Saturday, November 13, 2010

Social Security, Dead Peasants and Debating the Budget in the Age of Plutonomy – Part 1

“Once upon a time, a whole lot of just plain Americans woke up to realize the economic system was working against them. They had believed in it; they worked hard to make it work for them. They knew its shortcomings but saw in it the way to a decent return for their labor and a better future for their families. Then, one day, calamity struck: The system turned on them. And they discovered that they had been betrayed, bamboozled, by the people at the top. But they didn't hang their heads and turn tail, like a dog whipped by its master. They organized and fought back — millions of them in a grass roots movement for democracy. What they did became known as the Populist Moment, an extraordinary time in our country's history. But, the flimflam gang returned with a vengeance in our time — the monied interests and political mercenaries who connived to bring on a calamity that lost eleven million Americans their jobs, robbed people of their homes and pensions, and brought the world's economy crashing down.”
-- Bill Moyers, Bill Moyers Journal, April 30, 2010


The Republicans have regained control of the Congress.

The main stream media is preaching that the midterm elections were a rejection of the Democrats' “liberal agenda” and a mandate for a return to conservatism.

The Tea Party has announced that they are here and ready to take over ( even if they have to exercise their “second amendment” rights)

Sarah Palin has proclaimed a “new morning in America.”

Liberal Democrats are being blamed for all of the above (even though the Blue Dogs fared much worse on election day than their progressives counterparts)

While The blogosphere is being blamed for everything else; from being overly critical of the White House; to spreading misinformation; and even hoarding the world’s supply of popcorn.

It’s also now obvious to almost everyone that the “monied interests and political mercenaries” are running the show.  Equally obvious is the fact that health care reform, government regulation ( banking industry, EPA), Social Security and Medicare are at the very top of their hit lists.

And, if it’s not true that the plutocrats are calling the shots, it certainly appears that way.

Washington Post Staff Writer Dan Eggen reported on the influence of “outside entities” on the budget process this past Wednesday.  He wrote:

    “The leaders of President Obama's deficit commission sparked criticism from both sides of the political aisle Wednesday for proposing broad cuts to federal programs. But the National Commission on Fiscal Responsibility and Reform has also come under attack for its unusual approach to staffing: Many of its employees aren't employed by the panel at all.  Instead, about one in four commission staffers is paid by outside entities, many of which have strong ideological points of view about how to tackle the deficit.
For example, the salaries of two senior staffers, Marc Goldwein and Ed Lorenzen, are paid by private groups that have previously advocated cuts to entitlement programs. Lorenzen is paid by the Peter G. Peterson Foundation, while Goldwein is paid by the Committee for a Responsible Federal Budget, which is also partly funded by the Peterson group. 
The outsourcing has come under sharp criticism from seniors' organizations and liberal activists, who say the strategy is part of a broader conservative bias favoring painful entitlement cuts over other solutions. The fears of some liberal groups appeared to come true on Wednesday, when the commission's two leaders recommended significant reductions for Social Security and other social-welfare programs. Bruce Reed, the panel's executive director, defended the staffing arrangement as fiscally responsible and said the staff includes a broad range of views. Other staffers paid by outside entities include an analyst from the liberal-leaning Economic Policy Institute and a Clinton administration official who now teaches at Johns Hopkins University, he said. "We've got wonks from across the spectrum who have been working on this issue for years," Reed said. "Every possible voice from left, right or center has a voice on the commission." But Barbara B. Kennelly, a former Democratic House member from Connecticut who heads the National Committee to Preserve Social Security and Medicare, said the commission's staffing structure is "unprecedented" and casts further doubt on its fairness. "Taxpayers fund the commission and they should work independently of Washington lobbyists and power brokers," Kennelly said. "This is the type of shenanigans that average Americans are so upset about right now - that money talks and everyone else is left out”

If you ask the average American citizen, “who in Washington do you trust to reform Social Security?”,  you would probably receive the answer, “no one.”   And they would have more than a few reasons for feeling that way.   It is very hard for most Americans, myself included,  to understand  why an “entitlement program”  which is  funded by a clearly designated tax  (FICA) is always one of the first programs that gets offered up on the political sacrificial alter when the discussion involves federal budget cuts.

