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Lower the retirement age and help workers young and old

In Biography, Economics on May 26, 2010 at 9:23 am

Linda Stinson, the historian at the Department of Labor, sent me a wonderful news clip this morning of Frances Perkins testifying in Congress on a bill that would have adjusted the work week from 40 hours to 30 hours. (Frances Perkins appears about a minute into the clip.)

Click the photo to go to the video.

Watching Secretary of Labor Perkins talking about jobs in the 1930s got me thinking about our current situation. For some reason, there is a huge push in Washington to worry about deficits, but no one seems to be worrying about jobs, even though the unemployment rate stands at 9.9 percent and is projected to remain quite high for months and years to come.

Some deficit-obsessed “experts” are trying to convince us that raising the Social Security retirement age from 67 to 70 will cut the deficit. This is false economics on many fronts.

First of all, Social Security doesn’t contribute to the deficit. So changing Social Security will not change the deficit. As Rep. Andrew Weiner states in Politico today:

They ignore that Social Security is fiscally responsible. By law, it cannot spend money that it doesn’t have. And the Social Security Trust Fund now has a $2.5 trillion surplus that can help pay out benefits for years to come.

Without any change, Social Security could cover three-quarters of benefits until 2083 — when people born today will be 73.

The federal government borrowed that money, the $2.5 trillion, and issued Treasury bonds to Social Security. This is a good thing — it raises needed cash for the government and provides interest to Social Security, because of course bonds pay interest to the holder.

However, it’s tempting to some in government to consider not making good on those bonds. As Treasury Secretary Geithner, famously quoting bank robber Willie Sutton, stated in a Congressional hearing, “That’s where the money is.” But whose money is it? It’s  yours and mine, safely invested. I can only imagine there would be hell to pay if the government reneges.

Second of all, for someone who spends his or her work week sitting in an ergonomic desk chair in an air conditioned office, 70 years of age may not seem too old to retire. But ask a construction worker, a waitress, a nurse, or any worker who puts in day after day of hard physical labor, and 70 seems old indeed.

Third, requiring older workers to stay on the job an extra three years will clog the job market with older workers, at least some of whom would prefer to retire. Meanwhile, young people will find it harder to get started on their careers due to lack of job opportunities.

Instead of talking about deficits, we should be thinking of ways to increase jobs. A 30-hour work week, as Frances Perkins discusses in this film clip? Perhaps. What is sure is that we need to consider all sorts of “nudges” toward employment. Creative thinking that looks at the problem from another perspective. We should turn conventional wisdom upside down.

For example, instead of raising the retirement age, let’s think about lowering it. How about making the full retirement age 62? To pay for the change, raise or even lift the salary cap, now set at $106,800. And get those millions of unemployed Americans back to work and paying their taxes into the Social Security system.

Wouldn’t that help workers of all ages?


Toward truly “gender neutral” economics

In Economics on May 21, 2010 at 7:46 am

This essay, by Frances Perkins Center Board member Susan Feiner, originally appeared in Truthout under the title, “How to Think Like a Feminist Economist.”

As a feminist economist I am constantly amazed—though I suppose I should be used to it by now—by the ways conventional analyses of economic matters completely ignore gender asymmetries.

Because I am a feminist economist, I am hypersensitive to differences in women’s and men’s economic circumstances. Women earn less, work in jobs with less prestige and few (if any) benefits, and do far more of society’s unpaid work. These are not new realities. One is, however, hard-pressed to find discussions of economic policy that place women’s disadvantage at the center.

Feminist economists understand how important it is to challenge the assumptions, and hence, the conclusions, of mainstream economics.

The economics that makes its way into the public realm consistently misrepresents the best interests of ordinary folks in their multiple roles as workers, consumers and citizens. Economics as we know it, and as it is taught in countless undergraduate courses, is little more than an apology for the status quo. Textbook economics, replete with supply and demand models demonstrating the market’s natural tendency to correct shortages or surpluses, doesn’t take the topic of “disadvantage” seriously.

In textbook economics, markets are markets. Competition is competition. And any economic system that encourages competition in markets will, by the very rules baked into the exercise, produce economic outcomes that duly reflect the wishes of the people. Your income is too low? Well, retrain for a job in a higher paying field. Your neighborhood is decaying? Just save more so you can move. The roads and bridges on which you drive are crumbling? Sell them to the highest bidder and let the private owner charge tolls to cover the upkeep. No problem is too large or too complicated that a good dose of market competition won’t fix it. There is little in economics that is “gender neutral”

In short, there is no such thing as “disadvantage.” There are only individual bad choices.

