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Income Security For The 1%.

By: TomThumb Wednesday April 10, 2013 8:53 am

one percentThe President’s Budget Offers a Fig Leaf of Raising Taxes On The Rich.

The 2014 Budget does not go far enough to tax the 1%.

“Mr. Obama would raise an estimated $580 billion in new revenues over a decade mainly through two ways. For the fifth time he is proposing that affluent taxpayers in higher tax brackets must limit their deductions to the 28 percent rate; while Congress has annually ignored that idea, there are signs of growing support as lawmakers seek new ways to reduce deficits. The second change would impose his so-called Buffett Rule, requiring that people with annual taxable income above $1 million pay at least 30 percent in income taxes.”—-NYTimes.

It hints at restoring equality to an income tax system which is oriented to exempting income from taxes through tax exempt retirement accounts. The Fig Leaf of capturing some of that income for taxation does not work for two reasons. First, it is politically unfeasible and second, because it does not capture the vast sums of income which are allowed to escape, untaxed, into the retirement accounts of the 1%. Transactions within tax exempt accounts are also often able to escape taxation.  Overall, in sum, these escapee taxes amounted to 6.5% of GDP in 2001.

Tax Expenditures.

Non-business related tax expenditures are a vertical transfer of wealth from average taxpayers to the very rich. 6.5% of GDP in 2001. Some examples of tax expenditures are tax deductible contributions to retirement accounts. 401k, IRAs are the foundation of these tax expenditures. They amounted to 6.5% of Gross Domestic Product in 2001.

Compare that figure to Social Security.  6.5% of GDP is close to the projected future cost of future Social Security benefits. Social Security is a contribution-based, social insurance program which the greatest number of low and middle income retirees will rely on for their sole means of retirement income.  But instead of serving the needs of 70 million retirees like Social Security is projected to do, tax expenditures will extract 6.5% of GDP to serve the needs of the few.

Many ordinary people have 401k and IRA accounts, but ordinary savers and retirees accounts are much smaller than the tax expenditure protected accounts of the 1%.  As a group, American taxpayers are accelerating the wealth of the 1% by exempting it from taxation, and by paying higher taxes to compensate for the loss of taxes not collected from the 1%.

Low Capital Gains Tax Rates.

Low capital gains tax rates for unearned income from investments are a form of unequal tax treatment of income. Current capital gains taxes are at a historical low. While a one event—low capital gains tax may benefit the lowly retiree who sells their home to pay for their expenses in retirement, or not; low capital gains taxes are a gift to the rich and to the 1% who can build extreme wealth through low taxes on large accounts and on exempt transactions. To my knowledge, the 2014 budget does not address this glaring unequal treatment of taxable income.

The Social Security FICA Cap Needs to Be Scrapped.

Instead of proposing an across the board cutting measure such as the chained CPI, the Administration could have proposed to scrap the existing limitation on the collection of Social Security taxes. At this point, all income above the cap (above 113K) is not taxed and this creates a long term funding gap. If the administration was truly concerned about strengthening Social Security, they would insist that those affluent people earning more than 113K should pay in their fair share of FICA taxes.  But the 2014 budget does not contain this change.

Radical Attacks on The Social Safety Net.

This 2014 budget cuts social safety net programs:


Mr. Lew to Berlin: Don’t Do What Obama Is Doing Here

By: TomThumb Tuesday April 9, 2013 9:31 am

I. Treasury Secretary Lew Goes to Berlin, NPR interviews him about the budget

Portrait of Treasury Secretary Lew

Secretary of the Treasury Jacob Lew told Germans to cut austerity measures while President Obama pushes them at home.

Treasury Secretary Lew goes to Berlin. Mr. Lew encourages Europeans to reduce their austerity measures because they are ruining their economies. He wants Europeans to spur their demand or spending. That is a good suggestion.

Lew has pressed European officials to moderate austerity measures in order to boost growth, and called on surplus countries like Germany to boost their consumption to help pull the continent out of the doldrums.

Schaeuble and Lew tried to play down any differences in their views, however, with the German arguing that growth and budget consolidation were not mutually exclusive.

