estimates that global water consumption will increase by 50 percent over the next 30 years. But the planet has no more water today than it did after the Big Bang, and as with any commodity that appears to be running out, this resource is attracting new interest from investors.

No fewer than eight exchange-traded funds now specialize in water-related investments. The endowments of Harvard University and Duke University have both begun to focus on water. And last year the California Public Employees’ Retirement System committed $260 million to the venture capital firm of one of Sun Microsystems’ co-founders, Vinod Khosla. The firm seeks out emerging water technologies, among other cutting-edge investments.

The market worldwide in stocks revolving around water infrastructure alone — everything from pipes, valves and filters to desalination systems — is thought to be between $550 billion and $700 billion (about $135 billion of that is in the U.S.). William Brennan, a portfolio manager for Summit Global Management, a $450 million-in-assets San Diego–based firm that has a water hedge fund as well as a water-rights fund — a private investment pool that invests in water rights — estimates that the public market could easily grow to $1 trillion.

Institutional investors have so far poured $25 billion into water-linked stocks, typically those of water utilities and water-treatment plants. The water industry’s need for funding is so great that it ranks as the fourth most capital-intensive business globally. But U.S. investors are relative newcomers to so-called blue investing.

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Tax cuts paid for? With job creation? Can’t get there from here.

by: Daniel Becker

This is a simple little exercise that frankly I wonder why no one with a pulpit (that would be you congress critters, executive office and MSM) has done it. It is for those who think simplistically. Thinking like:  wealthy people create jobs with their extra money and not the non-wealthy people’s demand for stuff that makes them feel wealthy.

Let’s say that tax cuts create jobs.  770,000 jobs  for what is it, $4 trillion over 10 years? The obvious question is: How many jobs do we really need for that money to break even? Come on conservatives, you’re suppose to be the “efficient minded” thinkers. How many jobs would it take to pay it back?

Median household income for 2009 is $49,777. 5% less than the peak of 1999 by the way. Full time working men it was $47,127, women $36,278. Per capita income was $26,530. These numbers are from here

Using the household income number just because, in 10 years, you would need 80,358,389 jobs created to equal the tax cut.. Eighty plus million jobs. Of course, that we created these jobs does not mean all that money is paying for the $4trillion in lost tax collections. Only a percentage of the income is collected by We the People as income tax. Based on the Tax Foundations data that figures out to an average of 12.68% of taxable income paid as income taxes. Thus, $6,311.72 is paid for income tax for the median household income.

Stay with me here, this is simple. $4 trillion divided by $6311.72 is: 633,741,674 jobs in ten years. About double our total population in 10 years needs to be working.

Our policies have to start producing 63,374,674 jobs as soon as the tax cuts are passed, at the beginning of each year (’cause we need to collect the full $6311.72 at the end of each year) to pay for the tax cut. That is over the year, we need the equivalent of 63,374,674 jobs each having generated $49,777 of taxable income to make the mark for paying off the tax cut for that year. Not every job will pay that much for the year, so we actually need more than 63,374,674 jobs. That is, unless magically at one tick past midnight New Years Eve suddenly we have those jobs paying at that rate.

Sixty three million jobs per year. Really? Come on, you think this is possible? This nation is gonna need a lot more copulation and immigration happening over the next ten years for that to happen.

Let’s say it is possible, just not here. China?

Not even in China can do it, as they only managed 22 million jobs in 2 years . Though they did manage to provide 112 million more willing workers over the last 10 years. Problem is, even at 22 million jobs, those sure are not at a median income of $49,777/year.

So.  Really… tax cuts? LOL. Pay for them with job creation? Oh please, you’re kill me!

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Supply and demand is the law?

CASSE (Center for the Advancement of the Steady State Economy) carries this piece:

Demand a Supply of Common Sense; Just Don’t Price It
by Brian Czech

Ah, the confusion of economics students when they encounter the subject of supply and demand in introductory “micro.” They learn that prices are determined by supply and demand. Then they’re taught that the quantities supplied and demanded are determined by… prices!

