Central Issue In Election And Most Important Thing About The Economy: We Falter Economically When Everyone’s Squeezed To Benefit A Few At The Top

Obama on Jon Stewart 10/18/2012 with a pinch representing the few at the top benefitting from a skewing of wealth that slows the economy

The central issue of this election and what everyone should absolutely understand is the most important thing about the economy right now is that our economy bogs down when we focus the nation's policy on squeezing the majority of citizens so that a few at the top can do a lot better than everyone else.  That may seem like a self-evident proposition to most National Notice readers and there have certainly been more than a few National Notice articles related to the premise in one way or another.  It does not seem to be a self-evident proposition to either Mitt Romney or his running mate Paul Ryan.

Why restate this right now?  Because the election is upon us and because, picking up on words of the president previously noted in Noticing New York, President Obama made essentially this point when he appeared on Jon Stewart’s Daily Show not long ago.  His words that deserve being quoted and passed around were as follows:

The most important thing is when you think about the economy, I am absolutely convinced that, when you look at the historical record, that when middle class families do well, when there are ladders of opportunity for poor families to get into the middle class, the entire economy does well, and when a few folks are doing very well at the top and everybody else is getting squeezed the economy grows slower.  And that is the central issue in this election that we've got to make sure we address.

(See: Wednesday, October 24, 2012, Most Important Thing About Economy + Central Issue In Election: Obama On Jon Stewart’s Daily Show Rejects Ratner/Prokhorov “Barclays” Paradigm.  That Noticing New York article makes the point that these national issues also play out on the local level in insidious ways.)

However self-evident this point about wealth inequality is, it can’t be repeated too often right now in light of its importance to the coming election.

If you want documentation, the International Monetary Fund has issued a report saying that this “widening disparity” in wealth is gumming up and slowing down the U.S. economy.  I liken the situation to the way that things grind to a halt at the end of a Monopoly game, when further moves cease to be possible because all the money is piled up in one place.  We used to have a disparaging view of economies in South American countries where it seemed so obvious that things could never work because of concentrations of wealth in the midst of unnecessary deprivation, but more and more we are becoming the thing we once disparaged.

MoveOn.org is sharing a bit of campaigning on this subject by punctuating with animation (by a 'Simpsons' Animator) an Obama speech about what does and doesn’t work when it comes to the economy: BRILLIANT: A 'Simpsons' Animator Works His Magic On A Rousing Obama Speech.  View the video below (or go to the website above to share it more broadly).




Whatever good things can be said about private equity firms, the principal motivating focus of a firm like Bain Capital, where Romney spent most of his career is to figure out how to direct more squeezed-out wealth to a narrow segment of the population owning stocks that pay them income being taxed at a much lower rate than on regular income.  Romney’s tax liability for 2011 was 10% (despite the fact that he told the public it was never less than 13%).

Those at the top do well but other Americans are seeing longer work weeks, lower pay and some are seeing shorter life spans while the wealthy are living longer.

Romney champions programs, tax structures and alterations to Medicare and Social Security that will further skew the allocation of income and wealth in this country to those who are already far wealthier than others.

Meanwhile we are not supposed to know, talk about or understand the wealth practices and equations that pertain to the wealth of those, like Romney, who are seeking to govern the rest of us.   In the United States we have more freedoms and a better system than in China in this respect, but how much so?: In the United States Romney (though not yet elected) doesn’t want to release his tax returns even when we find that he misrepresented them. . . In China when the NY Times reports that the family of prime minister Wen Jiabao and his family, once poor, have acquired wealth in the billions (real money in China), China shuts down parts of the internet not wanting the populace to find out anything about it.

It’s not a good thing not to know what’s going on when a country's leaders consolidate all the nation's money and all the power.  For years Silvio Berlusconi, the vastly wealthy former Italian prime minister, simultaneously controlled most of the media in that country.  Once viewed as untouchably powerful, he has now been convicted and sentenced to 4 years in prison for tax fraud, with more charges pending.

