One wonders what’s going on down in the District of Columbia.  A Democrat President has put on the table what amounts to a reduction in Social Security benefits, although none are necessary.   Purportedly the benefit reductions are needed as part of a ‘grand bargain’ the President seems determined to craft with Republicans, who want to eliminate SS but who are smart enough to never mention such a thing in public.  No doubt in the mid-terms, Republicans will run advertisements about how the Democrats want to reduce SS benefits!!!

Anyway, for my readers edification, if not that of the President, here’s an article by an expert explaining why SS benefit reductions are completely irrelevant to the nation’s economic future.

The People’s Choice for the People’s Pension

By NANCY FOLBRE

Nancy Folbre is an economics professor at the University of Massachusetts, Amherst.

Social Security, the most transparently self-financed program of the federal government, is not increasing our budget deficit. The most recent trustees’ report shows sufficient funds to pay full benefits until 2033.

Today’s Economist

Perspectives from expert contributors.

No one is making out like a bandit: Social Security beneficiaries who retired in 2010 are expected to get back approximately what they paid in.

If we wanted to adopt a cautious policy measure that would eliminate the shortfalls predicted 20 years down the road, we could eliminate the cap on earned income subject to Social Security taxes, currently set at $113,700. Such a measure would lead to increased payments by about the top 5.2 percent of wage earners.

Legislation designed to “scrap the cap” has been introduced in Congress. Senator Mark Begich, Democrat of Alaska, and Representative Ted Deutch, Democrat of Florida, have drafted a law that would require all workers to pay the same overall Social Security tax rate, and Senator Bernie Sanders of Vermont, an independent, and Representative Peter DeFazio, Democrat of Oregon, recently proposed application of the tax to earnings over $250,000 (as well as under $113,700) creating a “doughnut hole” exemption for earners in between in order to win more votes.

President Obama has voiced support for cap elimination or modification proposals in the past.

But as Thomas B. Edsall pointed out in a recent commentary, “scrap the cap” has apparently been taken off the table, despite evidence of considerable public support for it.

Readers doubtful of that public support should read the new National Academy of Social Insurance report, “Strengthening Social Security: What Do Americans Want?,” based on an online survey asking respondents whether they favored or opposed 14 specific changes to Social Security. The analysis also draws on findings from focus groups to add qualitative texture to the quantitative results.

That online survey, an opt-in model, is not based on a probability sample, but its findings echo other representative surveys, including this Quinnipiac University poll from 2011, which found that 56 percent of Americans favored raising the cap on taxable Social Security income.

Readers mystified by the yawning gulf between public opinion and current political discussion might benefit from the background provided in Eric Laursen’s magisterial history, “The People’s Pension: The Struggle to Defend Social Security Since Reagan.” The book offers more than 800 pages of fascinating if gory details about the lobbying efforts and misinformation campaigns aimed at bringing the program down.

It also reports on a series of surveys going back to 1977 in which most respondents said they would be willing to pay higher payroll taxes if that would shore Social Security up for the future.

Mr. Laursen effectively decodes much of the economic jargon that has obscured public understanding of these issues, and continues to blog regularly on this topic.

Readers feeling demoralized by the history of class warfare over social insurance might be cheered by two of the short videos recently entered in an online contest sponsored by the Peter G. Peterson Foundation on the theme of “I’m Ready” to fix the national debt.

In one entry, “Being Honest, Tough Choices,” a serious young man uses his webcam to explain in simple, direct terms why he supports Social Security and deplores the rhetoric of “makers versus takers, young versus old.”

Another entry, originally titled “Scrap the Cap” but currently labeled “Movin’ In, Kids,” has outpaced all others to date in terms of both viewings and ratings. It features some lovable oldsters in a hilarious rap performance warning their son that if their Social Security benefits are cut he better pull out the sofa bed and put out some fresh towels because they will be living together from now on.

Their song and dance goes on to explain why scrapping the cap would be better for everyone concerned.

Beezer here.  To be honest, we’ve often been a bit lost when it comes to understanding President Obama’s obsession over doing deals in Congress with Republicans.   As a former US Senator, maybe that’s the only way the President believes progress is possible.  Unfortunately, right now the Republican Party is so dysfunctional it has literally nothing positive to offer the nation, and doing deals with someone like that is a complete waste of effort.  They are anti-female, anti-minority, anti-immigrant, anti-climate change, anti-clean energy, anti-environmental, anti-education, anti-science and anti-anything government except Defense.  A party this far removed  from the nation’s citizenry needs simply to be ignored until it can be reformed by new blood from within.  Giving it any sustenance by way of compromise is simply prolonging the time needed for it to face the music.  