Don’t get me wrong, the budget deficit must be addressed and Social Security can not be treated as a sacred cow.  The current US federal budget is unsustainable.   However,  the American public deserves an honest deficit reduction debate that does not treat them like children that need to be shielded from the ugly truth or play on their fears of ending life old and destitute.  The American public also needs to feel our tax dollars have purchased a seat at the table, that someone is representing our interests in the great budget debate,

As Alexander Bolton reported in his article “Social Security reforms could be bombshell for House GOP”

“Republicans who took over the House on pledges to reduce federal spending and get the nation’s budget in order are running into the third rail of U.S. politics.

A draft proposal from the co-chairman of President Obama’s fiscal commission this week put Social Security on the front burner, leading some Democrats to draw a line in the sand. The proposal would raise the retirement age, slightly reduce benefits and raise the cap on income subject to payroll taxes.

While the proposal was drawn up to keep Social Security solvent and not to deal specifically with reducing the nation’s record deficit, Democratic strategists say it will be difficult for Republicans to duck an issue that has caused them political pain in the past.

“It does put them in a tough position,” Mike Lux, a strategist who works with liberal advocacy groups, said of the GOP. “These kinds of proposals, raising the retirement age and cutting benefits, are overwhelmingly unpopular with the American people."

Soon-to-be-Speaker John Boehner (R-Ohio) is on record supporting similar changes to Social Security, as is Rep. Paul Ryan (Wis.), the incoming chairman of the House Budget Committee and rising intellectual star of the House Republican Conference.”

Yes, Social Security and Medicare are the infamous “third rail of U.S. politics” and any discussion of reforming these two programs has been known to be hazardous to political health.  Why?  Because both Republicans and Democrats have a lot of explaining to do to the American people, especially to the baby-boomers who believe that they have paid into the Social Security Trust Fund all of their working lives.

In a post for, “The Truth About the Trust Fund “  Kevin Drum wrote:

“Back in 1983, we made a deal. The deal was this: for 30 years poor people would overpay their taxes, building up the trust fund and helping lower the taxes of the rich. For the next 30 years, rich people would overpay their taxes, drawing down the trust fund and helping lower the taxes of the poor.  Well, the first 30 years are about up. And now the rich are complaining about the deal that Alan Greenspan cut back in 1983.

As it happens, I agree that it was a bad deal. If it were up to me, I'd fund Social Security out of current taxes and leave it at that. But it doesn't matter. Once the deal is made, you can't stop halfway through and toss it out. The rich got their subsidy for 30 years, and soon it's going to be time to raise their taxes and use it to subsidize the poor. Any other option would be an unconscionable fraud”
And a columnist Jay Bookman points out, it is very important to remember 1983.  Bookman writes:

"Note the year 1983. That year, a commission appointed by President Ronald Reagan recommended significant increases in Social Security payroll taxes in order to make the program actuarially sound. The idea, embraced by Congress, was that the additional revenue would be used to build a surplus in the Social Security Trust Fund so that when the Baby Boom generation began to reach retirement age, the money would be there.

Today, that surplus would amount to $2.5 trillion. But notice that word “would.” For more than 25 years, while working people were told that they were paying extra taxes to ensure their retirement security, that surplus tax revenue was actually being siphoned off to run general government operations. In effect, higher Social Security taxes were being used to offset revenue that had been lost to the government when Reagan cut income and corporate taxes, disguising the true fiscal impact of those cuts.

Today, technically, a surplus of $2.5 trillion now sits in the trust fund, ready to be used for Social Security. In reality, the trust fund contains government IOUs that taxpayers today and tomorrow will have to redeem, probably through payeing higher taxes. So here’s the question now before the body politic:

Will taxpayers — and politicians — honor the $2.5 trillion debt that is owed to Social Security and those who paid into it? Or, will they breach that trust by claiming that the debt is too big to be repaid in its entirety, and that benefit cuts will be required?"

