You can decrease the deficit without cutting Social Security

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.

America Speaks — Let the true message be heard!

It is our American habit to arrive at what we think by talking things out together…. These discussion centers are the actual birth places of public opinion — they are where the American mind, harnessed to the American will, goes constructively and critically to work. –Frances Perkins, People at Work

I spent a surprisingly entertaining day yesterday at the AmericaSpeaks: Our Budget, Our Economy daylong national town meeting. More than 3,500 people gathered in a number of cities around the country; Augusta, Maine, was my location. As Alice Rivlin, a much honored participant, said, “Who would believe that thousands of people spent 6 1/2 hours on a summer Saturday talking about the deficit, and had fun doing it!”

One of the things that made it fun for me was the realization that the entire group was not going to be co-opted by ultra-conservative deficit hawks. In fact, it turns out that moderate-to-liberal-leaning folks are more willing to spend a Saturday in June talking about the U.S. budget with strangers. I know this because we were all outfitted with keypads upon which we answered poll questions, and the results were instantaneously beamed to all the town meeting sites. So we immediately learned that as a group we were slightly more male than female, slightly more affluent than average, very slightly less diverse than the general population, and somewhat older than average.

While the discussion was tightly channeled and there were serious deficiencies in the way some topics were presented (particularly health care and Social Security), I think that the results are of great interest, particularly the fact that 64 percent of the participants favored creating a carbon tax and 61 percent favored a securities transaction tax. Considering the way these taxes have either been discounted or little discussed in the mainstream media, that’s impressive.

Another nifty feature provided by AmericaSpeaks was a printed Preliminary Report we could pick up on our way out the door that contained all the polling results from the work we had just completed. So, I don’t have to remember exactly how all 3500+ of us felt about cuts to Medicare or new taxes; it’s all collected in the Preliminary Report in black and white.

That’s why I feel well equipped to point out the ways in which the publicity released by AmericaSpeaks about the polling results from the national town meeting is misleading.

AmericaSpeaks received much of its funding for the Our Budget, Our Economy national town meeting from the Peter G. Peterson Foundation, which also has pushed hard for deficit reduction in the form of cuts to social programs like Social Security. The press release sent out after the town meetings sounds as if the results were spun by someone sharing the perspective of the Peterson Foundation. (It’s also interesting to note that all the experts interviewed or taped for the video presentations came from the “deficit hawk” side of the table.)

Here’s an excerpt from the press release:

Reforms that were preferred by participants at the National Town Meeting included options that:

• Raise the limit on taxable earnings so it covers 90% of total earnings.
• Reduce spending on health care and non-defense discretionary spending by at least 5%.
• Raise tax rates on corporate income and those earning more than $1 million.
• Raise the age for receiving full Social Security benefits to 69.
• Reduce defense spending by 10% – 15%.
• Create a carbon and securities-transaction tax.

And here are my main arguments with that portrayal:

• Reduce spending on health care and non-defense discretionary spending by at least 5%. While the majority of those supporting reductions in Medicare and Medicaid spending voted to reduce that spending by 5 percent (instead of 10 or 15 percent), a much larger percentage — 38 — voted for “no change” in health care spending, no doubt due in part to the very poor way in which this question was posed. Although people around me and some who spoke on the live transmission from other sites believed that healthcare spending needed to be cut, they were not happy with the options provided in this exercise.

When it comes to non-defense discretionary spending, again the highest votes went to “no change” — 32 percent. I suppose they are adding up all the people who voted for 5, 10, and 15 percent cuts and saying that all of those people would have supported a cut of “at least 5%” but that seems disingenuous.

• Raise tax rates on corporate income and those earning more than $1 million. If they use the standard above, conflating categories, then they should report that 66 percent would raise the personal tax rate for everyone in the top two brackets by at least 10%. In fact, the vote was 18 percent for a 10% increase and 48 percent for a 20% increase. That’s newsworthy — especially as this group skewed toward a higher average income. This group would raise taxes considerably on those earning more than $209,250, not just millionaires.