NPR’s Mr. Green asks Mr. Lew (in Berlin) what he thinks about President Obama’s budget. Mr. Lew gives the official party response of how Mr. Obama has been offering the same budget policies for years and they are a reasonable mix of cuts to entitlements and increases in tax revenues. Mr. Green works really hard to ask about the similarities between austerity in Europe and austerity at home. But phrases like ‘long term fiscal constraint’, and ‘finding the sensible center’ act like intellectual razor wire and fill the interview with a wordsmith’s version of a room full of those small annoying plastic styrofoam packing pebbles.

II. What Obama Is Doing Here At Home

President Obama is persistently focusing his Presidential policy on deficit reduction and austerity in Federal and State spending. Since 2011, there have been 2 fronts in the Austerity war.

Two Visible Fronts in the Austerity War:

1. The Sequester cuts impact a range of government programs and services. 784 billion dollars in cuts over the next ten years. The cuts reduce spending on the Federal workforce and cause furloughs costing (of up to) 20% of workers’ salaries. Medicare is cut 2% per year under the Sequester rules. At any time the Sequester could be reversed through passing Conyers & Sanders sponsored bill, HR 900. The Sequester is a deliberate tool created to force all parties to pass the Grand Bargain.

2. The Grand Bargain consists of proposed cuts to the social insurance programs. Social Security, Medicare, and Medicaid are in the crosshairs. Gaius Publius outlined seven areas which have historically been under attack in the Grand Bargain offers. You should read his article as he explains how each one of the seven cuts would impact Americans.

Less visible fronts in the austerity wars:

Cutting the Federal Work Force. Indirectly creating pressures to cut worker’s wages. Advocating against government job creation. Expansion of military commitments and spending in Africa, Asia, The middle East. Offering government subsidies to oil and energy companies. Permitting further, ongoing inflation of commodities like food and energy through financial speculation. Privatizing public services such as health care through the ACA, & changes to Medicare and Medicaid, subsidizing health insurance companies. Blank check spending on Security Theatre programs such HS, CIA, FBI, NSA. Propping up Wall Street & Banks through the $85 billion dollars/month Fed buying program. Starving savers through keeping interest rates at near zero. Absence of any Works Progress Administration, guaranteed jobs programs. Strangulation of TANF, Food Stamps, Housing Subsidies for low-income families. No advocacy for a guaranteed income for low-income families. Continuation of public assistance work requirements for homeless people. The ongoing privatization of the public education system.

Disabled Now Blamed for Social Security’s Woes AND Sluggish Economy

By: TomThumb Monday April 8, 2013 10:32 am
Shadowed wheel chair

The mainstream media continues to blame the disabled. Will this create more public support for austerity?

Recently, Planet Money at NPR, wrote a hit-piece accusing the disabled of fraudulently obtaining benefits through SSI and SSDI. Contagion followed and other pundits compounded the NPR error by repeating the falsehoods. But now we have WSJ ‘piling on’ to blame the disabled for leaving the workforce and creating a sluggish economy. The disabled are the designated ‘bad guys.’

… unexpectedly large number of American workers who piled into the Social Security Administration’s disability program during the recession and its aftermath threatens to cost the economy tens of billions a year in lost wages and diminished tax revenues.

Signs of the problem surfaced Friday, in a dismal jobs report that showed U.S. labor force participation rates falling last month to the lowest levels since 1979, the wrong direction for an economy that instead needs new legions of working men and women to drive growth and sustain a baby boomer generation headed to retirement. 

There are more people qualifying for disability because there are more people entering into the disability danger zone. This is an effect of a larger generation entering into the age when injuries and illnesses occur.

This weekend, former Social Security Commissioners, moved by conscience to respond, came out with a written statement in opposition to the falsehoods being promoted about both the disabled and about the programs which serve the severely disabled, and which are very, very difficult to qualify for.

Disability programs are notoriously difficult to qualify for, often taking years to establish claims, and requiring expert testimony/reports to validate claims. Here are two paragraphs from the Ex-Commissioners’ Letter:

“Approximately 1 in 5 of our fellow Americans live with disabilities, but only those with the most significant disabilities qualify for disability benefits under Title II and Title XVI of the Social Security Act. Title II Old Age, Survivors, and Disability Insurance (DI) benefits and Title XVI Supplemental Security Income (SSI) benefits provide critical support to millions of Americans with the most severe disabilities, as well as their dependents and survivors. Disabled beneficiaries often report multiple impairments, and many have such poor health that they are terminally ill: about 1 in 5 male DI beneficiaries and 1 in 7 female DI beneficiaries die within 5 years of receiving benefits.