Columbia University professer Joseph E. Stiglitz , a winner of the Nobel Prize in Economics and a former chief economist of the World Bank, has two similar articles about the meaning of this election as it relates to the issue of wealth inequality.  Strangely, one appeared only in the Sunday Review section of the New York Times print edition (available elsewhere though) and the other appeared only in the paper's web edition.  (See: Print edition version, What’s at stake in this US election, October 30, 2012 and the web edition, Some Are More Unequal Than Others, October 26, 2012.)

Says Mr. Stiglitz in the web version of this article:

Mitt Romney has been explicit: inequality should be talked about only in quiet voices behind closed doors.

    * * * *

 . . .  inequality and poverty [have suddenly appeared] as part of the Romney-Ryan makeover, as they attempt to portray themselves (to use a phrase of some 12 years ago) as compassionate conservatives. In Cleveland on Wednesday, Paul Ryan gave a speech that might lead one to conclude that the two Republican candidates were really concerned about poverty. But more revealing than oratory are budget numbers — like those actually contained in the Ryan budget. His budget proposal guts programs that serve those at the bottom, and little could have done more to enrich those at the top than his original tax proposals (like the elimination of capital gains taxes, a position from which he understandably has tried to distance himself).

    * * * * 

. . .Tax havens discourage investment in the United States. Taxing speculators at a lower rate encourages speculation and instability — and draws our most talented young people out of more productive endeavors. The result is a distorted, inefficient economy that grows more slowly than it should.

The Romney campaign, however, has defended inequality or brushed it aside. To do so, it has employed a handful of economic myths.

Mr. Stiglitz then goes on to examine those myths.  One of them is the “trickle-down economics” theory used to justify shifting more wealth to the already wealthy. (Watch the video to see it called something else.)

One example Mr. Stiglitz could have provided of just how impossible it is to make  “trickle-down economics” work is the how the bailout of Wall Street after the financial crisis did not readily benefit Main Street. The banks sat with the money, not passing it along to Main Street, even as their profits were restored and they resumed paying extraordinary bonuses.  The structure of that approach (initiated under the Bush administration) is something for which President Obama is only partially responsible.  Under Romney and Ryan we’d see implemented many more examples of what was misguided with respect to this approach: The priority it placed in helping the wealthy few first.

Chart showing boost to personal income when stimulus was enacted after Obama took office- Click to enlarge

The stimulus was also spent elsewhere, like on American infrastructure.  That worked.  (See the chart above being used in the filming of a commercial for Obama in New York’s Prospect Park.)  Republicans claim the stimulus didn’t work and say they would have spent less.  They probably would have.  Support for the banking community aside, the new breed of Republicans find themselves hostile to almost any form of government spending, be it FEMA, healthcare of Social Security, because government spending, even on things like infrastructure, often levels the playing field, tending to interfere with their goal of redistributing more wealth to the wealthy.  And Republicans, not at all interested in seeing an effective recovery anyway, prevented the level of spending that would have led to an even stronger recovery.

But the top issue of the campaign, more important than any other, is whether Romney and Ryan will, if elected, be put in a position to make a further redistribution of wealth to the wealthy the nation’s misbegotten priority.

The New York Times today has a scary story today about how Paul Ryan, the most ideologically extreme and starkly consistent of the Romney/Ryan pair, with “no record of compromise” in his past, expects to put in charge of cutting back and overhauling government programs like Medicare (presumably Social Security would be among the other top programs to be targeted as well): Ryan, Quiet for Now, Is Said to Be Planning for an Active Role, by Trip Gabriel, November 3, 2012.

Are you ready for these Romney/Ryan plans to tilt things even more to the wealthy?  And are we all ready for the economy to slow way down as a result?

News Of Two Reversing Trends Reminds Us The Rich Get Richer And The Rest Of The Nation, Working Harder, Dies Earlier

In an earlier National Notice article I observed two challenges stressing the Social Security system that cried out to be paired:

    •    Because the nation’s wealth and income are increasingly skewed, going more to those who are already wealthier, less money is being paid into the Social Security system because the wealthier, to whom that income is being redirected, pay proportionately less of their income into the Social Security System, and

    •    The wealthiest Americans are costing that system more, and benefitting more from it than the rest of us, because they are living longer than other Americans.