There happens to be no lurking inconsistency here, no magic trick to dazzle us; not even a ridiculous fallacy to accuse the professor of. It’s just a matter of semantics; supply is not the same as “quantity supplied” and demand is not the same as “quantity demanded.”
…………………………..

So Americans know quite well how Big Money can pollute the truth. Can we expect the mother of all money-making theories, unlimited growth theory – along with its crazy correlates – to come to us on wings of truth? Sure, sure, higher prices stemming from lowered supplies actually “increase” supplies because they provide an incentive to “supply” even more. And more smoke makes the air “cleaner” by providing an incentive for smokers to increase the “supply” of clean air. More traffic increases the “supply” of open road. More noise actually leads to a greater “supply” of quietness. Less of a good thing leads to more of it! More of a bad thing leads to less of it! Or, if you prefer, less of a good thing leads to less of a bad thing, and more of a bad thing leads to more of a good thing!

So if the growthmen want to claim that oil supplies, for example, are actually increasing, not decreasing, as evidenced by a downturn in price, let them play with the word “supply” like the Seven Dwarves play with “addictive!” Let them use “supply” to mean more, less, an OK mess, anybody’s guess … whatever. But may the rest of us not sound, as one old hand used to say, “Dummer’n a doggone boot!” Supply is how much there is, after all, and as you use it, less remains.
………………………

and lifted from comments is the Sandwichman:

Amen. And let’s not forget unemployment. According to the growth orthodoxy, unemployment creates jobs. How does this happen? Easy! Unemployed workers are willing to work for less money, which drives down the cost of labor. The lower cost of labor creates an incentive for investors to hire people to produce more goods and services (at a lower price). All the newly employed unemployed people can then go out and buy the cheaper goods and services with their lower wages. That is unless there is unemployment insurance to keep people from supplying their labor at a lower cost. And if you don’t swallow that crock of bull, you’re committing the “fallacy” of assuming there is “only a fixed amount of work to be done.”

So remember, folks, unemployment creates jobs… and more smoke makes the air cleaner.

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HOW TO PAY FOR SOCIAL SECURITY

by Dale Coberly

HOW TO PAY FOR SOCIAL SECURITY
BALANCE THE BUDGET CUT THE DEFICIT
and REDUCE THE NATIONAL DEBT

Big Numbers and Mental Hygiene

We have been treated recently to a great deal of hysteria about “the deficit” and the huge horrible Burden of Social Security, including the mysterious Trust Fund: is it real? or only Phony Iou’s? has it been Looted? or will it Cripple the Economy to pay it back? and why should I Pay Twice for my Social Security? And how did Social Security run up such a Huge Debt anyway? and when exactly is it Going Broke?

All of this is nonsense: Carefully constructed nonsense by the highly paid non partisan experts who dwell in Big Think Tanks dwelling on these things, thinking of better ways to fool the people into cutting off their heads to save the cost of tomorrow’s dinner. They don’t have to convince you, exactly; they just need to get you to stand quietly or cheer, while they “fix” Social Security. Of course, in their minds “fixing” it means ending it. They don’t like the idea that the hired help can retire just because they saved enough of their own money to be able to afford to.

I have shown elsewhere how Social Security can pay for itself with a tax raise that amounts to 20 cents per week per year. In that paper I assumed that the Trust Fund would be used as it was intended… that is the money saved in the Trust Fund, when payroll taxes were higher than needed for current benefits, would be used to help pay for future benefits when payroll taxes might otherwise not be enough to pay for promised benefits. This money has been lent to the government at interest. The enemies of Social Security claim that the United States of America cannot afford to pay back the money it borrowed… cannot honor its debt to Social Security. In this paper I will show how the country can pay back the money it borrowed from Social Security without imposing an Intolerable Burden on anyone.

