The Committee for a Responsible Federal Budget (CRFB) is not one of my favorite groups. But they are a smart and reasonably honest group. They’ve created an interactive tool that allows the user to change the benefits and revenues for Social Security. It is way cool and a whole lot of fun. But it is also Chicken Little style propaganda.

When you start the app, the title reads, “Social Security remains insolvent. The trust fund will run out in 2033 at which point all beneficiaries will face a sudden 23% benefit cut.” As regular readers ought to know, Social Security is not a big problem.

What they’ve written there is true, but it could be put in a more neutral way, “Social Security will be able to pay full benefits for the next 20 years; at that time, it will only be able to pay 77% of the benefit level at that time; we usually overstate the problem.”

Using the App

Overall, the app is really great. But even without playing with it, it provides a lot of useful information. For example, how much of the shortfall would Chained-CPI eliminate? Only 21%. And if we provide a fix for retirees who live a long time, this number drops to 16%. The app also allows you to increase benefits. I would prefer to have more flexibility than the program allows, but it is still pretty useful.

Reduce Benefits

On the benefit side, the app allows you to slow the growth at which initial benefit is calculated. Unless you apply this to half or more of retirees, this saves almost nothing. For example, if you apply it to only the upper class (top 20% of earners), it saves 3%. I’m not for reducing benefits regardless.

Social Security is actually a pretty stingy program as it is. You can also increase the retirement age. I really don’t understand the mentality of people who call for this. It seems like a way for people in pleasant high paying jobs who don’t ever want to retire to make people in back-breaking jobs do the same. Bad idea.

And as I said, you can apply Chained-CPI. I went with increasing benefits by using the CPI-E that better reflects the cost of living increases experienced by older Americans. That cost me 15%.

There are a couple of Disability reforms proposed. Two of them are pretty stupid: put further limits on the program (saves 4%) and force people out of disability at 62 (saves 5%). I did go along with 5% savings from reductions in fraud and over-payment. But I immediately lost the 5% by providing a guaranteed minimum benefit of 125% of the poverty level. You could also offer an old-age bump, but that only makes sense if you are doing Chained-CPI. And you could restore college benefits for kids up to the age of 22. I don’t think that’s a bad idea, but I didn’t do it.

There are three other benefit reductions. It’s shocking but 12% can be saved by basing the initial benefits on 38 rather than the current 35 years. Bad idea. Surprisingly, 8% is saved by phasing out benefits for people in the top 1% of income earners. I know the argument against this: if Social Security isn’t universal, it will become vulnerable. I don’t accept that. Social Security is safe because old people vote. Period. So I’ll go for that one, but I’m not wedded to it. The app also allows you to cut survivor benefits. Another bad idea.

Increase Revenue

Finally, we get to my favorite part: revenues. As you all should know by now, I’m a big proponent of raising the payroll tax cap. Right now, people only pay it on the first $114,000 of earnings. Raising it would produce a lot of revenue. Eliminating the cap altogether has two problems. First, there is the vulnerability problem. I don’t think it is real. Second, there is the tax avoidance problem: rich people would figure out ways to make all of their incomes capital gains or some other such scheme. That’s a real problem and so I think Social Security reform must be done in a larger context of tax reform. (By that I mean real tax reform and not a euphemism for “reducing taxes on the rich.”)

They offer three choices: eliminate the cap and increase benefits on high income earners; raise the cap to include 90% of all income (it is 84% now, which is lower than it used to be); or add a 3% surcharge on all income made above the current cap. All of these ideas are above the savings gotten from the other cuts and revenue increases: 77%, 32%, and 24%. I went with the full repeal of the cap.

All of these choices put me at, “Social Security remains insolvent. The trust fund will run out in 2061 at which point all beneficiaries will face a sudden 15% benefit cut.” I’m not finished, but I want to note that the trustees’ report normally assumes a very slow increase in economic growth. So even though I’ve only pushed the program out to 85% of benefits in 50 years, that’s probably enough. But I’ll go ahead and finish.