• Raise the age for receiving full Social Security benefits to 69. Of course, there’s no reason why Social Security should even be considered in this discussion, since it is a pay-as-you-go program by law and thus has no impact on the deficit. That said, once again, the press release fails to go by its earlier method of conflating categories. If you do follow that convention, then you can say that 67 percent were in favor of raising the payroll tax gradually to at least 13.4%. That’s worth pointing out.

Also, although mentioned in the first bullet on the list of findings, it was a huge majority (85 percent) that approved of raising the limit on taxable earnings to 90% of total earnings in America. At my table, the vote for raising the age of retirement lost steam as people thought about those jobs involving physical labor, the lack of jobs for 60+ workers, and the need to free up jobs for younger workers. Others reported the same thing at their tables. Perhaps with more time for discussion, this vote would have gone the other way. As it is, as one of the options for changing Social Security, with only 52 percent in favor it ranked behind raising the payroll tax (67 percent) and far behind expanding the limit on taxable earnings (85 percent). But you wouldn’t know that from the press release.

• Reduce defense spending by 10% – 15%. This is an understatement. 51 percent approved cutting the defense budget by 15%, certainly another newsworthy fact. Another 18 percent approved a cut of 10%, and 16 percent approved a 5% cut. Here’s the staggering number — only 15 percent voted for no change in defense spending. (Compare this to 32 percent who voted for no change in non-defense spending, 23 percent who voted for no change in Social Security spending, and 38 percent who voted for no change in healthcare spending.

• Create a carbon and securities-transaction tax. Again, this is true but understated. As I mentioned earlier, the approval for each of these new taxes was more than 60 percent.

Finally, I would quibble with this statement from the press release:

Sixty-one percent of participants said that in the short-term they believe the government should be doing more to strengthen the economy. Participants expressed more mixed views about the recent stimulus bill that failed to pass the Senate last week. Fifty-one percent of participants supported the legislation, while thirty-eight percent of participants said they were not supportive of it.

Why is 51 percent “mixed”? It’s a majority. Can we now also say that the attitude toward raising the full retirement age to 69 was also “mixed”? (52 percent voted for that.) And to break down further the polling on the failed stimulus bill, 32 percent said they were “supportive” and 19 percent said they were “somewhat supportive.” Twelve percent were “somewhat unsupportive” and 26 percent were “unsupportive.”

What’s so bad about a press release skewing the results just enough to shift the emphasis and bury the big stories? This description of yesterday’s results is laying down the track for the story that will be spun, as we were repeatedly told, to the president’s deficit commission (the National Commission on Fiscal Responsibility and Reform), and to House and Senate leaders.

Here’s the real story: More than 3500 people in cities across the United States came together to sit at tables with strangers for six and a half hours to work on reducing the 2025 deficit, and this was their overwhelming answer to the problems we face: “We do not shrink from raising taxes on those most able to pay. This means those in the top two tax brackets. This means Wall Street. We do not shrink from cutting the military budget. And we do not shrink from taxing the use of fossil fuels.” What a challenge to Congress, which dares not do any of these things. May it give our representatives courage.

There’s no question that the thousands of people who came together across the country yesterday to wrestle with difficult questions of the budget and the economy did so with all good intentions. What remains to be seen are the intentions of the organizers.  Let the true message be heard!

[You can find the quoted press release here: http://usabudgetdiscussion.org/press/]

Lower the retirement age and help workers young and old

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?

Beware the stacked deck of the Peterson “Fiscal Conference”

You’ll undoubtedly be hearing all about it; the Peter G. Peterson Foundation has a tremendous press operation with a huge budget to support it. Here’s how the April 28th event is being touted:

What do they mean by "our"?

On behalf of the Peter G. Peterson Foundation, I cordially invite you to attend the 2010 Fiscal Summit:  America’s Challenge and a Way Forward.   This event will take place in Washington, DC on April 28, 2010, featuring a moderated discussion of the issues with President Bill Clinton.   We will send a more detailed agenda shortly, but we hope that you will save the date and plan to join us for this important forum.