Despite their impairments, many beneficiaries attempt work using the work incentives under the Social Security Act, and some do work part-time. For example, research by Mathematica and SSA finds that about 17 percent of beneficiaries worked in 2007. However, their earnings are generally very low (two-thirds of those who worked in 2007 earned less than $5,000 for the whole year), and only a small share are able to earn enough to be self-sufficient and leave the DI and SSI programs each year. Without Social Security or SSI, the alternatives for many beneficiaries are simply unthinkable.

The statutory standard for approval is very strict, and was made even more so in 1996. To implement this strict standard, Social Security Administration (SSA) regulations, policies, and procedures require extensive documentation and medical evidence at all levels of the application process. Less than one third of initial DI and SSI applications are approved, and only about 40 percent of adult DI and SSI applicants receive benefits even after all levels of appeal. As with adults, most children who apply are denied SSI, and only the most severely impaired qualify for benefits.”

If you read the WSJ article you can see the message loud and clear: These disability claimants who are leaving the workforce, are responsible for our sluggish economy. This is piling on of a different sort. A Twofer of blame: NPR alleges fraud and exploitation of Social Security. WSJ adds blame for our economic woes.

This is a movie we have seen before in the early 1980s before Social Security was cut by 19% for all future beneficiaries. Scare articles were published about people falsely qualifying for disability, and doubt was cast about the integrity of Social Security. Writers and institutions who promote doubt as to the integrity of Social Security are fully responsible for the subsequent cuts made in the program. Remember that the messaging starts with plutocrats on Wall Street and then is spread like a virus through their media collaborators. The corrective push-back is left to a few knowledgeable former Commissioners, advocacy groups and social scientists.

“Something’s Got To Give.”

By: TomThumb Sunday April 7, 2013 9:27 am

(Written by Old Guy w/The Dog. (OGwD))


Undercover Cop (UC): “My girlfriend says she likes what you’re doing, so I decided to check it out myself. I am on the fence, myself.”

He was wearing a V-necked sweater and a crisp, blue shirt and tie. His hair had a slight frontal wave as if he had to wax his crew cut to appear to have more hair. Brill Cream? He stood next to OGwD, side to side, signaling a conversation was intended.

OGwD: “Are you asking me why I am here?  ….. I can only speak for myself and my family.”

UC: “Yeah. (Nods.)”

Old Guy with the Dog takes a deep breath and looks up at the tall buildings, then up at the sky, and says, “Something’s got to give.”


UC: (Smiling.)     Old Guy with the Dog takes this to mean, “Go ahead.”   They are about the same age, the age of all-used-up with grey hair.

“They aren’t leaving us anywhere to go. I am like a cornered animal. I have been unemployed longer than just this economic crash. I did two training programs. I paid for those myself. But the jobs aren’t there.”

“My kids have 160,000 dollars in school loans. They did everything we asked them to. Studied hard. Got into good colleges. Borrowed the money so they could finish when we ran out of help to give them. But the jobs are not there for them. You think those banks up there in those buildings are going to forgive those loans?”

“I could sit up in my house and feed the woodstove. Or I could come down here and try to do something about all this. What would you do?”

UC: (Shrugs evasively.)

OGwD: “Well, something’s got to give.”

Which Side Are Your Senators on in Obama’s Social Security Cuts?

By: TomThumb Friday April 5, 2013 9:07 am

You might want to call your Senator or email your Senator when you are done reading this, so here is the LINK for that.

Obama’s budget will be released April 10th. That means you have four days to turn up the heat in the Senate against his legislating a chained CPI for Social Security, and cuts to Medicare. The Chained cpi will cut Social Security benefits at .3%; 3% in ten years; 6% in twenty years; and 9% in thirty years. Everyone will get the cut.