(See: Friday, April 29, 2011, Social Security Inequation: This is Rich, Living Longer While Everyone Else Enjoys It Less; Putting Two Together.)

I recently came across two more news stories, both about the reversal of what were long-term historic trends, that both appear to dovetail with and reinforce the observed stressors to the system mentioned above:

    •    The shortening workday gets longer again.  In the 1960s the length of the average workday had been shrinking consistently for so many years running (for 70 or 80 years, since the late 1800s) that a three-hour work day, predicated by John Maynard Keynes might arrive by about the year 2030.   But the trend reversed and our workdays have, instead, gotten longer again.  (See: As Jetsons turn 50, have their predictions held up? by Andrew Parsons, Marketplace for Friday, September 21, 2012.)

    •    Life expectancy for the less advantaged, once lengthening, is now growing shorter again.  According to a recent article in the New York Times: “For generations of Americans, it was a given that children would live longer than their parents. But there is now mounting evidence that this enduring trend has reversed itself for the country’s least-educated whites, an increasingly troubled group whose life expectancy has fallen by four years since 1990.”  (See: Life Spans Shrink for Least-Educated Whites in the U.S., by Sabrina Tavernise, September 20, 2012.)

It is hardly surprising to think that if the less advantaged are having to work harder at longer days they might be living shorter lives, thus increasing the already existing difference in life spans between the well-to-do and the less advantaged.

As for the Times article reporting on diminished life spans, the sharp-eyed and/or hard-hearted reader might point out that the article’s main focus is on whites, particularly white women, who have not obtained high school diplomas: It is not, per se, about those with lower incomes.  It is also possible to point out, quite rightly, that those without high school diplomas for which there has been the sharpest reversal and decline in life expectancy is a shrinking group, now “about 12 percent of the population, down from about 22 percent in 1990.”  So it could be argued that the statistics mean that because the advantage of a high school diploma is now more readily obtainable (if it is, as opposed to just more necessary) those who don’t obtain a high school diploma represent a culling down to a more hard core group with more serious problems and that the now shortening life spans of the group flows from that reality . . .

. . .  But that would be passing over the news in that article that the relative live expectancy of Americans overall (while going up for the wealthy) is declining overall relative to other nations, particularly for women:

In 2010, American women fell to 41st place, down from 14th place in 1985, in the United Nations rankings. Among developed countries, American women sank from the middle of the pack in 1970 to last place in 2010, according to the Human Mortality Database.

Now why is the workday lengthening so that we are working harder, perhaps to the detriment of our health in a way that could explain some of the shortening life expectancy above?   According, to the Marketplace story that reported the reversal of trends that has resulted in the lengthening our workdays, we’re actually  “still getting more productive” (albeit not quite as fast as before) “but the benefits from our productivity also go elsewhere now -- like the income gap.” 

According to Gary Burtless, an economist at the Brookings Institution, interviewed for the Marketplace story:

If the people at the top are getting more, there’’s a smaller percentage left over for workers in the middle and at the bottom.

What accounts for a world where the extra benefit from increased productively on the part of workers is squeezed out so that it only enriches those at the top of the income ladder rather than increasing salaries or reducing the workdays for those who are more productive?  Perhaps it’s a world where firms like Bain Capital (where Mitt Romney made his fortune) are poised and always ready to arrive on the scene to ensure that this is exactly what happens.

Biden’s Missed Opportunity In Vice-presidential Debate: Challenging Ryan On Divisive Plan For Medicare And Social Security Cutbacks

Everyone seems to agree that Joe Biden missed few opportunities during this week’s Vice-presidential debates to challenge Ryan with respect to lies or statements that were simply not true enough to remain unchallenged and uncorrected.

But there is one opportunity he missed. . . .

The moderator, Martha Raddatz, said: “Let's talk about Medicare and entitlements” and asked whether the candidates envisioned a future where the benefits under the “Medicare and Social Security” programs would change, or, in other words, whether program benefits would be reduced.

Ryan got first crack at answering.  He started with some warm and fuzzy acknowledgment of what the programs had done for his own family:

    . . . we've all had tragedies in our lives. I think about what they've done for my own family. My mom and I had my grandmother move in with us who was facing Alzheimer's. Medicare was there for here, just like it's there for my mom right now who is a Florida senior.