The date of the event is significant–one day after the opening of the president’s Fiscal Commission. And the keynote speaker is a former Democratic president. It seems as though this conference will at least give voice to the liberal and progressive side of the debate.

But read further and you’ll find that the deck is firmly stacked on the Peter G. Peterson side (well, this is his party; he’s paying for it, after all). Here are the other people listed: Alan Greenspan, Judd Gregg, Bob Rubin, Alice Rivlin, John Castellani, Paul Volcker, and John Podesta. There’s only one liberal in that group. (Also only one woman, but that’s another story.)

Robert Kuttner, in today’s Huffington Post, has some acerbic comments about the conference:

If the orgy of financial deregulation that led to the crash had two prime sponsors, the Democratic one was Rubin and the Republican one was Greenspan. Inviting these characters to a fiscal summit to devise a way out of the crisis is like inviting arsonists to design a seminar on fire prevention.

Peterson himself, who underwrites the work of the foundation with a billion dollar gift, made his money as one of America’s private-equity moguls. Private equity companies have been among main offenders in the world of shadow banking that helped cause the collapse, and are now lobbing against tough financial reform and regulation.

…

This is billed as a “national dialogue on solving America’s fiscal challenges,” but spare me. This is a propaganda event. For the most part, the featured speakers follow the Peterson line. John Podesta, the closest thing to a liberal playing a headliner role, accepts that there is a serious deficit problem, but would entertain a value-added tax as part of the remedy. But the speakers’ list is clearly stacked and there is no one to Podesta’s left.

The Peterson Foundation and its president, David Walker, already know exactly what they want — strict budget caps on social outlay, enforced by a rigid formula, with cuts in Medicare and Social Security leading the way.

Will the mainstream media continue to swallow the Peterson story? Kuttner suggests two sources for the other side:

• fiscalhighroad.org, a partnership of the Economic Policy Institute, Century Foundation and Demos.
• Scholars’ Strategy Network, founded last year by Harvard’s Theda Skocpol

Take a look yourself, and help correct the almost ubiquitous but incorrect impression in the press and the public that Social Security and Medicare are to blame for the deficit and must be cut.

New poll: no enthusiasm for cutting Social Security benefits

Democracy Corps and Tulane University released a new poll in a post entitled “Mixed Messages on the Deficit.” When respondents were asked if they would recommend raising taxes to pay for the deficit, 51 percent said no, while 43 percent thought it might be necessary. However,

And by an even wider 2:1 margin, voters reject cuts in Social Security, Medicare or defense spending to bring the deficit down (61 to 30 percent).

Interestingly enough, if you peer into the numbers, you’ll find that these voters would actually prefer cutting defense spending to cutting Social Security and Medicare. In fact, cutting the spending on those two programs was the least popular solution with the respondents of all the options presented to them.

For more details including crosstabs, check out the poll at http://www.democracycorps.com/strategy/2010/03/mixed-messages-on-the-deficit/.

Real cause of the deficit

Here's a snapshot of the effect of unemployment and recession on the federal budget.

This graph is from “What Caused The Budget Deficit? Not What You Think! ” by L. Randall Wray and Yeva Nersisyan. The blog post that this graph accompanies explains that “Decreasing taxes coupled with increased transfer payments have automatically pushed the budget into a larger deficit, notwithstanding the flat consumption expenditures. These automatic stabilizers and not the bailouts or much-belated and smaller-than-needed stimulus are the reason why the economy hasn’t been in a freefall á la the Great Depression.”

[Thanks to Susan Feiner for the link.]

Unwarranted hysteria

[from board member Susan Feiner]

Friends and Readers:

Here is a very insightful discussion of the deficit and the unwarranted hysteria on the topic from politicians. James K. Galbraith is in top form here in his article, “In Defense of Deficits,” from the Nation.