There are other ways to increase revenue. One is to force new state and local employees who are not in the program to start paying into and getting benefits out. I think that’s a good idea and it will save 9%. Currently, people pay their payroll taxes on income before 401(k) contributions, but they are paid on income after things like insurance. We could throw the insurance in with the 401(k). I don’t think that’s a great idea, but I’m willing to do it for a savings of 9%. Again: I’m not wedded to it. And we could fully tax Social Security income. I don’t want to do that.

Finally, we could invest in the stock market. That’s a bad idea. But note, if we did something like Bush’s “carve out” to allow people to invest part of their Social Security in the market, it would hurt the program’s finances.

My final score: “Social Security remains insolvent. The trust fund will run out in 2076 at which point all beneficiaries will face a sudden 16% benefit cut.” I’m fine with that. It doesn’t make sense to think about this stuff too far into the future; 63 years is good enough.

Afterword

I went back to the app to see what it said if I got rid of the 75 year shortfall. It reported, “Social Security will be solvent over the next 75 years, but 54% of the gap between spending and revenue remains in the 75th year, meaning the program is not yet sustainable.”

So even when you do what the program asks, the CRFB still wants to scare you. In order to be congratulated, you must reduce the 75 year shortfall by over 200%. Removing the payroll tax cap and reducing COLA to “CPI minus 1%” only gets you to 169%. So CRFB is only happy if you savage Social Security.

Image by Dorothea Lange (in the public domain).

Mike Konczal is a very good economics writer who I regularly read. This morning, he was at Wonk Blog talking about, The Tax Break State. In it, he went over the main tax breaks that the federal government gives to individuals. For example, people don’t think of it as a tax break, but when a business gives health insurance to an employee, he is getting a tax break. Under normal circumstances, the worker would just get extra pay with which he would buy health insurance. That extra payment would have then been taxed. Thus, the exemption of taxes on this benefit is a tax break. And it’s big too: about one-third larger than the mortgage interest deduction.

There is one really import aspect of these programs: they are a form of welfare. There is no ultimate difference between allowing people not to pay taxes on their mortgage interest and giving people a check for purchasing a house. And this isn’t some liberal theory. This is exactly the argument made by conservative economist Milton Friedman. I think we need to remember this. There is such a stigma to programs like SNAP (food stamps), but none whatsoever to programs like the mortgage interest deduction. But they are both government handouts and the “respectable” one costs a whole lot more.

And that brings me to the problem I have with Konczal’s article. In order to show how the different kinds of tax expenditures (generally speaking, deductions) benefit different groups, he provided the following graph:

For clarity, he presents the three types of expenditures as percentages. I’m afraid that this gives the impression that we are devoting far more money on the poor than to other income brackets. Here’s a graph from the Congressional Budget Office that shows the relative size of these categories (click to expand):

So the exclusions (50%) and deductions (30%) are by far the biggest share: 80%. The preferred tax rates are around 11%. And the tax credits are just 9%. But this understates the preferred tax rates. Capital gains are not taxed at death, so really the categories would be more appropriately: 75-16-9.

The take away from this is something I’ve been ranting about for years: welfare for the poor is cheap. All it seems we get in the mainstream is discussion of all the poor spending their whole lives in Paul Ryan’s hammock. And when it comes to tax expenditures, all of the conservative media are now and forever in a tizzy over the fact that 47% of Americans pay not federal income taxes. But on the expenditure side of this, we are doing very little for the poor and it would hurt us very little to do quite a lot more.

Afterword

Two quick things. First, Konczal’s overall point is the same as mine. Second, the reason that the poor get the expenditures they do is that there has been a trend away from direct payments like welfare checks to tax expenditures like the EITC and CTC.

Last night, Will sent me a link to an article and asked, “Would you like to explain this to your readers?” The article was from Thursday in Forbes, Rate Shock: In California, Obamacare To Increase Individual Health Insurance Premiums By 64-146%. After reading just a couple of paragraphs, I knew that it was a conservative hit job. Forbes is not exactly a liberal magazine. But I read on.