    After my dad died, my mom and I got Social Security survivors benefits, helped me pay for college, it helped her go back to college in her 50s where she started a small business because of the new skills she got. She paid all of her taxes on the promise that these programs would be there for her.

And then he supplies the kicker which is key.  Note his use of the words “honor” and “reform,” “reform” being the euphemism for altering those programs he has just praised by cutting back the benefits:

    We will honor this promise. And the best way to do it is reform it for my generation.

Notice how Ryan says “my” generation, as if he expects he will be, a significant individual taking part in the sacrifice.  The sacrifice won’t be made by the Romneys and other individuals who in their later years are in the 1%, (I think that’s Ryan’s legitimate expectation about where he’s going to be in his later years), the sacrifice will be made by those people these programs are intended to work for, those who don’t win the 1% lottery in life.

And then Ryan says straight out that he an Romney plan to divide the country up into two groups, the young and the old and make it seem as if his generation’s `sacrifice’ would be part of preserving benefits for the older generation:

    You see, if you reform these programs for my generation, people 54 and below, you can guarantee they don't change for people in or near retirement, which is precisely what Mitt Romney and I are proposing.

So the country would be divided up between two groups, those 55 and above getting all the benefits of Medicare and Social Security that Ryan described as being important to his family, and those “54 and below” who will get something less.  (It does seem as if the Romney/Ryan ticket loves to divide the country up into groups: These who look after themselves and the 47% who don’t, the 30% who are takers and those who supposedly aren’t.)

So Romney and Ryan think that by simply saying this, the older generation should feel secure about keeping their benefits?  They don’t think that people have heard about “divide and conquer” as a strategy?

Let me get this straight: Romney and Ryan want to create a country where one group, an older, aging group that is slowly succumbing to their mortality (i.e. dying off) will have good, traditional Medicare and Social Security benefits, and another group, a group with inferior benefits that, that each year will become an increasingly larger group?  How long do you think that will stand?  How long do you think that the increasingly large younger group will tolerate there being an older group that has better benefits which they don’t?

Who thinks this isn’t a plan to get rid of Medicare and Social Security altogether?  The older generation should feel secure that the Romney/Ryan politicians of the future will continue to “honor” the “promise” of these programs because the older generation has voted to allow them to divide the country up into two factions with antagonistic interests?

But, by the way, let's pay sharp attention here: It isn’t just two groups with newly created antagonist interests that will be created, that younger group now motivated to get rid of the superior benefits of traditional Medicare and Social Security, and the older group from whom they would now like to take them: There is a third group.  That third group is the group of which Romney and Ryan are a part, the group with a 1% mind set that’s is busy figuring out how to send the Medicare and Social Security programs to the trash bin.

So, there it is:  That’s the opportunity Biden missed in the debate: The opportunity call Ryan out on the Romney/Ryan ticket’s divide and conquer strategy to eliminate Medicare and Social Security benefits entirely.

One more thing before we leave the subject of Social Security: It should be recognized that the main challenge currently being faced in keeping the Social Security healthy is that more and more of the nation’s wealth and income is being shifted to an ever smaller wealthy subset of the population who contribute a much smaller percentage of their income to Social Security (the more you earn the less you pay percentage-wise to support Social Security) while drawing greater benefits by also living longer.  It may seem astounding but it's absolutely true, read: Friday, April 29, 2011, Social Security Inequation: This is Rich, Living Longer While Everyone Else Enjoys It Less; Putting Two Together.

The First Most Obvious Tax To Eliminate If You Want To Increase Employment: The Payroll Tax

It seems pretty obvious that the U.S. economy needs to create more jobs. So obvious that there’s an obvious fix that ought to be considered: elimination of payroll taxes. Taxation is necessary as the price of civilization but in the world of taxation it is axiomatic that what you tax you will get less of. So look at what you tax. Do you really want to tax employment?

