Coyote Blog

What better way to inaugurate the new blog site than to rant about a Kevin Drum post?  Drum posts this chart today from the NY Times showing a drop-off in the effective total tax rate (income+social security+other stuff) at very high income levels.

Well, no freaking duh.    I suspect that this has been true practically forever.  Why?  Because this is NOT an income tax chart, it is a total tax chart.  And as such, it includes social security and medicare taxes (collectively, with a couple of other minor things, called "payroll taxes".  These taxes, about 8% of total income, are a flat tax with a cap around $100,000.  This means that everyone with income under $100,000 pays 8% of all income.  Someone at $5,500,000 (midpoint of the $1 million to $10 million band) pays only 8%  of the first $100,000 or an effective rate of 0.146% of total income on payroll taxes.  For someone in the top 400 taxpayers, the rate is close to zero.   So you really have to add 8 percentage points or so to the higher rates to make them comparable ex-Social Security to rates for earners under $100,000.

Now, we can argue about the regressive structure of Social Security.  But many on the left have opposed making it more progressive.  They want Social Security to perceived as an insurance program, not a welfare/transfer program.   To be insurance rather than welfare, effectively the same income that is used as the basis for benefits must also be the income basis for taxation.  Income over $100,000 is not used to calculate benefits, so it is not taxed.

Here is one person on the left making this point in 2005:

...when his aides presented him with their initial Social Security proposals 70 years ago, FDR balked: "No dole," he said, "mustn't have a dole" "” because he knew instinctively that welfare programs are both fundamentally unpopular as well as corrosive to the human spirit. Conservatives understand this better than liberals, and know perfectly well that the best way to kill something is to convince the public that it's actually a welfare program.

But that's not what Social Security is. It's a modestly progressive social insurance program that's paid for by everyone and that benefits everyone. If it ever stops being that, if it ever stops being universal, it will eventually cease to exist. Don't let anyone fool you into thinking otherwise.

The person who wrote this was ... Kevin Drum.  It is wildly disingenuous to look at income taxes and payroll taxes mixed together.  It is even more so given Drum fully understands why payroll taxes are structured as they are.

Which is all not to say that there is not a really halide point in the article that people in the 100,000-200,000 range are getting hosed.  But I would submit this hosing is more due to work by Drum's intellectual allies than the reverse.  Phase-outs of deductions  occur mostly in this range in the tax code, as does phase-in of the AMT.  Both are leftish creations.

Also, there has clearly been something regressive in the tax code for the top 1% of earners over the last 10+ years.  I am not sure what it is, because it certainly is not in the base rate schedule.  My guess is that they just spend a hell of a lot more on managing their tax bill than you or I do.  I am sure if I spent a million dollars on tax advice, I would cut my bill by 3 percentage points.  Of course, that is a losing proposition for me, but a winning proposition for someone who makes $100 million a year.  But hasn't this always been the case?  And won't it always be the case, at least until we decide to radically simplify the tax code?

I wrote more about Drum's 2005 post here.  I demonstrated how Social Security is promising me a negative rate of return on my money here.  I showed despite Drum's protestations that Social Security is in fact mostly a transfer program here, if one defines a transfer as the difference in the return I get from SS and the return I would get on the private market.

As mentioned in the updates to this earlier post, the Obama transition web site has, at least temporarily, purged out all the real content they had up about specific programs and legislative goals.  So, as a public service, I will help fill this information gap by re-posting an article I wrote about 9 months ago on the "Patriot Employer Act" sponsored by Barack Obama and likely a kernel for early 2009 legislative action:

Posted 2/13/2008:

It turns out, according to Barack Obama, (who hales from the party that doesn't believe in questioning anyone's patriotism) that I am not a "Patriot Employer." This is from the text of Senate Bill S. 1945 of which he is a co-sponsor (My snark is interspersed in italics): Patriot Employers are to be given tax breaks over unpatriotic employers (I presume this means that their tax rates will be raised less in an Obama presidency than those of other folks) with "patriot employers" defined as such:

(b) Patriot Employer- For purposes of subsection (a), the term`Patriot employer' means, with respect to any taxable year, any taxpayer which-

`(1) maintains its headquarters in the United States if the taxpayer has ever been headquartered in the United States,

OK, I guess I can comply with this. Though I am not sure the best way to begin an Obama "kindler gentler foreign policy" is to tell the nations of the world that we will be taxing their company's income in the US at a higher rate than our own companies.

`(2) pays at least 60 percent of each employee's health care premiums,

So the #1 determinant of patriotism is not commitment to individual rights but paying 60% of employee health care costs. I guess I am so unpatriotic

And, just from a practical standpoint, 90% of my employees are seasonal, hired for about 4 months of the year. To be patriotic, I have to pay their health care costs all year long? Also, since most of my employees are retired, they are on Medicare or an employee retirement medical plan. If they pay $0 in premiums and I pay $0 of that, do I get credit for 60%? Maybe the government can mandate a solution for zero divided by zero, like they did for the value of pi years ago

`(3) has in effect, and operates in accordance with, a policy requiring neutrality in employee organizing drives,

I presume neutrality means that in a hypothetical union drive, I do not express my opinion (and likely opposition) to said unionization drive? I am told that this also entails allowing card checks rather than hidden ballot voting. In other words, patriotism is being defined here as 1) giving up your free speech rights and 2) opposing hidden ballot voting. Uh, right. Besides, if a union organized our company, as unlikely as that would be, I would probably have to do a Francisco d'Anconia on the place.

`(4) if such taxpayer employs at least 50 employees on average during the taxable year-

`(A) maintains or increases the number of full-time workers in the United States relative to the number of full-time workers outside of the United States,

In other words, we don't want American companies growing overseas. This could also be called the "give up international market share act." This implies that it is unpatriotic for US-based Exxon to explore for oil in Asia and that it is more patriotic to let the Chinese national oil company do it. This implies that it is more patriotic for Coke to lose market share in Germany than to gain it. This means that it is more patriotic for Mattel to buy its toys in China from Chinese companies rather than run the factories themselves (and thereby be accountable themselves for product quality and working conditions).

This is beyond stupid. We LIKE to see US companies doing well overseas. If we have to import our raw materials, we feel more comfortable if it is US companies doing the extraction. Don't we? In the name of patriotism, do we really want to root for our domestic companies to fail in international markets?

`(B) compensates each employee of the taxpayer at an hourly rate (or equivalent thereof) not less than an amount equal to the Federal poverty level for a family of three for the calendar year in which the taxable year begins divided by 2,080,

90% of my workers are retired. They work for me to supplement their income, to live our in nature, and to stay busy. They need me to pay them based on the poverty line for a family of three, why? I will tell you right now that if I had to raise wages this much, most of my employees would quit. Many of them force me to give them fewer hours so they can stay under the social security limits for income. I discussed what rising minimum wages often force me to do here, but just as an illustration, a $1 an hour across the board wage increase would easily wipe out all the money I make in a year and put me into a loss position. In which case the lowered tax rate would not do me much good anyway.