Chart of SSI under CPI plans
Compared to the rich the average SS beneficiary would take a 2% cut in income from the chained cpi, whereas the persons earning $500,000 would take around .6%, (proportionately less than a third of the cut to the SS beneficiary’s income) cut in income in the recent tax hike. In a graph from CEPR, Dean Baker demonstrates the comparison:

Chained CPI and Obama Tax increases
Here are two articles to read about this: The NYTimes. In addition to the chained cpi,….

“Mr. Obama’s proposed spending reductions include about $400 billion from health programs and $200 billion from other areas, including farm subsidies, federal employee retirement programs, the Postal Service and the unemployment compensation system.”

The Washington Post:

“The budget proposal slices $200 billion from already tight defense and domestic budgets. It would cut $400 billion from Medicare and other health programs by negotiating better prescription drug prices and asking wealthy seniors to pay more, among other policies. It would also generate $200 billion in savings by scaling back farm subsidies and federal retiree programs, among other proposals.

The proposal to change the formula to calculate Social Security payments, also originally part of the offer to Boehner, would generate $130 billion in savings and $100 billion in revenue, a result of the impact of the formula change on other government programs.”


“This would be paid for by raising taxes on cigarettes and other tobacco products, according to the White House. The amount of the new taxes wasn’t specified.

The budget will call for raising about $9 billion over a decade by prohibiting individuals from accumulating more than $3 million in Individual Retirement Accounts and other tax- retirement instruments. A $3 million limit would be about equal to an annuity of as much as $205,000 a year, according to the White House.”

Which side are your Senators On? Call them or write them and ask! Obama won’t run again in 2016, but many Senators will run for election again. Their silence now would be an indictment of their promises to protect social insurance programs from cuts. Let them know where you stand.

Old image of a street ruckus

Let’s raise the roof! And make some noise!

Congress critters too. 

Softer, Kinder, Simpson-Bowles, “The Lefty Humanitarians.” // Not!

By: TomThumb Thursday April 4, 2013 10:42 am

I. Wolves in Sheep’s Clothing.

The plan put forth by the Chairpersons of the President’s deficit commission held out a bit of hope for low-income elderly. Bowles and Simpson offered relief to those laboring under below-poverty benefit levels. A basic minimum benefit of 125% of the Federal Poverty Line.  O’ those lefty humanitarians!

Bowles & Simpson presented the basic benefit under the most cynical of motivations, because it was meant to be the “hook”, to get the consumer to buy into the severe cuts to the program on the other end, ….in decreased benefits for the middle income and high income recipients. A chart of the B&S plan shows that they flatten benefits so that by the time our children retire in 2070, the new, flattened range of benefits is between 8 and 14 K.

A chart 
II. A basic benefit is a good idea. People like the idea.

A basic benefit is a good idea as long as it does not entail hollowing out benefits for higher earners.

Americans agree  that taxes should be raised to guarantee the integrity of the Social Security system and desire to see increases in Social Security benefits. They would sympathize with the idea of guaranteeing a decent benefit for those stuck in the low income brackets. A NASI poll showed majority support for the program.

From the most popular packet of changes to Social Security:

“Raise Social Security’s minimum benefit so that a worker who pays into Social Security for 30 years can retire at 62 or later with benefits above the federal poverty line ($10,788 in 2011). Currently, lifetime low-wage workers are at risk of falling into poverty in their old age, even after paying Social Security taxes throughout their working lives.”

The problem with the NASI poll’s suggestion for a minimum guaranteed Social Security benefits is that it is half the size of what it costs for a single individual to live.

III. An expanded Social Security program.

A new plan for an expanded Social Security has just been released. It is a public program and would be paid for through new taxes on unearned income from capital gains and other sources. It creates a second, Social Security B to stack on top of existing SS benefits, which they call Social Security A. From the charts it looks like the plan offers generous benefits and retains many of the features of traditional Social Security at the same time. They fold in SSI recipients and general revenues. They claim that the lowest income group gets a much more progressive replacement rate under their formula. (Twice what Simpson-Bowles are suggesting.) See pages 21-22 for the charts.  If the authors could eliminate the favorable tax treatment of tax deductible retirement savings accounts, they could easily fund an expansion of Social Security. Using the leverage of cancelled tax expenditures (about 6.0% of GDP), they could move the world.