Headlines on Dwindling Employment: Fewer and Lower-Paying Jobs

The headlines rolling in about national employment, or the lack thereof, make it clear the situation is sensationally bad and headed for worse. There aren’t enough jobs and the majority of those that exist need to be better paying At the meager rate that the U.S. economy is creating jobs, the relatively good job figures reflected by the uptick of jobs in the September jobs report (103,000 new jobs, better than the number of jobs added over the summer) will not be enough to keep pace with the growth in population. Consequently, if job creation only remains at this level, and there is reason to think it won’t even do that, the nation’s unemployment rate will not go down from 9.1 percent. That's already unacceptably high. If the job creation numbers return to where they have been recently the unemployment rate will rise.

The reason to think job creation figures could likely head down again is that real household income is declining and this, as previously pointed out in an earlier National Notice article, is likely to lead to a downward spiral, particularly as it cycles through real estate values that could be very similar to the dynamic during the first Great Depression.

Continuing High Unemployment Rate, Perhaps Headed Up

Here from the headlines:

The New York Times on the last job report: Adding Jobs, but Not Many, U.S. Economy Seems to Idle, by Motoka Rich, October 7, 2011

The economy is not growing fast enough to bring down the unemployment rate, which held steady at 9.1 percent in September. Local governments and school districts are cutting large numbers of workers. And about a third of the jobs added by the private sector last month were actually 45,000 Verizon workers who had been on strike during August and were simply returning to work.

American Public Radio’s Marketplace about the same report: Jobs added in September, By Mitchell Hartman, Friday, October 7, 2011. Marketplace's Mitchell Hartman interviewed economist Kevin Hassett at the American Enterprise Institute who thinks:

. . . . we'll plateau around 100,000 new jobs a month for the foreseeable future.

And he interviewed Harvard economist Lawrence Katz to conclude that this means “the unemployment rate won't budge and the six million long-term unemployed won't get back on the job,” or in Katz’s own words:

The modest job growth that we've seen is just about what you need to keep up with population growth. It's not enough to bring people back to work.

6.7 Percent- Falling Average Income

At the same time the Times is reporting about declining incomes that “between June 2009, when the recession officially ended, and June 2011, inflation-adjusted median household income fell 6.7 percent”: Recession Officially Over, U.S. Incomes Kept Falling, by Robert Pear, October 9, 2011:

In a grim sign of the enduring nature of the economic slump, household income declined more in the two years after the recession ended than it did during the recession itself, new research has found.

* * *

That reduction occurred even though the unemployment rate fell slightly, to 9.2 percent in June compared with 9.5 percent two years earlier. Two main forces appear to have held down pay: the number of people outside the labor force — neither working nor looking for work — has risen; and the hourly pay of employed people has failed to keep pace with inflation, as the prices of oil products and many foods have jumped.

During the recession itself, by contrast, wage gains outpaced inflation.

One reason pay has stagnated is that many people who lost their jobs in the recession — and remained out of work for months — have taken pay cuts in order to be hired again.

Here is the Times graph: Declining Household Income, October 9, 2011.

Eliminating or Reducing Payroll Taxes Means What?

Proposing to eliminate or reduce payroll taxes does not mean to eliminate income taxes or associated income tax withholding procedures. Instead the proposal is to eliminate or significantly reduce the cost of Social Security, Medicare and unemployment insurance.

Do it Long Term and Across the Board

Employment often is and needs to be a long-term relationship (among other things it is not always easy for employers to quickly fire people) so, to be meaningful, any reduction or elimination of these taxes would have to be long-term and assured and understood to be long-term when implemented. The adjustments should also be broad-based, applying to all workers: In other words the temptation to tinker around the margins and reduce taxes only for `newly-created’ or `added’ jobs should be rejected. That’s just too complicated and leads to all sorts of senseless and unhelpful accounting ruses to qualify.

Social Security Structure Remaining Intact

Elimination of these payroll taxes does not mean having to change the Social Security Trust structure. The same amounts would have to be deposited into the trust to keep it actuarially sound but the moneys would have to come from somewhere else. Payouts to retired workers who worked more years and earned more would still be greater, just as under the current system. That means that more payments would have to go into the system when the economy was booming and more workers were working, but isn’t this the exactly the kind of problem/challenge that it is good to have?

