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Chained CPI Helps Fund Corporate Tax Breaks and Trickle Down

10:49 am in Failed government by masaccio

Obama Finds Trickle-Down Inspirational

Jack Lew, the Treasury Secretary and former head of the Office of Management and Budget, testified before the Senate Budget Committee recently. His written testimony explains the priorities set by President Bipartisan, Barack Obama, who seems to think he was elected on the long-term Republican promise to balance the budget.

Lew tells us that Obama’s budget is based on his Grand Bargain offers to Speaker Boehner that couldn’t garner any Republican backing. Lew doesn’t explain why that should be a starting point for further capitulations. Lew mentions such balanced ideas as the Chained CPI. That’s the part where we slash at Social Security and raise taxes on the middle class by raising income tax brackets less than inflation. Lew explains the reason for this assault on the 99%: “The chained CPI is a more accurate measure of inflation in that it does a better job of reflecting the substitution of goods in response to relative price changes.” That is a lie.

The CPI is supposed to measure how much it costs to maintain your lifestyle. The Chained CPI measures the decline in your standard of living as you change your protein intake from an occasional piece of beef to Alpo. Lew thinks that’s not a problem because it’s all protein. And it’s not a problem for the administration’s rich clients, whose life-style is utterly unaffected by inflation. For the 99%, the Chained CPI assumes that you are just as happy with canned catfood as you were with fresh salmon.

Lew’s headline number is $580 billion in tax hikes. It dwarfs the impact of cutting Social Security, which is $130 billion. At the same time, we are increasing taxes by $100 billion by raising the brackets more slowly than actual inflation. So, we have an actual $680 billion in increased revenues. Let’s see what we do with those. You probably think it has something to do with helping the middle class, as Lew claims in the section labeled “Strengthening the Middle Class by Investing in the U.S. Economy”. That translates to More Trickle Down From President Bipartisan. He wants to increase funding for US agencies to promote trade, including the Trans-Pacific Partnership, and the Transatlantic Trade and Investment Partnership, the new NAFTAs, and will hurt even worse as we watch corporations erode our sovereignty. Then we recycle the money back to corporations that shift foreign production back to the US. We paid them to leave, through deductions available for moving out (which supposedly will be repealed), and now we pay them to return. But that’s not all the corporations won. Take a look at the budget, pp. 7-35, where you can see all the money going to corporations on its way to trickling into the pockets of the rich.

For the middle class there are some opportunities for training, and schools for four-year olds, an increase in the minimum wage (because the middle class now lives at the minimum wage), and help with recovery of child support. The end.

Here’s a quote from the budget:

The Administration believes in a balanced approach that cuts spending and reforms entitlements responsibly, but also raises revenue from tax reform that closes special interest loopholes and addresses deductions and exclusions ….

Let’s just skip the tax increases on the middle class and the destruction of their retirement benefits. Why do Lew and Obama think balance is a good thing? Did the people on Social Security and Medicare and Medicaid cause the Great Crash? Did they reap billions of dollars in benefits from the Reagan/Bush/Obama tax rate cuts? Did they steal from pension plans or from stock and commodities brokerage accounts? Did they manipulate LIBOR for their personal benefit? Did they launder money for drug cartels and terrorists? Did they need Get Out Of Jail Free cards from the fake prosecutors at the Department of Justice? Did anyone in the entire country vote for this guy thinking “Oh good, at last someone will make the tough decision to cut my Social Security and give the money to the rich and their corporations?”

I’m all for balancing the budget. Just do it on the backs of the oligarchs and corporations and their foundations and their offshore holdings of trillions and their professional minions who make it all possible. That’s fair and balanced.

Photo by wayne’s eye view under Creative Commons license

Chained CPI Means You Can’t Have Nice Things

11:38 am in Economy by masaccio

circus clowns

Legislators clustered to meet with ALEC, @FixTheDebt, and President Obama

The Obama Budget Document includes 11 mentions of Chained CPI. Here are the first four:

In the interest of achieving a bipartisan deficit reduction agreement, beginning in 2015 the Budget would change the measure of inflation used by the Federal Government for most programs and for the Internal Revenue Code from the standard Consumer Price Index (CPI) to the alternative, more accurate chained CPI, which grows slightly more slowly. Unlike the standard CPI, the chained CPI fully accounts for a consumer’s ability to substitute between goods in response to changes in relative prices and also adjusts for small sample bias. Most economists agree that the chained CPI provides a more accurate measure of the average change in the cost of living than the standard CPI. P. 46

The first bold section tells us that Obama believes there is a bipartisan consensus that we have to cut Social Security and raise taxes on the middle class. I’m not seeing that in any segment of the political world except vicious jerks like the Club for Growth. I can’t wait to see the Hastert Rule operate in the House, forcing Speaker Boehner to admit that a majority of House Republicans thinks hiking taxes on the middle class and slashing Social Security is a terrible idea.