An excerpt:

We also hear, from the same people, about the impending “bankruptcy” of Social Security, Medicare–even the United States itself. Or of the burden that public debts will “impose on our grandchildren.” Or about “unfunded liabilities” supposedly facing us all. All of this forms part of one of the great misinformation campaigns of all time.

The misinformation is rooted in what many consider to be plain common sense. It may seem like homely wisdom, especially, to say that “just like the family, the government can’t live beyond its means.” But it’s not. In these matters the public and private sectors differ on a very basic point. Your family needs income in order to pay its debts. Your government does not.

Hope you enjoy the read.

Phantom Menace and this “turkey of an economy”

Teresa Ghilarducci, who spoke at our May conference, had a great post, “The Second Thanksgiving of the Great Recession,” in the Brainstorm blog on The Chronicle of Higher Education web site. In it, she points to the fact that people seem more worried about the deficit than about the fact that a huge number of people are currently unemployed.

But at least in my admittedly unscientific sample, people’s legitimate anxieties about losing their homes, or jobs, or retirement savings were focused in the wrong place. Instead of calls for continued job creation, I’m hearing a lot of misplaced fear about inflation and the growing federal debt — what Paul Krugman correctly calls the phantom menace.

So, in the spirit of having vigorous family discussions, if your Aunt Teresa the economist had been at your dinner table, here’s what I would have said.
Shouldn’t the Government balance its budget? Sure, over the long term, but no, not now. If the economy was booming, the government should be shrinking  the debt. That is what the Clinton Administration did during its eight years in office, cutting it to zero, and actually leaving a surplus.  And that is what George W. Bush didn’t do, increasing spending on prescription drugs, wars, and unnecessary tax cuts for the wealthy, while not paying for any of it.

Paul Krugman, as Teresa mentions, has also been bemoaning this focus on the deficit in his blog:

When I was on This Week yesterday, George Will tried his hand at the debt scare thing, saying that we’re in terrible shape because by 2019 the interest on the debt will be SEVEN HUNDRED BILLION DOLLARS. (That should be read in the voice of Dr. Evil). I get that a lot — people who talk about the big numbers which are supposed to imply that things are terrible, impossible, we’re doomed, etc.

The point, of course, is that everything about the United States is big. So you have to interpret numbers accordingly. As the graphic above shows — it’s taken from an article that managed to maintain a grim tone while reporting numbers that actually weren’t all that grim — what we’re talking about is a debt-service burden roughly comparable to that under the first President Bush. How many of the people now warning about the impossible burden of currently projected debt were issuing similar warnings back in 1992? Not many, I’d guess.

How cynical are you? Do you believe that this focus on the BIG BAD DEFICIT might serve those who’d like to cut Social Security and Medicare? Need I remind you that fear worked very well in the recent past, when politicians wanted the American public to swallow something they otherwise would have rejected (9/11, 9/11, 9/11; weapons of mass destruction, weapons of mass destruction, weapons of mass destruction).

Don’t let the fear-mongerers win again.

This is a good time to remember Frances Perkins’s words from 1935:

We must devise plans that will not merely alleviate the ills of today, but will prevent their recurrence in the future. The task of recovery is inseparable from the fundamental task of social reconstruction.

I’ll end with another quote from Teresa’s post:

Aunt Teresa reminds you that economic policy makers respond to particular historical and economic situations. Inflexible theology does not help. Our situation now calls for continued government deficit spending, keeping interest rates virtually at zero, and doing everything possible to create jobs. When the economy begins to recover, then we should fight inflation.

When an overweight patient with high blood pressure and high cholesterol has a heart attack, there are lots of things that should be done over time to make the patient healthy — better diet, exercise, proper medication. But first you have to save their life and deal with the heart attack. That’s our economy now — we need to save the patient, and then do the long-term rehab (deficit reduction, stricter regulation of the financial sector, stronger government guarantees for retirement savings) to stave off future crises.

I hope you had a Happy Thanksgiving weekend, and that this turkey of an economy is better by next year.