`(C) provides either-

`(i) a defined contribution plan which for any plan year-

`(I) requires the employer to make nonelective contributions of at least 5 percent of compensation for each employee who is not a highly compensated employee, or

`(II) requires the employer to make matching contributions of 100 percent of the elective contributions of each employee who is not a highly compensated employee to the extent such contributions do not exceed the percentage specified by the plan (not less than 5 percent) of the employee's compensation, or

`(ii) a defined benefit plan which for any plan year requires the employer to make contributions on behalf of each employee who is not a highly compensated employee in an amount which will provide an accrued benefit under the plan for the plan year which is not less than 5 percent of the employee's compensation, and

Uh, I am not sure why it is unpatriotic for an employee to save for themselves, but I think 401k plans are a nice benefit. I would certainly offer one except for one tiny fact - ALL MY EMPLOYEES ARE ALREADY RETIRED!! They are over 65. They are drawing down on their retirement, not contributing to it.

This is at the heart of the problem with all US labor law. Folks up in Illinois write laws with a picture of a steel mill in mind, and forget that employment and employees have infinite variations in circumstances and goals.

So I am unpatriotic, huh. But if forcing companies to contribute to emplee retirement plans is patriotic, why is hiring folks once they are retired to give them extra income in retirement unpatriotic? In fact, maybe I could argue that 100% of the wages I pay go to retirement spending

`(D) provides full differential salary and insurance benefits for all National Guard and Reserve employees who are called for active duty, and

In other words, we of the government are not going to pay our employees (ie reservists on active duty) what they are worth and are not going to give them benefits, so to be patriotic you need to do it for us. We in Congress are not really very patriotic and don't support the troops, so you need to do it for us.

All kidding aside, I would do this in my company if it was applicable, but I really resent being piously told to do so by several Senators who don't really model this behavior themselves.

`(5) if such taxpayer employs less than 50 employees on average during the taxable year, either-...

blah, blah. Basically the same stuff repeated, though slightly less onerous.

Since when did patriotism equate to "rolling over to the latest AFL-CIO wish list?"

Been smugly thinking that you were smart enough not to take out an interest only mortgage to finance a house at the peak of the market?  Or savvy enough not to invest your savings in a mortgage portfolio or some sort of interest rate swap?

Sorry, think again.  Because GWB and the US Congress have decided to force you to be an investor in crappy, devalued investments.  To the tune of at least $700 billion.

Four years ago, privatization of Social Security was scuttled in large part because Congress thought it unfair to toss the average taxpayer into the volatile marketplace with his/her retirement savings.  Now, the government is forcing us all to participate in the financial markets, but only allowing us to invest in the worst assets.  Just great.

A government job can be a great deal.  Likely it pays more than a comparable private job, it's generally impossible to get fired from, and it has outrageously good medical and pension plans.  And, if you don't shy away from a bit of perjury, can be made to pay off spectacularly:

During the workweek, it is not uncommon to find retired L.I.R.R. [Long Island Railroad]
employees, sometimes dozens of them, golfing there. A few even walk the
course. Yet this is not your typical retiree outing.

These
golfers are considered disabled. At an age when most people still work,
they get a pension and tens of thousands of dollars in annual
disability payments "” a sum roughly equal to the base salary of their
old jobs. Even the golf is free, courtesy of New York State taxpayers.

With  incentives like these, occupational disabilities at the L.I.R.R. have become a full-blown epidemic.

Virtually
every career employee "” as many as 97 percent in one recent year "”
applies for and gets disability payments soon after retirement, a
computer analysis of federal records by The New York Times has found.
Since 2000, those records show, about a quarter of a billion dollars in
federal disability money has gone to former L.I.R.R. employees,
including about 2,000 who retired during that time.

97 percent?  Wow!  And just to demonstrate that year was not some kind of outlier:

In each year since 2000, between 93 percent and 97 percent of employees
over 50 who retired with 20 years of service also received disability
payments.

The article goes on to demonstrate that this is occurring at what appears, from the injury statistics, to be one of the safest railroads in the area.  Say what you will about the NY Times, but when they get their teeth into local corruption they can still do a masterful job, as evidenced by this long article discussing many apparently ridiculous payroll situations at the LIRR.

I can say from experience that there is a group of people in this country for whom getting a lifetime disability payment (e.g. from the Social Security Administration) is as good as hitting the lottery.  I remember one time I got a survey form from the SSA asking about a former employee.  I didn't pay much attention to the form's purpose as I filled it out -- I get all kinds of such government wastepaper with breathless admonishments about the urgency of my reply.  Anyway, about 2 weeks later I got a very threatening letter from the attorney for this former employee, threatening me with all kinds of dire consequences if I did not immediately retract my (honest) answers to the SSA inquiry.  Apparently, I was endangering a lifetime disability determination that this person had been working on obtaining for years. 

Every day, in fact, I get job applicants who try to cut deals with me of one sort or another (e.g. can you pay me under the table in cash?) because they say they are fully able to do outdoor maintenance work but they can't show any income because it might endanger their lifetime disability payments.  In a similar vein, I have three cases I know of in my company today where workers filed workman's compensation claims of injury several days after they were terminated.

I've said it before, but the reckoning is coming on state and local government pensions, which in most cases are unfunded, undisclosed liabilities of startling magnitude.  The disaster that is fast approaching in these state and local government finances will make Social Security's problems look pitiful by comparison.

Postscript:  Railroad labor law is just weird and a total mess.  Being the first major industry, and the first major industry that was regulated, a whole regulatory structure was put in place for railroads that (fortunately) has been applied to few other industries.  Whatever the problems we have with state workman's comp programs, they are models of governance compared to how things work in the railroad industry.

For example, I remember when I worked for a railroad in the 1990's, carpel tunnel claims were common.  By the nature of the comp system, workers got cash payments for injuries in addition to medical treatment (I recall a figure at the time of $7500 per wrist for carpel tunnel, but that may be off).  It was a common piece of advice among railroad workers that if one wanted to get the money together for a down-payment on a new pickup truck, one only had to go to Dr. X or Y and get a carpel tunnel diagnosis.

As we previewed last week, the IRS came out with its numbers on 2006 taxes, and it turns out that the top 1% richest taxpayers earned 22% of the taxable income and paid 40% of the income taxes.  According to candidate Obama, this represents an unfair free ride for the rich.  These numbers increased from 21% and 37% in the last year of the Clinton administration.

I guess my question is, what's enough?  Already, half the country only pays less than 3% of the income taxes.  Do we really want a country where 50.1% of the people vote to live off the other 49.9%?

Postscript:  Yes, I know payroll taxes work differently and hit lower income folks pretty hard.  But then again, the Social Security program is supposed to be an insurance and retirement plan, not a transfer program. The left goes bananas when you suggest Social Security is welfare and not an honorable paid participation program.  So, like any other insurance, the premiums are flat rather than progressive.  You can't have it both way.

