It’s pretty impressive to be able to know something about the future when all the evidence suggests the opposite. Washington Post columnist Ruth Marcus apparently knows that we will never be able to raise additional revenue to cover Social Security’s projected shortfalls. That is the only way we can explain her assertion (expressed in euphemisms) that we have to cut Social Security benefits now to:
“protect those most in need of generous benefits.”
Of course the evidence shows that the public has been in the past and is now willing to pay higher taxes in order to maintain Social Security benefits. Few, if any, members of Congress lost their seats over the tax increases put in place in the 1980s. Polls have consistently shown substantial support for raising revenue by increasing or eliminating the cap on taxable wages. And, they have even shown a preference for raising the payroll tax to cutting benefits. (In fact, less than one third of the public even noticed the 2.0 percentage point increase in the payroll tax at the start of 2013.)
The payroll tax increase needed to keep the program fully solvent for the rest of the century is less than one tenth of projected real wage growth over the next three decades. Given the popularity of Social Security across the political spectrum we might think that the public would be willing to pay some price to maintain benefits for all workers, not just those most in need of generous benefits. Fortunately we have Ruth Marcus to tell us otherwise.
It’s pretty impressive to be able to know something about the future when all the evidence suggests the opposite. Washington Post columnist Ruth Marcus apparently knows that we will never be able to raise additional revenue to cover Social Security’s projected shortfalls. That is the only way we can explain her assertion (expressed in euphemisms) that we have to cut Social Security benefits now to:
“protect those most in need of generous benefits.”
Of course the evidence shows that the public has been in the past and is now willing to pay higher taxes in order to maintain Social Security benefits. Few, if any, members of Congress lost their seats over the tax increases put in place in the 1980s. Polls have consistently shown substantial support for raising revenue by increasing or eliminating the cap on taxable wages. And, they have even shown a preference for raising the payroll tax to cutting benefits. (In fact, less than one third of the public even noticed the 2.0 percentage point increase in the payroll tax at the start of 2013.)
The payroll tax increase needed to keep the program fully solvent for the rest of the century is less than one tenth of projected real wage growth over the next three decades. Given the popularity of Social Security across the political spectrum we might think that the public would be willing to pay some price to maintain benefits for all workers, not just those most in need of generous benefits. Fortunately we have Ruth Marcus to tell us otherwise.
Read More Leer más Join the discussion Participa en la discusión
My friend Jared Bernstein makes many of the right points on the Camp tax reform proposal, but let me add a few.
First, it is good to see the proposal for taxing the large banks. The logic is that these banks are benefiting from implicit government guarantees through too big to fail insurance, which the tax would in part offset. The problem is that the tax is an order of magnitude too small.
The tax is projected to raises $64 billion over a decade. By comparison, Bloomberg News estimated the size of the too big to fail subsidy at $83 billion a year. That estimate is likely too large, but even cutting it in half still implies a subsidy that is more than six times the size of Camp’s tax. Most of us might think it’s reasonable that our tax dollars help low income families buy food or get health care for their kids. It’s a bit harder to make the case for an implicit tax to support the Wall Street fraternity parties at the St. Regis. In other words, Camp’s bill would hardly mitigate the desirability of breaking up the big banks.
It is also worth noting that the financial sector as a whole is hugely under-taxed compared with other sectors, a point that has even been acknowledged by the International Monetary Fund. It recommended a tax of roughly 0.2 percent of GDP (@ $400 billion over the next decade) to redress this imbalance. The financial transactions tax proposed in a bill by Senator Tom Harkin and Representative Peter DeFazio would pretty much hit this target according to the calculations of the Joint Tax Committee. Anyhow, the point here is that Camp deserves credit for attempting to address some of the special privileges granted to the financial sector, he doesn’t come close to solving it.
A second related point is that his proposal would not address one of the main sources of tax gaming that allows the Mitt Romneys of the private equity industry to get extremely rich. Specifically, it doesn’t limit the deduction for interest paid by corporations. This is important to private equity because one of their standard tricks is leverage up the mid-size companies they purchases in order to increase after-tax profits. This incentive to make firms highly indebted serves no public purpose (it hugely increases the risk of bankruptcy), but it can make private equity partners enormously wealthy. Camp’s plan does nothing about this distortion.
