War on entitlements

Thomas Edsall’s essay, “The War On Entitlements,” should be required reading for everyone interested in challenging the elite view that has come to govern the present debate about programs like Social Security and Medicare.

In particular, Edsall pushes back against the two favorite elite strategies for reforming current entitlement programs: means-testing of benefits and raising the age of eligibility.

The idea of subjecting earned income over $113,700 to the Social Security payroll tax and making the Medicare tax more progressive – steps that would affect only the relatively affluent — is largely missing from the policy conversation. . .

Means-testing and raising the age of eligibility as methods of cutting spending appeal to ideological conservatives for a number of reasons.

First, insofar as benefits for the affluent are reduced or eliminated under means-testing, social insurance programs are no longer universal and are seen, instead, as a form of welfare. Public support would almost certainly decline, encouraging further cuts in the future.

Second, the focus on means-testing and raising the age of eligibility diverts attention from a much simpler and more equitable approach: raising the payroll tax to apply to the earnings of the well-to-do, a step strongly opposed by the ideological right.

Third, and most important in terms of the policy debate, while both means-testing and eliminating the $113,700 cap on earnings subject to the payroll tax hurt the affluent, the latter would inflict twice as much pain.

Is it any wonder that elite austerity nuts have been trying so hard to push their preferred reforms to existing entitlement programs?

Generational theft meme

How did the Tea Party meme of “generational theft” go mainstream?

Last August, Robert Samuelson used the notion in his critique of government entitlement programs.

More recently, Geoffrey Canada, Stanley Druckenmiller, and Kevin Warsh joined forces to announce what they consider to be “several hard truths”:

Government spending levels are unsustainable. Higher taxes, however advisable or not, fail to come close to solving the problem. Discretionary spending must be reduced but without harming the safety net for our most vulnerable, or sacrificing future growth (e.g., research and education). Defense and homeland security spending should not be immune to reductions. Most consequentially, the growth in spending on entitlement programs—Social Security, Medicaid and Medicare—must be curbed.

And, if politicians don’t listen to them, “the greatest casualties will be young Americans of all stripes who want—and need—an opportunity to succeed.”

No, government spending levels are not unsustainable. And there’s no need to reduce discretionary spending or to cut entitlement programs. Not if we decide to get serious about taxing some of the enormous surplus captured by wealthy individuals and large corporations.

But that would mean recognizing the existence of class theft. So, to deflect attention from the hard truth of class injustice, the Samuelsons, Canadas, Druckenmillers, and Warshes of the world have decided to borrow the Tea Party slogan and attempt to focus our attention instead on the supposed struggle between generations.

Cartoon of the day

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Cartoon of the day

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Cartoon of the day

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Cartoon of the day

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Cartoon of the day

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Entitlement society?

The right-wing strategy in the current presidential campaign is now clear: it’s all about attacking the so-called entitlement society.

The terms of the strategy were first announced by Mitt Romney in a December 2011 op-ed piece:

In less than a year, the American people will go to the polls and choose a new president. A matter of great moment is at stake in this election. The question we will decide is this: Will the United States be an Entitlement Society or an Opportunity Society?

In an Entitlement Society, government provides every citizen the same or similar rewards, regardless of education, effort and willingness to innovate, pioneer or take risk. In an Opportunity Society, free people living under a limited government choose whether or not to pursue education, engage in hard work, and pursue the passion of their ideas and dreams. If they succeed, they merit the rewards they are able to enjoy.

Those same terms are repeated in Paul Ryan’s budget proposals and by the Wall Street Journal/American Enterprise Institute (and then invoked as a scare chart by Greg Mankiw).

This is what the world looks like according to those who decry what they perceive to be the dependence of able-bodied, working-age, black and Hispanic Americans on government handouts:

There are at least three issues that need to be raised here.

First, we need to contest the meaning of dependence. In particular, why is selling one’s ability to work for a wage or salary any less a form of dependence than receiving some form of government assistance? It certainly is a different kind of dependence—on employers rather than on one’s fellow citizens—and probably a form of dependence that is more arbitrary and capricious—since employers have the freedom to hire people when and where they want, while government assistance is governed by clear rules.

