By: Dana Milbank, Opinion Writer, The Washington Post, September 23, 2011
What Happens To The Economy If The Payroll Tax Cut Expires?
Yesterday, House Speaker John Boehner (R-OH) threw cold water on a temporary extension of the soon-to-expire payroll tax cut that had passed overwhelmingly in the Senate on Friday. “Well, it’s pretty clear that I and our members oppose the Senate bill,” Boehner said, despite the fact that on Friday he had called it a “good deal” and a “victory.”
House Republicans intend to vote down the Senate’s bill tonight, leaving the issue unresolved. But what happens if the payroll tax cut is allowed to expire? According to several economic analysts, it would severely affect growth and job creation next year:
– According to Macroeconomic Advisers, allowing the payroll tax cut to lapse “would reduce GDP growth by 0.5 percent and cost the economy 400,000 jobs.”
– Barclay’s estimated that letting the cut expire would knock 1.5 percent off of first quarter growth next year.
Meanwhile:
– Ameriprise Financial Services estimated that extending the cut “is likely to add between 750,000 to 1 million jobs.”
– Susan Wachter, a finance professor at the University of Pennsylvania’s Wharton School, calculated that the payroll tax cut “would add 1 percentage point to economic growth and create 1 million jobs next year.”
– Regional Economic Models Inc. estimated that the cut would pump “$120 billion into U.S. households in 2012.”
“If the Europe mess weren’t there, there would be a good case for letting taxes go back up,” said Joel Prakken, the chairman of Macroeconomic Advisers. “But a combination of a big tax increase plus the threat from Europe, when the economy is still in the doldrums — why take that risk?” If the House does vote down the Senate’s bill, the Senate will have to come back into session in order to craft a final agreement.
By: Pat Garofalo, Think Progress, December 19, 2011
“Crash Lies”: Washington Post Discards All Journalistic Standards In Attack On Social Security
News outlets generally like to claim a separation between their editorial pages and their news pages. The Washington Post has long ignored this distinction in pursuing its agenda for cutting Social Security, however it took a big step further in tearing down this barrier with a lead front page story that would have been excluded from most opinion pages because of all the inaccuracies it contained.
The basic premise of the story, as expressed in the headline (“the debt fallout: how Social Security went ‘cash negative’ earlier than expected”) and the first paragraph (“Last year, as a debate over the runaway national debt gathered steam in Washington, Social Security passed a treacherous milestone. It went ‘cash negative.'”) is that Social Security faces some sort of crisis because it is paying out more in benefits than it collects in taxes. [The “runaway national debt” is also a Washington Post invention. The deficits have soared in recent years because of the economic downturn following the collapse of the housing bubble. No responsible newspaper would discuss this as problem of the budget as opposed to a problem with a horribly underemployed economy.]
This “treacherous milestone” is entirely the Post’s invention, it has absolutely nothing to do with the law that governs Social Security benefit payments. Under the law, as long as there is money in the trust fund, then Social Security is able to pay full benefits. There is literally no other possible interpretation of the law.
As the article notes, the trust fund currently holds $2.6 trillion in government bonds, so it is nowhere close to being unable to pay benefits. The whole point of building up the trust fund was to help cover costs at a future date when taxes would not be sufficient to cover full benefits. Rather than posing any sort of crisis, this is exactly what had been planned when Congress last made major changes to the program in 1983 based on the recommendations of the Greenspan commission.
The article makes great efforts to confuse readers about the status of the trust fund. It tells readers:
“The $2.6 trillion Social Security trust fund will provide little relief. The government has borrowed every cent and now must raise taxes, cut spending or borrow more heavily from outside investors to keep benefit checks flowing.”
This is the same situation the government faces when Wall Street investment banker Peter Peterson or any other holder of government bonds decides to cash in their bonds when they become due. In such cases it “must raise taxes, cut spending or borrow more heavily from outside investors.” The Post’s reporters and editors should understand this fact.
The article then goes on to incorrectly accuse Senate Majority Leader Harry Reid of misrepresenting the finances of Social Security:
“In an MSNBC interview, he [Senator Reid] added: ‘Social Security does not add a single penny, not a dime, a nickel, a dollar to the budget problems we have. Never has and, for the next 30 years, it won’t do that.’
