Ever wonder why we need a trust fund for Medicare and Social Security, but not for other stuff? Congress creates spending obligations all the time – as it did recently with the Farm Bill. So if the US can borrow to meet its obligations to Monsanto and ADM, cant it also finance granny’s hip replacement and grandpa’s groceries? Hell yeah.
It’s all just taxes and spending. We could just as easily have a Farm Bill Trust Fund and-or a Defense Contract Trust Fund – and if they get depleted, Congress could send big companies a big apology instead of a big check. The difference is that – unlike defense contractors or hedge fund managers or the usual beneficiaries of Congressional largesse, for whom the US has incurred a sizable debt – the US by law cannot borrow to pay for medical care or pensions for the elderly. That stuff has to be paid for in advance – and here’s the kicker: it has to be paid in advance by wage earners.
And thus we have the farce known as the Social Security and Medicare Trust Funds. They have unnecessarily taken TRILLIONS out of the paychecks and pockets of ordinary wage-earners – shifting the tax burden off of the relatively wealthy who pay ordinary income taxes – onto low-wage-earners who primarily pay payroll taxes.
Faux News is fond of recrapping their grand old dropping – that 50% of all Americans pay no income taxes. Faux Newsmodels, it seems, have never inspected a McWorker’s W2. On it, they’d discover that payroll taxes (AKA FICA) are applied as a FLAT TAX ON INCOME, from dollar one, on up to $114,000 – no deductions, no exceptions. You may be a student, you may be on Food Stamps, you may be making $7.25 per hour – tough luck, bub, pay up. Combining the shares paid by employee and employer, it amounts to a flat tax of 15.3%. Hedge Fund Managers – if you’re curious – pay a flat tax of 15%.
FDR’s original rationale for the trust fund was innocent enough: to keep those tax receipts separate from general revenue, so the government couldnt use them for other purposes. But that admirable aim has been perverted, and Social Security has been changed from pay-as-you-go into pay-in-advance, socking it to the working poor.
As any CFO will tell you: it’s way better to have the benefit of something today, while paying for it tomorrow. Tax-deferment is big business – when it comes to paying taxes, later is better.
ADM and Monsanto dont have to worry about the solvency of some government trust fund to be assured that their corporate welfare checks arrive on time. Congress can be relied upon to send them their Christmas Bonus via a “Farm Bill.” And deficits dont matter – as long as the money’s going to their campaign donors, Congress is happy to throw it around. Unemployment Insurance? Cant afford it. Social Security? Gotta pay in advance. Agriwelfare? Step right up!
Ironically, this is a special time for the Trust Fund. For most of the past 30 years, the Trust Fund served to jack up taxes on low-income wage-earners. For now, the Trust Fund is roughly breaking even. But when the debate begins again, as it always does, the usual Very Serious People will make Grand Claims that we (meaning: you) need to shore up Social Security and-or Medicare for the next 75 years – by jacking up payroll taxes on working people today. It’s a lie.
Old age insurance, disability and health care for the elderly is no different from defense spending or cushy tax regimes for the super rich – it involves taking money from some people and giving it to others. Rich folks get the benefit of financing – poor people should too.
PS David Cay Johnston devotes a chapter of “Perfectly Legal” to attacking the rationale behind the Social Security Trust Fund – 10 yrs since he wrote it, its still worth a read, as is the entire book.
PPS It really doesnt matter if the assets in the Social Security and Medicare Trust Funds are worthless IOUs (as right-wing wingnuts insist), or the safest securities on planet Earth (per their worldwide capital market valuation). If they’re worthless, then the debt they represent is also worthless – which conveniently reduces the debt by $5T, creating lots of extra borrowing room. If the assets are real, you dont need the extra borrowing room – you’ve got assets. The value/valuelessness of the Trust Funds is a red herring –
We left off asking why it is that Americans put in so many hours compared to workers in other rich countries. The short answer is: it aint the American work ethic – it’s backward American labor laws. And ironically, one consequence of forcing workers to work so much – is that fewer working-age Americans actually choose to work, compared to workers in many other rich countries.
Unlike EVERY other rich country in the world – and many poor ones too – the US guarantees to full-time workers ZERO paid vacation days. Sort of astonishing when you take a step back to look at the numbers: legally required vacay in most western European countries is 4-7 weeks. In the US: 0. How about paid holidays? In Europe, typically about 10 paid holidays per year. In the US: 0 again. In many rich countries, workers, by law, get 30-40 paid days off per year. In the US: 0.
