Associated with the recent compromise in the United States Congress in which the “Bush” tax cuts, which were set to expire on December 31, 2010 were extended for individuals and couples of all income levels. That was essentially what the Republican Party wanted. The Democratic Party wanted the tax cuts extended only for individuals making less than $200,000 per year and couples making less than $250,000 per year. What made it a compromise was that to get the Democrats to agree, the Republicans gave up on their opposition to another extension of unemployment benefits. One of the arguments against extending the tax cuts for higher income households was that the “rich” can afford the higher tax burden and that it is unfair for them not to pay their “fair” share. Supporters of tax cuts for the higher incomes have been attacked as selfish and immoral. Arguments in favor of “soaking the rich” include biblical references to a duty to help the poor and that it is easier for a camel to pass through the eye of a needle than for a rich man to enter heaven. I am not a scholar of the Bible, and I am not even particularly religious, but I do know that the Bible places the duty to help the poor on individuals and not on government. It does mention a duty to pay taxes (“render unto Caesar what is Caesar’s”), but says nothing about what tax policies should be. The Bible is about the responsibilities of individuals and not of governments.
The thing that distinguishes a government from any other organization is that it is considered to have the legitimate right to use force and coercion to get some people to do things that they would rather not do or to refrain from doing things that they would rather do for the benefit of society as a whole. Since government is fallible and made up of fallible human beings, its use of force and coercion should be restricted to the legitimate functions of government. People may differ about what the legitimate functions of government are, but in my opinion, the legitimate functions of the federal government are pretty much those described in the Declaration of Independence and the Constitution. The Declaration of Independence says that the purpose of a government is to protect life, liberty, and the pursuit of happiness and that the people have a right to alter or get rid of any government that is destructive of those ends. The “enumerated powers” of the federal government are listed in Article I, Section 8 of the Constitution. Redistributing wealth and income is not among them
The use of coercion to redistribute wealth when done by any organization other than government is usually considered to be robbery. From a moral standpoint, it is robbery even when the government does it. All that keeps it from being robbery from a legal standpoint is that the government defines what the law is and it does not tend to make its own actions illegal. The Bible has something to say about robbery; it says, “Thou shalt not steal.” It also has something to say about desiring the property of others; it says, “Thou shalt not covet.” I submit that the promotion of the use of government as a tool to redistribute wealth and the envy of the rich that progressives in this country promote is stealing and coveting and is immoral.
I and other critics of government redistribution of wealth from the rich to the poor may be accused of being heartless and having no sympathy for the poor, but concern for the poor does not require acceptance of any and all means to help the poor, and one of the ways to help the poor is to help them avoid dependency on government. If they believe that they are “entitled” to relief from the government just because they are poor and therefore society owes them a closer approximation to equality of income and wealth, they are less likely to develop habits of self-reliance that tend to get them out of poverty and to keep them out without dependence on others. Studies sponsored by the American Enterprise Institute have indicated that conservatives (who tend to oppose the use of government to redistribute wealth and income give far more to charity (and real charity, not just contribution for fancier church buildings and things such as art galleries and opera houses) than do liberals, who tend to view helping the poor as a collective responsibility rather than an individual one. Want to help poor people? Then do it!
Sunday, January 02, 2011
Saturday, October 02, 2010
The Truth about MoveOn.org's Social Security "Myths"
I have taken a special interest in the future of Social Security, in part because I worked for the Social Security Administration for 38 ½ years before retiring on January 2, 2009. So, when I ran across an article on the MoveOn.org website (not a site I frequently visit, but occasionally I like to spy on the enemy) entitled Top Five Social Security Myths, I read it carefully, thought about it, realized that it is mostly nonsense, and decided to explain to readers of this blog (both of them) why it is mostly nonsense. I encourage you to read the same thing I read buy opening the article in a new window or tab on your browser and follow along.