Second, as I showed yesterday, corporations have been successful in shifting the financing of government assistance programs from their surpluses to workers’ incomes. But the solution to the pressure on current workers’ standard of living is not to cut government programs but to change how they’re financed.

Finally, as the Center on Budget and Policy Priorities has shown, most of the benefit dollars that entitlement and other mandatory programs spend go to assist people who are elderly, seriously disabled, or members of working households—not to able-bodied, working-age Americans who choose not to work.*

These are the main ideas—the meaning of dependence, the financing of government programs, and the recipients of social insurance expenditures (like Medicare, Medicaid, Social Security, and unemployment benefits)—that challenge the terms of the attack on the so-called entitlement society, which the Republican machine doesn’t want us to see or to raise in the existing debate.

*And there’s one other issue that needs to be raised: the distribution of entitlement benefits stands in sharp contrast to the distribution of benefits for tax expenditures, which represent (to use the Republican language) “tax entitlements.” According to the Center for Budget and Policy Priorities, the top fifth of the population receives 66 percent of tax-expenditure benefits (compared to 10 percent of entitlement benefits), while the middle 60 percent of the population receives a little over 31 percent of tax-expenditure benefits (compared to 58 percent of entitlement benefits) and the  bottom fifth receives just 2.8 percent of tax-expenditure benefits (compared to 32 percent of entitlement benefits). The top 1 percent of the population alone receives 23.9 percent of tax-expenditure benefits—more than eight times as much as the bottom fifth of the population, and nearly as much as the middle 60 percent of the population. Who, then, is benefiting from, and contributing to the declining culture of, the so-called entitlement society?

Update

While I’m at it, how are the profits that are received by private-equity companies (like Bain Capital), not to mention the multimillion-dollar payouts to CEOs, not themselves a form of dependence on the surplus created by workers in enterprises they invest in and manage? Don’t venture capitalists and other members of the 1 percent feel entitled to receive their large share of the booty society produces—and then to pay lower and lower taxes on their cut?

Revolt of the rich?

Mainstream economists and politicians don’t like to talk about it. But Mike Lofgren is willing to admit, in the pages of the American Conservative, that what we’re witnessing is a revolt of the rich.

Stephen Schwarzman, the hedge fund billionaire CEO of the Blackstone Group who hired Rod Stewart for his $5-million birthday party, believes it is the rabble who are socially irresponsible. Speaking about low-income citizens who pay no income tax, he says: “You have to have skin in the game. I’m not saying how much people should do. But we should all be part of the system.”

But millions of Americans who do not pay federal income taxes do pay federal payroll taxes. These taxes are regressive, and the dirty little secret is that over the last several decades they have made up a greater and greater share of federal revenues. In 1950, payroll and other federal retirement contributions constituted 10.9 percent of all federal revenues. By 2007, the last “normal” economic year before federal revenues began falling, they made up 33.9 percent. By contrast, corporate income taxes were 26.4 percent of federal revenues in 1950. By 2007 they had fallen to 14.4 percent. So who has skin in the game?

I’d put it a bit differently: what we have before us is a revolt of the corporations. And it’s been going on for most of the postwar period:

source

At the same time that corporate income taxes have been falling, the taxes paid by workers have been rising:

source

In other words, throughout the postwar period (with notable jumps, such as during the Reagan income tax cuts and social insurance tax hikes), corporations have managed to shift the federal tax burden from their surpluses to workers’ incomes. For example, corporate income taxes, which were 42 percent of total federal revenues in 1952, had fallen to 10 percent in 2012. Meanwhile, payroll taxes rose from 10 percent in 1952 to 34 percent in 2012 (individual income taxes have, during the same period, risen slightly, from 42 percent to 47 percent).

This revolt of the corporations has, since the mid-1970s, also involved an attack on workers’ wages, thus putting a further squeeze on workers, who are both yielding up more surplus and feeling the after-tax pinch on the wages they take home.

Now, corporations are demanding further tax decreases, in order to play their role as “job creators,” while their right-wing political representatives propose to cut back exactly the social security and Medicare benefits workers have been hoping they’d been granted access to through payroll deductions (which only recently have been lowered, and only temporarily).

The revolt of the corporations has created the fiscal and economic mess we’re in right now. And, as long as people target their wrath at the politicians in Washington and not at the corporations themselves, that mess will continue.

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