Medicare and Unemployment Insurance

By the same token, all that is good about or bad about the formulas pursuant to which money is set aside for Medicare or as unemployment insurance could remain intact, but to the extent that these formulae don’t make sense they could be changed. It does make sense to save against a rainy day and, when the economy is good, set aside funds for the payout of unemployment benefits in the future. But that doesn’t mean that an actuarial relationship can be exactly calibrated or that payout of unemployment benefits shouldn’t be continued when the economy is especially bad.

On the other hand, does it make sense that Medicare taxes should be based on employment at all, that employers should perceive the (future) provision of healthcare, generally, for persons over 65 (currently) to be a cost of employing additional workers? In fact, what proper relationship should there be between healthcare and employment at all? To the extent that healthcare (fostered by special tax treatment- i.e. by excluding employer-provided healthcare benefits from income taxation- or whatever) is viewed as an essential incident to employment then, healthcare costing what it does today, gums up the employment economy. It makes it much harder for employers and employees who are otherwise a good fit for each other to match up for the right reasons.

A Revenue Shortfall That Would Need To Be Addressed?

If payroll taxes were cut back wouldn’t a resulting shortfall in revenue need to be addressed? Yes, in the long term. (Economists are diagnosing the economy to be troubled by a lack of consumer demand so pumping income into consumers’ pockets without addressing it immediately might make sense right now.) But it would not necessarily need to be addressed in the immediate term, during a bad economy, when we are deficit financing all sorts of other things like the Afghanistan and Iraq wars.

Where would the foregone payroll taxes be made up? Anywhere that makes sense. Arguments are being made that the wealthy, the corporations, and the profits they are making should not be taxed because they are the nation’s self-described “job creators” even if, when given the opportunity, they choose to do other things with their extra cash rather than create jobs. Instead of trying to create jobs by not taxing income flowing to wealthy theoretical job creators, it makes sense simply to tax actual job creation less by eliminating payroll taxes.

Payroll Taxes vs. Income Taxes: The Wealthy vs. the Rest of Us

What if it was decided that the resulting shortfall in revenue could be made up nowhere except by an increase in income taxes? Would increased income taxes wind up being essentially just a reversal of the cut on payroll taxes? Are payroll taxes just the same as income taxes? No: Income taxes include taxes on capital gains and investment income. Further, income taxes can and should be progressive with the wealthier paying at a higher rate than the poor and middle class. Payroll taxes are regressive with the poor and middle class paying a higher percentage of their taxed pay than the wealthy.

Don’t taxes on income, like taxes on payroll, result in less employment when people don't seek employment because the salary paid in income will be taxed? Are income taxes paid by an employee securing employment the same as payroll taxes that must be paid by an employer providing that employee employment? . . .

. . . That can get into the lengthy and abstruse arguments economists engage in when they debate where the “incidence” of a tax (or subsidy) falls, who actually pays a tax when a transaction between two parties is made subject to that tax whether or not one or the other party is nominally considered responsible for paying it. But, the ultimate answer is complicated and also tied up with complex psychology. Among other things the employee is for various reasons likely to value a job for the sake of the job itself, not just the income. Even when income is taxed progressively at a higher rate at the higher end of the spectrum it is doubtful that an individual would want to be significantly less successful or productive just because he was paying more taxes.

Obama Has Suggested Lower Payroll Taxes

Obama has proposed temporarily cutting payroll taxes. (Remember it was suggested above that to be effective any such cut should be long-term.) One might consider that Obama's proposal has, to date, been under-reported and under-analyzed. For more on this see:

Obama Challenges Congress on Job Plan, by Mark Landler, September 8, 2011

Old Tax Relief Seen as Anchor in Obama Plan, by Jackie Calmes, September 6, 2011

September 14, 2011, How Payroll Tax Cuts Can Create Jobs, by Casey B. Mulligan

News Analysis, Plan’s Focus on Social Security Taxes Reflects Its Modest Ambitions, by Binyamin Applebaum, September 8, 2011

Politifact: Barack Obama on Monday, September 5th, 2011 in a Labor Day speech in Detroit: Barack Obama says payroll tax cut has boosted average family income by $1,000

Former Labor Secretary Robert Reich has weighed in with a brief article supporting a reduction of payroll taxes although the precision with which he suggests parameters is perhaps somewhat limiting to the imagination: Reich: Eliminate payroll taxes to improve economy, Marketplace, Wednesday, August 25, 2010.