Finally, people should be aware that the proposal to end the tax deduction for state and local income taxes is a direct attack on states like New York and California which have high tax rates on their wealthy residents in order to provide a higher level of services to their citizens. These tax rates will be considerably harder to maintain politically, if they were not deductible against federal income taxes. This is a reason why many opponents of state level social spending want to end this deduction. (Those wondering why the rest of the country should subsidize services in these states might want to consider the fact that these states are still huge net payers of tax — their tax payments exceed their receipt of revenue — to the federal government.)
My friend Jared Bernstein makes many of the right points on the Camp tax reform proposal, but let me add a few.
First, it is good to see the proposal for taxing the large banks. The logic is that these banks are benefiting from implicit government guarantees through too big to fail insurance, which the tax would in part offset. The problem is that the tax is an order of magnitude too small.
The tax is projected to raises $64 billion over a decade. By comparison, Bloomberg News estimated the size of the too big to fail subsidy at $83 billion a year. That estimate is likely too large, but even cutting it in half still implies a subsidy that is more than six times the size of Camp’s tax. Most of us might think it’s reasonable that our tax dollars help low income families buy food or get health care for their kids. It’s a bit harder to make the case for an implicit tax to support the Wall Street fraternity parties at the St. Regis. In other words, Camp’s bill would hardly mitigate the desirability of breaking up the big banks.
It is also worth noting that the financial sector as a whole is hugely under-taxed compared with other sectors, a point that has even been acknowledged by the International Monetary Fund. It recommended a tax of roughly 0.2 percent of GDP (@ $400 billion over the next decade) to redress this imbalance. The financial transactions tax proposed in a bill by Senator Tom Harkin and Representative Peter DeFazio would pretty much hit this target according to the calculations of the Joint Tax Committee. Anyhow, the point here is that Camp deserves credit for attempting to address some of the special privileges granted to the financial sector, he doesn’t come close to solving it.
A second related point is that his proposal would not address one of the main sources of tax gaming that allows the Mitt Romneys of the private equity industry to get extremely rich. Specifically, it doesn’t limit the deduction for interest paid by corporations. This is important to private equity because one of their standard tricks is leverage up the mid-size companies they purchases in order to increase after-tax profits. This incentive to make firms highly indebted serves no public purpose (it hugely increases the risk of bankruptcy), but it can make private equity partners enormously wealthy. Camp’s plan does nothing about this distortion.
Finally, people should be aware that the proposal to end the tax deduction for state and local income taxes is a direct attack on states like New York and California which have high tax rates on their wealthy residents in order to provide a higher level of services to their citizens. These tax rates will be considerably harder to maintain politically, if they were not deductible against federal income taxes. This is a reason why many opponents of state level social spending want to end this deduction. (Those wondering why the rest of the country should subsidize services in these states might want to consider the fact that these states are still huge net payers of tax — their tax payments exceed their receipt of revenue — to the federal government.)
Read More Leer más Join the discussion Participa en la discusión
The NYT had an article on Bruce Marks, a housing advocate, and his push to extend credit for home buying to moderate income households who are now being excluded because of bad credit ratings. At one point the piece tells readers;
“He [Marks] says low interest rates and housing prices have created a second chance — an opportunity to help lower-income families buy homes, but this time on terms they can afford.”
Actually, house prices are not low. While they have not returned to bubble peaks, they are well above trend levels. This means that people buying into the current market have a substantial risk of losing money on a home. This risk will be especially high if interest rates rise in the years ahead, as is almost universally predicted.
The NYT had an article on Bruce Marks, a housing advocate, and his push to extend credit for home buying to moderate income households who are now being excluded because of bad credit ratings. At one point the piece tells readers;
“He [Marks] says low interest rates and housing prices have created a second chance — an opportunity to help lower-income families buy homes, but this time on terms they can afford.”
Actually, house prices are not low. While they have not returned to bubble peaks, they are well above trend levels. This means that people buying into the current market have a substantial risk of losing money on a home. This risk will be especially high if interest rates rise in the years ahead, as is almost universally predicted.