Kevin Drum titles a post on providing government incentives for high MPG cars "Ending the Addiction,"  by which I presume he means addiction to gasoline.   I really struggle with the point of view on life that describes consumer affinity for enormously value-producing technologies to be an "addiction."  One could equally well refer to our preference for good health or prosperity to be an "addiction," particularly when fossil fuels have played such a central role in fueling the industrial revolution and the prosperity which it has brought.  With the current jump in oil prices tied so closely to growing wealth in China, never has the tie between fossil fuel use and prosperity been more obvious.

Drum advocates for what he calls a "progressive" proposal:

For cars, the most effective thing would be a "feebate": In the
showroom, less-efficient models would have a corresponding fee, while
the more-efficient ones would get a rebate paid for by the fees. That
way when choosing what model you want you would pay attention to fuel
savings over its whole life, not just the first year or two. It turns
out that the automakers can actually make more money this way because
they will want to get their cars from the fee zone into the rebate zone
by putting in more technology. The technology has a higher profit
margin than the rest of the vehicle.

I will say that this is probably less bad than other "progressive" proposals I have heard, but the logic here is based on consumer ineptness.  Higher gas prices, which drive higher lifecycle costs, are presumably providing exactly this incentive without any government program.  The problem, it seems, is that progressives don't think very much of the common people they wish to defend.  Just as the justification for Social Security is that the average person can't be trusted to make good decisions about their retirement savings so we elites will do it for them, this seems to be the logic here, but even more patronizing.   Here is the best bit which really demonstrates the point I am making:

Here's a further suggestion: require stickers to list the estimated cost of fuel consumption over a five year period.

Basically this calculation is total estimated miles per year divided by mpg times estimated gas prices times five. A simple piece of math with four numbers that can be completed on a calculator in 10 seconds or by hand in less than 30 seconds.  Mr. Drum, a big supporter of our current monopoly government school system, apparently does not think that people educated in this system can do this math for themselves.  Could it be clearer that "progressivism" is really about disdain for the common man and a belief that elites should make even the smallest decisions for them?

It turns out, according to Barack Obama, (who hales from the party that doesn't believe in questioning anyone's patriotism) that I am not a "Patriot Employer."  This is from the text of Senate Bill S. 1945 of which he is a co-sponsor  (My snark is interspersed in italics):  Patriot Employers are to be given tax breaks over unpatriotic employers (I presume this means that their tax rates will be raised less in an Obama presidency than those of other folks) with "patriot employers" defined as such:

(b) Patriot Employer- For purposes of subsection (a), the term
`Patriot employer' means, with respect to any taxable year, any
taxpayer which--

  `(1) maintains its headquarters in the United States if the taxpayer has ever been headquartered in the United States,

OK, I guess I can comply with this.  Though I am not sure the best way to begin an Obama "kindler gentler foreign policy" is to tell the nations of the world that we will be taxing their company's income in the US at a higher rate than our own companies.

  `(2) pays at least 60 percent of each employee's health care premiums,

So the #1 determinant of patriotism is not commitment to individual rights but paying 60% of employee health care costs.  I guess I am so unpatriotic

And, just from a practical standpoint, 90% of my employees are seasonal, hired for about 4 months of the year.  To be patriotic, I have to pay their health care costs all year long?  Also, since most of my employees are retired, they are on Medicare or an employee retirement medical plan.  If they pay $0 in premiums and I pay $0 of that, do I get credit for 60%?  Maybe the government can mandate a solution for zero divided by zero, like they did for the value of pi years ago

  `(3) has in effect, and operates in accordance with, a policy requiring neutrality in employee organizing drives,

I presume neutrality means that in a hypothetical union drive, I do not express my opinion (and likely opposition) to said unionization drive?   I am told that this also entails allowing card checks rather than hidden ballot voting.  In other words, patriotism is being defined here as 1) giving up your free speech rights and 2) opposing hidden ballot voting.  Uh, right.  Besides, if a union organized our company, as unlikely as that would be, I would probably have to do a Francisco d'Anconia on the place.

  `(4) if such taxpayer employs at least 50 employees on average during the taxable year--

`(A) maintains or increases the number of full-time
workers in the United States relative to the number of full-time
workers outside of the United States,

In other words, we don't want American companies growing overseas.  This could also be called the "give up international market share act."  This implies that it is unpatriotic for US-based Exxon to explore for oil in Asia and that it is more patriotic to let the Chinese national oil company do it.  This implies that it is more patriotic for Coke to lose market share in Germany than to gain it.  This means that it is more patriotic for Mattel to buy its toys in China from Chinese companies rather than run the factories themselves (and thereby be accountable themselves for product quality and working conditions).

This is beyond stupid.  We LIKE to see US companies doing well overseas.  If we have to import our raw materials, we feel more comfortable if it is US companies doing the extraction.  Don't we?  In the name of patriotism, do we really want to root for our domestic companies to fail in international markets?

`(B) compensates each employee of the taxpayer at
an hourly rate (or equivalent thereof) not less than an amount equal to
the Federal poverty level for a family of three for the calendar year
in which the taxable year begins divided by 2,080,

90% of my workers are retired.  They work for me to supplement their income, to live our in nature, and to stay busy.  They need me to pay them based on the poverty line for a family of three, why?  I will tell you right now that if I had to raise wages this much, most of my employees would quit.  Many of them force me to give them fewer hours so they can stay under the social security limits for income.  I discussed what rising minimum wages often force me to do here, but just as an illustration, a $1 an hour across the board wage increase would easily wipe out all the money I make in a year and put me into a loss position.  In which case the lowered tax rate would not do me much good anyway.

  `(C) provides either--

  `(i) a defined contribution plan which for any plan year--

`(I) requires the employer to make
nonelective contributions of at least 5 percent of compensation for
each employee who is not a highly compensated employee, or

`(II) requires the employer to make
matching contributions of 100 percent of the elective contributions of
each employee who is not a highly compensated employee to the extent
such contributions do not exceed the percentage specified by the plan
(not less than 5 percent) of the employee's compensation, or

`(ii) a defined benefit plan which for any plan
year requires the employer to make contributions on behalf of each
employee who is not a highly compensated employee in an amount which
will provide an accrued benefit under the plan for the plan year which
is not less than 5 percent of the employee's compensation, and

Uh, I am not sure why it is unpatriotic for an employee to save for themselves, but I think 401k plans are a nice benefit.  I would certainly offer one except for one tiny fact - ALL MY EMPLOYEES ARE ALREADY RETIRED!!  They are over 65.  They are drawing down on their retirement, not contributing to it.

This is at the heart of the problem with all US labor law.  Folks up in Illinois write laws with a picture of a steel mill in mind, and forget that employment and employees have infinite variations in circumstances and goals. 

So I am unpatriotic, huh.  But if forcing companies to contribute to emplee retirement plans is patriotic, why is hiring folks once they are retired to give them extra income in retirement unpatriotic?  In fact, maybe I could argue that 100% of the wages I pay go to retirement spending

`(D) provides full differential salary and
insurance benefits for all National Guard and Reserve employees who are
called for active duty, and

In other words, we of the government are not going to pay our employees (ie reservists on active duty) what they are worth and are not going to give them benefits, so to be patriotic you need to do it for us.  We in Congress are not really very patriotic and don't support the troops, so you need to do it for us.