The first alleged myth is "Social Security is going broke." The article state that by 2023, Social Security will have a $4.3 trillion surplus and can pay schedule benefits with no changes and after 2037, will be still be able to pay 75% of scheduled benefits. The trust fund deserves its own discussion, which I will get to shortly, buy think about that business about being able to pay 75% of scheduled benefits. That is meeting 75% of an obligation. Would any of the people that you have to make regular payments to, like your utility companies or your the financial institution that holds your mortgage (if you own your home) or your landlord (if you rent) be happy if you told them that you cannot make the full amount of your payments in the future but you can make 75% of them? Of course not, and anyone who expects to receive Social Security benefits after 2037 would not be very happy either. If being headed in the direction being able to pay only 75% of what it obligated to pay is not going broke, then what is?
The second alleged myth is "We have to raise the retirement age because people are living longer." The article says that this is a myth because the reason life expectancy is going up is because many fewer people die as children than they did 70 years ago. The article makes reference to a June 2010 study by the Center for Economic and Policy Research entitled Social Security and the Age of Retirement. I read the study. It does indeed make a very good case that most of the increase in life expectancy in the United States over the last several decades has been because of decreased death rates of people who have not reached retirement age. However, some of the increase is because on average people of retirement age are living longer, which is a case made by the the bipartisan Social Security Advisory Board in its September 2008 report, Working for Retirement Security, in which a case is made that to improve income security of older Americans, they should be encouraged to lengthen the number of years in which they work. MoveOn.org also points out that higher income workers live longer on average than lower income workers and so raising the retirement age discriminates against people with lower income. Raising the retirement age is not the only way to address the solvency of Social Security and it may not be the best way, but it is one option.
The third alleged myth is "Benefit cuts are the only way to fix Social Security." First the article says that Social Security does not need to be fixed, which is nonsense. Then they suggest that a better way to strengthen Social Security is to raise the maximum income from which payroll taxes are assessed. For 2010, no taxes are assessed from the employer or employee for earned income in excess of $106,800. Raising the cap would indeed increase revenue. It would also increase the eventual Social Security benefits of those high income workers because the amount of Social Security benefits is computed based on a formula that considers average income. However, the formula is weighted to favor lower income workers, so raising the cap may raise more than enough revenue than needed to pay the higher income workers their Social Security benefits once they retire. I'll concede this point to MoveOn.org; benefit cuts are not the only way to fix Social Security. There are other ways. However, saying that it does not need to be fixed is still nonsense.
I am going to combine my comments about myths four and five because the arguments that the MoveOn.org article makes that them contradict each other. Myth four is "The Social Security Trust Fund has been raided and is full of IOUs" and myth five is "Social Security adds to the deficit." There argument regarding myth four is that the Social Security trust fund is made composed of U.S. Treasury bonds that are backed by the full faith and credit of the United States. The argument regarding myth five is that by law Social Security funds are separate from the budget and therefore Social Security cannot add a penny to the deficit. Both arguments can easily be refuted in one short sentence: "Those Treasury securities are not going to pay themselves." Lets say that this year a hypothetical worker, lets call him William Worker, earns an income such that he and his employer each pay a payroll tax of $1000. Lets also assume the Social Security system is taking in more money than it is paying out and all of the $2000 goes into the trust fund. What does the government do with the money? It does two things. One thing it does is spend the money. The other thing it does is issue securities to the trust fund that represent a promise to pay the money back with interest. Years later, when the Social Security system has reached the point that it is paying out more in benefits than it is receiving in payroll taxes, William has retired and has applied for his Social Security benefits. Lets say that the money to pay for them for his first year of retirement comes from that same $2000 in treasury bonds plus interest. So, the bonds are redeemed. Since they don't pay themselves and the government has already spend the money to pay them, it has to raise more money. There is just no other way to look at this. The government has spent the money and has increased its debt by issuing a securities that promise to pay the debt with interest. Saying that a Treasury security is not an IOU not saying anything that changes the situation. Saying that Social Security does not increase the deficit because it is not part of the budget is like saying that if you close your eyes you can't see it and therefore it isn't really there. When management officers at Enron kept transactions that put its shareholders off its books to hide them, it was eventually recognized as accounting fraud and people went to prison for it. When the government does it, no one goes to prison, because it is the government that puts people in prison. It is legal, but only because it is the government that is playing this game that makes the laws. What they cannot do is make it ethical. The scams that Charles Ponzi and Bernie Madoff ran were small potatoes compared to this one.
