Deficit Hawks Want Bush's Tax Cuts to Expire. Deficit Turkeys Don't

Jason Furman and Robert Greenstein write:

What the New Trustees' Report Shows about Social Security, 5/1/06: Anyone concerned about Social Security'9s long-term impact on the federal budget ought to be even more concerned about the long-term fiscal impact of extending the 2001 and 2003 tax cuts. If made permanent, the tax cuts will cost nearly three times as much, over the next 75 years, as the 75-year deficit in Social Security (see Figure 1). Any attempt to address the looming fiscal challenges should include Social Security, Medicare (and the U.S. health care system as a whole), and overall government revenues.

I agree. Anyone who claims to be a "deficit hawk" who favors extending Bush's tax cuts is not a deficit hawk, but a deficit turkey.

Comments

[Bruce Webb]

CBPP does a very solid job as usual. But they just refuse to challenge the actual assumptions going forward and still less the numbers in the Report just released. It is well and good (and I mean that literally) that you can just accept the Trustees' Intermediate Cost numbers and still not conclude that Social Security represents a dire threat compared to the projected General Fund deficit. But there was no discussion of why the productivity numbers changed from the 2005 Report to this one.

This may not be the proper thread but the actual debate over Social Security going forward will revolve around three initial and two follow up questions:

One: setting aside all considerations of the probability of any single number, would the combination of economic and demographic assumptions of the Trustees' Low Cost alternative produce the actual result they display in figure II.D7? Which is to say fully funded Trust Fund with flat Trust Fund ratio? In other words is the arithmetic of Low Cost correct? Having never seen a suggestion to the contrary I am inclined to think that the spreadsheet works, that taken totally theoretically and with no evaluation against economic and demographic models going forward, the numbers are valid.

Two, taken as a whole and compared with the set of economic and demographic numbers reported for the last calender year (2005) did the economy return numbers north or south of Low Cost? Note that once again we are making no conclusions about numbers in the out years, we are talking last calender year.

Three, given what we know about 1st quarter growth, and what we can see in the business pages, and what we can reasonably expect in the next six months, will 2006 numbers come in north or south of Low Cost? Once again we are not asking people to gaze into their crystal balls, we are not asking people to look 10, 30, or 75 years out, we are asking what the numbers will look like on New Years.

If your answer to all three questions is "yes, yes, and yes" then we have one discussion, if your answers are "no, no, and no" we have a much different discusion, and so on for various combinations of yes's and no's.

Which leads us to the 2006 Report's number for 2005 Productivity. In an event unprecedented in my experience they reported 2005 productivity as 2.0% with a endnote (3). If you follow the endnote you come up with this very curious explanation.:

http://www.ssa.gov/OACT/TR/TR06/V_economic.html#wp159107

"3 :Historical data are not available for the full year. Estimated values vary slightly by alternative and are shown for the intermediate alternative."

This doesn't even make sense. Why are historical data not available? This did not seem to be a problem for years previous. Nor can we put this down to the fact that producivity figures are subject to revision, they always are and always have been, we just expect the actuaries to work from best available information. This unprecedented statement shrieks to me "We know this figure is bullshit and will be revised in short order, but we did not want to release a Social Security Report pre-election that would put an honest productivity number in the front end".

Call me paranoid, call me what you want, but bring numbers that argue that under any definition of "productivity" 2.0% was arguably the correct number for 2005. Inquiring minds want to know.

[Ralph]

The disturbing point about the latest SS Trustee's report was not the (slight) one year earlier estimate of the time when the trust fund will run out (2040 rather than 2041) but the attempt to revive warnings about an imminent catastrophe in the local and national press. However because an estimate of Medicare's much greater funding problems was relesed at the same time, the focus was (correctly) shifted to Medicare and away from social security.

[ilsm]

Tax cuts must expire.

The disinformation campaign over Ss and tax cuts hides the fact that spending must be addressed.

If it is okay to run deficits for "discretionary" spending why is it worrisome to be in the red on SS and Medicare?

We must stop looking at percents of GDP and consider "what if we did not spend the money?"

Deficits do not matter.