 Americans want to know:

Is there a Social Security Trust Fund or not?  And if there is, where did the money go?

The following is a video clip of Congressman Dennis Kucinich discussing the Deficit Committee's  proposed changes to the social security program with Ed Schultz during a recent appearance on The Ed Show.

Well I think that this is as good a place as any to conclude part one of this series.   While this is not intended to be a scholarly tome, in light of the recent proliferation in blogosphere bashing, I must beg your indulgence as I end with brief glossary of a few of the terms that were referenced in this post.  

Talk to you soon

Glossary (not ordered alphabetically)

Social Security:   In the United States,  this term generally refers to the Social Security Act (1935) and its amendments which encompass several social welfare and social insurance programs. The larger and better known programs are:

    * Federal Old-Age (Retirement), Survivors, and Disability Insurance
    * Unemployment benefits
    * Temporary Assistance for Needy Families
    * Health Insurance for Aged and Disabled (Medicare)
    * Grants to States for Medical Assistance Programs (Medicaid)
    * State Children's Health Insurance Program (SCHIP)
    * Supplemental Security Income (SSI)

FICA :  Under the Federal Insurance Contributions Act 12.4% of earned income up to an annual limit must be paid into Social Security, and an additional 2.9% must be paid into Medicare. That limit is $106,800 for 2010.

There are no earned income limits on Medicare taxes -- so even if your salary is well above the cap for Social Security tax, you will still owe Medicare tax on your total earned income.
If you're a wage or salaried employee, you pay only half the FICA bill (6.2% for Social Security plus 1.45% for Medicare), and the tax is automatically withheld. Your employer contributes the other half.

For most people that means 7.65% of their paycheck is withheld and their company pays another 7.65% on their behalf.

If you're self-employed, however, you're expected to cough up both the employee and the employer share of FICA. You are, however, permitted to deduct half of this self-employment tax as a business expense.  (And), if you're self-employed, anticipate having a lot of investment income, are selling property in a given tax year, or don't have enough taxes withheld from your paycheck to cover an influx of non-wage related income (e.g., alimony or rental income), there's a good chance you will need to pay estimated taxes.

The Budget Debate:    how to reduce the US National Debt which is  currently 13.7 trillion dollars

Dead Peasants:  a term used when referring to life insurance policies that companies take out on their employees in which the company ( not a family member ) is the beneficiary

How did it get the name “Dead Peasant” insurance?

Winn Dixie Stores bought life insurance policies on approximately 36,000 of its employees, without their knowledge or consent, and named itself as the policies’ beneficiary. The insurance brokerage firm that placed the policies prepared two memos describing the deceased employees as “Dead Peasants.” These memos were part of the court’s record in a lawsuit in which the United States Court of Appeals for the Eleventh Circuit held that Winn-Dixie’s policies were a sham transaction for federal income tax purposes.

Plutonomy :   The following definition is courtesy of the Wall Street Journal’s, “Wealth Report”.
“Ajay Kapur, global strategist at Citigroup, and his research team came up with the term “Plutonomy” in 2005 to describe a country that is defined by massive income and wealth inequality. According to their definition, the U.S. is a Plutonomy, along with the U.K., Canada and Australia.
In a series of research notes over the past year, Kapur and his team explained that Plutonomies have three basic characteristics.

1. They are all created by “disruptive technology-driven productivity gains, creative financial innovation, capitalist friendly cooperative governments, immigrants…the rule of law and patenting inventions. Often these wealth waves involve great complexity exploited best by the rich and educated of the time.”

2. There is no “average” consumer in Plutonomies. There is only the rich “and everyone else.” The rich account for a disproportionate chunk of the economy, while the non-rich account for “surprisingly small bites of the national pie.” Kapur estimates that in 2005, the richest 20% may have been responsible for 60% of total spending.

3. Plutonomies are likely to grow in the future, fed by capitalist-friendly governments, more technology-driven productivity and globalization.”


1 comment:

  1. Good morning Pam!

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    Peace! :-)


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