Recommended reading for those who want to understand the financing of Social Security include the 2010 Social Security Trustees Report on The Status of the Social Security and Medicare Programs (click here for PDF version) and any of several publications that the Cato Institute has published. The advantage of the Trustees Report is that it is politically neutral and written by the actuaries whose job it is to manage the Social Security and Medicare trust funds. The advantage of the Cato Institute publications is that they are written by people who have some good ideas for how to deal with the problem.
The first alleged myth is "Social Security is going broke." The article state that by 2023, Social Security will have a $4.3 trillion surplus and can pay schedule benefits with no changes and after 2037, will be still be able to pay 75% of scheduled benefits. The trust fund deserves its own discussion, which I will get to shortly, buy think about that business about being able to pay 75% of scheduled benefits. That is meeting 75% of an obligation. Would any of the people that you have to make regular payments to, like your utility companies or your the financial institution that holds your mortgage (if you own your home) or your landlord (if you rent) be happy if you told them that you cannot make the full amount of your payments in the future but you can make 75% of them? Of course not, and anyone who expects to receive Social Security benefits after 2037 would not be very happy either. If being headed in the direction being able to pay only 75% of what it obligated to pay is not going broke, then what is?
The second alleged myth is "We have to raise the retirement age because people are living longer." The article says that this is a myth because the reason life expectancy is going up is because many fewer people die as children than they did 70 years ago. The article makes reference to a June 2010 study by the Center for Economic and Policy Research entitled Social Security and the Age of Retirement. I read the study. It does indeed make a very good case that most of the increase in life expectancy in the United States over the last several decades has been because of decreased death rates of people who have not reached retirement age. However, some of the increase is because on average people of retirement age are living longer, which is a case made by the the bipartisan Social Security Advisory Board in its September 2008 report, Working for Retirement Security, in which a case is made that to improve income security of older Americans, they should be encouraged to lengthen the number of years in which they work. MoveOn.org also points out that higher income workers live longer on average than lower income workers and so raising the retirement age discriminates against people with lower income. Raising the retirement age is not the only way to address the solvency of Social Security and it may not be the best way, but it is one option.
The third alleged myth is "Benefit cuts are the only way to fix Social Security." First the article says that Social Security does not need to be fixed, which is nonsense. Then they suggest that a better way to strengthen Social Security is to raise the maximum income from which payroll taxes are assessed. For 2010, no taxes are assessed from the employer or employee for earned income in excess of $106,800. Raising the cap would indeed increase revenue. It would also increase the eventual Social Security benefits of those high income workers because the amount of Social Security benefits is computed based on a formula that considers average income. However, the formula is weighted to favor lower income workers, so raising the cap may raise more than enough revenue than needed to pay the higher income workers their Social Security benefits once they retire. I'll concede this point to MoveOn.org; benefit cuts are not the only way to fix Social Security. There are other ways. However, saying that it does not need to be fixed is still nonsense.
I am going to combine my comments about myths four and five because the arguments that the MoveOn.org article makes that them contradict each other. Myth four is "The Social Security Trust Fund has been raided and is full of IOUs" and myth five is "Social Security adds to the deficit." There argument regarding myth four is that the Social Security trust fund is made composed of U.S. Treasury bonds that are backed by the full faith and credit of the United States. The argument regarding myth five is that by law Social Security funds are separate from the budget and therefore Social Security cannot add a penny to the deficit. Both arguments can easily be refuted in one short sentence: "Those Treasury securities are not going to pay themselves." Lets say that this year a hypothetical worker, lets call him William Worker, earns an income such that he and his employer each pay a payroll tax of $1000. Lets also assume the Social Security system is taking in more money than it is paying out and all of the $2000 goes into the trust fund. What does the government do with the money? It does two things. One thing it does is spend the money. The other thing it does is issue securities to the trust fund that represent a promise to pay the money back with interest. Years later, when the Social Security system has reached the point that it is paying out more in benefits than it is receiving in payroll taxes, William has retired and has applied for his Social Security benefits. Lets say that the money to pay for them for his first year of retirement comes from that same $2000 in treasury bonds plus interest. So, the bonds are redeemed. Since they don't pay themselves and the government has already spend the money to pay them, it has to raise more money. There is just no other way to look at this. The government has spent the money and has increased its debt by issuing a securities that promise to pay the debt with interest. Saying that a Treasury security is not an IOU not saying anything that changes the situation. Saying that Social Security does not increase the deficit because it is not part of the budget is like saying that if you close your eyes you can't see it and therefore it isn't really there. When management officers at Enron kept transactions that put its shareholders off its books to hide them, it was eventually recognized as accounting fraud and people went to prison for it. When the government does it, no one goes to prison, because it is the government that puts people in prison. It is legal, but only because it is the government that is playing this game that makes the laws. What they cannot do is make it ethical. The scams that Charles Ponzi and Bernie Madoff ran were small potatoes compared to this one.