[anne]

http://www.nytimes.com/2006/05/05/business/05cut.html?ex=1304481600&en=e56e267dfc67833a&ei=5090&partner=rssuserland&emc=rss

May 5, 2006

Analysis of Tax Bill Finds More Benefits for the Rich
By DAVID CAY JOHNSTON

The tax cut bill that Senate and House leaders have generally agreed upon is expected to save Americans at the center of the income distribution an average of $20 each, according to estimates by the Tax Policy Center, a nonprofit research organization in Washington.

The top tenth of 1 percent, whose average income is $5.3 million, would save an average of $82,415. Those in the top group would see their tax bill cut 4.8 percent, while Americans at the center of the income distribution — the middle fifth of taxpayers, who will earn an average of $36,000 this year — could expect a 0.4 percent reduction in their tax bill, or about $20.

Those who make less than $75,000 — which includes about 75 percent of all taxpayers — would save, at most, $110 each. Those making more than $1 million would save, on average, almost $42,000.

President Bush has said he supports the plan unless it becomes laden with provisions he considers extraneous. The bill hit a roadblock yesterday in a fight involving the tax treatment of charities. Congress values the tax cuts at $70 billion. They would have to be financed with borrowing.

Significant tax cuts would go to those making $75,000 to $1 million because the bill would restore for one year, and also expand, relief from the alternative minimum tax, a separate and often more costly tax system.

Without the bill, nearly 19 million taxpayers would owe up to $3,640 each in higher taxes this year, with most of the burden falling on families with children who own homes.

If the bill becomes law, taxpayers making $75,000 to $100,000 will save, on average, $403, while those making $100,000 to $200,000 will save $1,388. Those making $200,000 to $1 million will save an average of $5,000.

The bill would increase the exemption for the alternative tax to $62,550 for married couples, up from $58,000 last year. For single people and heads of households, the exemption would rise to $42,500, from $40,250 last year.

The increased exemption for the alternative tax is worth up to $1,274 in tax savings for married couples and up to $630 for singles and heads of households.

Under the alternative tax, taxpayers lose exemptions for themselves, their spouses and their children; they cannot deduct state income and local property taxes; and they lose the standard deduction. Those who are seriously sick or injured also must pay higher income taxes because, under the alternative tax, medical expenses are not deductible until they exceed 10 percent of income, compared with the 7.5 percent threshold in the regular tax system....

[anne]

Still, I was really really looking forward to my $100 tax rebate for buying gasoline :) As for spending, why are we avoiding discussing the tragic $10 billion a month we are spending to occupy Iraq? We have chosen to trade peace for war, and we have pretended there is no cost for war, but, there is.

[Unimportant person]

"As for spending, why are we avoiding discussing the tragic $10 billion a month we are spending to occupy Iraq?"

Why indeed? - keep asking till they all wake up.

[anne]

http://www.calvorn.com/gallery/photo.php?photo=6426&u=99|4|...

Northern Waterthrush Bathing
New York City--Central Park, The Ravine.

Thank you, Important Person :)

[Unimportant person]

http://www.ykkoset.net/etusivu/kuvat/Img_0213.jpg

Wood grouse enjoying the lights
(don't know where, sori..)

[anne]

http://www.calvorn.com/gallery/photo.php?photo=5079&u=178|20|...

Northern Cardinal in a Snowbank
New York City--Central Park, The Oven.

A fine photograph, feathers work :)

[postingaddress2@yahoo.com]

Bruce writes: "Setting aside all considerations of the probability of any single number, would the combination of economic and demographic assumptions of the Trustees' Low Cost alternative produce the actual result they display in figure II.D7?"

The arithmetic itself is correct, but note a couple things: First, the low-cost assumptions involve a LOT more than productivity growth -- they mean low cost in every one of the major variables modeled by the Trustees: productivity, life expectancy, immigration, fertility, interest rates, inflation, etc. Most of these, other than productivity, haven't even been discussed by most people. (Though see the Technical Panel reports at www.ssab.gov for more info.)