Read More Leer más Join the discussion Participa en la discusión
The Washington Post complained that the people of San Jose California are suffering because the city has to pay higher prices for computers and software because of the patent and copyright monopolies the government has given to Microsoft and other tech companies. Okay, the Post would never write such a piece, but it has no problem headlining a news article:
“In San Jose, generous pensions for city workers come at the expense of nearly all else.”
The central item in the piece is the complaint of San Jose’s mayor about the money he must pay to support the pensions of retired city workers. Of course the pensions for city workers are based on contracts that the city signed and are part of their pay. This piece makes no effort to assess the size of city workers’ total compensation packages compared to private sector workers, so it really has no basis for its assertion that the pensions are generous. If public sector workers sacrificed substantial pay and/or made large contributions for these pensions, then it would be highly misleading to describe them as generous.
Furthermore, cities usually are not allowed to go back on contractual obligations short of bankruptcy. San Jose undoubtedly sold off many plots of property at prices that were far too low. If the city still possessed these properties and could sell them at the current market price then San Jose’s mayor would have plenty of money to meet the needs that he complains he cannot address. But the Post apparently does not want readers to question the legitimacy of land sales, just workers’ contracts.
Interestingly, the piece discusses the financial industry’s efforts to derail a proposal for the state to offer a voluntary low-cost retirement plan to all its workers. The industry is complaining that it doesn’t want the competition with the public sector. In effect the industry is demanding that people should be taxed — paying more than necessary in fees — in order to ensure that the financial industry can make profits on their retirement accounts. “The financial industry wants to tax Californians to ensure profits,” would have been a more interesting and accurate headline for this piece.
Note: Original post modified slightly (7:45) and typo corrected — thanks Robert Salzberg.
The Washington Post complained that the people of San Jose California are suffering because the city has to pay higher prices for computers and software because of the patent and copyright monopolies the government has given to Microsoft and other tech companies. Okay, the Post would never write such a piece, but it has no problem headlining a news article:
“In San Jose, generous pensions for city workers come at the expense of nearly all else.”
The central item in the piece is the complaint of San Jose’s mayor about the money he must pay to support the pensions of retired city workers. Of course the pensions for city workers are based on contracts that the city signed and are part of their pay. This piece makes no effort to assess the size of city workers’ total compensation packages compared to private sector workers, so it really has no basis for its assertion that the pensions are generous. If public sector workers sacrificed substantial pay and/or made large contributions for these pensions, then it would be highly misleading to describe them as generous.
Furthermore, cities usually are not allowed to go back on contractual obligations short of bankruptcy. San Jose undoubtedly sold off many plots of property at prices that were far too low. If the city still possessed these properties and could sell them at the current market price then San Jose’s mayor would have plenty of money to meet the needs that he complains he cannot address. But the Post apparently does not want readers to question the legitimacy of land sales, just workers’ contracts.
Interestingly, the piece discusses the financial industry’s efforts to derail a proposal for the state to offer a voluntary low-cost retirement plan to all its workers. The industry is complaining that it doesn’t want the competition with the public sector. In effect the industry is demanding that people should be taxed — paying more than necessary in fees — in order to ensure that the financial industry can make profits on their retirement accounts. “The financial industry wants to tax Californians to ensure profits,” would have been a more interesting and accurate headline for this piece.
Note: Original post modified slightly (7:45) and typo corrected — thanks Robert Salzberg.
Read More Leer más Join the discussion Participa en la discusión
That’s what readers of his column attacking President Obama for failing to cut Medicare and Social Security would conclude. The piece includes several quotes from Obama in 2009 and 2010 about the need to slow the growth in the cost of Social Security, Medicare, and Medicaid. He then complains that Obama has not followed through by pushing for cuts in these programs.
In fact, Obama did actually propose cuts repeatedly for these programs as part of a deal with Republicans that would include more tax revenue. The Republicans have consistently rejected such a deal. However if the point was to reduce the cost growth in these programs, that has happened. In 2009 the Congressional Budget Office projected that the Medicare and Medicaid together would cost 7.0 percent of GDP in 2024. Their most recent projections show these programs costing just 6.2 percent of GDP in 2024 even with the higher Medicaid costs due to the Affordable Care Act. The savings of 0.8 percentage point of GDP would be more than $200 billion in 2024.
