What IS the Social Security Crisis?

Why employees got the payroll tax cut – Greg Mankiw discusses the economics of the payroll tax cut, and raises the question of whether it might have been better used to cut employers’ share of payroll taxes, rather than employees’ share: An alternative would have been to reduce the employer’s share of the payroll tax, at least to some degree. Given a sticky wage, this policy would have reduced the cost of hiring and, to the extent labor demand curves slope downward, increased employment. It would also have increased business cash-flow and, to the extent that firms are cash-constrained, increased business investment. After raising the question, Mankiw stops short of answering it, leaving the possibility open that maybe Congress and the White House came to the wrong decision for political reasons. But of course they didn’t: this is a no-brainer. Michael Cooper had a great article in the NYT in October about the last payroll tax cut, a/k/a “the Tax Cut Nobody Heard Of.” The idea is that the less noticeable a tax cut is, the more effective it is: Faced with evidence that people were more likely to save than spend the tax rebate checks they received during the Bush administration, the Obama administration decided to take a different tack: it arranged for less tax money to be withheld from people’s paychecks.

India’s battle against hunger beset by problems of delivery and corruption – Malnutrition in India is on the rise, despite nutrition rehabilitation centres and ration shops. "Indicators of urban food insecurity … reveal an alarming picture," says the Report on the State of Food Insecurity in Urban India, published by the MS Swaminathan Research Foundation and the World Food Programme. The Congress party, which promised to lift the country out of poverty when it returned to power in 2009, is drafting a revolutionary Right to Food bill. To achieve this goal, organisations will have to be reformed – starting with the ration shops, which are supposed to distribute rice, sugar, wheat and even kerosene at subsidised prices to anyone in need. But none of the inhabitants of Gautam Nagar are entitled to this bounty. More than 60 families live in cramped quarters on wasteland that has a filthy stench, with only plastic sheets to protect them from the elements. Children with swollen bellies wander along the road, begging from passersby…

Just How Stimulating Is the New Tax Cut-Jobless Benefit Deal? – As David Leonhardt blogged on Monday, the tentative deal extending both the Bush tax cuts and jobless benefits can be considered another round of fiscal stimulus. Just how stimulating will this new legislation be? The Center for American Progress, a liberal research organization, has crunched a back-of-the-envelope estimate. Its numbers, shown below, are based on the models used by the Congressional Budget Office and the economist Mark Zandi to project the bang-for-the-buck of various kinds of stimulus. Assuming this calculation is roughly on track, 3.1 million jobs is nothing to sneeze at. But if stimulus is what Washington truly wants politicians would most likely get a bigger bang for the buck with a different mix of programs. According to a recent Congressional Budget Office report on the impact of the Recovery Act, tax cuts had among the smallest ripple effects of all the act’s major stimulus components. Purchases of goods and services by the federal government and transfer payments to state and local governments for infrastructure projects, on the other hand, appeared to produce a bigger bang for the buck.
Credit-Card Borrowing Dips, but Student Loans Jump – U.S. consumer borrowing unexpectedly climbed again in October as a jump in student loans offset the 26th consecutive decline in credit-card use. Consumer credit outstanding increased at a seasonally adjusted annual rate of 1.7%, up by $3.4 billion to $2.4 trillion, a Federal Reserve report said Tuesday. The gain was the second in as many months following 19 straight losses. Economists surveyed by Dow Jones Newswires had predicted a $2 billion decline in October consumer credit. The data Tuesday showed the October gain was driven by another big increase in student loans, a category that pushed up overall consumer credit in September by $1.2 billion. Originally the Fed reported a $2.1 billion increase in September borrowing.
Tax Negotiations: No help for 99ers – Just to be clear, the "extension of the unemployment benefits" is an extension of the qualifying dates for the various tiers of benefits, and not additional weeks of benefits. There is no additional help for the so-called "99ers".Emergency Unemployment Compensation (EUC) comes in four tiers:
Tier I is for 20 additional weeks;
Tier II is for up to 14 weeks;
Tier III is for up to 13 weeks;
Tier IV is for up to 6 weeks.

As an example, if a worker was receiving Tier I benefits, they will be able to move to Tier II benefits with this proposed extension. Without the extension of the qualifying dates, workers would not be able to move to the next tier. These two tables are from the Center for Budget and Policy Priorities. The total number of weeks depends on the state unemployment rate.