IV. Why not cover everybody? Go Big. Go all the way and cover the unemployed too.

I would support a basic guaranteed Social Security income at the higher 20 to 30K level. That level of income is consistent with salaries suggested for guaranteed employment programs. A decent wage is required when you have children to support and rent or mortgage to pay. Recalling that even on Medicare the elderly pay about half of their medical costs, a decent benefit is required when you have medical bills and medical insurance costs. What does not seem to work are continued high levels of unemployment and high levels of elderly poor. Half of the elderly live on less than $22K a year.  ShadowStats estimates true unemployment at about 23%.

Why not provide income security guarantees throughout the lifespan? Take care of the needs of the unemployed at the same time that you provide income security for the elderly. Why not provide a guarantee of a job/income for those who have none? Other countries provide these. Why don’t we Americans provide these essentials for each other?

V. We need a bigger template than Social Security.

FDR suggested a guaranteed jobs program in his Second Bill of Rights speech.  MLKjr spoke of a guaranteed jobs/income program when he addressed the burning issue of high levels of poverty in 1967.  John Kenneth Galbraith Sr. saw a guaranteed jobs/income as a solution to social and economic inequality.  The Declaration Of Human Rights stated that Everyone has a human right to a job or income so that they can live. (Articles 22 and 23).

Some thoughts about guaranteed income and/or jobs programs can be found here and here.  A guaranteed income might short-circuit some of the haggling over the merits of different age groups and competition for jobs. Here is a proposal for a Swiss program.

Arts of Magnification, Minimization, And Intimidation

By: TomThumb Monday April 1, 2013 7:25 pm

Intimidation (“How Dare You Demand Special Consideration!”)

Seems like the enemies of Social Security and Medicare will pull out every trick they know to achieve their goal.  Today an otherwise astute economist told a reporter that disabled Vets had to take a cut in their benefits just “like everyone else”, in a scold, as if they were asking for special consideration. They said that they had already made sacrifices for their country and gave the answer that it is unfair to change the terms of the contract after you have already finished your side of the deal. She was firm, and insisted that there would be no carve outs for special groups. Did she miss the Gene Sperling memo?

A few weeks ago White House economist, Gene Sperling, was all over Reddit promising that the chained cpi would have special protective carve outs for the vulnerable: For Vets and disabled folks, and for the very elderly who would experience the deepest cuts from their Social Security benefits. (Then it turned out that every group is vulnerable because all are going to be hurt by cuts under the chained CPI.) Broken promises?


In an non-fact based Op-Ed in the NYTimes, Rattner claimed that a 1,ooo dollar benefit would hardly be hurt at all by the chained cpi. His graph showed the increasing impact of the chained cpi cut over a ten year period. So what’s the problem? The graph did not show how the cuts would  aggregate to 3% of benefits at ten years, 6% at twenty years and 9% at thirty years. And, the Social Security benefit cut needed to be multiplied by 12 to present the total of the cuts per year, and then compounded, over a specific period. That is what is wrong. And account for inflation through COLA. He made the numbers look small by only looking at a small looking number. The real impact of the chained cpi is larger. More like this:

Chart of SSI under CPI

Magnification (Exaggeration)

In the same non-fact based Op-Ed in the NYTimes, Rattner claimed that unfunded liabilities owed by this generation extended to “almost 60″ Trillion dollars.  He alleged that cumulative debts including the current deficit and future Social Security and Medicare unpaid for benefits meant that cuts had to be made: “now! now! now!” His numbers reflect the multiplication of a coefficient representing a guessed-at, actuarial gap in future projected revenues and benefit payments, over the almost infinite horizon of 75 years. No wonder his graph shot skyward at a 45 degree angle. He wrote as if there were no future revenues, production gains, wage increases, and maybe even a scrapped FICA cap so people like him can pay their fair share of taxes. Social Security would be perfecto if deadbeats earning more than 113K per year had to contribute their fair share to the Trust fund.

Medicare will require price controls to bring healthcare costs down, but beneficiaries of Medicare are not the problem, high prices are.

