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Open thread Nov. 7, 2014

Dan Crawford | November 7, 2014 8:21 pm

Tags: open thread Comments (30) | Digg Facebook Twitter |
30 Comments
  • bkrasting says:
    November 8, 2014 at 7:31 am

    I never believe in coincidences when it comes to Washington. What to make of these two bits of info released this week?

    1) The CBO has revised its estimates on mortality. The result is that the “Immediate and Permanent” tax increase required to ‘fix’ SS is now at 4.1% of taxable payroll.

    2) SSA’s Advisory Board announced that will be meeting next week to evaluate whether SSA should revise its estimates on mortality.

    This looks to be heading toward SSA altering its #s to reflect lower mortality rates (and differentiated mortality). SSA will be moving its estimates towards those of CBO, and when it does SSA will have to increase its I&P estimate to a number close to CBO’s 4%.

    SSA currently has the I&P at 2.8%. Changing the assumption to 4% does not sound like a big deal, but it actually is.

    It’s possible (maybe) to “fix” SS if the shortfall was really only 2.8%, but it becomes much more difficult to fix if the I&P rate is 4%. The difference comes to $90B MORE taxes each year (forever).

    If SSA moves to 4% I&P then the notion that SS can be ‘fixed’ with tax increase alone falls off the table. Some combination of tax increase AND benefit cuts is required to address a 4% I&P.

    Any thoughts? The links to the CBO and SSA announcements on this:

    http://www.ssab.gov/Portals/0/Tech%20Panel%202015%20Appointed%20Website.pdf

    http://www.cbo.gov/sites/default/files/cbofiles/attachments/49659-Presentation-DifferentialMortality.pdf

  • EMichael says:
    November 8, 2014 at 9:31 am

    $90 Billion is a lot of money if you make sure to keep it out of perspective.

  • Denis Drew says:
    November 8, 2014 at 10:42 am

    For Whom the Wall Fell? A balance-sheet of transition to capitalism
    http://glineq.blogspot.com/2014/11/for-whom-wall-fell-balance-sheet-of.html

    “As I was leaving Berlin less than a week before the 25th anniversary of the fall of the Wall, and as celebrations there were going strong, I decided to look at the balance sheet of transition countries (even if the term is no longer fully adequate) over the past quarter century”
    . . .
    “What naturally comes to mind to an economist is to look first at how these countries have done in terms of economic growth. To fix the ideas, let’s call the counties that are yet (in 2013) to reach the level of real income of 1990, measured by real GDP per capita, clear failures. Then, let’s call the countries that grew more slowly than the average of rich OECD counties, that is at less than 1.7% per capita per year, relative failures. They are so because they are not converging to the rich countries’ income levels. The third group consists of countries that are just about keeping up with the rich world and have been growing at between 1.7 and 2 percent per capita. Finally, we come to the success cases, countries that grew by at least 2% per annum per capita over the 25-year period.”

    Very interesting

  • amateur socialist says:
    November 8, 2014 at 10:45 am

    Shorter Krasting: “If people are going to insist on living longer we might as well make sure they’re more miserable and hungrier”

  • EMichael says:
    November 8, 2014 at 11:01 am

    AmSo,

    There is always a silver lining.

    We may avoid having more miserable and hungrier people by the actions of the Supreme Court and the GOP Congress in destroying the ACA. That will change the mortality rate and avoid this problem.

  • amateur socialist says:
    November 8, 2014 at 12:06 pm

    We could wipe out that theoretical “$90B MORE taxes each year (forever)” whining pretty quickly if we doubled the minimum wage. Voters in several red states appear to be ready to support such an idea. Too bad they hired the wrong people to enact one.

  • EMichael says:
    November 8, 2014 at 12:39 pm

    Yeah, as the man said,

    “No one ever went broke underestimating the stupidity of the American public.”

    Once again proven correct by,

    ” I think the minimum wage should be raised and fracking should be stopped, but Obama is black.”

  • Denis Drew says:
    November 8, 2014 at 3:22 pm

    I’m not sure what you guys are talking about: SSA?, 2.8%?, 4% of what? ???

    But I do know that if we raise the fed min wage to $15 an hour it will shift something like $600 billion of income to about 45% of the workforce. 4% of that is only $24 billion.