FDIC Launches Investigation of Officials of Failed Banks – In a move reminiscent of the last time the United States was in such dire financial straits, the FDIC announced recently that it has begun an investigation of executives and other employees of failed banks. In the 1980s and 1990s, the savings and loan (S&L) crisis prompted the government to investigate and prosecute hundreds of bank insiders, sending more than 1,000 to prison, and collecting $4.5 billion.  This time around, the FDIC has opened more than 200 civil cases, including more than 50 against top officials of failed banks, seeking to recover around $2 billion in money it spent taking over the failed institutions.  The cases aim to prosecute banking employees who may have helped exacerbate the financial collapse by fraud, dangerous lending, and other criminal behavior. So far this year 149 banks have failed. This increase is not as sizable as the predicted increase from 2009, when there were 140 bank failures, but does show how dramatically the market has changed in recent years. In 2008 there were 25 bank failures, and in 2007 there were only three.

€6bn cut and run – FAMILIES are reeling from a savage Budget that will take €3,000 from the average household. Income tax rises, cuts to child benefit, higher petrol prices and a string of other charges will leave low and middle-income families much worse off. However, Finance Minister Brian Lenihan’s €6bn Budget — Fianna Fail’s last for some time with a general election rout likely — did not contain any root-and-branch economic reforms.  Rather than going for more wide-ranging public sector reform, the Government stuck to the Croke Park deal and failed to announce any dramatic new job initiatives.  The passage of early Budget votes also failed to bolster embattled Taoiseach Brian Cowen’s position, with widespread speculation circulating about his leadership.


"The Tax Cut Backstory" – Noam Scheiber has some of the backstory on the internal divisions over the Bush tax cut: … Within the administration, the split over whether to mount a tax-cut offensive broke down largely along wonk-operative lines. The wonks spent the last year mystified that the White House was ducking the fight when the substantive merits were so one-sided. The operatives brooded that the politics could abruptly turn against them, despite polling showing little public appetite for the upper-income cuts. "They view it through the class warfare stuff-Kerry in 2004, Gore in 2000," says one administration official. "They worry that they’ll get painted as lefties, tax-raisers." At key moments, including one internal discussion this spring, the political team declined to make a concerted push before Election Day. "The political people were like, ‘It’s a mess, let’s not deal with it now,’ " says another official involved. … Such was the frustration among the wonks that, when asked to explain their tax-cut strategy, they’d morbidly joke that there was no strategy, just an "approach." …

If you think the EU is Left-wing now, just imagine what it could be like after 2014 – If you thought Brussels couldn’t get any worse, just remember that José Manuel Barroso, the European Commission president, is – at least nominally – on the centre Right. He’ll be replaced in 2014, but instead of the normal horse-trading between European governments, it’s expected that the European Parliament will be able to exert genuine influence over who gets the job. Europe’s socialist parties know this, and they are determined to use their new powers in the European Parliament to ensure that Barroso’s replacement is a Left-winger. Last week, they held a conference in which they formulated their plan to take control of the parliament and the presidency. At the next European elections, the candidates of Europe’s socialist parties – including Britain’s Labour Party – will act “as a coherent political family, with both a programme and a personality to lead Europe”.
Landrieu: It’s the ‘Obama-McConnell Plan’– Add the phrase “Obama-McConnell Plan” to words most Democrats don’t want to hear. “We’re going to borrow $46 billion, according to the Obama-McConnell plan — and that’s what I’m calling it, the Obama-McConnell plan,” Louisiana Sen. Mary Landrieu told reporters Tuesday afternoon as she sharply criticized extending tax cuts for upper-income Americans. “We’re going to borrow $46 billion from the poor, from the middle-class, from businesses of all sizes basically, to give a tax cut to families in America today that, despite the recession, are making over $1 million,” she said. “This is unprecedented.” Congressional Democrats will be loath to utter that phrase much over the next two years because it seems to signal President Barack Obama has adjusted to life without them after Republican election victories in November.

Trojan Horse in Tax Compromise: GOP Plan to Bankrupt States, Break Unions (Updated)This alert came via James Pethokoukis of Reuters:  Congressional Republicans appear to be quietly but methodically executing a plan that would a) avoid a federal bailout of spendthrift states and b) cripple public employee unions by pushing cash-strapped states such as California and Illinois to declare bankruptcy. This may be the biggest political battle in Washington, my Capitol Hill sources tell me, of 2011. That’s why the most intriguing aspect of President Barack Obama’s tax deal with Republicans is what the compromise fails to include — a provision to continue the Build America Bonds program. BABs now account for more than 20 percent of new debt sold by states and local governments thanks to a federal rebate equal to 35 percent of interest costs on the bonds. The subsidy program ends on Dec. 31. And my Reuters colleagues report that a GOP congressional aide said Republicans “have a very firm line on BABS — we are not going to allow them to be included.” In short, the lack of a BAB program would make it harder for states to borrow to cover a $140 billion budgetary shortfall next year, as estimated by the Center for Budget and Policy Priorities. The long-term numbers are even scarier. Estimates of states’ unfunded liabilities to pay for retiree benefits range from $750 billion to more than $3 trillion.