This is a graph of medical spending on retirees. Not bad. Most of the rise is due to “other factors.” And recent spending is down:

White House Trial-Balloons Medicare Cost Increases

By: TomThumb Monday April 1, 2013 1:33 pm

Is the Obama administration getting ready to increase costs for medicare beneficiaries?

In the New York Times, anonymous sources representing the White House offered the following trial-balloons:

But administration officials say the 1988 law affected current beneficiaries, while Mr. Obama would apply any changes only to people becoming eligible for Medicare after 2016. So far, the changes the president has proposed do not go as far as a single deductible and a cap on catastrophic costs. Instead, Mr. Obama has called for increasing the Part B deductible, which has risen much less than medical costs. He also proposed that beneficiaries pay something for home health care, which is among Medicare’s fastest-growing and most fraud-prone expenses; people just released from the hospital would be exempted. Third, Mr. Obama proposed a 15 percent surcharge on Medigap plans that cover all or nearly all of a beneficiary’s initial annual expenses. Economists say that such coverage leaves beneficiaries insensitive to costs, increasing Medicare’s spending and the premiums beneficiaries pay.”

We have seen these recommendations before in 2011, but with more description of why these changes were considered.

1.     Increasing Cost-sharing for home health care. In September of 2011, Obama had offered to make changes to cost-sharing:

“Starting in 2017, Mr. Obama would require certain new beneficiaries to pay co-payments for home health care, which is now exempt from such charges. The co-payment would be $100 per episode, defined as a series of five or more home health visits not preceded by a stay in a hospital or a skilled nursing home.”

2.     Increasing Deductibles for Part B Medicare services. From an article in the NYTs Sept. 19th, 2011:

“The proposal would require new beneficiaries to pay higher deductibles before Medicare coverage of doctors’ services and other outpatient care kicks in. The deductible, now $162 a year, is already adjusted for inflation. Mr. Obama would increase it further by $25 in 2017, 2019 and 2021″.

3.     A fifteen per cent surcharge on Medigap plans. In the article from the NYTs (Sept. 19th, 2011) Obama offered the following explanation for this increase in cost:

In addition, the White House would increase Medicare premiums by about 30 percent for new beneficiaries who buy generous private insurance to help fill gaps in Medicare. Many beneficiaries choose these private Medigap policies because they want the financial security they get from the extra insurance. But the White House said this protection “gives individuals less incentive to consider the costs of health care and thus raises Medicare costs.”

4.     Waiting until 2016 to implement the changes. Both in 2011 and now in 2013, delay until 2016 or later was recommended.

5.     Both documents demonstrate an opinion that medical care is overused.  In the latest article, seniors on Medigap insurance were described as insensitive to cost of care. In the 2011 article, seniors having Medigap insurance were described as having less incentive to consider the costs of healthcare and as being the cause of rising Medicare costs. No mention of the rising cost of healthcare, hospital services, inflation. No mention was made of the failure to regulate and make medical prices conform reasonably in relation to their actual costs. Doctors prescribe tests, not patients!

At least the current trial balloon did not include all of the other cuts to Medicare related services which describe the current Senior Protection Plan produced by Center for American Progress. Apparently this administration is determined to shrink Medicare by making it so expensive that patients will not desire to use it.

6.     Here is one new recommendation which was not in the news in 2011: Unidentified participants in meetings with President Obama, claim that he also endorsed a merger of deductibles for part A and part B:

In particular, participants say, the president told House Republicans that he was open to combining Medicare’s coverage for hospitals and doctor services. That would create a single deductible that could increase out-of-pocket costs for many future beneficiaries, but also could pay for a cap on their total expenses and reduce the need to buy Medigap supplementary insurance.” 

Since it is difficult to know whether or not this latter merger of deductibles was part of the deliberate leak prior to the presentation of the budget in April, it is probably only worth saying that this will definitely increase costs for those whose primary need are doctors visits (paid for in Part B). This is consistent with the entire group of ‘reforms’ which seem focused on shifting the burden of paying for Medicare services onto beneficiaries. Here are the current deductibles:

The deductible for Part A hospital care is relatively high ($1,184 this year), while that for Part B doctor care is relatively low ($147). Patients also have co-payments for many services.