The spectacular failure of the financial sector with the attendant loss of some 20 odd million full time jobs should reveal — even to free market economists — major flaws in this way of thinking. But an intellectual bankruptcy rules the system, as demonstrated by critiques of every aspect of the theory — its assumptions, claimed links of causation and the failure to match up with historical experience.

My experience as a feminist economist means that I vigilantly watch for intellectual sleights of hand that present the interests of the rich and powerful as the interests of us all. When bankers, corporate executives and their minions unite behind purported economic truths, I challenge their arguments, their logic and their appeals to the so-called “laws of the market.” By looking behind and around standard economic narratives I can construct alternative stores connected to the real world, the actual historical record, and perhaps most importantly, the questions that are not being asked – many of which, it so happens, have to do with women. There is little in economics that is “gender neutral.”

Taxes Are More Taxing for Working Women

Feminist economists have contributed their share to the volumes critical of mainstream economics. One of our key findings is that even a topic as seemingly “gender neutral” as taxes is loaded with implications for women’s economic well being.

When we go shopping, cashiers include sales taxes regardless of our sex. Tax assessors do not value houses differently for female and male homeowners. Income tax forms do not come in pink and blue. All employees pay 6.2 percent of eligible earnings into the Social Security trust fund and all employers match that 6.2 percent. While tax rates may look gender neutral, I know that they are not. Taxes are a feminist issue.

While the hot button political catch phrase, “no new taxes,” may sound like a good idea, the reality is otherwise. That’s because the taxes that politicians pledge not to raise are precisely the taxes that are least relevant to women’s burden of taxation.

You will be much more likely to see the gender dimensions of an economic issue if you focus on ratios rather than the pure numbers. If, for example, the evening news reported on gender differences in tax payments, they’d likely tell us that men, on average, pay more in taxes than do women (on average). Facts and figures describing the economy are almost always more meaningful when we have information on both the numerator and the denominator. In the preceding example, the raw number “dollars paid in taxes” is the numerator. But if taxes paid are put in relation to income earned (the denominator) we will realize that because women still earn 80 cents for every dollar earned by men, women pay a greater share of their income in taxes.

For me, thinking about taxes in terms of tax burdens — who pays how much of their income in each type of tax — is necessary to cut through the political brou-ha-ha about the virtues of tax cutting.

Politicians, pundits, and professors generally ignore the way tax cuts impact the well being of different income groups. Doing this allows them to create the false impression that reducing taxes benefits women as well as men. Not so.

Understanding women’s relationship to the U.S. tax system is critical to any advocacy work on behalf of economic equality.

Not only are there many types of taxes, the various levels of government—federal, state and local—impose different taxes on different goods and services.

The broad categories of taxes include sales (and excise) taxes, income taxes, payroll taxes and property taxes.

Sales taxes, payroll taxes and property taxes are regressive. This means that as incomes rise, less is paid in each of these types of taxes. The tax burden shifts downward, the well-to-do pay less, and the folks lower down the income ladder pay more. As a result, women—who earn less than men—pay a greater share of their income in sales, property and payroll taxes.

Because income taxes are progressive, the incidence of taxation rises as income rises. Because women earn less than men, federal and state income taxes help correct gender differences in wage income.

Sales and property taxes, which are levied by state or local governments, are regressive. But, these are not the most regressive taxes: this honor goes to payroll taxes.

Earning Less, Paying More

Every time a worker gets paid, the number at the top of the check — gross earnings — is larger, often much larger, than the actual amount that can be deposited in the bank — the net earnings. Some payroll deductions have little to do with taxes, such as pension or health care contributions.

But for most women in the U.S., the lioness’ share of monies deducted from each paycheck goes to contributions to Social Security and Medicare. In fact, the amounts a woman pays annually into Social Security and Medicare are likely to exceed any income tax owed to the federal government. Women in the United States do not need more “tax cuts”

For every $1,000 the typical woman earns in wages, her employer withholds $62 as the woman’s contribution to Social Security (6.2 percent). Her employer’s share of Social Security contributions is also 6.2 percent, so another $62 is credited to her Social Security account. All wage and salary income, up to $97,500, is subject to Social Security taxes. [Editor’s note: the current limit is actually $106,800.]

Every dollar earned above $97,500 (keep dreaming, honey) is exempt from Social Security withholding. That’s why this tax is so regressive. If a woman’s annual earnings are $195,000, and Social Security is withheld from only the first $97,500 then the second $97,500 earned is tax free—at least relative to the Social Security tax.