Recommended reading for those who want to understand the financing of Social Security include the 2010 Social Security Trustees Report on The Status of the Social Security and Medicare Programs (click here for PDF version) and any of several publications that the Cato Institute has published. The advantage of the Trustees Report is that it is politically neutral and written by the actuaries whose job it is to manage the Social Security and Medicare trust funds. The advantage of the Cato Institute publications is that they are written by people who have some good ideas for how to deal with the problem.
Friday, June 18, 2010
You don't have to be crazy to want the job, but it doesn't hurt.
I have often joked that a person would have to be crazy to want to be President of the United States and therefore anyone who wants the job should not be allowed to have it. I am currently taking a graduate school course entitled Legislatures and Legislative Behavior. From what I am learning in that course added to what I already knew, I think my observation about the job of President applies also, though maybe not as much, to the job of member of Congress. Who can observe the work product of the politicians in the federal government and conclude that those people are sane? The work product includes laws whose pages measure in the thousands and are too complex for anyone but an attorney to understand and even they have to go to court to argue among themselves what it all means. If we expect people to obey the law, is it too much to ask that the laws be understandable and not unreasonably complex?
In the first place, think about what it takes just to be considered for the job. You have to beg people to give you money to finance your campaign. During the most recent election cycle, the average winning Senate race cost $5.6 million and the average winning House race cost $1.1 million. Then, you have to travel all over your state or your district and convince people that you are a really nice guy who has their best interests at heart. You tailor you message to your audience and say things that contradict each other, hoping that no one will notice. You have to have your competition for the job and the people who support them saying things about you that are nasty and often not true. You have to spend time away from your family and give up leisure time. If you get elected to the Senate, you get a little break, but if you get elected to the House of Representatives you have to begin running for reelection almost as soon as the election is over. In effect, you have to reapply for the job every two or six years and prove yourself all over again. Once you get elected, what is the job like? The salary is not bad, about three times that of the typical American family, but well below that of top corporate executives, whose jobs involve no more responsibility or hard work. Considering that most people who run for Congress come from a background with high status and earnings potential, few politicians (at least the honest ones) are in it for the money; they could usually find ways to make more money. Each member of Congress serves on several committees and subcommittees, with meetings whose schedules often conflict. Committees are where the real work gets done, but what kind of job is it that involves attending committee meetings all the time? They have to understand and know how to take advantage of arcane procedural rules. Members of Congress typically put in long days and travel frequently between the Capitol and their states or districts. They attend events of constituents and interest groups. They have to answer questions that they would rather not answer and deal with hostile people.
Who would want such a job? Unfortunately, the answer is that the person who usually wants such a job is a person who wants to pass laws to change things, whether they need changing or not. It is a person who thinks that working ridiculous hours and trying to please everybody is a rational thing to do. It was a mistake to call these people legislators or lawmakers. We should have called them something like code maintainers. What we do not need is more laws; we have plenty. All we really need is a code of laws that needs to be maintained, so that laws that have become obsolete or never worked to begin with are repealed or amended. Introducing laws that are entirely new should be a rare event, and less common than laws that amend or repeal a law that is on the books. Some states, Texas for example, have part-time legislators that meet for a few months every two years. If it is not necessary for the job of a state legislator to be full-time, it is not necessary for the job of a member of Congress to be full-time. In fact, it would be good for members of Congress to spend much more time outside the Beltway, living a life that resembles more the life that a normal person would live and understanding the problems that normal people have. I have learned that the approximate time that being a member of Congress became a full-time job was when air conditioning was installed in the Capitol building. Letting them install that air conditioning probably ranks among the the biggest mistakes that the United States has made.
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