If the point was to save money, this would look a pretty big deal. Of course since most of these savings came from lower health care cost growth rather than reduced benefits, then it wouldn’t make anyone happy whose goal was to inflict pain.
Hiatt gets a couple of other items wrong in passing. He complains:
“In 2011, Obama cold-shouldered the fiscal commission he himself had appointed; Democrats feared that embracing its recommendations could hurt in 2012.”
Actually the commission made no recommendations since no report captured the necessary majority to be adopted by the commission. What is widely referred to as a report of the commission is actually the report of its co-chairs Alan Simpson and Erskine Bowles.
The piece also refers to former Senator Max Baucus as “pro-trade.” This is inaccurate. Baucus has been a consistent supporter of trade agreements. This has been true even when the deals involved increased patent and copyright right protections which reduce trade.
That’s what readers of his column attacking President Obama for failing to cut Medicare and Social Security would conclude. The piece includes several quotes from Obama in 2009 and 2010 about the need to slow the growth in the cost of Social Security, Medicare, and Medicaid. He then complains that Obama has not followed through by pushing for cuts in these programs.
In fact, Obama did actually propose cuts repeatedly for these programs as part of a deal with Republicans that would include more tax revenue. The Republicans have consistently rejected such a deal. However if the point was to reduce the cost growth in these programs, that has happened. In 2009 the Congressional Budget Office projected that the Medicare and Medicaid together would cost 7.0 percent of GDP in 2024. Their most recent projections show these programs costing just 6.2 percent of GDP in 2024 even with the higher Medicaid costs due to the Affordable Care Act. The savings of 0.8 percentage point of GDP would be more than $200 billion in 2024.
If the point was to save money, this would look a pretty big deal. Of course since most of these savings came from lower health care cost growth rather than reduced benefits, then it wouldn’t make anyone happy whose goal was to inflict pain.
Hiatt gets a couple of other items wrong in passing. He complains:
“In 2011, Obama cold-shouldered the fiscal commission he himself had appointed; Democrats feared that embracing its recommendations could hurt in 2012.”
Actually the commission made no recommendations since no report captured the necessary majority to be adopted by the commission. What is widely referred to as a report of the commission is actually the report of its co-chairs Alan Simpson and Erskine Bowles.
The piece also refers to former Senator Max Baucus as “pro-trade.” This is inaccurate. Baucus has been a consistent supporter of trade agreements. This has been true even when the deals involved increased patent and copyright right protections which reduce trade.
Read More Leer más Join the discussion Participa en la discusión
Read More Leer más Join the discussion Participa en la discusión
The NYT’s article on the Fed’s decision to enter dollar swap agreements with other central banks at the peak of the financial crisis in 2008 strangely did not ask this question. The piece notes that swap lines of credit had been extended to Mexico, Brazil, South Korea, and Singapore. It also points out that several countries applied for lines of credit but were turned down.
The article asserts that these decisions were made exclusively over concerns about the impact of these countries’ problems on the U.S. economy. While this could be true, it is also possible that political considerations played a role. It would have been interesting to know if the State Department played any role in the decision on the countries to which the Fed extended credit. It’s strange that this question is not raised.
The NYT’s article on the Fed’s decision to enter dollar swap agreements with other central banks at the peak of the financial crisis in 2008 strangely did not ask this question. The piece notes that swap lines of credit had been extended to Mexico, Brazil, South Korea, and Singapore. It also points out that several countries applied for lines of credit but were turned down.
The article asserts that these decisions were made exclusively over concerns about the impact of these countries’ problems on the U.S. economy. While this could be true, it is also possible that political considerations played a role. It would have been interesting to know if the State Department played any role in the decision on the countries to which the Fed extended credit. It’s strange that this question is not raised.