Finally, I came to the main point of the story. In a subheading, “Obamacare to double individual-market premiums,” it explained that a 25 year old male would pay more for healthcare on the Obamacare exchanges than he does now. That’s when I scrolled up to see who the author was: our good friend, the unethical conservative apologist Avik Roy. As you may know, Roy’s game is to talk quietly and sound reasonable while he spews out deception and lies. And since everyone is used to the more bombastic styles of people like Erick Erickson, all the centrists pat Roy on the head and say, “Who’s a good conservative?! You’re a good conservative! Yes you are!“

Avik Roy’s example of a 25-year-old was telling. First, why did he pick that age? Surely there are more reasonable ages to pick. Our big healthcare problem is not that 25-year-olds can’t get insurance or that they are paying too much for it. What’s more, Roy must at least be well into his 30s, if not 40. But we know why Roy picked a young man, don’t we? He did it because that is how he could make his point.

Yesterday, Aaron Carroll published an article on The Incidental Economist, There Are Real Differences Between Us. At the time, I was baffled. He made an argument where he admitted that the purpose of Obamacare was not to keep insurance cheap for young people. He wrote:

So I’ll state this for the record: I think that some young, healthy people are getting the shaft right now. Not all, because some can still get on their parents’ plans. Some can still buy catastrophic insurance if they want. Some will get Medicaid. Some will get subsidies. But if you’re a young, healthy 28 year old male who makes 400% of the poverty line, and you currently have really cheap insurance, it’s likely your rates are going up.

OK? I freely admit that my goal in health care reform was not to protect the status quo for young, healthy males. That’s wasn’t my goal for reform.

When I first read that, I thought he was attacking a straw man. Surely no one was making that argument! How wrong I was. After reading Roy’s article I knew that this was the new conservative attack on Obamacare: a tiny fraction of the population will see their rates go up! The horror!

Note: Congress could do something about this. You can’t start a big new program like Obamacare without having to deal with problems. But of course, the House Republicans won’t tinker with Obamacare at all. It is repeal or nothing. Anyone up for a thirty-eighth repeal vote?!

This morning, Ezra Klein hit back on Avik Roy in a big way. He noted that Roy’s comparison was false. “That’s not just comparing apples to oranges. It’s comparing apples to oranges that the fruit guy may not even let you buy.” You see, those great rates for 25-year-olds are not available to all. Fully 25% of those who apply are either refused coverage at all or are offered it at a higher price. What’s more, unless this young man makes a lot of money (in which case he would almost certainly get healthcare through his employer) the coverage with Obamacare would be better than the cheap plan that Roy compares.

What’s really annoying about Roy’s new article is that just a couple of months ago, he was pushing the idea that Obamacare wasn’t that bad and that we could fix it to make it more like the Swiss system. Of course, he was disingenuous (or just ignorant) about the Swiss system, but at the time a lot of moderates applauded him as (God save me!) a reasonable Republican. And now he’s back to: “Obamacare will make us all go broke!” He ends his article with a stunning display of hypocrisy:

So, to summarize: Supporters of Obamacare justified passage of the law because one insurer in California raised rates on some people by as much as 39 percent. But Obamacare itself more than doubles the cost of insurance on the individual market. I can understand why Democrats in California would want to mislead the public on this point. But journalists have a professional responsibility to check out the facts for themselves.

Reality is almost exactly the opposite of what he wrote. In general, California rates will be lower. For some reasonably well-off 25-year-olds, prices will go up. Journalists indeed do have a responsibility to check out the facts for themselves. And that means more than cherry picking a couple of examples that prove your case and ignoring the overall picture.

Afterword

I mean it: Avik Roy really is trying to kill me.

I just got around to reading Mark Blyth’s Austerity: the History of a Dangerous Idea. It is something of a revelation because it puts the modern economic debate into historical perspective. He starts way back at John Locke and his fear of the tyrannical state. Then he moves on to Hume and Smith who built on his ideas. John Stuart Mill managed to find the problem with where these guys were going in the land of fairies and elves known as libertarianism. But no one really paid much attention to Mill as the story unfolds.