A good place to begin would be with a set of numbers a Regular Reader sent us last week showing “the Social Security deficit.” Regular Reader thinks we need to Look Upon the Very Big Numbers and Be Afraid. Here they are:


Year……Deficit in Billions of Dollars
2010…………..41
2011…………….7
2012……………-2 (surplus)
2013……………-5 (surplus)
2014……………-4 (surplus)
2015…………….3
2016…………..11
2017…………..25
2018…………..45
2019…………..71
2020…………..101
2025…………..275
2030…………..457
2035…………..622
2040…………..758
2045…………..892
2050…………..1073
2055…………..1344
2060…………..1726
2065…………..2225
2070…………..2909
2075…………..3822
2080…………..5006
2085…………..6535

Well, these are indeed Very Big Numbers, but we can do better than just stare at them and be afraid. For example, we can compare them to the income of the people paying the Social Security tax: The following tables Table VI.F9 from the Trustees Report will help us.

Table VI.F9.—OASDI and HI Annual Income Excluding Interest, Cost, and
Balance in Current Dollars, Calendar Years 2010-85
[In billions]

Note that the numbers in the fourth column, under OASDI and Balance, are the same as Regular Reader’s. Note also that these are Current Dollars… that is they include inflation. A lot of inflation. Most of the bigness is due to inflation.

[We are only talking about “social security” in this paper. Medicare presents other problems we need to take up separately.]

And note that the Income does NOT include the “interest”… that is the money owed to the Trust Fund. This is “the deficit” only if the government does not pay back the money it borrowed from Social Security.

We can stop scaring ourselves with inflated numbers if we just compare the inflated deficit with the inflated incomes of the people paying the payroll tax.

The second table shows Taxable payroll Table VI.F6., in the fourth column, for the same years, also in current dollars.

Table VI.F6.—Selected Economic Variables,
Calendar Years 2009-85
[GDP and taxable payroll in billions]

[by the way: that is indeed 157 Trillion dollars in “taxable payroll” for 2085. This is not “runaway inflation;” it’s just what you get when you start with a big number and have it grow 5% per year for 75 years… you get a Very Big Number.]

If we divide “the defict” from the first table, by the “taxable payroll” in the second table, we can find the percent the payroll tax rate would have to be increased to cover the deficit without collecting any money from “the budget,” that is, without the government repaying any of the money it borrowed from Social Security.

year……….payroll……….deficit……defict as a percent of payroll
2010……….5459……………41………..0.75 (this is three quarters of one percent)
2011……….5690…………….7………..0.12 (one eighth of one percent)
2012……….6069……………..(these three years there is no deficit
2013……….6454……………..(but a small surplus
2014……….6852……………..(that doesn’t affect our analysis)
2015……….7243…………….3………..0.04
2016……….7656……………11………..0.14
2017……….8052……………25………..0.31 (about three tenths of a percent)
2018……….8446……………45………..0.53
2019……….8834……………71………..0.80
2020……….9226…………..101………..1.09 (about one percent)
2025………11431…………..275………..2.41
2030………14215…………..457………..3.21
2035………17746…………..622………..3.51 (3 and a half percent)

And here we are going to stop for a look at what this means so far. Because at this point the Trust Fund would have been paid back if the Congress was honoring its debt to Social Security. ( “Paid Back” is what you have been hearing called “Gone Broke.” )

First note that the first year, 2010, is this year. This year Congress has found the money to pay the deficit… that is pay the money it owes to the Social Security Trust Fund. That is, it is paying the “phony iou’s.”)

Second, note that… if Congress does not pay back the money it owes for any future year, a payroll tax increase of about one tenth of one percent per year would allow the workers… the people who will eventually need to collect Social Security benefits … would allow the workers to “pay as you go” and pay for all promised benefts until 2020.

One tenth of one percent of payroll is $43 dollars per year for the average worker in 2010 (see table VI.F6 above, third column). This is about 80 cents per week. Note that while incomes are rising, the 80 cents will get bigger, but it will “feel” the same to the person earning the increased income. Note also that even though the “one tenth of one percent increase each year” adds up to 1 percent after ten years, in any given year the raise will “feel” like 80 cents per week would feel to you today.