Why Does the Republican Opposition Dislike Reducing These Taxes?

President Obama has tweaked the Republican opposition for being philosophically inconsistent in not supporting lower payroll taxes: After all, aren’t these Republican supposed to be opposed to taxes in general, even routinely signing on to anti-oaths?

There are reasons for the Republican opposition to oppose reduction of the payroll tax, reasons other than that they want to reflexively oppose Obama about everything, and beyond the fact that many Republican's likely have no interest in seeing the economy improve before the upcoming general election. Here are two points. (Does it let the cat out of bag to offer this analysis that others don’t seem to be offering elsewhere?)

One reason for Republicans to oppose payroll tax elimination is that a shift away from dependence on payroll tax revenue could result in a shift that winds up with lower taxes on most low- and middle-income wage earners and higher taxes on the income of the wealthy, replacing regressive payroll taxes with more progressive taxes on investments and capital gains.

The other reason the elite of Republican party leadership likely don’t want such a change in the payroll tax system is that there are many within the party who have their eye on handing a gift to Wall Street by unwinding Social Security and redirecting to Wall Street the contributions that are currently paid into the Social Security Trust Fund. Turning the investment of these vast sums over to Wall Street's brokers would be a much more expensive system than we have now, ridden with risks and a potential for fraud that doesn’t currently exist. That, however, is what some Republicans have their eyes on. If payments currently going into the trust fund became untethered from the payroll tax payments that now come in from individual workers (and were replaced with deposits that clearly came directly from government), Republicans would have a much harder time arguing for and trying to implement their desired switch over to a Wall Street benefit-based system.

Not a Panacea, Only a Start

While reduction or elimination of payroll taxes is the first most obvious tax to eliminate to increase employment, it would not be a panacea. It would not be a panacea because of the structural problems that need to be addressed in the American economy today. But to the extent that some of those problems are tied in with an increasingly skewed distribution of wealth it might begin to address at least some of those structural problems. Historically, skewed distribution of wealth and a lack of regulation of the activities of the wealthy and the financial sector have accompanied significant economic downturns like the Great Depression. We’ll have to leave off here though. The country’s ability to address its problems through versatility, innovation and the generation of new industries when it is faced with the increasing prevalence of lumbering (government-assisted) conglomerates and monopolies is a discussion for another day.

Social Security Inequation: This is Rich, Living Longer While Everyone Else Enjoys It Less; Putting Two Together

Here are two stories I came across that seemed like they absolutely had to go together. Since I’ve not seen anyone else pairing them, we’ll do it here. One is from economist Paul Krugman, the other from Robert Reich, also an economist, and the former Secretary of labor under President Clinton. Each concerns Social Security, the wealthy and why the system may not be anywhere as close to insolvency as some (are they all Republicans?) would have the rest of us presuppose.

Krugman: Some of Us Are Living Longer- The Rich

The Krugman piece was the first to catch my eye back in November. It concerned the suspect work product of the National Commission on Fiscal Responsibility and Reform tasked with finding a supposedly bipartisan solution to the nation’s fiscal problems. (See: The Hijacked Commission, by Paul Krugman, November 11, 2010.)

The commission announced its plan November 10th. As Mr. Krugman points out, the section of the plan on tax reform was summarized in seven bullet points the last of which was “Reduce the Deficit” while the first was “Lower Rates.” The commission was, in fact, all about tax reduction being a priority, stating that one of its “Guiding Principles and Values” was to “Cap revenue at or below 21% of G.D.P.”

Krugman writes many great articles, but this was one of his best. The whole article is worth reading but for purposes of this National Notice story what caught my eye about Social Security was this:

Let’s turn next to Social Security. There were rumors beforehand that the commission would recommend a rise in the retirement age, and sure enough, that’s what Mr. Bowles and Mr. Simpson do. They want the age at which Social Security becomes available to rise along with average life expectancy. Is that reasonable?

The answer is no, for a number of reasons — including the point that working until you’re 69, which may sound doable for people with desk jobs, is a lot harder for the many Americans who still do physical labor.