All kidding aside, I would do this in my company if it was applicable, but I really resent being piously told to do so by several Senators who don't really model this behavior themselves.

  `(5) if such taxpayer employs less than 50 employees on average during the taxable year, either--...

blah, blah.  Basically the same stuff repeated, though slightly less onerous.

Since when did patriotism equate to "rolling over to the latest AFL-CIO wish list?"

Many government programs have both a stated justification as well as a second, unstated justification which is the real reason that politicians support the program.  For example, many regulations are portrayed as pro-consumer when in fact their real utility is in protecting a favored company or political donor from new competition.

The same is true for progressive taxation.  The public logic is usually about the rich paying a "fair share" or reducing income inequality (by cutting down the oaks to give the maples more sunshine).  However, progressive taxation pays rich dividends to politicians looking to increase the size of government and their own personal power.  Some time in the last 10 years, we crossed an invisible line where less than half of American families pay for effectively all government programs (leaving aside Social Security). 

This means that when any politician stands up and proposes a new program, a majority of Americans know that they are not going to pay for it.  In fact, the situation is even more obvious when you consider new programs at the margin.  If you listen to the Democratic debates, nearly every candidate is proposing to pay for his or her expensive programs via new taxes aimed solely at the top 10 or 20% of earners.  Every time they propose a program, there is an unstated but increasing clear clause "and 80% of you won't have to pay anything for this."  Already, we see many states funding new programs with surcharges on the rich.  Here is but one example:

California voters agreed to tax the rich to support public mental health
services. 

More than half of them (53.3 percent) voted last month in favor of
Proposition 63, which will impose a tax surcharge of 1 percent on the taxable
personal income above $1 million to pay for services offered through the
state's existing mental health system. The initiative will generate an
estimated $700 million a year....

Richard A. Shadoan, M.D., a past president of the CPA, wrote in Viewpoints
in the September 3 issue of Psychiatric News, "The scope of the
program and its tax-the-rich source will provoke a debate. But it's an
argument worth having to make California face the neglect of not providing
treatment to more than 1 million people with mental illness."

So what happened?  I don't know how many people make a million dollars in California, but it is certainly less than 5% of the population.  So the headline should read "53.3% of people voted to have less than 5% of the people pay for an expensive new program."  If the 53.3% thought it was so valuable, why didn't they pay for it?  Well, it is clear from the article that the populace in general has been asked to do so in the past and refused.  So only when offered the chance to approve the program if a small minority paid for it did they finally agree.  This is the real reason for progressive taxation.  (by the way, these 53.3% will now feel really good about themselves, despite the fact they will contribute nothing, and will likely piss on millionaires next chance they get, despite the fact that they are the ones who will pay for the program).

Ultimate Example of Progressive Taxation

My story today comes from the Roman Empire just after the death of Julius Caesar.   At the time, three groups vied for power:  Octavian (Augustus) Caesar, Mark Antony, and republican senators under Brutus and Cassius.   Long story short, Octavian and Antony join forces, and try to raise an army to fight the republicans, who have fled Italy.  They needed money, but worried that a general tax would turn shaky public opinion in Rome against them.  So they settled on the ultimate progressive tax:  They named about 2500 rich men and ordered them killed, with their estates confiscated by the state. 

This approach of "proscriptions" had been used before (e.g. Sulla) but never quite as obviously just for the money.  In the case of Octavian and Antony, though nominally sold to the public as a way to eliminate enemies of Rome, the purpose was very clearly to raise money.  All of their really dangerous foes had left Rome with the Republicans.  The proscriptions targeted men of wealth, some of whom had been irritants to Octavian or Antony in the past (e.g. Cicero) but many of whom had nothing to do with anything.  Proscribed men were quoted as saying "I have been killed by my estates."

I wonder how many of today's progressives would be secretly pleased by this approach?

Many government programs have both a stated justification as well as a second, unstated justification which is the real reason that politicians support the program.  For example, many regulations are portrayed as pro-consumer when in fact their real utility is in protecting a favored company or political donor from new competition.

The same is true for progressive taxation.  The public logic is usually about the rich paying a "fair share" or reducing income inequality (by cutting down the oaks to give the maples more sunshine).  However, progressive taxation pays rich dividends to politicians looking to increase the size of government and their own personal power.  Some time in the last 10 years, we crossed an invisible line where less than half of American families pay for effectively all government programs (leaving aside Social Security). 

This means that when any politician stands up and proposes a new program, a majority of Americans know that they are not going to pay for it.  In fact, the situation is even more obvious when you consider new programs at the margin.  If you listen to the Democratic debates, nearly every candidate is proposing to pay for his or her expensive programs via new taxes aimed solely at the top 10 or 20% of earners.  Every time they propose a program, there is an unstated but increasing clear clause "and 80% of you won't have to pay anything for this."  Already, we see many states funding new programs with surcharges on the rich.  Here is but one example:

California voters agreed to tax the rich to support public mental health
services. 

More than half of them (53.3 percent) voted last month in favor of
Proposition 63, which will impose a tax surcharge of 1 percent on the taxable
personal income above $1 million to pay for services offered through the
state's existing mental health system. The initiative will generate an
estimated $700 million a year....

Richard A. Shadoan, M.D., a past president of the CPA, wrote in Viewpoints
in the September 3 issue of Psychiatric News, "The scope of the
program and its tax-the-rich source will provoke a debate. But it's an
argument worth having to make California face the neglect of not providing
treatment to more than 1 million people with mental illness."

So what happened?  I don't know how many people make a million dollars in California, but it is certainly less than 5% of the population.  So the headline should read "53.3% of people voted to have less than 5% of the people pay for an expensive new program."  If the 53.3% thought it was so valuable, why didn't they pay for it?  Well, it is clear from the article that the populace in general has been asked to do so in the past and refused.  So only when offered the chance to approve the program if a small minority paid for it did they finally agree.  This is the real reason for progressive taxation.  (by the way, these 53.3% will now feel really good about themselves, despite the fact they will contribute nothing, and will likely piss on millionaires next chance they get, despite the fact that they are the ones who will pay for the program).

Ultimate Example of Progressive Taxation

My story today comes from the Roman Empire just after the death of Julius Caesar.   At the time, three groups vied for power:  Octavian (Augustus) Caesar, Mark Antony, and republican senators under Brutus and Cassius.   Long story short, Octavian and Antony join forces, and try to raise an army to fight the republicans, who have fled Italy.  They needed money, but worried that a general tax would turn shaky public opinion in Rome against them.  So they settled on the ultimate progressive tax:  They named about 2500 rich men and ordered them killed, with their estates confiscated by the state. 