Go back to Table VI.F6 for the average wage projected for each year, and watch the effect of the tax increases on the “take home” of the average worker.

year wage taxrate tax take home
2010 43084 0.124 5342 37700
2011 44687 0.125 5585 39101
2012 46758 0.126 5891 40866
2013 48978 0.127 6220. 42757
2014 51215 0.128 6555 44659
2015 53397 0.129 6888 46508
2016 55738 0.130 7245 48492
2017 58103 0.131 7611 50491
2018 60522 0.132 7988 52533
2019 63017 0.133 8381 54635
2020 65465 0.134 8772 56692

Notice that even though the tax rate is increasing by a tenth of a percent every year, the “take home” increases** by about 2000 dollars per year. For those who say, “yeah, but I could have had more,” it is necessary to remind them that they haven’t lost anything. The tax will come back to them when they retire and need it most. And notice also that even in 2020 when the tax is one percent higher than it would have been, the difference is only 12 dollars per week, out of an income of 1200dollars per week. And you get it back with interest.

The same analysis would give essentially the same result over the years from 2020 to 2035, but the rate of increase in the tax would be a 0.15% (one and a half tenths of a percent) per year, a little bigger than for the first ten years, but still not a “burden.” I’ll leave the details to you.

[There is a small error in the above table that actually makes the tax bite look worse than it should. The “wage” given is the “nominal wage.” The employee’s tax rate on this wage is only half the given tax rate. If you wish to insist that the “employer’s share” is “really the employee’s money” then you would need to add half the “tax” to the “wage” to get the employee’s “true wage” before you subtracted the full tax. Then you would get a take home equal to the “take home” as given PLUS half the “tax” as given.]

So let us look at where we have come. We have shown that even if the government does not pay back the money it borrowed from Social Security, the workers can continue to pay all promised benefits themselves, on a pay as you go basis, with a tax increase that would be barely felt. It is important to understand this. Because while Congress not repaying the Trust Fund would be a theft.. a breach of the “Full faith and credit of the United States,” it would be better for the workers to just write it off as a bad debt and pay the extra costs themselves.

It would be better for them to lose a little money than to lose the Social Security program to those who want to “fix” it by raising the retirement age, or cutting benefits so the workers can’t afford to retire, or “means testing” it, or even raising the “cap”, so that Social Security becomes just another welfare program and can be killed off later. Moreover, the workers don’t WANT welfare. They want a way to insure their savings against inflation and market losses and personal losses of various kinds. That way is Social Security and it has worked for over 70 years. Social Security benefits are more than half the income of more than half of all retired people. A great deal more than half for more than 40% of them, and not an insignificant part of the income of even those who are doing better than most.

However, let us not write off the bad debt just yet. Because there is another table you need to see:

Inspection of this table shows that the Adjusted Gross Income of those taxpayers with AGI greater than 100k/yr (in 2006) is nearly the same as the total AGI of those taxpayers with AGI less than 100k/yr. Since the payroll tax is paid on wage income less than 100k, and wage income over 100k and all non wage income, pays NO payroll tax, the money owed to Social Security, that we have just shown could be made up by a tax increase of about one tenth percent per year, up to 3 and a half percent over 25 years, could be paid instead by the same tax rate on those making more than 100k/yr.

Since the approx 3% tax cut in 2001 went mostly to those making over 100k, it would not seem obviously unfair to ask those making over 100k to pay the 3% tax increase necessary to make good on the loan they got from SS. It might be more fair to apply the tax increase to income over 100k (people who make over 100k also make under 100k). This would change the top marginal rates, but that should be done in a way that increases the tax on incomes over 100k the same 3% “on average.