Republican Presidential candidate Mitt Romney has naturally built much of his campaign on the observation that recovery from the Great Recession has been too slow under Obama.  “This is not what a real recovery looks like,” Romney says, repeatedly.  He’s even compared Obama’s record to that of President Hoover, the last President to inherit a financial collapse and a staggering economy.  This is obviously meant to be a criticism of Obama and his economic policies.

All that said, Great Depression historian Gregory McElvaine of Millsaps College, says that most people don’t know that compared to Hoover’s record and policies, Obama’s have been remarkably effective.  From his article in the New York Times.

While everyone knows that the economic collapse that began in 2008 was a major disaster, most people have come to believe that it was not as dangerous as the one that began in 1929, the year after Hoover was elected president. Part of the reason for this impression is simply linguistic: the current situation has come to be called the Great Recession, which does not sound as bad as the Great Depression. More important, we now have a social safety net that somewhat eases the impact. And as the figures below will confirm, the truth is that our very bad situation today is not nearly as bad as things were eight decades ago, when Hoover was seeking re-election.

But it does not necessarily follow from the comparatively better situation today that the 2008 collapse was that much less severe than 1929’s. In fact, by many measures, what began four years ago this fall was even worse than what started in the fall of 1929. World industrial production, world trade and worldwide equity prices all fell more sharply in 2008-9 than they did in 1929-30. The prospect of a second Great Depression was very real when Barack Obama took office….

And, contrary to the charges made by his political opponents, the main reason that the Panic of 2008 became the Great Recession instead of the Second Great Depression is that the policies that have been employed by the Obama administration to combat it have been so much better than those undertaken by the Hoover administration in 1929. One major reason why the recovery has been so slow is that, thanks in no small part to Obama’s allegedly “failed stimulus policies,” the recession officially ended a scant nine months after the 2008 crash. In contrast, the economy was still in its deepening downward spiral more than three years after the 1929 crash. This difference means that the clock on recovery was started at much earlier point for Obama….

McElvaine then goes forward and documents the very different results Obama’s policies produced, compared to those of Hoover.  Romney’s policies very much reflect those held by Hoover, although in fairness to Hoover, he was not as ideologic as Romney.

Noble Laureate Paul Stiglitz has written a nice article explaining how Mitt Romney’s ability to sidestep taxes undermines public trust and sets a very bad example for Americans.   That he does so and wants to be President too, is frankly astonishing.

There is an old adage that a fish rots from the head. If presidents and those around them do not pay their fair share of taxes, how can we expect that anyone else will? And if no one does, how can we expect to finance the public goods that we need?

Democracies rely on a spirit of trust and cooperation in paying taxes. If every individual devoted as much energy and resources as the rich do to avoiding their fair share of taxes, the tax system either would collapse, or would have to be replaced by a far more intrusive and coercive scheme. Both alternatives are unacceptable.

More broadly, a market economy could not work if every contract had to be enforced through legal action. But trust and cooperation can survive only if there is a belief that the system is fair. Recent research has shown that a belief that the economic system is unfair undermines both cooperation and effort. Yet, increasingly, Americans are coming to believe that their economic system is unfair; and the tax system is emblematic of that sense of injustice.

The billionaire investor Warren Buffett argues that he should pay only the taxes that he must, but that there is something fundamentally wrong with a system that taxes his income at a lower rate than his secretary is required to pay. He is right. Romney might be forgiven were he to take a similar position. Indeed, it might be a Nixon-in-China moment: a wealthy politician at the pinnacle of power advocating higher taxes for the rich could change the course of history.

But Romney has not chosen to do so. He evidently does not recognize that a system that taxes speculation at a lower rate than hard work distorts the economy. Indeed, much of the money that accrues to those at the top is what economists call rents, which arise not from increasing the size of the economic pie, but from grabbing a larger slice of the existing pie….

Romney may not be a tax evader; only a thorough investigation by the US Internal Revenue Service could reach that conclusion. But, given that the top US marginal income-tax rate is 35%, he certainly is a tax avoideron a grand scale. And, of course, the problem is not just Romney; writ large, his level of tax avoidance makes it difficult to finance the public goods without which a modern economy cannot flourish.

But, even more important, tax avoidance on Romney’s scale undermines belief in the system’s fundamental fairness, and thus weakens the bonds that hold a society together.

Beezer here.  If we could clean up our tax law mess, no doubt overall tax rates could decline while still providing sufficient funding for a strong government.  But who’s going to lead this charge?  The news media doesn’t even ask either candidate what their viewpoint is regarding off shore trusts, or what loopholes and tax expenditures must be closed in order to simplify the tax code.  The candidates certainly aren’t going to do so, although Obama at least wants to return the top marginal rate to those in force during Clinton’s term.  As for something as simple as taxing all income types at the same, lower rates, forget about it.