This approach of "proscriptions" had been used before (e.g. Sulla) but never quite as obviously just for the money.  In the case of Octavian and Antony, though nominally sold to the public as a way to eliminate enemies of Rome, the purpose was very clearly to raise money.  All of their really dangerous foes had left Rome with the Republicans.  The proscriptions targeted men of wealth, some of whom had been irritants to Octavian or Antony in the past (e.g. Cicero) but many of whom had nothing to do with anything.  Proscribed men were quoted as saying "I have been killed by my estates."

I wonder how many of today's progressives would be secretly pleased by this approach?

I am happy to see others making the point I have tried to make for years:  That the coming financial problems with Social Security are not its biggest problem.  Megan McArdle and Clive Cook say it very well:

In this post on Paul Krugman and Social Security,
Clive, as usual, targets with laser accuracy the real problem with the
Social Security system: not that it is bankrupt, but that it encourages
people to make extremely bad decisions about providing for their future.

It starts with childbearing:  social security systems seem to exert downward pressure on birthrates,
in effect undermining their own actuarial base. Social security
socializes the benefits of childbearing in providing for retirement,
but no one has yet figured out how to socialize the main cost, which is
turning your life choices over to a screaming pre-verbal dictator.
People are thus tempted to free ride on the childbearing of others, and
the more generous benefits are, the more they seem to free ride. This
is one reason that Social Security, which used to have more than 30
workers for each retiree, now has only three, headed towards two.

Social Security also encourages people to leave the workforce
earlier than they otherwise would. People are healthier than ever at
65, but while in 1950, almost half of all men over the age of 65
worked, that number is now less than 20%. This appears to be highly
correlated with the spread of defined benefit pensions such as social
security, which offer no advantage to delaying retirement. Indeed,
Social Security perversely penalizes anyone who takes early benefit but
continues to work, docking a third of their earnings.

Finally, Social Security discourages private savings. This is
terrible for two reasons. If future fiscal problems force the
government to reduce benefits, the people who didn't save enough
because they relied on those promises will be made much worse off than
they would otherwise have been.

The other problem is that Social Security is not a productive
investment. Privately saved money is mostly lent to corporations that
mostly use the money to do things that make the economy more
productive, such as R&D and capital equipment upgrades. Social
security "contributions" are lent to the government, where they are
mostly spent on things that could not be remotely described as
improving our economy's productive capacity, such as farm subsidies.

Excellent.  I ran the numbers and discussed what a bad investment return was paid by Social Security here.  I discussed Social Security as intellectual welfare here.

The long drain begins:

When Kathleen Casey-Kirschling signs up for
Social Security benefits Monday, it will represent one small step for
her, one giant leap for her baby boom generation "” and a symbolic jump
toward the retirement system's looming bankruptcy.

Casey-Kirschling "” generally recognized as the
nation's first boomer (born in Philadelphia on Jan. 1, 1946, at
12:00:01 a.m.) "” won't bankrupt the Social Security system by taking
early retirement at 62. But after her, the deluge: 80 million Americans
born from 1946 to 1964 who could qualify for Social Security and
Medicare during the next 22 years.

The first wave of 3.2 million baby boomers turns
62 next year "” 365 an hour. About 49% of the men and 53% of the women
are projected to choose early retirement and begin drawing monthly
Social Security checks representing 75% of the benefit they'd be
entitled to receive if they waited four more years to retire.

If Social Security were a well-managed private insurance program, this would be a non-event.  The returns on investments over the last 40 years have been tremendous, such that a private fund could easily start paying out benefits based on boomers' premiums.

Unfortunately, as a government program, the funds in the program are subject to the whims of politicians.  And it turns out that boomers have elected politicians who have spent all the money that has been contributed to Social Security (despite USA Today in their graphics trying to continue the myth that a meaningful "trust fund" actually exists as anything but a bunch of government IOU's to itself.)  So, because Congress has spent all the past contributions, an action that would have had any private manager jailed decades ago, Social Security must now run itself as a Ponzi scheme, where current contributions pay off retiree benefits.  This game runs out somewhere in the 2020's.  And this all despite the fact that Social Security pays out a negative rate of return.

This may be my new favorite tort:  (via Overlawyered)

A Pennsylvania man has sued search giant Google
for $5 billion, claiming that when his Social Security number is turned
upside down, "it is a scrambled code that does spell the name Google."
The handwritten complaint filed in the U.S. District Court in Scranton
alleges that the U.S. Justice Department "is heading the investigation
into allegations of crimes against Humanity" involving Google's
founders and that the plaintiff's "safety is in jepordy."

Up next, the owner of Social Security number 71077345 sues Shell Oil for the same reason.

Unfortunately, in other tort news, this is not a laughing matter.  It is just plain stupid AG megalomania:

For a while now, lawyers in Minnesota, Oklahoma and elsewhere have been suing companies that make over-the-counter cold remedies containing ephedrine and pseudoephedrine on the grounds that they were aware
some buyers were using the drugs as raw material for illegal
methamphetamine labs. Now such litigation appears to be gaining
momentum in Arkansas, where many county governments have signed up to
sue Johnson & Johnson, Pfizer, and other companies. "If successful,
it could open up litigation against manufacturers of other produce used
in making meth, such as drain cleaners and acetone."

One local judge discusses the case in a way that sounds like a commercial for the Publishers Clearing House Sweepstakes:

"What more could we have done with a million dollars a year for our
county? Would that have meant a half dozen more police officers? Would
that have meant a better solid waste program? Who knows, what could
your county have done with an extra million dollars," asked Judge Bill
Hicks of Independence County, a backer of the suits.

For those who are new to my blog, I run recreation sites like campgrounds, mostly with retired people as labor.  Retired people love these jobs, because they are looking for a nice place to live for the summer in their RV.  Often they are willing to work just for their site and utilities, though as a private entity I must pay them minimum wage as well (when they work for the government, they don't get paid).  We sometimes get into odd situations -- for example, because of a disability payment or Social Security limits, it is not unusual I have employees that ask me if I could not pay them or pay them below minimum wage, and I have to tell them no (minimum wage is absolutely required, even if the worker begs to be paid less).

This relationship works out well.  The retired persons bring conscientious and low-cost management to the campgrounds.  Our employees, who usually are living comfortably off their retirement savings or pension, get a few extra bucks and a nice place to live for the summer.  These folks may work a bit slow, but I can afford that at $6 an hour.

But what happens when a state like Maryland, because it's got its blood up against Wal-Mart, passes a $11.30 "living" wage?  A number of problems result.  First, a camping night generally consumes, on average, about an hour of labor.  At $6 an hour with 22% burden for payroll taxes and workers comp, this totals to $7.32  per night of camping in labor.  At $11.30 an hour, this totals $13.79 per night of camping.  Most of our campsites are tent camping sites and more primitive natural campgrounds (see here) and a typical price for a night of camping is $16.  This is a very low price for camping when compared to large RV parks, and makes our sites particularly popular with lower income people.  The Marlyland minimum wage would add at least $6.50 to this price, or increase prices by 41% in one swoop.  And this is before considering second order cost increases in other purchased goods and utilities due to the minimum wage increase.