Next there’s paid parental leave. The US is one of 4 countries that do not offer it – the other 3 are Lesotho, Swaziland and Papua New Guinea. The typical benefit in rich countries is 3-4 months of paid leave – often at full pay. In America: 0.
The difference between the US and the rest of the world is legislation – American labor laws have not been updated since the 19th century. Even when Americans are fortunate enough to have paid vacation, they’re often unable to take it, for fear of sending the “wrong signal” to employers – that they’re not workaholicky enough. To cure this problem, many countries not only require paid vacation, but they require that it be taken.
Left to free markets, workers will never get much time off. The average American full time worker only takes 16 paid vacation days – less than the statutory minimum in practically every rich country.
Conservatives tend to be selectively stupid when it comes to free markets – even something so basic as supply and demand. When work becomes more valuable – when it comes with benefits like unemployment insurance, paid vacation time and maternity leave – more people want to work. This goes a long way toward explaining why labor force participation rates (LFPR) – the fraction of working age people actually at work – tend to be higher in northern European countries that have progressive labor laws. Switzerland, Sweden, Denmark and Norway are tops in LFPR, with rates of 78-83%. Germany, UK, NZ and Canada – all of whom have paid parental leave and mandatory paid vacation time – are close behind at 77% AND RISING. The US is down at 73%… and dropping. Labor laws in the US suck – Americans have responded by staying out of the work force, compared to people in other countries. Yet another workplace reality that Ayn Rand and her disciples failed to incorporate into their joke of an economic model.
Looking at unemployment rates, the US also compares badly with countries with far more generous unemployment benefits. Unemployment insurance is part of labor compensation – thus more UI means more compensation, which means more people will want to work. Only a conservative can pretend to not to grasp so simple a relationship. According to Forbes, the countries with the cushiest unemployment benefits ALL have less unemployment than the US: Sweden, Finland, Germany, Israel, Norway, Japan.
Conservatives fantasize about a Europe with progressive labor laws and widespread unemployment – people hangin’ out and collectin’ welfare. Reality is the opposite: Europe has proportionately more working-age people at work than the US. The difference between liberal and conservative views on employment law is that liberal views are legitimate theories, grounded in reality. Conservative blather persists in a factual vacuum – they are not theories, but dogmas – accepted on faith without evidence. And as with all matters of faith, they are not amenable to fact or logic. Europe has an exceedingly generous welfare state – and people are therefore MORE likely to go to work.
Being fundamentally without principle, conservatives can take any stand on any issue. A party that pretends on Monday to be pro-family should be expected on Tuesday to push for paid maternity leave. But conservatives instead reserve Tuesdays for yet more vapid sermons on small government and less regulation – which translates into: sorry, mom – get back to work – just like they do in Lesotho and Swaziland. So maybe it’s not a coincidence that an American baby is twice as likely to die in its 1st year compared to babies born in other western countries – but dead babies arent factored into conservative “pro-family” ideology – no more than motherhood.
Conservatives did their usual thing with a recent CBO report on the ACA – the real dumb ones didnt understand it and said a bunch of stupid stuff. The dishonest ones – who’ve long appreciated the benefits of saying stupid stuff to a base only too happy to hear it – did the same. The press dutifully reported their inanity as “viewpoints” if not “information.”
After 48 hours spent spewing the lie that the ACA will cost 2 million jobs, things have cooled down – but the typical dim conservative has now stored it as “fact”. We’ll surely hear the lie repeated right on through the 2016 election – because that’s the way it goes in conservative politics. The dumber your constituency, the freer you are to say what you like, no matter the facts.
The reality behind the CBO report is that the ACA has given workers more options. No jobs are going to be eliminated because of new ACA benefits, but rather, as CBO says explicitly, workers are expected to CHOOSE to work fewer hours – as a matter of personal preference. People arent getting fired or seeing their hours reduced. The new law simply provides workers with new opportunities – to work less to care for children or elderly parents – or simply to take some personal time – without worrying about losing their health insurance. Economists pass no judgment on your desire to work more or less – any more than they’d judge your choice of ice cream flavors – it’s a matter of pure preference – de gustibus non est disputandum.