Since men, on average, earn more per year than women, and are more likely to earn more than $97,500 per year, men pay less—as a share of their income—into Social Security. They, therefore, have more to spend and save as a share of their earnings.

Adding insult to injury, studies by such noted think tanks as The Urban Institute estimate that employers don’t actually pay 6.2 percent of employees’ earnings. Instead, they shift this cost by holding down wages and salaries. This means that everyone who earns less than $97,500 is likely paying the full 12.4 percent of Social Security withholding.

Almost two-thirds of all taxpayers in the U.S. pay more in payroll (Social Security) taxes than they do in income taxes. Virtually all the tax cuts approved by Congress in the last 30 years have been income tax cuts, and the largest such cuts have gone to the top 5 percent of earners — those folks lucky enough to live in households with average incomes exceeding $172,000 per year. Very few women earn this much in a year.

Social Security is definitely important to women. For 80 percent or more of women over 65, Social Security constitutes all of their income. To be gender-equitable, the way the government finances Social Security needs to be changed.

A critically important progressive reform would make all income — including those hedge fund bonuses out in the stratosphere — subject to Social Security withholding.

Thinking like a feminist economist, reveals this stark conclusion: Women in the United States do not need more “tax cuts.” What all of us need is a shift away from taxes on work (payroll taxes) and a significant increase in the taxes on the highest income earners—virtually all of whom are men.

A similar gender analysis can be applied to every tax issue and almost every policy issue that the country faces. But, unveiling the gender dimensions of our economic problems and the variously proposed solutions requires a rejection of a standard, gender blind analyses, and to do this, we dig below a seemingly gender neutral surface. Thinking like a feminist economist, it turns out, can be an exceedingly valuable tool for the most critical public decisions in the U.S. and across the globe today.

Susan F. Feiner is Professor of Women’s and Gender Studies and Professor of Economics at the University of Southern Maine. She is one of the founding scholars in the field of feminist economics and the author of the award-winning Liberating Economics: Feminist Perspectives on Families, Work and Globalization (with Professor D. Barker, University of Michigan Press, 2004). She has written for Women’s Enews, Dollars & Sense and The Women’s Review of Books. Over the years she has written about gender and race bias in economics education, U.S. economic history, psychoanalysis and economics, and religion and economics, and teaches courses on gender and economics, feminism and Marxism, political economy, among others.

“The danger posed by the deficit ‘is zero'”

In Economics, Political world on May 14, 2010 at 7:44 am

Two eminent economists strongly debunk the current deficit scare tactic in which the financial condition of the U.S. is likened to that of Greece. Here’s an excerpt of an interview with James Galbraith by Ezra Klein in the Washington Post:

EK: You think the danger posed by the long-term deficit is overstated by most economists and economic commentators.

JG: No, I think the danger is zero. It’s not overstated. It’s completely misstated.

EK: Why?

JG: What is the nature of the danger? The only possible answer is that this larger deficit would cause a rise in the interest rate. Well, if the markets thought that was a serious risk, the rate on 20-year treasury bonds wouldn’t be 4 percent and change now. If the markets thought that the interest rate would be forced up by funding difficulties 10 year from now, it would show up in the 20-year rate. That rate has actually been coming down in the wake of the European crisis.

In We’re Not Greece, an Op-Ed in the New York Times today, Pal Krugman says:

It’s an ill wind that blows nobody good, and the crisis in Greece is making some people — people who opposed health care reform and are itching for an excuse to dismantle Social Security — very, very happy. Everywhere you look there are editorials and commentaries, some posing as objective reporting, asserting that Greece today will be America tomorrow unless we abandon all that nonsense about taking care of those in need.

So here’s the reality: America’s fiscal outlook over the next few years isn’t bad. We do have a serious long-run budget problem, which will have to be resolved with a combination of health care reform and other measures, probably including a moderate rise in taxes. But we should ignore those who pretend to be concerned with fiscal responsibility, but whose real goal is to dismantle the welfare state — and are trying to use crises elsewhere to frighten us into giving them what they want.

Both pieces are worth reading for their explanation of what’s really going on. Let’s hope the message gets wide distribution.

Frances Perkins and the “politics of generosity”

In Biography, Events on May 13, 2010 at 12:44 pm

Today marks the first annual celebration of the life of Frances Perkins by the Episcopal Church, which named her a Holy Woman this year.

On her blog, Christianity for the Rest of Us, Diana Butler Bass says

I can’t imagine a more important saint to remember today. May we live in her example and renew a politics of generosity for our own day.