“Such statements have not been true since at least 2009, when the cost of monthly checks regularly began to exceed payroll tax collections. A spokesman said Reid stands by his comments and his view that Social Security is entirely self-financed.”
Of course Senator Reid is exactly right. The system is self-financed under the law. In 2009 it began drawing on the interest on the government bonds it held. That is exactly what the law dictates, when Social Security needs more money than it collects in taxes, it is supposed to draw on the bonds that were purchased with Social Security taxes in the past. This means it is self-financing.
Again, this is like Peter Peterson selling his government bonds to finance one of his political ventures. Just like Social Security, he is drawing on his own money. The Post may have missed it, but there was a big debate last summer over raising the government’s $14.3 trillion debt ceiling. This $14.3 trillion figure included the $2.6 trillion borrowed from Social Security. If Social Security sells some of these bonds and this money is used to pay benefits, it does not raise the debt subject to the ceiling by a penny. This is very simple and very clear.
The article then turns to Morgan Stanley director Erskine Bowles who describes a plan he put forward along with former Senator Alan Simpson, his co-chair on a deficit commission appointed by President Obama [the article wrongly describes this plan as being the commission’s plan. That is not true, the commission did not approve any plan.]
“It would have hit upper-income workers while raising benefits for the most needy, those with average lifetime earnings of less than $11,000 a year. ‘By making these relatively small changes, you make it solvent and you make it be there for people who depend on it,’” Bowles said. ‘I thought that’s what we as Democrats were supposed to be for.'”
Actually the plan put forward by Bowles and Simpson would have implied large cuts for most low-income workers who would not have met the work requirements needed for the higher benefit. The cut would have taken the form of a 0.3 percentage point reduction in the annual cost of living adjustment. This cut would be cumulative, after 15 years of retirement a beneficiary would be seeing a benefit that is roughly 4.5 percent lower as a result of the Bowles-Simpson plan. The plan also phased in an increase in the age for receiving full benefits to 69, which is also a benefit cut for lower income retirees.
For lower income retirees Social Security is the overwhelming majority of their income. This means that the benefit cut advocated by Bowles and Simpson would imply the loss of a much larger share of their income than the end of the Bush tax cuts would for the wealthy. However, the Post has never described the ending of these tax cuts as a “modest” or “small” tax increase.
It is also worth noting that “upper-income workers” who would face benefit cuts under the Bowles-Simpson plan are people with average earnings of more than $40,000 a year. This is not ordinarily viewed as the cutoff for upper income. In reference to the ending of the Bush tax cuts, the Post once ran a front page story questioning whether people earning $500,000 a year were wealthy. Clearly they apply a different standard to Social Security beneficiaries.
To push its line of fat and happy seniors the Post misrepresented research by Gene Steuerle on returns from Social Security taxes. At one point it told readers:
“That return is diminishing, in part because people today have paid more into the system than previous generations. But a two-earner, middle-income couple retiring this year can expect to get $913,000 in Social Security and Medicare benefits over their lifetimes, in return for $717,000 in payroll taxes.”
The trick in this picture is that the return refers to Social Security and Medicare, not just Social Security which is the topic of the article. The Steuerle paper actually has the Social Security returns shown separately in the exact same chart. Steuerle calculated that the two-earner couple referred to in the article would pay a bit less than $600,000 in taxes into the system and collect around $560,000 in benefits.
[This couple will get more back in Medicare benefits than they paid in taxes, but this is primarily because our health care costs twice as much per person as in any other wealthy country. This is a good argument for reforming the U.S. health care system but has nothing to do with the topic of the article.]
This article also repeatedly refers to the debate over cutting benefits as being an “ideological battle.” There is no evidence presented in this piece that there is any ideological issue at stake. On the one hand are hundreds of millions of workers who want to see the benefits that they paid for. On the other hand are many wealthy people, exemplified by people like Peter Peterson and Erskine Bowles who would rather use Social Security money to keep their own taxes low or to serve other purposes.