The other problem is one I would have thought so obvious that it is amazing to me that no one seems to talk about it -- not everyone earning minimum wage is trying to live on it.  Certainly people new to the work force are one example, as they are often willing to trade lower initial wages for training and experience and a work record and other valuable but non-quantifiable benefits.  In my case, while I am perfectly happy to tolerate lower productivity from older, retired workers at $6 an hour (the average age of my employees is over 70), when wages are forced arbitrarily to over $11, then I have to think about changing my business model, substituting younger workers for older folks.  As any economist would predict, lower productivity workers get pushed out of the market.

For more on this topic, I discussed four case studies in my business dealing with the minimum wage.

While it may have been unintentional, a quote in New York magazine helps make the point I have been trying to make about universal health care (HT: John Scalzi)

"With universal [health care], you'd get the same kind of
mediocre shittiness that you'd get in all other kinds of standardized
approaches. But for millions of people, that would be a big upgrade."

Americans are unbelievably charitable people, to the extent that they will put up with a lot of taxation and even losses of freedoms through government coercion to help people out.

However, in nearly every other case of government-coerced charity, the main effect is "just" an increase in taxes.  Lyndon Johnson wants to embark on a futile attempt to try to provide public housing to the poor?  Our taxes go up, a lot of really bad housing is built, but at least my housing did not get any worse.  Ditto food programs -- the poor might get some moldy cheese from a warehouse, but my food did not get worse.  Ditto welfare.  Ditto social security, unemployment insurance,and work programs. 

But health care is different.  The author above is probably correct that some crappy level of terribly run state health care will probably be an improvement for some of the poor.  But what is different about many of the health care proposals on the table is that everyone, not just the poor will get this same crappy level of treatment.  It would be like a public housing program where everyone's house is torn down and every single person must move into public housing.  That is universal state-run health care.  Ten percent of America gets pulled up, 90% of America gets pulled down, possibly way down. 

I don't think most Americans really know what they are signing up for.  Which is why it is so important for health care socialists to have people like Michael Moore running around trying to convince the middle class they will be getting better health care.  Because there is almost no possibility of this being true, and health care proposals will never pass if people realize it.

More here.

Given my emails, I don't think I explained my first point in this post on Social Security very well:

If you are below 50 and in the top 40% of earners, do NOT expect to get
any Social Security benefits.  Live with it.  Up until now, wealthy
people have received SS retirement benefits as an expensive PR campaign
to convince everyone that SS is an insurance program, not a welfare
program.  Well, I have run the numbers, and it is at least 83% welfare.
The only alternative to defending these benefits will be to suffer
through substantial tax increases which will be disproportionately paid
for by the same richest 40% who would lose their benefits.  Given the negative rates of return that SS pays
on your payroll taxes, each extra dollar that taxes are raised will
only yield well under a dollar (present value) in benefits. So give up
on the benefits, campaign to keep taxes down, and start saving on your
own.

Let me try again.  When the crunch comes in a decade or so, the first thing that is going to happen is that the wealthiest people are going to lose their benefits.  Yeah, I know, not fair, but does it surprise you?  For years, Social Security advocates have desperately clung to the argument that Social Security is not welfare, it's insurance.  That is why benefits for the wealthy still exist at all.  But when crunch time comes, the wealthy, as usual, are going to get thrown overboard first.

If you are in the wealthiest 40% or so, here is what it will take to save your Social Security benefits:  New taxes.  These taxes will either be additional payroll taxes or additional income taxes.  If they are payroll taxes, my guess is that the main tax increase will be eliminating the top cap on earnings subject to the tax;  in other words, most of the new payroll taxes will be on the highest earners.  If the new taxes are income taxes, then rest assured that they will be on the top 40% of earners, since it is the top 40% who pay virtually all of the income taxes in this country today.

So, to save your benefits, you are going to have your taxes increased.  And since Social Security, like every government program, is leaky, and since it pays a negative rate of return, you are going to have to pay present value of more than a dollar of taxes to save present value of a dollar of benefits.  That is a bad investment.  If you are still in your productive years, be ready to see your benefits go bye-bye and fight like hell to keep taxes down.  And save, save, save.

MaxedOutMamma has a pretty good overview post on the economics of funding Social Security and Medicare over the next 30 years or so. 

So the real issue is not
those fictional bonds in the surreal trust fund. The real issue is
whether the American taxpayer will be able to pay for all its current
programs as well as Social Security and Medicare without paying double
or triple the percentage in income taxes the American taxpayer is
paying now. Because that is not going to happen. Forget all this
jibber-jabber about moral issues. That is not going to mean a thing to
the man earning the equivalent of $28,000 today in 2023 when he is
asked to pay much more of that money so that some 67 year old with
several millions of assets can get his or her scheduled Social Security
benefits.

Nothing really new here, but the picture is always worth reviewing (she has lots of nice graphs showing the coming spending overhang).  Politicians' ignorance of (and ignoring of) this problem would shock me if I had any regard left at all for politicians.   I wanted to offer some random observations:

1. If you are below 50 and in the top 40% of earners, do NOT expect to get any Social Security benefits.  Live with it.  Up until now, wealthy people have received SS retirement benefits as an expensive PR campaign to convince everyone that SS is an insurance program, not a welfare program.  Well, I have run the numbers, and it is at least 83% welfare.  The only alternative to defending these benefits will be to suffer through substantial tax increases which will be disproportionately paid for by the same richest 40% who would lose their benefits.  Given the negative rates of return that SS pays on your payroll taxes, each extra dollar that taxes are raised will only yield well under a dollar (present value) in benefits. So give up on the benefits, campaign to keep taxes down, and start saving on your own.
2. If you have some control of when you you earn your lifetime income, try to earn as much as you can in the next 10-15 years.  After that, taxes are almost sure to go up substantially.  It would not surprise me to see top marginal rates back well above 50% again.
3. Democrats in Congress are pushing for new welfare programs, particularly socialized medicine, right now because they must understand that in 10 years, the window for major new spending programs will be closed.  The pressures in a decade will be for program cutbacks as costs really start to balloon, and I can't imagine that new transfer programs will be taken seriously as the old ones eat up a larger and larger part of GDP.  Of course, my point is that this is the last time that such a program would be politically feasible.  From a financial management point of view, we are past the point where adding major new social programs makes any sense.  In fact, adding such a program now would be like a guy who has gotten over his head and knows he can't pay his credit card bills taking his last money out of the bank and buying a plasma TV.

Five years from now, one issue is going to dominate the news on the state and local level.  It's not going to be civil marriages or abortion of light rail.  It's going to be unfunded pension liabilities.  Nearly every city, county, and state government body has promised over-generous pensions to millions of their employees, and almost none of them have been putting any money aside to fund these future liabilities (unlike those evil and untrustworthy private companies, who may not always put enough aside but are at least doing something).

Most of us know that the government uses accounting methods and practices that would put private individuals in jail.  For example, Enron managers have gone to jail for accounting practices that allegedly attempted to hide liabilities and keep them off financial statements.  The government does this all the time, and routinely. 