What IS the Social Security Crisis? – Well the answer is in the above figure, or actually answers because the post title actually hides multiple questions depending on your view of Social Security generally. There are actually three lines represented in the figure: scheduled benefits (top thin line), payable benefits (middle thick line), and income excluding interest (bottom thin line). A close examination shows that tax income exceeded scheduled benefits up until 2009, meaning Social Security was in surplus by anyone’s definition, that tax income dipped below scheduled benefits this year, but are projected to rise again to meet the schedule in 2012 only to go permanently below the schedule in 2017. But the figure also shows that payable benefits continue to be paid until 2037, the difference representing the draw down of first interest on and ultimately principal from the current Trust Fund. Which is our first point of departure.
A Good Deal for Democrats on Tax Cuts – With the wailing and gnashing of teeth from many progressives, you would think that Obama had cut a tax deal to eliminate tax breaks on the wealthy in exchange for freeze-drying Guatamalan orphans in order to use them as decorations on the Family Research Council’s Christmas Tree.  Meanwhile, the conservatives I’ve seen are as proud of this deal as if they’d baked it from scratch.  I’m puzzled on both counts.  Let me get the personal stuff out of the way: I think this is a terrible deal.  I was rooting for gridlock to cause the tax cuts to expire entirely, which would probably have a moderately negative impact on the economy, but would at least somewhat forestall a devastating fiscal crisis down the road.  If it was politically necessary to do tax cuts, I wanted them to be as small as possible, not $900 billion over two years.
Europe Update: More Stress Tests, Iceland out of recession – From the Financial Times: EU banks face new stress-tests  A new round of co-ordinated stress-tests on European banks would begin in February … The “scope and methodology” of the new round of tests was still under discussion, [Olli Rehn, EU commissioner for economic and monetary affairs ]said, but should be disclosed fairly shortly. The last round of stress tests were heavily criticized – and all of the Irish banks passed the tests only to fail a few months later. And from the NY Times: Iceland Breaks Out of Recession  Iceland broke out of recession in the third quarter of this year, official data showed Tuesday … Unlike Ireland and Greece … Iceland allowed private banks to fail, and its currency, the krona, has declined by about 46 percent against the dollar since the start of 2008.
City Unemployment: Slow Progress – Unemployment rates are falling in about two-thirds of the country’s major metro areas from a year earlier, signaling continued slow progress in the labor market. The Labor Department’s report on metro area employment Wednesday showed jobless rates in October were lower in 235 of 372 metro areas surveyed, compared to a year ago. But the unemployment rate was up in 121 places and flat in 16. Overall, 224 areas recorded unemployment rates below the national U.S. figure, 138 areas reported rates above it, and 10 areas had rates equal to that of the nation. El Centro, Calif. and Yuma, Ariz., led the pack with the highest jobless rates at 29.3% and 26.7%, respectively. Among the 10 areas with jobless rates of at least 15%, eight were located in California, according to the Labor Department. Yuma recorded the largest over-the-year jump in its unemployment rate. On the opposite end of the spectrum, Elkhart-Goshen, Ind. and Hickory-Lenoir-Morganton, N.C. registered the largest year-over-year drop in their unemployment rates. The following chart tracks unemployment changes in the 49 most populous cities.
Where the jobs are – THE Bureau of Labour Statistics released two interesting reports this morning that shed a little more light on the state of the American recovery. The first updated metropolitan-level employment data through October, providing a sense of exactly where things are improving, and where they aren’t. As you can see from the chart above, unemployment rates are highest in the West and in Florida, as well as across the country’s manufacturing belt. Things are better than average on the east coast, and from Texas north across the Plains. What’s particularly interesting to watch is how recovery has proceeded in recent months. The biggest metropolitan employment gains over the past twelve months have accrued in a diverse array of places. In order, they are: Washington, DC (44,000 jobs), Boston (25,000), Dallas (25,000), Phoenix (24,000), Minneapolis (21,000), Austin (18,000), Baltimore (14,000), Orlando (10,000), Cleveland (10,000), and Seattle (9,000). There’s no one explanation that accounts for these performances. Centres of government do well, as do hubs for medical and science research.
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