The Blog of the Frances Perkins Center

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Unemployment extensions — no; tax cuts for the wealthy — yes?

In Legislation Today on November 30, 2010 at 4:38 pm

Today Congress voted down an extension of unemployment benefits for the long-term unemployed. Since 1970, whenever the unemployment rate has exceeded 7.2 percent, the benefits have been extended. No more.

As the Center for American Progress’s Progress Report states in an excellent piece:

…the Republicans of the 111th Congress have waged a two-year, all-out war against extending benefits, regardless of who it may hurt. The GOP’s chief defense of its position is the $12.5 billion cost of a three-month extension, or $60 billion for a full year. Such feigned concern for the deficit is made all the more deceptive when considering the same Republicans are simultaneously demanding that Congress extend the Bush tax cuts for the wealthy. And, while these tax cuts for the rich provide very little economic stimulus, the unemployment benefits they obstruct have provided a vital economic boost to struggling families and businesses. By prioritizing the pocketbooks of the privileged over the needs of the American worker, Republicans are turning their back on their two alleged priorities: the American people and the economy.

It makes no sense.

Not when we’ve faced the worst economic downturn since the Great Depression.

Not when we’re still in a dire housing slump.

Especially not when the holiday season is upon us.

Even Scrooge would be appalled.

Graph shows proposals’ impact on Social Security benefits

In Legislation Today on November 23, 2010 at 12:20 pm

The important thing to notice is that ALL options result in lowered payments — precisely at a time in our history when housing values have plummeted and employer-sponsored pensions have all but disappeared. The conversation should not be about how to cut Social Security; it should be about how to make Social Security more robust.

You can decrease the deficit without cutting Social Security

In Economics, Legislation Today on November 15, 2010 at 9:28 am

The New York Times’s David Leonhardt came out with an interactive online widget called Budget Puzzle: You Fix the Budget over the weekend. While it does show some bias — it’s not as progressive as many would like (see criticism below), it’s better than most similar interactive attempts. You get a list of possible changes–both spending cuts and tax increases–and can keep track of your total.

Felix Salmon’s critique of the device centers on the lack of choices. He concludes with:

In general, the NYT options on both the spending-cut and the tax-hike side tend to hit the poor and the middle classes more drastically than the rich; what’s missing here is the option to implement something much more progressive, in both senses of the word. It’s a missed opportunity, and a shame.

[And, in actuality, Social Security shouldn’t even be part of the puzzle, since it’s a separate program that is wholly funded through its own income stream that doesn’t impact the deficit.]

Even so, give the Budget Puzzle a try. You will quickly see that (1) if rational people like us ran the budget, getting our financial house in order would not be that difficult but (2) when one places the decisions we can make so cavalierly into a political context, it becomes much harder.

How the budget is constructed is a huge political issue; it’s naive to think otherwise.

That’s why it’s so important that all of us think about the choices and weigh in with our opinions. Otherwise, those who have something to gain from the system and the money to game the system (through lobbying and campaign contributions) will rule the day.

Slide show responding to the deficit commission’s chairmen’s report

In Uncategorized on November 11, 2010 at 9:51 am

Dan Froomkin, senior Washington correspondent for the Huffington Post, posted this slide show: It’s worth a look.

Two important documents released today

In Legislation Today on November 10, 2010 at 3:45 pm

The co-chairs of the president’s deficit commission made a surprise announcement of a press conference today. During the press conference they released a preliminary report–the “Co-Chairs’ Proposal”–on the commission’s potential recommendations, which have not been endorsed by commission members (or the president). The report calls for changing the way Social Security benefits are indexed, tying them to inflation rather than wages. Since the tax is on wages, it seems logical to tie the benefits to wages. A change to inflation would create significant cuts in benefits, particularly as many seniors’ expenses result from items such as prescriptions, which increase in cost far faster than the general inflation rate.

The report was leaked to Bloomberg and as a result, Bloomberg reported:

* Nobody but Bowles and Simpson endorses this

* The plan “will propose cuts to Social Security and Medicare, as well as reductions in income tax rates in exchange for curbing tax breaks,” according to a GOP aide who attended the meeting.

* Jan Schakowsky says “this is not a package I could support.”

* Durbin says there is not going to be “an up or down vote” on this.

You can read the document here:

It is odd that this press conference was held without prior notice and while the president is out of the country. Here’s the president’s press office response:


Office of the Press Secretary
For Immediate Release                                           November 10, 2010

Statement on the Initial Bowles-Simpson Bipartisan Fiscal Commission Proposal

“The President will wait until the bipartisan fiscal commission finishes its work before commenting. He respects the challenging task that the Co-Chairs and the Commissioners are undertaking and wants to give them space to work on it. These ideas, however, are only a step in the process towards coming up with a set of recommendations and the President looks forward to reviewing their final product early next month,” said White House spokesperson, Bill Burton.


Note: This is certainly no endorsement of the proposal.

Exit polls from last Tuesday elections released today showed that the vast majority of voters do not want to cut Social Security benefits:

Finally, perhaps lost in the hullabaloo around the chairs’ draft report is this OTHER report, released today by the National Academy of Social Insurance (NASI), “Strengthening Social Security for the Long Run.” Janice Gregory, president of NASI, had an excellent OpEd in The Hill today, discussing some of the points of the report. Check out the report as well as a useful PowerPoint presentation from the NASI presentation this morning:

Sure seems as though it would be better to have the nonpartisan experts at NASI figuring out how to ensure Social Security’s longevity than the two chairs of the deficit commission, both of whom approached their work from a “we must cut Social Security” perspective.

Privatization — Been there, done that — in Chile

In Economics, Legislation Today on November 4, 2010 at 10:10 am

It’s no secret that Wall Street would like to get its hands on all the retirement funds that currently go to Social Security. After all, there is currently a $2.5 trillion surplus. Imagine what Goldman Sachs could do with that…

But what really happens when a social insurance system is privatized? Chile provides a great lesson, enumerated today by a blogger on Here are some points:

Because the service providers are competing for the business, administrative costs (read: advertising and sales commissions) have been far higher than in the US Social Security system, where administrative costs have been at .07% of distributions, or lower, since 1990. To put this another way, during the 1990s the US Social Security Administration was paying $18.70 per year to administer a claim; at the same time Chile’s various providers were paying an average of $89.10 to do the same thing.

Many Chileans, despite living in a system that has, for almost 30 years, required them to manage their own money, actually know very little about that money.

Less than half know that the contribution rate is 10%, only 1/3 know how much (within 20%) is in their accounts, and, according to work done at the University of Chile, “few” actually know what they pay in fees and commissions.

Those who end up in the welfare program are guaranteed 75% of the poverty level; that suggests that if you’re elderly and on welfare, you’re living in poverty. Because of limited funding, there are qualified elderly poor in Chile who do not receive any benefit.

Today, in the US, about 12% of the elderly live in poverty. Without the current Social Security system in place, it’s estimated that 49.9% of the elderly would have been living in poverty in 2002.

Doesn’t sound like a advertisement for changing our system, does it. And the kicker is that it costs real money to make the transition. In Chile, the transition costs have been 6.1% of GDP in the 1980s, 4.8% in the 1990s, and 4.3% until 2037. As the blogger explains:

If we were to duplicate the Chilean experience in the US economy, 6% of the 2008 GDP (about $15 trillion) means about $900 billion annually in transition costs for the first ten years, and something north of $600 billion annually for the last 37 years of the exercise.

Ok. Now, can anyone explain why people are talking about privatizing Social Security as a way of reducing the federal deficit???