Over the next few years, the GASB will require that governmental bodies reveal the size of these unfunded liabilities.  And you heard it here first, the numbers are going to be MASSIVE.  I am almost sure that the numbers will dwarf the shortfalls in Social Security and maybe Medicare as well.  Anyone want to be that politicians will propose to close these gaps by intelligent spending cuts rather than new taxes?  HAH!

From Cato@Liberty:

A common criticism of Social Security choice
(and defense of the Social Security status quo) is that there
are dishonest actors in private markets who would put people's private
account assets at risk of (in the words of the AFL-CIO) "corruption, waste and Enron-ization." These critics argue that society is much better off keeping Social Security in the honest, benevolent hands of Uncle Sam.

What must these critics be thinking about today's NYT above-the-fold article on teacher pension fund shenanigans in New Jersey? The lede says it all:

In 2005, New Jersey
put either $551 million, $56 million or nothing into its pension fund
for teachers. All three figures appeared in various state documents "”
though the state now says that the actual amount was zero.

Like many state and local government pension systems,
New Jersey's is woefully underfunded compared to the benefits it will
have to pay in the future. (This situation will make headlines in the
coming years, as state and local governments begin to disclose their
pension fund and retirement benefit system shortfalls in accordance
with a recent GASB
requirement.) In New Jersey's case, the shortfall is more than has been
publicly acknowledged, however: "an analysis of its records by The New
York Times shows that in many cases, New Jersey has overstated even
what it has claimed to be contributing, sometimes by hundreds of
millions of dollars."

A few years ago I coined the term "Intellectual Welfare."  I originally devised he term to describe Social Security, where it was arguable that most people in the program were not receiving a transfer payment, but they were instead receiving for-your-own-good government restriction of individual choice.  In the case of Social Security, government takes over the management of some of our retirement savings (at an appalling cost) because we lunkheads can't be trusted to manage our own savings for ourselves.

I was going to prepare a similar post about cries for regulation in the sub-prime credit market, but Alex Tabarrok did it already:

Roubini and others generating hysteria about defaults in the
mortgage market are credit snobs - they think credit is something that
only the rich can handle.  Just look at the language that Roubini uses
to analogize borrowers - they are "reckless patients" who "spent the last few years on a diet of booze, drugs and artery clogging junk food."  Similarly, the Washington Post tells us that it's the end of the "borrowing binge."

Yeah, we get it.  Credit is ok for us, the "sober" borrowers but poor people can't
handle credit.  Too much credit among the poor generates decay and
social pathology.  Credit must be regulated.  We can't, for example,
have credit stores in poor neighborhoods.  Don't you know that credit is bad for people without self-discipline?   Let the poor buy on installment credit?  That's unconscionable.  Today's furor over sub-prime mortgages is the same old story.

Update: This really ticks me off:

Representative Barney Frank, the Massachusetts Democrat who heads
the House Financial Services Committee, said in an interview on Friday
that he intended to move legislation in the coming weeks. He said the
measure he was preparing would discourage abusive loans by imposing
legal liability "up the chain." It would give borrowers and others the
ability to sue the Wall Street firms that package those mortgages and
then sell them as mortgage-backed securities, as well as the purchasers
of those securities in the secondary market.

"Anybody, including the original borrower, can make a claim, and the
liability would go up the chain," he said. "People say it may
discourage certain kinds of lending. But that's precisely what we want
to do. We will pass a bill that won't allow companies to loan people
more money than they can pay back or loans for more than the value of
the house."

GRRRR.  Does no one remember what it was like to get a mortgage before they were so easily securitized?  The paperwork in the credit application was horrendous, as was the time it took to complete the mortgage.  Today they check two or three numbers, and if these numbers match the requirements of the Wall Street companies that package the loans, the loan is approved.  This legislation, which is aimed at slamming the securitization process, will hurt everyone.  All of our lives will be made worse so a few politicians can demagogue an issue that will be forgotten in 12 months. 

I was sitting here today, and was trying to discern why the government-run health care issue made me more nervous than other government welfare programs.  I get ticked off, for example, about the horrendous rates of return (think negative interest rates) paid out by Social Security on what are nominally our retirement account premiums.  But I don't get nervous.  Why?

I think because unlike other welfare proposals that [just] cost us a ridiculous amount of money, the current plans for providing universal health care imply that my personal health care and health care options will get much worse.  When government provided housing, my housing did not get worse.  When government provided a ripoff retirement plan, my personal non-government retirement savings did not take a hit.  In all these cases, we paid out tons of money to provide some terrible base-level services for the poor and the true-government-believers in the middle class, but my options did not get worse.

However, in the case of health care, most proposals on the table will very likely result not only in much higher taxes, but also in my personal health care options getting worse.  The government will not want to provide multiple levels of service, and can't afford anything beyond "crappy", so as a result we will all end up with crappy service (Insert Rush song "trees" here).  A lot of crap is written about how great all these other socialized medicine services are, but thousands of people travel from other countries to have medical procedures in the states, and about zero travel the other way.  More on the topic of closing coverage gaps at the price of making your own personal care worse here.  More on why these gaps are not as large as advertised here.

Update:  Quick proof -- My chosen health plan is now illegal in Massachussetts

Well, we libertarians must be losing the battle, if these are all the rights I have left as a taxpayer:

Today at 10am the Republican Study Committee will
introduce a Tax Payers Bill of Rights with the aim of getting
bi-partisan support for the principles of such a bill of rights and
incorporating them in future legislation. The principles are:

1 Taxpayers have a right to have a federal government that does not grow beyond their ability to pay for it.
2 Taxpayers have a right to receive back each dollar that they entrust to the government for their retirement.
3 Taxpayers have a right to expect the government to balance the budget without having their taxes raised.
4 Taxpayers have a right to a simple, fair tax code that they can understand.

This is pretty thin soup, particularly from the party that once hailed itself as the party of small government.  I can't really disagree any of this stuff, but it really constitutes a low bar, and it is even scarier that this will probably be controversial.  In particular, #2 is a joke.  Getting all your principal back from forty year old retirement investments basically means that all your retirement income was invested by the government at a 0% rate of return.  Unfortunately, as I ran the numbers a while back, a 0% rate of return would actually be an improvement for Social Security.

This is really, really pathetic.

So I won't.  Which doesn't mean I haven't found all the squirming on multiple web sites immensely entertaining.  Jeff Goldstein, as is often the case, is perhaps the most entertaining.  While Jeff will never be invited to speak at a MoveOn rally, on the other hand it is about as easy to lump him in with Pat Robertson as to group "Little House on the Prairie" into a double feature with "Team America World Police."

Though I am not convinced it is an especially apt comparison for the Coulter remark, I did particularly note one observation.  Goldstein's commenter said, in part, this:

I am reminded of the whole "niggardly" thing.  Of course, we KNOW what
it means.  But, you cannot really use it unless you want to be
misunderstood and have your message distracted.