The second explains that this is good because when prices go up, or incomes drop, consumers can just buy some cheaper thing than the thing they really like. You can read a paper from the Bureau of Labor Statistics explaining this in detail here. The plain fact is that this is an outright admission of the utter failure of the consumption society.

The example you get is that if beef gets more expensive, you can substitute pork, without in any way affecting your life. In other words, the selections among beef, pork, chicken and catfood you currently make are assumed to give you a certain level of pleasure, but now you can’t have that level of pleasure. Either you eat less of something you like, or you just don’t get to eat it, and have to eat something you don’t like as much.

Suppose you lose your nice watch. If the price of your ideal watch has gone up for whatever reason, you get a cheaper watch, or no watch and use your phone. That nice watch you used to be able to have is now out of the picture, but that doesn’t matter because you can still tell time. That’s the magic of substitution.

There is an unspoken connection here: that your income is constant across all these time periods. That isn’t true either. People are losing their jobs and taking lower paid jobs. If you are still getting raises, they come in tiny increments every year. If you are retired, you get nothing on your savings, and little on any equities you might hold. To maintain your standard of living, you have to eat your savings or go into debt. Most likely, you can’t have nice things, so you get to substitute less nice things. No natural fibers for you, too expensive. So what? Just substitute something you don’t like as well, or do without.

There is one other key point: this analysis ignores the effect of substitution in oligopolistic markets. What is the free market for cell phone services or cable services? They are oligopolies. Your choices have nothing to do with the amount produced.Prices are not set based on the underlying cost of service, but upon whatever these people can get away with. They raise prices to maintain their profits. Your only substitution is to buy less service, in a downward spiral. Your life gets worse.

Of course, all this is irrelevant to the feral rich. Their income goes up as they suck out the money from you for your cell phone and your cable service and every other thing you buy. They don’t substitute for anything.

The real point of the Chained CPI is that you don’t get to live nicely. You can expect a declining standard of living. That is the message of your President and the oligarchy he serves.

The fifth mention of Chained CPI in the Budget explains that the switch to chained CPI will decrease the deficit by at least $230 billion over the next 10 years. This is the number in tables S-2 and S-3. P. 184, 186. Table S-5, p. 189, gives the number for Social Security: we are cutting payments to the elderly by $130 billion. Table S-6, p. 191, tells us that over 10 years the average savings is .1% of annual projected GDP. Table S-7, p. 193, gives the annual savings adjusted for population growth and some kind of inflation accounting. In those terms the total savings drop to $107 billion.

The last mention is in Table S-9. There is a line item labeled “Chained CPI: Adjust indexing and protect vulnerable populations”, which according to the footnote includes revenue effects. The ten year total is $230 billion, which includes Social Security cuts and $100 billion in new taxes that slug the middle class resulting from adoption of Chained CPI. That’s another chunk of not having nice things: you have to pay higher taxes, so forget that chicken, and buy a fifty-fifty mix of pink slime and hamburger.

Unless, of course you are in whatever the “vulnerable population” turns out to be. But don’t worry, even if you aren’t now, as inflation eats your savings and the Chained CPI cuts your Social Security, soon enough you’ll enter the vulnerable population. That’s already happening. This study says that 46% of Americans die with less than $10,000 in assets.

The President and the oligarchy are introducing the masses to their Brave New World of not-so-nice things. Or nothing at all. Read the rest of this entry →

The Business Roundtable Hates The Americans Who Make Its Members Rich

1:38 pm in Economy by masaccio

The Business Roundtable is an association of the CEOs of America’s biggest companies. Their total revenues are more than $7.3 trillion, and they employ nearly 16 million people somewhere in the world. Their big priority, supported by millions from their corporate treasuries, is to cut corporate taxation from 35% to 25%, which is hilarious when you realize that most of their members don’t pay anywhere near either rate. Among the members are GE, Tenet Healthcare, PG&E Corporation, and a host of other tax dodging companies. And lest you think that matters, Carter Wood, Senior Communications Advisor at Business Roundtable, will be happy to tell you that whatever they pay is way too much, and they are all moving off-shore.