All along the course of this thinking that leads to the modern proponents of austerity, there are a lot of good ideas. And many of the fears are justified. A good example is the Freiburg liberals in Germany during the 1920s. They claimed that the economic problems were based upon the fact that the legal system was corrupted by the use of private economic power. This has long been one of the linchpins of my argument against libertarianism and other forms of free market fundamentalism.

But as much as I get the thinkers who brought us to today, I still scratch my head over how the austerians can continue to think that the economy is driven from the wealthy on down. If there are not consumers with money it absolutely doesn’t matter how much or how cheaply stuff can be produced. The economy is driven by demand. It’s also interesting that these same people talk about the power of the government, but don’t seem concerned about private economic power. They also have a kind of “control economy” philosophy where instead of the government in control (as is the case in communism), it is the “job creators” who are in control. Any reasonable observer would be concerned about public and private power.

Blyth shows in sometimes exhausting detail that austerity is not only morally wrong but that it simply doesn’t work as it claims to. Although he maintains a fairly objective tone throughout the book, he comes out swinging in the conclusion:

In the last part of the book, he predicts the way forward. He thinks we are going to get higher taxes on the rich and that the recent Fiscal Cliff deal is just the beginning:

He continues to explain why it is right to tax the rich:

That’s an argument that I’ve long been making. We have had a governing infrastructure that rewarded the rich exclusively over the past 35 years. While we’ve enacted laws that have made the rich richer, we have also asked them to pay less and less in taxes. It is time to reverse that. Raising taxes on the rich is not a question of class warfare. It is a question of class survival. And truly, the rich should understand that better than anyone.

I’m going to have to read Austerity: the History of a Dangerous Idea a second time to get clear on all the economic movements. A lot of the material was brand new to me. But even with the one go, I learned a lot. Plus it was a pleasant read. At his best, Blyth is an amusing and breezy writer. And for anyone who wants to know how we got to such dysfunctional economic policy, it is a must read.

Last weekend, Jamie Malanowski wrote an amazing OpEd over at the New York Times, Misplaced Honor. I didn’t know this, but 10 United States Army bases are named after Confederate generals. Look, I don’t have it out for the south. In fact, I have almost nothing but fond memories of my time in the south. But all the Confederate flag waving and related activities have got to stop. We can all admit that the Civil War was a tragedy and that most people were innocent of anything other than being caught up in an unfortunate event. What we can’t do is pretend that the south had cause to leave the Union. The people of the Confederacy were traitors. At that is above all true of the generals.

As Malanowki wrote, “Would we have a Fort Rommel? A Camp Cornwallis?” Of course not! And that is not to say that Rommel and Cornwallis weren’t anything but noble men. But even if you don’t wish to say, as I do, that Robert E. Lee was in fact a traitor,[1] we do not name military bases for people who fought against us in war. There are ways to honor men like Lee without naming our bases after them.

And we are not just talking about men who deserve respect like Lee. Bases are also named after vile men. Henry Benning, for example, wasn’t a reluctant warrior; he actively pushed for succession, demagoguing fears that Lincoln would push to abolish slavery. John B. Gordon was an early head of the Ku Klux Klan in Georgia. And George Pickett was even accused of war crimes, although in the Obama-style “look forward” philosophy of the time, he was never tried.

It is an outrage that we have military based named after these men. It is now 150 years since the Civil War. We need to stop trying to sooth ruffled feathers over our most destructive war, which was waged against us for the most vile of reasons. Imagine what it says to our African American soldiers that they should be stationed at a base named after one of the founders of the Ku Klux Klan. It seems to me that we should be far more concerned about their feelings than those of white southerners who think that the Union was wrong to have stopped their rebellion.

The only way to get past the Civil War is for all of us to admit that the right side was the Union side. We are now all Americans. The Confederacy was never a real nation. The Civil War was a great tragedy, but some good things came out of it. And we should all be proud of that. As Americans.

[1] For the record, I admire Lee. I think he is one of the great tragic heroes of our nation. But taking up arms against the United States is an act of treason. And because of Lee’s brilliance, unthinkable extra men died. If he had headed the Union army as Lincoln wished, the war probably would have been over much sooner and there would have been far less loss of life.