Jeff responded:

This is, of course, quite stunning and more than a bit dangerous to the cause of liberalism.

I mean, look again at what Steve just argued:  "Of course, we KNOW what
it means.  But, you cannot really use it unless you want to be
misunderstood and have your message distracted."

Translation: We know what it means, but we must assume nobody else does.  Therefore, their misunderstanding is to be countenanced and massaged"”which, in effect, empowers ignorance
rather than treating it as ignorance.  It is the perfect example of the
intellectual welfare state:  rather than working to force people to
break out a dictionary, we'd rather provide them with succor because,
well, they can't really be expected to learn things on their own,
right?  Those kinds of people?

I don't read Protein Wisdom all the time, so I am not sure if "intellectual welfare" is a term Goldstein uses a lot.  I coined it independently a few years ago, when discussing social security.

I know that my short-term memory isn't very good (a result of my Y chromosome, by my wife's explanation) but I could have sworn that the big issue in the last election from the left (beyond the war of course) was the indictment that real wages were not increasing -- i.e. that the average worker's wages were growing more slowly than inflation.

Now, this hypothesis was mostly bullshit, particularly when you factored in benefits with wages, but economic facts have never stood in the way of a little populist class demagoguing.  However, now it appears that when push comes to shove, no one on the left really believed any of it.

The other day, Kevin Drum posted this:

At the Democratic debate yesterday, Tom Vilsack
proposed a slow reduction in future Social Security benefits by
switching from wage indexing to price indexing

A number of folks, most on the left, called it a really bad idea.  Drum himself didn't have a definitive opinion, but seemed to think the idea at least screwy.  Why?  Well, these folks all thought that a shift from wage to price indexing would reduce benefits, and in fact that is what Vilsack thought -- he proposed it as a way to help close the future cash flow gap in Social Security.  Am I understanding this right?  Because the only way that this switch could reduce benefits would be if wages were growing faster than prices!  Surely I must be missing something?  Do we really have a bunch of Democrats all criticizing a plan because everyone universally assumes wages increase faster than prices?  Doesn't this contradict their whole meme in the election?

So I followed a link in one of these posts to the Center for Budget and Policy Priorities (I don't know how they would describe themselves politically, but looking at their body of work on the home page, you won't confuse them with Cato).  Apparently, this re-indexing scheme was also proposed by GWB (I missed that) and this site was criticizing his plan because it would reduce benefits.  And yes, there was the key line (emphasis added):

Under current law, initial Social Security
  benefits for each generation of retirees grow in tandem with average wages in the economy.  This ensures that each generation receives Social Security benefits that reflect the living standards of its times.  Full "price indexing" would make a change in the Social Security benefit formula so that initial Social Security benefits would keep pace only with prices, rather than wages, from one generation to the next.  Because prices increase more slowly than wages, this would result in progressively larger benefit reductions over time

There you have it.  Democrats and the left criticizing a plan because they assume wages go up faster than prices, so re-indexing from wages to prices would reduce benefits.  In fact, the folks I read accept this fact as so fundamental, everyone just assumes it to be true.  Is this wildly hypocritical or what?

New SEC rules being drafted by the Bush administration are set to declare that Paris Hilton is a fully "accredited investor" with full freedom to invest in any way she likes.  I, who graduated near the top of my class at Harvard Business School, shall likewise be declared not capable of investing and the government will limit my options "for my own good"

The U.S. Securities and Exchange Commission (SEC) has just proposed
that the amount of liquid net worth an individual must have before
investing in hedge funds and other so-called risky investments be
raised to as much as $2.5 million.

The largest program the government has for protecting us from our own investing incompetence is called Social Security, which takes retirement savings from us by force and has the government invest it for us.   As I showed in previous posts, Social Security is returning -0.8% a year on our savings.  Thank god the government is investing this money for us - no way I could have beaten a -0.8% a year return during the greatest 20-year bull market of all time.

Tinfoil Hat Observation:  I use Google search to find old posts on my site.  Usually it is flawless.  For some reason, though, my post titled Social Security Ripoff is not indexed by Google.  A follow-up post on the same day is indexed, as you can see from this search, but not the original.  I have never failed to pull up a post before, even with inexact search words, and have never failed with the exact title in the search.  Weird.   Maybe something in the comments, I will have to check.

A few days ago, I did the calculations on my Social Security statement and discovered the government was paying me a -0.8% a year return (yes that is negative) on the taxes paid into the system on my behalf.  But rest assured, government workers, who know they are sticking it to us with Social Security, would never allow such a thing to happen with their own pensions:

In New York and Oregon, public employees who contribute their own money
to retirement plans get a guaranteed rate of return that is often far
beyond what the market provides, and taxpayers must make up the
difference. In Oregon, the return is 8 percent annually"”about double
what safe investments like treasury bonds provide today.

Part of a great article by Steven Malanga on the growing power of public sector unions.

In my post earlier today, I analyzed my recent social security statement and found that the government was giving me a -0.8% (yes, that is negative) rate of return on my forced savings.  You can read that post for the methodology, which I admit was simplistic (I have a day job, after all) but I still think is pretty accurate.  There is not getting around the fact that the government is forcing
a retirement program on you that is such a ripoff that a private company would likely get
prosecuted for offering it.

One of the arguments I have seen go back and forth, and that I refer to in that post, is whether Social Security is a retirement plan or a welfare program (its a floor wax and a desert topping!)  One of the reasons this argument comes up so much is that its defenders take both sides of the question, depending on whom they are arguing against.  If you argue that as a welfare program, Social Security is terribly inefficient and pays too many benefits to richer workers, they argue it is a retirement program with premiums and you can't cut benefits to anyone who has paid in.  Argue as I did in this post that it is the worst retirement program in all of America, and its defenders say that you can't analyze it that way because there are welfare benefits embedded.

So I wondered, could I solve this with numbers?  I stared at my belly button for a moment, and decided that 6.5% was a good conservative private return number that I would be willing to plan my retirement around.  I plugged this number into my spreadsheet (Download socialsecurity4.xls) and found that my social security premiums, invested privately, would yield an annuity at 67 of $11,699 per month, or an amount 5.89 times larger than social security is currently promising me for the same inputs.  This tells me that only about 17% (1/5.89) of my taxes in social security are going to my own retirement.  The other 83% are going to a huge welfare program, either directly, as payments for someone else's retirement, or indirectly, through the inherent government inefficiency you accept when you provide intellectual welfare  (I define "intellectual welfare" as the government doing something for you because it doesn't trust you not to screw the task up if you did it yourself -- in this case, the task is saving for retirement).

Postscript:  As pointed out in my postscripts and the comments to the original post, taxes, inflation, spouse survival, etc.  all complicate the analysis, but most of the effects work both ways.   For example, Social Security provides some benefits to surviving spouses I don't include.  That potentially understates the value of the SS package.  However, as pointed out in the comments, private savings would be inheritable by my family in the case of my early death, and would dwarf SS survivor benefits in most cases.  Ditto for disability benefits.