He won’t release his past tax returns or discuss his use of offshore trust accounts and he disavows any knowledge of what his wholly owned company, Bain Capital, was doing when he was supervising the 2002 Winter Olympics in Utah.  And now Mitt Romney is running television advertising accusing the President of gutting welfare reform by dropping work requirements.

Now for the truth of the matter.   President Obama was responding to the request by two Republican governors (of Utah and Nevada) asking for more flexibility in applying the rules.  This wasn’t the first time such a request has been made.   In 2005 29 governors requested waivers so they could implement the law better for their states’ individual circumstances.  One of those governors was named Mitt Romney.

That’s it.  No big deal in other words, because the underlying principle being applied by the president is well understood.  It’s called federalism.

Romney, the poster child for legally sidestepping taxes, has a nasty habit of making up things about the President, and then attacking him for the made up things.  This is called a ‘straw man’ argument.  It’s commonly used when you can’t find anything substantive to attack, so you make stuff up and construct a ‘straw man’ to attack instead.

It would be real nice if the campaign started dealing with real issues and real policy discussions.  Obama has one out now, framing the campaign as one about whether or not the American public wants to go back to the Bush era policies of tax cuts and de-regulation of finance–policies which obviously ended very, very badly in the worst recession since the Great Depression.   One can disagree with Obama, but the ad is basically fair.  No straw man there.

I’d like someone to ask both the president and Mitt Romney their policy on legal offshore account use.  For them, or against them?

From a comment over at Economist’s View, by someone identified only as ‘pm.’

Everyone knows that Ronald Reagan reduced income taxes (more than one half for the wealthy); what is less commonly understood is that he extensively offset this by raising payroll taxes(more than double for most self-employed). Today, most American families pay more in payroll taxes than they do in income taxes. Between 1946 and 1981, income taxes averaged 12%(+/-1%) of normalized GDP. Reagan reduced income taxes to near 9%. Clinton increased them back to 12%; and Bush/Obama reduced them again to 9 %(and below). However, on budget expenses(which excludes Medicare,Social Security, Iraq war and stimulus) have remained 12%(+/-1%) of normalized GDP throughout. The deficit in income taxes has been financed by borrowing, largely from the Social Security trust fund.  When Clinton raised income taxes back to 12%, this eliminated the on budget deficit. The CBO projected that this, plus the Social Security and Medicare surpluses, was enough to pay off the entire US debt by the time that the Social Security/Medicare trust funds would have to be amortized for beneficiary payments, all without having to raise taxes to pay for the amortization of those trust funds. Like Reagan before him, Bush took those excess payroll tax receipts and gave them “back” as income tax reductions, heavily weighted to the wealthy–who didn’t create those surpluses in the first place. By doing this, Bush guaranteed that income taxes would have to be raised in order to amortize the trust funds. The failure to do so simply permits the 1% to steal the money contributed by workers for their retirement. Everything about not raising taxes or limiting expenses, is about stealing the 99%’s money. The national debt has been caused primarily by income taxes which were reduced far below their historic 12%(+/-1%), not by on budget expenses, which have remained at their historic 12%(+/-1%) throughout. These taxing games have transferred $ trillions from the 99%’s payroll taxes to subsidize income taxes.

Beezer here.  And so the ongoing theft is revealed.  The Bush tax cuts, which favored the wealthy, effectively transferred Social Security surpluses back primarily to the wealthy by running public deficits.  The deficits insured that tax raises, or entitlement cuts, would be needed in the future.  Guess which ‘solution’ is on the table?: Entitlement cuts.  Republicans refuse to consider tax increases, and both democrats and republicans favored payroll tax cuts to fight the recession.  Unless the general public learns how their pockets are being picked, they will be picked.  They will lose their social security and medicare benefits.  That’s the plan.  And it’s working well so far.

From economist Bruce Bartlett, a former top advisor to Presidents Ronald Reagan and George W. Bush, in a Fiscal Times piece.

Lately, there has been some controversy about the growth of spending under
Barack Obama. It began on May 22 with a column by Rex Nutting of MarketWatch, which concluded that the rate of
growth of federal spending under Obama has actually been trivial compared to the
last 4 presidents.

According to Nutting’s calculations, spending has grown only 1.4 percent per
year under Obama – one-fifth the rate under Ronald Reagan and George W. Bush.
Following is a chart accompanying the article.

There has been a considerable amount of debate
about Nutting’s calculations, which fly in the face of Republican dogma. Much
involves technical accounting issues, such as how to allocate spending during
fiscal year 2009. This is important because fiscal year 2009 began on September
1, 2008 during Bush’s administration, reflecting his priorities. By the time
Obama took office on January 20, 2009 the fiscal year was almost half over; he
didn’t submit his first budget until February 26, 2009 and the fiscal year 2010
budget is really the first one that reflected his priorities.