    Much or more of that likely most shifted from the 83% under the FICA cap? No; the 83% would pay the tax on their own incomes, first, before raising the 45% incomes I think.

    (This is getting complicated.)

    The only way we are going to get that $90 billion painlessly is get it from the top 1%. Why not the top 10% or top 17%? Because until recently the top 16% — just below the top 1% — were not getting more than their share of growth. Until not too long ago they were just getting a partially even (fair) share. Now they get zilch of course.

    The only place to get that 4% on income painlessly is from the people who have gone from 8% share to 24% share of income. And the only way to do that is the only way to solve any (every!) other economic/political problem (relatively painlessly I might add) — reconstituting the labor market bargaining power and thereby automatically rebuilding the political bargaining power (w/campaign financing and lobbying) of the average person with …
    … LEGALLY MANDATED, CENTRALIZED BARGAINING …
    … like they have in the world’s most prosperous economies and just societies. Thank you for your support. 🙂

  • Denis Drew says:
    November 8, 2014 at 3:36 pm

    And I should have added: that 4% is supposed to come out of an economy that is growing almost that much every year (supposedly). Problem solved if we just reset the distribution of incomes to fair mode (hint: try centralized bargaining).

  • amateur socialist says:
    November 8, 2014 at 4:40 pm

    “only 24B” not counting the employer’s share. That gets you to $50B not counting the growth that would occur from an additional $600B of (mostly) spending available in the economy at large.

    And yeah I’m fine with raising taxes on the richest people (check the handle). But we didn’t elect the people who wanted to do that either.

    Including in 2012, when the election was basically about whether or not the richest voters should pay more taxes. The guy who said he would raise taxes won the election but didn’t seem to manage to do it. (much).

  • bkrasting says:
    November 8, 2014 at 4:40 pm

    Dennis – There are 3.3m workers earning the minimum (or less) wage. Pay all those the extra $7.50 for 40 hrs a week it comes to $50b. A nice chunk of change, but far from the $600b you were thinking. SS gets $6B of that increased pay. A rounding error at SS.

    4% I&P refers to a way of measuring SS. Taxable Payroll is about $7Trillion. SS gets 12.4% of that. A 4% increase would increase the SS tax to 16.4%. The 4% * 7T comes to a tax increase on workers of $280B.

    The $6B that would come from doubling the minimum is a drop in a $280B bucket.

    That’s not to say that raising the minimum wage is not a good idea – I’m all for it. But it doesn’t move the needle for SS.

    Details on wages from the BLS:

    http://www.bls.gov/cps/minwage2013.pdf

  • amateur socialist says:
    November 8, 2014 at 4:47 pm

    I’ve held my piece on your one note program of centralized bargaining lo these many months. I’m the son of two union members, my dad was a Teamster and my mom is retired CWA. So you don’t have to sell me.

    But I can’t help remembering that the real work of organizing from nothing came at the cost of a lot of people’s heads getting cracked open and worse. A lot of people went to jail too, some of them died there. How do you think it’s going to happen again without that? Especially after Occupy and Ferguson etc. showed the bipartisan solution to legal civil disobedience?

    I want my nephews and nieces to get the benefits of union membership their grandparents enjoyed. But I’m not anxious to get them beaten jailed or firehosed. Got any ideas about that you’d care to expand on?

  • Jack says:
    November 8, 2014 at 5:38 pm

    Easiest solution to the problem of workers’ retirement costs and current wages is to adopt the German method of representation. Unions negotiate industry wide, both unions and government representatives have seats on corporate boards of directors. The minimum wage is only necessitated by the absence of any effective collective bargaining in the absence of any effective union representation for most workers.

    If Social Security is going to be a primary pension mechanism then workers and their employers simply have to pay the bill for that decision. The private retirement accounts, IRAs and 401K plans, is not proving to be a satisfactory answer. Workers are paying far too much from their retirement accounts in the form of a variety of fees. http://www.nytimes.com/2014/11/08/your-money/hidden-costs-of-401-k-plans.html?ref=business&_r=0

  • Denis Drew says:
    November 8, 2014 at 5:48 pm

    Socialist,
    Ever hear of legally mandated centralized bargaining. No head breaking — just voting. That’s the way it works in most economies where they have centralized bargaining (Germany). Some places it’s just the way they do things (Denmark?).