But the entire episode passed without pundits seizing on this fundamental fact: Americans work far more hours than people in other rich countries. Compared to the 1790 hours worked by the average American full-time worker per year, the average Canadian works 1710; the average Brit: 1650; the average Dane: 1550; and the average German: 1400!
For fear of perpetuating the stereotype of the lazy, party-crazy German, and the sober, hard-working Mexican, I hesitate to mention that, within OECD, Mexicans work by far the most hours (2200) – 55% more than Germans. The EU conflict between Greece and Germany could be attributable to cultural differences: hard-working Greeks put in 40% more hours than indolent Germans – more than 2000 hours per year.
But America’s not losing its nose-to-the-grindstone edge anytime soon – CBO says that total hours worked by already worked-to-the-bone Americans will still increase over the coming decade – only that the increase will be smaller than it would have been in the absence of the ACA. How much smaller? 2%, tops. Given that Americans are already working 5% more than Canadians, 10% more than Brits and 35% more than Germans, this cannot possibly be a serious concern. For the average American worker, less is more – especially when it’s the worker who’s making the decision to work a little bit less. Conservatives are all about personal choice – except when it concerns real people making real life choices. After all, what’s liberty without the freedom to be a slave?
Pondering these numbers, one might grow curious as to why Americans put in so many hours compared to workers in other rich countries. Is it a superior work ethic? Not nearly. Tune in Friday when we investigate the source of long American hours.
Note: The Field Guide, effective this week, will have new material every Monday, Wednesday and Friday, with the possible threat of Bonus Material on weekends. Yes it’s true that Krugman only does 2 columns per week – but CT loses far less time dodging undergrads and trimming his beard….
Raise the price of something – we all intuit – and people will want less of it. Raise the minimum wage and low-wage employment will decrease. Great theory – cryin’ shame the facts dont support it.
If you could raise the minimum wage and hold all else constant, it’s hard to imagine that employment wouldnt be adversely affected. But you cant. People working minimum wage jobs are poor. Poor people are fairly predictable in this regard: give them extra cash, and sure enough, they go and spend it. So when you increase the minimum wage, you should expect to get a commensurate bump up in consumer demand.
Tax cuts for cagillionaires, by comparison, have less predictable effects. When so-called “job-creators” get a tax break, the extra cash rarely goes into consumption. You can only drive one Maserati or sleep till noon in one ski chalet at a time. Their extra income tends to go to saving/investing – and since capital is free to cross borders in search of the best return, tax cuts for the rich are as likely to create jobs in Thailand or Mexico as anyplace else.
On the other hand, when you give a McWorker a raise, the extra cash is not likely to go into a Roth IRA. It will almost certainly be spent locally – at Walmart, the supermarket, the dentist, Jiffy Lube, etc. And guess what: the cumulative effect of raising the income of ALL minimum wage workers at the same time MORE THAN offsets the increased labor costs. Employers experience an immediate bump-up in demand, and so not only do they maintain employment levels – if anything, they add jobs. The charm of this theory is that it’s actually borne out by the facts.
Twenty years ago, this effect was only suspected – it at best constituted a minority opinion among economists. Then two yet-unknown, up-n-coming economists seized on a change in state law as a “natural experiment.” New Jersey raised its minimum wage; neighboring Pennsylvania did not. David Card and Alan Krueger looked at the border area to see if employment in the two states diverged – they found that it didnt.
With increasingly sophisticated methods, Card and Krueger and other researchers have since reproduced these same results many times over: when you increase the minimum wage, low wage workers do in fact experience an increase in income (that is, their employers dont cut their hours in response); and employment holds steady. This effect has become common knowledge among economists – not that conservatives care – their beliefs arent based in fact anyway – they’re happy hanging on to refuted, sophomoric theories – if they cant wrap their brains around evolution, what chance could they have to grasp economics?
Minimum wage is a classic case in which free markets can NOT be relied on to produce optimal results. If an individual firm chooses to increase wages, it’s not likely to experience an offsetting increase in demand – it will probably cost the firm. However if everyone increases wages at once, everyone comes out ahead: the nation’s poorest employees get a raise that costs their employers nothing. It’s a textbook case for using legislation to improve wellbeing when free markets cant do the job.
In constant dollars, today’s $7.25 minimum wage is lower than it was during the entire 30 year period 1955-85. With American poverty at its highest in decades – the highest of any rich country – and with its poorest workers increasingly unable to keep up, raising the minimum wage is sound, sensible policy at a critical time.