Nutting assigned the bulk of fiscal year 2009 spending to Bush, an assumption
that other analysts have questioned. Glenn Kessler of the Washington Post found
that Nutting overstated his argument in various ways. But the PoliFact site
of the Tampa Bay Times concluded that the Nutting column was
essentially correct.

Aside from the political implications, the reason this debate is important is
because there is a tendency for people to conflate spending, deficits and debt,
as well as confusing rates of change with absolute levels.

The difference between fiscal years 2008 and 2009 is very significant because
the economic crisis hit hard late in calendar year 2008 and early 2009 – just as
Bush was leaving office and Obama was coming in. According to the Congressional
Budget Office, spending shot up from 20.7 percent of the gross domestic product
in fiscal year 2008 to 25 percent in 2009 – an extraordinarily large increase.

When looking at the rate of change of spending, the base year is critically
important; the higher spending is in the base year, the smaller subsequent
increases will appear. If the base year is lower, subsequent increases will be
larger in percentage terms.

Thus if we compare CBO’s latest estimate for spending in 2012 to 2008 we get
a total increase of 21.7 percent, but if we compare it to 2009 the increase is
just 3.1 percent.
I don’t want to get into the nitty-gritty of whether to
allocate all spending in fiscal year 2009 to Bush or Obama. I just want to note
that the president has very little control over the budget one way or another;
the vast bulk of spending is baked in the cake the day he takes office and
changes can only be made incrementally and over time.

This fact is illustrated by looking at CBO’s last spending projection of the
Bush administration, which was issued on January 8, 2009 – 2 weeks before Obama
took office and containing no Obama initiatives. It shows that spending was projected to
rise to 24.9 percent of GDP in 2009 under laws that Obama inherited – almost
exactly what it ended up being.

Moreover, CBO data show that the biggest increase in spending between 2008
and 2009 was for mandatory programs such as Medicare and Social Security that
are not appropriated by Congress annually, but continue automatically unless the
underlying law governing beneficiaries is changed. This portion of the budget
rose from 12.4 percent of GDP in 2008 to 16.4 percent in 2009. By contrast, the
discretionary portion of the budget, which is appropriated annually and includes
national defense, rose from 7.9 percent of GDP to 8.9 percent between 2008 and
2009.

Another thing that is clear from the CBO data is that the budget deficit is
as much the result of lower taxes as higher spending. Revenues fell from 17.5
percent of GDP in fiscal year 2008 to 14.9 percent in 2009 and 2010, rising to
just 15.4 percent in 2011 and 15.8 percent this year. Had revenues stayed at
their 2008 level, combined federal deficits would have been $1.3 trillion
smaller since 2008.

And this estimate actually understates the extent to which Bush’s policies
devastated the government’s revenue-raising capacity. In the postwar era,
federal revenues have averaged 18.5 percent of GDP. They averaged 18.2 percent
during Ronald Reagan’s 8 years and 19 percent under Bill Clinton’s 8 years, but
17.6 percent during George W. Bush’s 8 years and just 15.2 percent for Obama’s 4
years thus far.

At a minimum, this puts a lie to the ideas that we are overtaxed, that Obama
has raised taxes, or that low taxes stimulate growth. Indeed, based on history,
one can easily argue the opposite – that high taxes stimulate growth. The
expansions of both the Reagan and Clinton administrations were preceded by big
tax increases in 1982 and 1993, and revenues as a share of GDP were considerably
higher during their administrations than under either Bush or Obama.

It’s an old political trick to blame the other side for things that your side
is actually responsible for. I remember clearly that Democrats often attacked
Reagan for economic conditions and policies that really belonged to Jimmy
Carter. Today, Republicans are blaming Obama for those that rightfully should be
attributed in large part to Bush.

It is not as if Obama is unaware of what Republicans are doing. He called
them out on it in a December 8, 2009 speech. Republicans, Obama said,
passed tax cuts and expansive entitlement programs without paying for any of it — even as health
care costs kept rising, year after year.  As a result, the deficit had reached
$1.3 trillion when we walked into the White House.  And I’d note:  These
budget-busting tax cuts and spending programs were approved by many of the same
people who are now waxing political about fiscal responsibility, while opposing
our efforts to reduce deficits by getting health care costs under control.  It’s
a sight to see.

Obama was right about Republican hypocrisy, but he has seldom made this point
since, allowing Republicans to dominate the debate on budget issues and
attribute to themselves an undeserved record of fiscal responsibility. If he
hopes to win in November, Obama needs to remind voters that Bush and his party
are largely responsible for the budget deficit. He will find a receptive
audience; the New York Times/CBS News poll has consistently found that Americans blame Bush by a 3 to 1 margin over Obama. In January
of this year, 43 percent of them held Bush responsible and only 14 percent blamed Obama.