    Oddly enough, centralized bargaining (a.k.a., sector-wide labor agreements) were imposed in continental Europe after WWII by ownership — to avoid the race-to-the-top by unions, each union demanding more as others got more — to conserve money for rebuilding. As an American I don’t really know what was happening there — perhaps European employees are much more militant than we are. I read in Barry Eichengreen’s The European Economy Since 1945 that Britain did not do this which is why it fell behind the continent.

    Anyway, one of my one notes is that supermarket workers (contracts watered down to $400 a week by Walmart) and airline employees (think $500 a week regional airline pilots) would kill for centralized bargaining. Like I said in most countries it is simply instituted by legislation.

    I was in Teamsters local 804 for a year (I thought I was in union heaven; local president Ron Carey probably had a lot to do with that; later national president). It took Hoffa 30 years to stretch (by fair means and foul) his centralized bargaining agreement across the whole country. A lot easier just to vote — if some candidate somewhere would just whisper it out loud, just talk it up as an issue to see what happens. I think most people would line up at 3AM to vote to get it.

  • Denis Drew says:
    November 8, 2014 at 6:02 pm

    Bkrasting,
    I think we are not working from the same numbers. $15 an hour is approximately the 45 percentile wage. Figure 50% of the workforce gets an average $8,000 raise (5% at minimum now get two half-raises). That’s 70 million employees X $8,000 = $560 billion.

    This incidentally amounts to 3.5% of our $16,000 billion economy — wouldn’t put 45% of workforce home from work even if it did not speed up the economy overall and did not circulate more money through their low income segment (low tends to spend low, etc.).

    Again, if the folks below the FICA cap got their share of yearly economic growth their pay would go up 20-30% every ten years so the 4% wouldn’t hurt anyway.

  • Bruce Webb says:
    November 8, 2014 at 6:30 pm

    Krasting the SSAB is exactly that: Advisory. And has been structured to include a wide variety of experts including some that are hostile to the very idea of Social Insurance.

    Not that the SSAB is without influence, the introduction of Infinite Future Horizon accounting with the 2003 Report was clearly at the instigation of two specific Cato allied economists on the SSAB. But they are not a policy setting agency of. SSA, instead they represent multiple stakeholders with multiple perspectives.

    A little knowledge is a dangerous thing. Something you demonstrate over and over as it relates to the internal workings of SSA and its financial reporting.

  • Bruce Webb says:
    November 8, 2014 at 6:40 pm

    Krasting if you raise minimum wage to $15 it not only effects those 3.3 million workers currently making minimum wage but also EVERYONE making between the old and new minimum wage.

    This is so obvious that it shouldn’t even need mentioning but it does blow your calcs about $60 billion and $6 billion and ’rounding errors’ out of the water.

    Plus if increasing minimum wage has de minimis effects on Social Security how could it logically have the drastic job killing effects opponents proclaim it must? Seems to me you can take one fork in the argumentative tree or the other, but as it is YOU are just getting skewered here.

  • Bruce Webb says:
    November 8, 2014 at 6:54 pm

    Plus I just reviewed your link to the SSAB and the release was under the name of new SSAB head Henry Aaron, who is a staunch defender of traditional Social Security (and an occasional e-mail correspondent of yours truly). And the panel is being chaired by Alicia Munnell, equally staunch but maybe more open to the arguments of the Peterson Hawks, but by no means a knee jerk “Reformer”. The rest of the panel seems to be pretty technocratic and on my reading maybe as willing to reject those CBO mortality revisions as embrace them.

    So much hand waving ado by you about nothing. You will not see some hot piece on SocSec going out under Aaron and Munells signatures.

  • amateur socialist says:
    November 8, 2014 at 6:57 pm

    Denis I know we used to have legal protections for collective bargaining here. We used to have a functional NLRB for example (not the same thing you’re advocating just saying).

    What I don’t get is how you think we can get the political impetus to drive legal mandates for collective bargaining when we can’t even find the votes to maintain the (largely useless) NLRB? I mean without a lot people getting fired, beaten, jailed etc.

    You mention the German example, one I admire. What I don’t get is how you think it gets past the Chamber of Commerce. Much less the publishers of the NYT/WSJ or the producers of any mainstream news organization.