The Trustees conduct a probabilistic ("stochastic") forecast, and find that "outcomes better than the traditional low cost alternative and outcomes worse than the high cost alternative have very low probabilities of occurring." (p. 15) At the 97.5th percentile the trust fund goes insolvent in 2060; the low cost has the TF solvent and rising in 2080, which gives you a fair view of how unlikely the low cost projection is held to be.

Second, the Trustees say that "The low and high cost sets of assumptions reflect significant potential changes in the interrelationship among factors, as well as changes in the values for individual factors." (p. 69) In other words, it's not clear that having all the variables in their low cost positions is self-consistent. If, say, fertility rose significantly, would female labor force participation rise as well? If immigration rose significantly, would wages rise as well? And so on. The high and low cost projections aren't designed to take these issues into account.

So CBPP is right to take the intermediate projections as a reasonable starting point for debate on policy. Obviously, realized outcomes could be better or worse, but indexing policies can be designed to automatically take changes of outcomes into account. In that case, if Bruce is right we won't make unnecessery changes, but if the Trustees are right we'll make enough changes to fix the problem.

[dennisS]

Heeeey! I think there's a little side-conversation going on, or I'm not getting the connection between these birds and the hawks and turkeys.

This link won't help.

http://xmission.com/~cldavis/unusual.html#up

[dogfacegeorge]

Bruce,

You say, "Bring the numbers," but none of us HAVE the numbers that the SS trustees use. According to spencer, the SS productivity formula differs from the usual BLS formulas by including government workers.

By concealing the data underlying their productivity numbers, the trustees are saying, "Trust us - you have no other choice." Most people, even here, cannot believe that actuaries would be in on the fix.

[anne]

http://www.calvorn.com/gallery/photo.php?photo=6332&u=32128|12|...

Wild Turkey Crossing a Stream
New York City--Central Park, The Ravine.

Then, a turkey, which Brad DeLong can find about the field, it is :)

[Barkley Rosser]

ilsm,

Stop spending what money? Social security? War in Iraq? All or some of the above?

I have not seen the new report, but I find it weird that they have moved insolvency a year earlier for Soc. Sec. postingaddress2 claims they have done some great probability distribution study. Really? Is this remotely believable.

As of last year, p.a.2, the combination of things it took for the system to not only not go bust but also to run a surplus forever were not at all unreasonable. If I am remembering right they included the GDP continuing to grow at least 2.2% per year and immigration not dropping below half its current rate. Such things look highly probable, not in the 2.5% range.

This "social security crisis" talk was hype and is hype, one of the biggest frauds we have ever seen promulgated in public policy discussions. However, I am glad to hear the focus has shifted to medicare, which is definitely in far worse shape.

[ilsm]

"Stop spending what money? Social security? War in Iraq? All or some of the above?"

Barkely Rosser great question.

Stop spending any money for any program or "activity" which does not justify the expenditure.

That means: kill the MV 22 in Dec 2000 after it killed 23 marines in Apr 2000, essentially failed it legally mandated operational test wherein the young marines were killed in a vortex ring state situation which grossly negligent flight tests earlier missed, and 4 more marines died in Dec 2000. Just one example of a wasteful defense establishement.

How about the Iraq thing, no strategy, not operations and no tactics to acheiev anything other than Iraq going over to Iran?

Then there are a few of the pork programs, and a few others.

My point is do not build budgets based on what has been spent in the past, build budgets on what is needed and what can be done.

Base need on cost of money and impacts on future economic activity.

Be less political and manage the nation for the future, one that is good.

I would not say a nation which neglects its por and aged as one to be proud of.

[ImBored]

"As for spending, why are we avoiding discussing the tragic $10 billion a month we are spending to occupy Iraq?"

I thought Democrats liked big government and having the goverment employ lots of folks. The war in Iraq is doing just that. But, we need to raise taxes to pay for it.

[ilsm]

ImBored,

I think the dems like big government where the working folks get more than the shareholders.

In the defense cuts under the Clinton administrations, concern was for the plants' workers and many things needing closed were not.

In the Bush build up, acquiring capital oriented military systems with huge profits is preferred.

Look at transforming the army to air transportable mechanized brigades.