This is a battle over who gets the money. The references to ideology just confuse the situation.
By: Dean Baker, Center For Economic and Policy Research, October 29, 2011
Mr. Nice Guys?: Will Republicans Practice What They Tweet?
It appeared, at first glance, as if Eric Cantor’s Twitter account had been hacked — by a really nice guy.
In recent days, the extravagantly combative GOP House majority leader has been tweeting a veritable sampler box of bipartisan bonbons.
Sept. 21: “People don’t expect Republicans and Democrats to agree on everything, but they do expect us to overcome our differences and work together.”
Sept. 16: “Good people can have honest disagreements without having their morals or commitment to country being called into question.”
Sept. 13: “We need to work together towards the solutions that will meet the challenges facing our country today.”
Sept. 12: “Let’s try and lower the volume of the rancor in Washington, and focus on what we can do together to grow this economy and create jobs.”
And that is just a taste.
But this was no case of malicious (or, in this instance, magnanimous) hacking. After one of the ugliest summers political Washington has ever seen, Republicans, looking at poll numbers showing voters are even angrier with them than they are with President Obama, have decided to try the Mr. Nice Guy approach, in word and (occasional) deed.
They agreed to pass legislation keeping the Federal Aviation Administration going, abandoning the contentious provisions that led to this summer’s partial shutdown of the agency. They avoided another confrontation by extending highway spending without repealing the federal gas tax, a Tea Party priority. On Thursday, Senate Republicans yielded to President Obama’s demands and passed a worker-assistance bill that clears the way for enacting new trade agreements.
None of this means we’ve entered some new era of harmony in the capital; Republicans remain unswervingly opposed to any new taxes to reduce debt. And GOP leaders can push their rank-and-file only so far.
After conservatives on Wednesday defeated their leaders’ legislation that would keep the government running for the next two months, House Speaker John Boehner (R-Ohio) attempted to negotiate with House Minority Leader Nancy Pelosi (D-Calif.) in hopes of securing Democratic votes for the spending bill. But Boehner lost his nerve and decided instead to appease the recalcitrant conservatives.
Still, the shift in tone shows that Republicans have decided to pick their battles — a sensible response to the revulsion Americans felt watching this summer’s brinkmanship over the debt limit.
The Republicans seem to be heeding the advice of strategists such as Bill McInturff, a GOP pollster who, in a widely read memo earlier this month, warned that the debt standoff hurt consumer confidence much like the Iranian hostage crisis, the collapse of Lehman Brothers and Hurricane Katrina.
“The perception of how Washington handled the debt ceiling negotiation led to an immediate collapse of confidence in government and all the major players, including President Obama and Republicans in Congress,” McInturff wrote. He added that “this sharp a drop in consumer confidence is a direct consequence of the lack of confidence in our political system and its leaders.”
Fearing that voters will probably punish all incumbents — not just Obama — Republicans have softened their style in September, even as Obama has hardened his. “There is a recognition on the Hill that people are frustrated with Washington and want some results,” acknowledged Cantor’s spokesman, Brad Dayspring.
The Republicans’ experiment in conciliation has been aided by Senate Majority Leader Harry Reid (D-Nev.), who has brought up issues — patents, trade and transportation — that had bipartisan support from the start. But Democrats also claim some vindication in the new approach. As one Democratic leadership aide put it: “They’re picking their shots better so they don’t come across as complete [expletives].”
The question is: How much substance comes with that recalibration? After Obama’s address to Congress on job creation, Boehner replied with the conciliatory message that “it is our desire to work with you to find common ground.”
On the morning after his House conservatives defeated the legislation to keep the government running, Boehner went to the microphones to assure Americans: “Listen, there’s no threat of government shutdown. Let’s just get this out there.”
Privately, Democrats believe that, too. And though Obama’s jobs bill has no chance of passage (even many Democrats object to its tax increases), chances are good that Republicans will agree to extend the payroll tax cut and a tax credit for hiring wounded veterans.
“We want to join with our colleagues on the other side of the aisle, to find areas where we agree, to make sure the American economy succeeds,” Cantor announced via Twitter.
Well said. But how much will Republicans practice what they tweet?
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