Taxes are the price we pay to live in a civilized society, you know, a society that respects the legal and property rights of GE, Tenet Healthcare, PG&E and the rest of the tax haters. A society that builds ports and roads so people and goods can move in commerce or across the ocean. If someone weren’t paying taxes corporations like Carnival Cruise line wouldn’t be able to operate at all. According to David Leonhart in the New York Times, Carnival has paid only 1.1% of its cumulative 5 year earnings in taxes of any kind. Its big benefit is that it is a Panama corporation, not an American company, (ignore that corporate headquarters in Florida) so under 26 USC § 883(a)(1) it doesn’t owe taxes. That provision was inserted by the Tax Reform Act of 1986, one of many spineless caves by the Democrats to Ronald Reagan’s tax cutting mania.

Anyway, as I was saying, 99% of us human Americans are allowed to exist so we can pay the taxes and serve in the Armed Forces that enable Business Roundtable corporations to operate around the world. It’s best if those taxes are paid by poor people, and the two major parties are hell bent on creating as many poor people to pay those taxes as possible. Mammon forbid that any dribble of taxation should fall on the feral rich, their thug corporations or their merely wealthy minions. Taxes are for you and me.

And with the job creators all lined up for reducing the nominal rate, they insist on revenue neutrality, the idea that when we reduce corporate rates, we don’t somehow increase the amount of corporate tax revenue, currently at absurdly low levels. They may be in favor of cutting some tax loopholes, but their good friends in Congress must be vigilant to insure that they don’t increase their share of the burdens of civilization. Problems, problems. Someone in this crowd is going to have to pay more, depending on which loopholes get closed. Maybe Carnival is a good choice, because it has such a crappy image right now. Or maybe we just cut the rates without cutting the loopholes. Leonhart isn’t sure the Business Roundtable supports ending loopholes anyway. They sure haven’t said they do.

So what do they support? Cutting Social Security, Medicare and Medicaid. Gary Loveman, President and CEO of Caesars Entertainment Corp., a gambling company, and Chair of the Business Roundtable Committee on Health and Retirement, published an op-ed in the Wall Street Journal explaining that we, presumably including his own gold-plated butt, can’t afford our government, so we should raise the eligibility ages for Medicare and Social Security, increase private sector involvement in Medicare, and cut Medicare and Social Security for anyone who has a pittance of their own until they are reduced to abject poverty and can’t afford to go to Caesar’s anymore. “We” need to cut Social Security and raise taxes by switching to Chained CPI. That ought to be enough to give Caesars a big tax cut. Oh wait. Caesars doesn’t pay taxes. It’s been losing money for years.

I think Loveman deserves a free trip on Carnival, assuming any of its ships is ever fit to sail again.

Read the rest of this entry →

A Vicious Assault on Retirees

2:46 pm in Failed government by masaccio

There is no other way to describe the machinations in DC today. The median Social Security benefit is $1229. The median net worth of retirees is about $160K, including home equity according to the 2010 Survey of Consumer Finances.

Chart from 2012 Annual Report of the Pension Benefit Guaranty Corporation

Any cut to the Social Security benefit is going to damage these average people seriously, and it’s worse for the people below the medians. But that isn’t the whole picture. The original idea behind Social Security was that it would be just of part of retirement, along with employer pensions and personal savings. As the graphic shows, the pension plan has gone the way of the Dodo.

Now think for a moment about the people above that median. These are the people who saved money to fund their retirement, and have some assets. They get no interest income, thanks the to the Fed and its zero interest rate policy (ZIRP). There has been precious little income from savings for the last few years, and the Fed promises that there won’t be any in the foreseeable future. That means that people are being forced to eat up their savings, or to put it with the wolves of Wall Street.

We aren’t talking about pocket change, either. For people in the 75-90 percentile range, the mean net worth in 2010 was $525K, down from $616K in 2007. The mean value of financial assets held by this group was $233K, down from $254K in 2007. That isn’t all that much money to last 20 or thirty years. ZIRP means that savers get screwed. Bloomberg reports that ZIRP is helping the rich and screwing everyone else, quoting Joseph Stiglitz: “Monetary policy has been indirectly, surreptitiously helping the top and hurting the bottom.” It describes a semi-retired college librarian:

…when he first started an annuity in 2005, his interest rate was 5.25 percent. Now it’s 2 percent, he said. That means that instead of getting a monthly payout of $700, he gets $413.

In the face of the horrible damage inflicted on all segments of the population by the richest Americans, aided by an ideologically insane party and a spineless party, President Obama and the rest of the Washington Elite insist on slapping retirees with Social Security cuts via the Chained CPI, and cuts to Medicare and Medicaid, to go with the demand that they eat up their savings or reduce their standard of living.

There is no excuse for this vicious assault on the retirement plans of millions of Americans. And there is no other way to describe it. It is a horrible and mean-spirited attack on every American except a few hyper-rich people.