Lots of new designs, lots of cost overruns, late deliveries, waived specs, and lots of need for Boeing aircraft.

Cutting all kinds of non infantry troop strength to pay for the useless toys.

Will these airtransportable vehicles stand up to 50 cal AP? Will we get the gas and bullets to them?

Yeah, rethugs and dems are pretty wasteful.

Only differences is who gets most of the candy.

[anne]

No; the war and occupation of Iraq have been and are a tragedy for America. We have suffered physically and psychologically and materially and morally. If spending for the war and occupation have been an economic stimulus, the stimulus would have been many times more powerful and lasting had it been dedicated to peaceful pursuits. We must leave Iraq immediately, and though voices are asking this the voices are ignored. We must leave Iraq immediately.

[anne]

To think that this needless lunatic war and occupation have helped America economically, is to fail to understand the costs and scars of destruction that will last indefinitely but that might never have been. We have suffered so.

[Wes]

Somewhat slightly related to the deficit and, uh, creative ways of financing it-- can anyone here explain to me the reasoning behind the Treasury Dept. no longer publishing the M3 money-supply data? Yes, I know the M2 data are still available, and I'm still reluctant to buy into conspiracy theories, but why stop reporting the M3? Especially when just about every other country and the EU consider it essential data?

Is this just an excuse to turn on the Mint's printing presses to print an excess of bills and buy a temporary reprieve from the budget deficit, e.g. as foreign Central Banks stop buying up our T-bills? Maybe to buy a couple months for "insiders" to bail out of dollar assets before the hyperinflation hits? Or is there a more mundane explanation for halting the M3 reporting (which I suspect is the case, but can't find any half-decent plausible reason for)? Any thoughts here?

[dale]

"I think the dems like big government where..."

I think liberals like the democratic organisation and direction of government to the extent that we help one another create a broad-based material and spiritual prosperity; establish a greater amount of security against the vicissitudes of life; and do our best to ensure that each unique individual has the means and opportunity to have a life worth living.

I thank anne for reminding us that each dollar and each life wasted in Iraq takes us further from the liberal, the humane vision, of how we live together.

[Unimportant person]

"Anyone who claims to be a "deficit hawk" who favors extending Bush's tax cuts is not a deficit hawk, but a deficit turkey"

What a polite way of putting it :-)

[Unimportant person]

"I thank anne for reminding us that each dollar and each life wasted in Iraq takes us further from the liberal, the humane vision, of how we live together"

One can ONLY agree - thankyou Anne :-)

(...and YOU for reminding us, Dale)

[Bruce Webb]

Barkley: "postingaddress2 claims they have done some great probability distribution study. Really? Is this remotely believable."

I have not read the 2006 version but I did wade through the stochastic projections (appendix E = p. 157-159) of the 2005 Report. http://bruceweb.blogspot.com/2005/03/2005-report.html

No doubt you and Brad and Anne could cut right to the chase, for me the key was this sentence on p. 158. "Each time-series equation is designed such that, in the absense of random variation, the value of the variable would equal the value assumed under the intermediate set of assumptions". I'll wait for someone to explain what this means, what it seems to mean to me is that if you vary each variable around intermediate cost at the same rate each variable has performed in the past, Low Cost and High Cost both fall within the 95% confidence ratio.

The material is pretty dense, multiplely qualified and caveated, and written in even denser language than is normal for the Report, but really seems to boil down to: 'assume Intermediate Cost economic and demographic numbers, vary them around the mean' with the result that "assets of the combined OASI and DI Trust Funds would be exhausted by 2042 with a probability of 50%" (p. 159). Smarter people than me can probably extract more out of this but to me it seems to say "our math is okay, given our assumptions".

Well it is exactly those assumptions that are under challenge.

[anne]

There may by many reasons for the use of estimates of future returns to Social Security that seem artificially low, but the Social Security Trustees have given no reasons. The projection that the trust fund will afford full benefits to 2040 makes no sense in light of economic, productivity and labor force growth histories, and there seems no reason at all for concern when there are pressing problems to address.