But beyond that, the proposal seemingly ignores a crucial point: while average life expectancy is indeed rising, it’s doing so mainly for high earners, precisely the people who need Social Security least. Life expectancy in the bottom half of the income distribution has barely inched up over the past three decades. So the Bowles-Simpson proposal is basically saying that janitors should be forced to work longer because these days corporate lawyers live to a ripe old age.

Reich: Some of Us Are Paying Less Into the Social Security System- The Rich

The Krugman statistics about who, exactly, is living longer came to mind when I came across the Robert Reich piece, the basic point of which was that there is no problem with the solvency of the Social Security system except that the wealthy are now paying proportionately less into than ever before and because “Now a much larger portion of total income goes to the top -- almost twice the share they got back then.” (See: How to fix Social Security, Marketplace, Wednesday, February 23, 2011.)

As Reich points in his commentary on Marketplace and in a column that appeared a number of places, including in the Christian Science Monitor and the Huffington Post (Budget baloney: Social Security isn't to blame for deficit, and the Best Way to Fix It Permanently, February 16, 2011) the solvency question was addressed and supposed to have been dispensed with by Alan Greenspan’s Social Security commission back in 1983 by gradually increasing payroll taxes and raising the retirement age.

Why hasn’t the Social Security system stayed in balance and “fixed for good” as Alan Greenspan’s 1983 commission expected? Reich explains that it is all due to fact a shift of income to wealthier Americans who pay proportionately less to Social Security because their contributions to the system are capped after they earn more that $106,000:

The Commission assumed that, as the ceiling rose with inflation, the Social Security payroll tax would continue to hit 90 percent of total income.

Today, though, the Social Security payroll tax hits only about 84 percent of total income.

It went from 90 percent to 84 percent because a larger and larger portion of total income has gone to the top. In 1983, the richest 1 percent of Americans got 11.6 percent of total income. Today the top 1 percent takes in more than 20 percent.

Putting Two Together

In other words, putting Krugman’ and Reich’s points together, the wealthy are living longer, longer then the rest of us, presumably getting more Social Security benefits paid out to them as a result, while at the same time they are paying proportionately less and less of their income into the Social Security system. And the system is becoming unbalanced because the wealthy are hoarding a greater and greater proportion of the nation’s income, thus subjecting an increasing amount of that income to an artificial cap that’s now limiting how much of the nation’s income is going to support Social Security to a lower percentage than everyone expected when things were last put in balance. . . That’s because in 1983 no one expected the degree to which income inequality would increase in the last 28 years.

Solutions Within Reach

Reich points out that the solution for balancing the system is therefore easy. Since the whole problem is that the shift in income to the wealthier earners has exempted more national income from going into the system by virtue of that cap on the ceiling income over which wealthier earners are exempted from paying into the system, all you have to do is raise that ceiling. Then the percent of income being subject to Social Security contributions will go back to the percent it used to be:

If we want to go back to 90 percent, the ceiling on income subject to the Social Security tax would need to be raised to $180,000.

Presto. Social Security’s long-term (beyond 26 years from now) problem would be solved.

That’s the easy solution. Another solution Reich doesn’t mention would be to reverse the unexpected trend in income inequality. Do wealthiest earners really need to be earning twice the share of total national income they were earning back in 1983? Does the top 1 percent in the country need to now be earning "more than 20 percent" of the nation's total income instead of the 11.6% that very lucky and elite 1% was earning back in 1983?

Those two possible solutions both involving asking for a contribution from the longer-living (and greater benefit-collecting) rich aren’t the ones being talked about however. For some reason, increased taxes for the well-to-do always seem to be off the table. Instead, what is being talked about is having the rest of the public shoulder the extra burden resulting from the increasing income inequality. As Krugman noted, the National Commission on Fiscal Responsibility and Reform is suggesting an increase in the retirement age. Alternatively, benefits might be reduced.

As for Reich’s suggested solution, Reich makes this point:

Not incidentally, several months ago the White House considered proposing that the ceiling be lifted to $180,000. Somehow, though, that proposal didn’t make it into the President’s budget.