Read More Leer más Join the discussion Participa en la discusión
The NYT has devoted considerable print space to the problems of public sector pensions, often seriously exaggerating the size of the problems. It has also often overstated the generosity of the benefits, for example by failing to note that many public sector workers do not get Social Security, which means that their pensions will be their entire retirement income.
Today it went long on the exaggerating problems side of the picture telling readers that:
“The difference, $63 billion, is Nycers’s [New York City’s main public employee pension fund] shortfall. That money has to be made up before today’s city workers retire — within 14 years, on average. As a result, New York’s contributions to Nycers are rising every year, squeezing the city budget and making it harder for the city to provide public services.”
This is not true. There is no legal requirement that city make up this shortfall over the next 14 years. Also, as the article itself points out, this calculation of liabilities is based on the use of risk-free discount rate. The pension fund is of course free to use whatever discount rate it likes to calculate its liabilities. But if the fund gets the return as would be expected from the mix of assets it holds, it would need roughly $23 billion today to make up its shortfall, just over one third of the amount advertised in the article.
The NYT has devoted considerable print space to the problems of public sector pensions, often seriously exaggerating the size of the problems. It has also often overstated the generosity of the benefits, for example by failing to note that many public sector workers do not get Social Security, which means that their pensions will be their entire retirement income.
Today it went long on the exaggerating problems side of the picture telling readers that:
“The difference, $63 billion, is Nycers’s [New York City’s main public employee pension fund] shortfall. That money has to be made up before today’s city workers retire — within 14 years, on average. As a result, New York’s contributions to Nycers are rising every year, squeezing the city budget and making it harder for the city to provide public services.”
This is not true. There is no legal requirement that city make up this shortfall over the next 14 years. Also, as the article itself points out, this calculation of liabilities is based on the use of risk-free discount rate. The pension fund is of course free to use whatever discount rate it likes to calculate its liabilities. But if the fund gets the return as would be expected from the mix of assets it holds, it would need roughly $23 billion today to make up its shortfall, just over one third of the amount advertised in the article.
Read More Leer más Join the discussion Participa en la discusión
Gretchen Morgensen picks up an important point in the Fed transcripts from 2008. The discussion around the decision to allow Lehman to go bankrupt makes it very clear that it was a decision. In other words the Fed did not rescue Lehman because it chose not to.
This is important because the key regulators involved in this decision, Ben Bernanke, Hank Paulson, and Timothy Geithner, have been allowed to rewrite history and claim that they didn’t rescue Lehman because they lacked the legal authority to rescue it. This is transparent tripe, which should be evident to any knowledgeable observer. (Who has legal standing to stop a bailout?)
Anyhow, in retrospect the choice not to rescue Lehman in a context where the Fed was unprepared to deal with the consequences certainly was disastrous. We all make mistakes, but this gang of three made a whopper. And reporters have an obligation to make this clear to the public, not to assist in the cover-up.
Btw, on the topic of whopper mistakes, someone sent me this collection of Bernanke clips on the housing bubble.
Gretchen Morgensen picks up an important point in the Fed transcripts from 2008. The discussion around the decision to allow Lehman to go bankrupt makes it very clear that it was a decision. In other words the Fed did not rescue Lehman because it chose not to.
This is important because the key regulators involved in this decision, Ben Bernanke, Hank Paulson, and Timothy Geithner, have been allowed to rewrite history and claim that they didn’t rescue Lehman because they lacked the legal authority to rescue it. This is transparent tripe, which should be evident to any knowledgeable observer. (Who has legal standing to stop a bailout?)
Anyhow, in retrospect the choice not to rescue Lehman in a context where the Fed was unprepared to deal with the consequences certainly was disastrous. We all make mistakes, but this gang of three made a whopper. And reporters have an obligation to make this clear to the public, not to assist in the cover-up.
Btw, on the topic of whopper mistakes, someone sent me this collection of Bernanke clips on the housing bubble.
Read More Leer más Join the discussion Participa en la discusión
Robert Frank has an interesting discussion in the NYT of the “winner take all” dynamics created by the Internet economy, but he leaves out an important part of the picture. The notion of winner take all is that advances in modern technology allow the best in various areas to become hugely wealthy, while leaving almost everyone else out in the cold. There are reasons for disputing this view in general (see The End of Loser Liberalism: Making Markets Progressive —free download available), but the entertainment industry, the focus of Frank’s piece provides excellent turf for framing the issues.