Whether or not it is “fair” (it is), it is plain that the “Social Security deficit” could be paid for with a tax increase on those making over 100k of one tenth of one percent per year, reaching 1% by 2020 and ultimately reaching 3.5% in 2035 and THEN STOPPING. After 2036 the Trust Fund would be fully repaid. So “the rich” would face a “surtax averaging less than 3% per year for ten years to pay down that part of the national debt owed to the people who already paid for their Social Security. This is not a crushing burden.

In no case would anyone be “paying for Social Security twice.” SS was paid for once. Paying back the Trust Fund would be paying, the first time, once, for whatever the Congress bought with the money it borrowed FROM Social Security. Even if the workers decided to write off the bad debt and pay for Social Security going forward, pay as you go, with a payroll tax raise greater, or sooner, than they expected, they would still be paying for their Social Security only once. They would expect to get back even their increased payment in the form of an adequate retirement benefit for their own longer life expectancy. As the ad says, this is “priceless.” There might be some minor “inequity” in the “rate of return” from one generation to the other, but no more than the inequity that comes from a change in the price of bread, or bonds, or going to war, or living through a recession. The point is that it is the workers ONLY way to INSURE that they will have “enough” when they need, or want, to retire.

As to whether or not a 3% increase in the effective tax rate of the top 10% of earners would be unduly oppressive, let us look at another table:

Note that a 3% tax increase would bring the tax rate up to less than it was in 2000, and would range from 16% to 27%. No fun for them perhaps, but not a crushing burden, and it would be for less than ten years.

Before leaving I would like to point out two other things, which I will not “prove.” First is that if a 3% increase in the tax on the wealthiest 10% for ten years can pay back the Trust Fund, and reduce the National Debt by about 6 Trillion dollars from what it would have been, it ought to be apparent that a 3% increase for more than ten years ought to be able to reduce that part of the National Debt that was borrowed from “the public.” How long that takes to bring the Debt down to a “sustainable level” depends on other spending.

The other thing is that it is dishonest to count “projected deficits” that include future increased costs of Social Security or even Medicare. I have shown how with a tiny increase in the payroll tax, Social Security can and should pay for itself. A similar increase would cover Medicare… though there the real savings needs to come from controlling health care costs. In any case people will need health care and cutting Medicare will not help them pay for it.

Let’s look at one more table:

This is a continuation of the table above comparing the Social Security “deficit” to the taxable payroll. But this time we are going to look at what happens after 2035:

year……….payroll,,,,,,,deficit……….percent
2035……….17746………622……………3.51
2040……….22198………758…………….3.41
2045……….27713………892…………….3.22
2050……….34504………1073……………3.11
2055……….42876………1344……………3.13
2060……….53269………1726……………3.24
2065……….66177………2225……………3.36
2070……….82183………2909……………3.54
2075………102035………3822……………3.75
2080………126624………5006……………3.95
2085………157169………6535……………4.16

Remember that after 2036 the Trust Fund is paid back. Social Security is on its own, pay as you go. Remember also that we left the tax rate at 3.5% in 2035 higher than it is in 2010. These are the further increases (total increases) that would be needed to pay for the projected “Social Security Deficit” after that time… the biggest of the Big Numbers.

What I want you to notice here is that in fifty years, the needed increase in the payroll tax would be 0.65%, or 0.65/50 = 0.013%, about one eight of one tenth of one percent per year. Remember that in today’s terms one tenth of one percent is 80 cents per week. One eighth of one tenth of one percent is ten cents per week per year. And the worker only pays half of that. That is your huge horrible hairy “social security deficit.”

**[note: this is not quite correct. Since we are dealing with “inflated” wages, you have no easy way to know how much of that 2000 dollars is “real.” Easiest way for me to give you a better idea is to say that the Trustees predict that real wages will grow by about one full percent per year. So for any year, for every thousand dollars per week you earn, your wages next year will grow by ten dollars in real value, and the one tenth of one percent payroll tax increase will take back one dollar to save for your longer retirement. So you will only be nine dollars better off than you were the year before in terms of money to spend immediately. You will be enormously better off when you retire and find you have enough to live on after all.]]

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