Frances Perkins’s local church here in Newcastle, Maine, is holding a special service this coming Sunday at 4:00 PM. The Bishop will conduct the service, the choir will sing a newly commissioned anthem, and a plaque in her honor will be unveiled in the sanctuary. Before the service, at 2:00, Donn Mitchell will speak about Frances Perkins and her Anglican colleagues, about whom he coined the phrase, “politics of generosity.”

Here is the Episcopal prayer for Frances Perkins on her feast day:

Loving God, we bless your Name for Frances Perkins, who lived out her belief that the special vocation of the laity is to conduct the secular affairs of society that all may be maintained in health and decency. Help us, following her example, to contend tirelessly for justice and for the protection of all in need, that we may be faithful followers of Jesus Christ; who with you and the Holy Spirit lives and reigns, one God, for ever and ever. Amen.

“Reasonable” adjustments to Social Security to cut the deficit?

In Economics on May 5, 2010 at 9:02 am

With the advent of the president’s National Fiscal Commission (AKA the “deficit commission”) last Tuesday and the Peter G. Peterson Foundation‘s star-studded conference the following day, there’s been a fair amount of talk about the federal deficit and ideas for “compassionate, fair, and reasonable” cuts to Social Security to help diminish that deficit.

First, let’s get one fact out of the way: Social Security in no way contributes to the current deficit. Social Security has run a surplus for decades, and that surplus has been invested in U.S. Treasury bonds.

Second, let’s recognize that demographic trends are not surprises. Social Security’s actuaries have known about the baby boom for the last 50+ years and have noted the increase in expected lifespans. These changes have been factored into the trustees’ projections. The only surprise events that do impact those projections are massive ups and downs in the U.S. economy.

Ok, time to examine those “compassionate, fair, and reasonable” cuts:

1) Increase the age of retirement — raising the retirement age to 70 seems like a no-brainer, right? Think of all those bronzed seniors dotting the nation’s fairways. An American man born today can expect to live to be 75.6 and women almost 81. But if you delve more deeply into the data, you learn that the life expectancy for African Americans is approximately five years less than the average. In fact, among different population groups, there may be as much as a 20 year difference in life expectancy. Would it be “fair” to raise that age of retirement above the current 67?

In addition, as the current unemployment situation illustrates, it’s difficult for people over 60 to find employment. And with high unemployment rates for young workers entering the workforce, it doesn’t seem “reasonable” to force older workers to keep working.

And don’t forget that, while an office-bound executive with a pass to the gym may be in fine physical shape at age 70, someone who has spent decades working as a carpenter, a short-order cook, or a hotel housekeeper may be physically worn out by age 60. Would it be “compassionate” to ask that worker to wait to age 70 to collect retirement benefits?

2) Index benefits according to income — Look back again at those bronzed golf club-winging seniors. Does it seem fair that they collect full Social Security benefits while at the same time clipping coupons from their stock investments and perhaps even receiving private pension benefits? Why not cut their Social Security benefits to free that money up for those who really need it?

Here’s where you run up against the philosophy upon which Frances Perkins, FDR, and their associates originally founded the program. Social Security is a social insurance program, not a welfare program. If the Smith family’s house burns, the insurance company doesn’t say to them, “Since your family income and net worth are high, we’ll pay only 70 percent of the amount for which your home is insured.” No, as with any insurance program, you pay in an agreed upon amount and you receive what you’re due. Social insurance is a contract. To diminish payouts based on income would diminish support for the program; higher income workers would balk at subsidizing the program for the less wealthy. They would not see such a change as “fair” or “reasonable.”

3) Privatize Social Security — This 2005 impetus by the Bush Administration should be dead; too many people have lost thousands in their IRAs and 401(K) accounts since 2008. For many of them, Social Security is a more important part of their retirement income than they ever imagined it would be.

So, if Social Security cuts aren’t the answer to erasing the deficit, what should the president’s commission be talking about?

According to labor leader Andy Stern, one the president’s appointees to the Commission, there are six avenues to fiscal responsibility. In a letter that he wrote to his fellow Commission members, Stern listed: improving the budget process; reforming defense spending and the tax code; reviewing all entitlements including tax entitlements; strengthening retirement security; and reforming immigration policy.

His comprehensive holistic approach is a welcome change from those who have been beating the drum for cutting Social Security and Medicare and instituting a Value Added Tax (VAT), all of which would disproportionately hurt lower income Americans. And that’s definitely not “compassionate.”