Frank points to evidence that an increasing share of sales of music is going to a relatively small number of big hit performers. He sees this as evidence of the winner take all theory. However there is an important aspect to this story that Frank neglects to mention.
The big winners get to be big winners because the government is prepared to devote substantial resources to copyright enforcement. This is crucial because if everyone could freely produce and distribute the music or movies of the biggest stars, taking full advantage of innovations in technology, they would not be getting rich off of their recorded music and movies.
The internet has made copyright hugely more difficult. The government has responded by passing new laws and increasing penalties. But this was a policy choice, it was not an outcome dictated by technology. The entertainment industry and the big “winners” used their money to influence elected officials and get them to impose laws that would restrain the use of new technology. If the technology was allowed to be used unfettered by government regulation, then we would see more music and movies available to consumers at no cost.
In other words, it is government regulation that makes a winner take all economy in this case, not technology. There are alternative mechanisms for financing creative work (here’s mine), but the interest groups that promote strong copyright protection don’t want the public to consider them.
It is worth noting that the government does not put the same effort into enforcing all laws. Years ago I did political work that often involved putting posters up in public places. People who disagreed with these posters tore them down quickly. Their actions were a clear violation of the law, but the police were not prepared to devote any resources to enforcing the law in this instance. There was no risk of major fines or imprisonment to individuals who broke this law regardless of how many times they did it.
It would be interesting to see the argument that there is a greater public interest in preventing the circulation of unauthorized copies of Miley Cyrus’s latest hit than in protecting freedom of speech. Of course it’s obvious where the money is in this debate.
Anyhow, insofar as we have a winner take all economy in the entertainment industry it is because we have laws that protect the winners, not technology. Best of luck to Robert’s kids in their new band.
Robert Frank has an interesting discussion in the NYT of the “winner take all” dynamics created by the Internet economy, but he leaves out an important part of the picture. The notion of winner take all is that advances in modern technology allow the best in various areas to become hugely wealthy, while leaving almost everyone else out in the cold. There are reasons for disputing this view in general (see The End of Loser Liberalism: Making Markets Progressive —free download available), but the entertainment industry, the focus of Frank’s piece provides excellent turf for framing the issues.
Frank points to evidence that an increasing share of sales of music is going to a relatively small number of big hit performers. He sees this as evidence of the winner take all theory. However there is an important aspect to this story that Frank neglects to mention.
The big winners get to be big winners because the government is prepared to devote substantial resources to copyright enforcement. This is crucial because if everyone could freely produce and distribute the music or movies of the biggest stars, taking full advantage of innovations in technology, they would not be getting rich off of their recorded music and movies.
The internet has made copyright hugely more difficult. The government has responded by passing new laws and increasing penalties. But this was a policy choice, it was not an outcome dictated by technology. The entertainment industry and the big “winners” used their money to influence elected officials and get them to impose laws that would restrain the use of new technology. If the technology was allowed to be used unfettered by government regulation, then we would see more music and movies available to consumers at no cost.
In other words, it is government regulation that makes a winner take all economy in this case, not technology. There are alternative mechanisms for financing creative work (here’s mine), but the interest groups that promote strong copyright protection don’t want the public to consider them.
It is worth noting that the government does not put the same effort into enforcing all laws. Years ago I did political work that often involved putting posters up in public places. People who disagreed with these posters tore them down quickly. Their actions were a clear violation of the law, but the police were not prepared to devote any resources to enforcing the law in this instance. There was no risk of major fines or imprisonment to individuals who broke this law regardless of how many times they did it.
It would be interesting to see the argument that there is a greater public interest in preventing the circulation of unauthorized copies of Miley Cyrus’s latest hit than in protecting freedom of speech. Of course it’s obvious where the money is in this debate.
Anyhow, insofar as we have a winner take all economy in the entertainment industry it is because we have laws that protect the winners, not technology. Best of luck to Robert’s kids in their new band.
Read More Leer más Join the discussion Participa en la discusión