[RW]

Off topic but I thought I'd die laughing when I first read this (courtesy of a poster on the Cunning Realist blog). Then I sobered up and thought, this explains a lot, maybe the deficit and other complex problems just don't rise to a level where solving them brings any anticipation of pleasure so why bother.

I also suspect the official English translation is likely to be, um ...different, so better get it while it's hot o' shrill ones.

"You know, I've experienced many great moments and it's hard to name the best," Bush told weekly Bild am Sonntag when asked about his high point since becoming president in January 2001.

"I would say the best moment of all was when I caught a 7.5 pound (3.402 kilos) perch in my lake," he told the newspaper in an interview published on Sunday.

Bush said the worst moment was September 11 when hijacked planes crashed into the World Trade Centre in New York and the Pentagon in Washington.

"In such a situation it takes a while before one understands what is happening," Bush said. "I would say that this was the hardest moment, once I had the real picture before my eyes."

Because Bild could not immediately furnish English quotes, Bush's comments were translated from the German. The paper said the White House planned to release an authorised English version of the interview on Monday.

The article is at http://today.reuters.co.uk in case the link above doesn't work.

[anne]

http://www.nytimes.com/2006/05/08/us/08poverty.html?ex=1304740800&en=20393d1c41b90f6b&ei=5090&partner=rssuserland&emc=rss

May 8, 2006

America's 'Near Poor' Are Increasingly at Economic Risk, Experts Say
By ERIK ECKHOLM

ANAHEIM, Calif. — The Abbotts date their tailspin to a collapse in demand for the aviation-related electronic parts that Stephen sold in better times, when he earned about $40,000 a year.

He lost his job in late 2001, unemployment benefits ran out over the next year and he and his wife, Laurie, along with their teenage son, were evicted from their apartment.

They spent a year in a borrowed motor home here in the working-class interior of Orange County, followed by eight months in a motel room with a kitchenette. During that time, Ms. Abbott, a diabetic who is now 51, lost all her teeth and could not afford to replace them.

"Since I didn't have a smile," she recalled, "I couldn't even work at a checkout counter."

Americans on the lower rungs of the economic ladder have always been exposed to sudden ruin. But in recent years, with the soaring costs of housing and medical care and a decline in low-end wages and benefits, tens of millions are living on even shakier ground than before, according to studies of what some scholars call the "near poor."

"There's strong evidence that over the past five years, record numbers of lower-income Americans find themselves in a more precarious economic position than at any time in recent memory," said Mark R. Rank, a sociologist at Washington University in St. Louis and the author of "One Nation, Underprivileged: Why American Poverty Affects Us All."

In a rare study of vulnerability to poverty, Mr. Rank and his colleagues found that the risk of a plummet of at least a year below the official poverty line rose sharply in the 1990's, compared with the two previous decades. By all signs, he said, such insecurity has continued to worsen.

For all age groups except those 70 and older, the odds of a temporary spell of poverty doubled in the 1990's, Mr. Rank reported in a 2004 paper titled, "The Increase of Poverty Risk and Income Insecurity in the U.S. Since the 1970's," written with Daniel A. Sandoval and Thomas A. Hirschl, both of Cornell University.

For example, during the 1980's, around 13 percent of Americans in their 40's spent at least one year below the poverty line; in the 1990's, 36 percent of people in their 40's did, according to the analysis.

Comparable figures for this decade will not be available for several years, but other indicators — a climbing poverty rate and rising levels of family debt — suggest a deepening insecurity, poverty experts and economists say.

More people work in jobs without health coverage, including temporary or contract jobs that may offer no benefits or even access to unemployment insurance. Medicaid is offered to fewer adults (though to more children). Cash welfare benefits are harder to secure, and their real value has eroded.

About 37 million Americans lived below the federal poverty line in 2004, set at $19,157 a year for a family of four. But far more people, another 54 million, were in households earning between the poverty line and double the poverty line.

"We don't track this group of people, and they are very vulnerable," said Katherine S. Newman, a sociologist at Princeton University who studies low-end workers.

Those suffering a nose-dive say the statistics do not begin to convey their fears and anguish....