  • Denis Drew says:
    November 8, 2014 at 7:27 pm

    Socialist,
    I am not talking about collective bargaining alone — you understand I am talking about every employee doing the same kind of work negotiating one common contract with every employer doing the same kind of business (in the same geographic locale unless nationwide is appropriate). I’m not sure that is we are both talking about the same.

    Well, imagine you are running for Congress and you want to support putting some real teeth into the right to organize. Whatever that would mean has got to be real complicated and unfortunately in a country that has forgotten about collective bargaining not a real hot topic.

    OTH, centralized bargaining promises to improve so many employees lot (everybody’s lot?) so simply and quickly that it would make a very exciting — and very novel (as in big fun) — issue. Come to think of it polls show 50% want to unionize so maybe its just a matter of the right kind of union issue — and this might be the real killer app. Democrats taking a pasting because they aren’t making anything any better as our world goes down the drain — might be just what they need.

  • Denis Drew says:
    November 8, 2014 at 7:32 pm

    Bruce,
    The FICA cap runs up to 83 percentile income. Should we ever get to cashing the TF bonds (should maintain one year of full replacement — solvency) the cap will be reversed for that portion of taxation (income tax). The bottom 50% will be exempt. The top 10% will take the biggest hit. Can’t have that. I’ll bet a dollar to a dime the FICA cap gets raised just enough instead. 🙂

  • Bruce Webb says:
    November 8, 2014 at 8:53 pm

    Denis you are almost 100% correct.

    Except the effect of holding the top 10% harmless occurs no matter what path you take towards solvency, whether benefit cuts, or cap increases or FICA increases. Every solution to Social Security ‘crisis’ if executed In the next few years would mean nominal Trust Fund balances never declining which in turn means no net redemptions in Trust Fund holdings.

    Any fix under current discussion gives the top 1% a pass. Some target the current lower 84%, others the lower 90%, and some ranging up higher into the 90s. But none of them would actually cost the billionaires like Peter G Peterson who have been funding the War on Social Security a dime in real terms. Meaning that the War is mostly being waged by pure spite and unrequited hatred at Class Traitor Franklin Delano Roosevelt.

    Plus I guess some hatred for the 47%.

  • amateur socialist says:
    November 8, 2014 at 9:24 pm

    Gee how many years has FDR been dead anyway? Next year 70. Leave it alone aren’t most of you haters dead yet?

  • amateur socialist says:
    November 8, 2014 at 10:39 pm

    Makes me curious. What’s keeping Krasting alive? No, I don’t want to know. It’s better being ignorant.

  • bkrasting says:
    November 9, 2014 at 5:42 am

    Webb – You sound grumpy, still upset about the election?

    I never said that raising the minimum wage was a problem as you suggest. In fact my exact words were, “I’m all for it”.

    You indicate that that the odds are 50-50 that SSA moves to the CBO mortality numbers. I think the 50-50 is a bad bet on your part. Maybe you have your blinders on, maybe you’re just a bad odds maker.

    My bet? SSA will have a 4% I&P number in the 2016 annual report. Just in time for the next election. Also in (exactly) two years the DI fund will go bust.

    The 4% #, plus the problems with DI will put all of SS up as an election issue. Something to look forward to.

  • JimV says:
    November 9, 2014 at 9:06 am

    “The 4% * 7T comes to a tax increase on workers of $280B.”

    Assuming that’s true and the prior statement by BK that $90B is needed to offset the mortality improvement is also true, I may have a simple way to improve the situation:

    Increase the taxes only by the $90B that is needed, not $280B. By my arithmetic, that would be a 1.3% tax increase (on $7T).

  • EMichael says:
    November 9, 2014 at 9:07 am

    “The guy who said he would raise taxes won the election but didn’t seem to manage to do it. (much).”

    Since Obama took office, marginal tax rates on the richest Americans have increased 14% on earned income and over 60% on unearned income.

  • Bruce Webb says:
    November 9, 2014 at 2:45 pm

    Well for those who read my last comment I hope you enjoyed it.

    But deleted. Because I can.

    • run75441 says:
      November 9, 2014 at 5:28 pm

      heh, heh . . . aaaah an “I have the power moment!”

  • Lord says:
    November 10, 2014 at 2:56 pm

    Here’s the solution to “state” exchanges. Have healthcare.gov request state and plaster it on the title. Seems like a more than adequate solution to a fictitious problem.

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