Federal Budget & Tax

Federal Budget & Tax: News Blog Background

Thursday, March 31, 2005

Grassley: SS Compromise May Be Necessary

Yesterday President Bush travelled to Iowa to promote his plan to reform social security. Iowa is the 20th state Bush has visited to promote his plan, which the public is receiving with increasing doubt and skepticism.

Notably Senator Charles Grassley (R-IA) -- who is also Senate Finance Committee Chairman -- said yesterday that there is room for compromise on the size of private incestment accounts. While President Bush is promoting a plan to divert four percentage points of the payroll tax into a private account, Grassley believes the amount is negotiable, and stated he plans to make compromise an issue when the Finance Committee meets on Social Security this summer.

Grassley also noted that even though he is in favor of establishing these accounts, he does not believe they address the problem of social security solvency. He said, "I like personal accounts.... So you have personal accounts as an issue in and of themselves, and then over here, you've got the solvency problem. I want to deal with both of them." The Finance Panel is planning on holding Social Security hearings in April, however no dates have been set yet. For more details on Bush's visit to Iowa and recent Social Security happenings, click here. Also check this Economic Policy Institute briefing paper on how Social Security fits into the Bush budget. The paper, by Max Sawicky, is aptly titled "Collision Course."

Posted by Becky Lewis, 12:12:13 PM

Tuesday, March 29, 2005

Both Sides Speculate About Private Accounts

Following up on last week's Watcher article on Social Security, it appears that speculation among conservatives for private accounts continues to grow. Each week it seems more and more conservative economists and analysts break with the administration's view on personal accounts. To read about it, click here.

Also, see this article in tompaine.com that discusses how millions of disabled workers, spouses, and child beneficiaries would be left out under the privatization plan. The article is by Nancy Cauthen of the National Center for Children in Poverty. Click here to read a Newsday article on the lobbying efforts of labor organizations on behalf of the Social Security program.

Posted by Becky Lewis, 11:27:21 AM

Wednesday, March 23, 2005

Social Security Administration Releases Annual Report

The Social Security and Medicare Boards of Trustees released their 2005 annual report which states that "exhaustion" of the trust fund will occur one year earlier than predicted, or in 2041 as opposed to 2042. The report also finds that the amount of tax revenues taken in will fall below the amount the trust fund will pay out starting in 2017. The SSA originally stated this would happen in 2018. Now, they predict that the Social Security program will need to supplement trust fund receipts with general revenues in order to pay be able to pay people full benefits a year earlier.

The new report also projects a Social Security shortfall of $4 trillion over the next 75 years. This number is up from the $3.7 trillion figure that economists and politicians have been quoting.

Max Sawicky of the Economic Policy Institute notes that the Social Security crisis is not nearly as pressing as the problems being created by our large budget deficits, which were largely due to the administration's tax cuts. These deficits will hinder the government's ability pay for any and all of programs down the road, including Social Security and Medicare. The Congressional Budget Office estimates that in 2042, when the Social Security shortfall will supposedly be 1.37 percent of GDP, the overall budget deficit will be much greater than that --10.7 percent of GDP. Sawicky says,

"While the administration tries to fiddle with a relatively small-scale Social Security shortfall, it is creating overall budget deficits that are burning a hole as far as the eye can see. Instead of focusing on a relatively small and distant problem, the administration would better serve the nation by fixing the much bigger and more immediate problem it has created."

This is a sentiment echoed widely by economists and policy analysts, many of whom see the large costs of tax cuts and future skyrocketing costs of Medicare as much more serious problems.

For more information see this Washington Post article and this report by the Center on Budget and Policy Priorities. For more from the Social Security Administration, click here.

Posted by Becky Lewis, 06:16:58 PM

Tuesday, March 22, 2005

New Study Questions Returns Under Bush SS Plan
A new study released this week by respected finance economist Robert Shiller finds up to three out of four workers who opt for President Bush's default investment option in his Social Security privitization plan would fare worse than if they remained in the traditional system.

Using computer simulated models based on historical data, Shiller found a "disappointing outlook for investors in the personal accounts relative to the rhetoric of their promoters" and that Social Security actuaries and the Bush administration are using estimates of rates of return that are far to optimistic based on historical averages.

Shiller concludes, "Given the risks, [Bush's] plan could be disastrous for some workers."

Read more about the study in this Washington Post article.

Posted by Adam Hughes, 03:58:23 PM

Tuesday, March 15, 2005

Greenspan Testifies Before Committee on the Aging

This morning Alan Greenspan testified at a Congressional hearing on the Economics of Retirement. In his testimony before the Senate Special Committee on the Aging, Greenspan restated his support for the creation of private Social Security accounts. He is a proponent of these accounts partly because he believes diverting payroll taxes away from a fund that can be spent by Congress would allow lawmakers to see the true size of the budget deficit, and would pressure them to reduce it. He stated, "We need, in effect, to make the phantom 'lock boxes' around the trust fund real."

Senator Clinton (D-NY) responded to these comments with criticism for Mr. Greenspan, whose 2001 testimony to Congress urging tax cuts to avoid a surplus, she said, "helped blow the lid off the lock box." The Bush tax cuts that Greenspan originally supported are currently largely responsible for our record-level budget deficit, and the fact that Congress must now cut spending on domestic programs in order to deal with this deficit. To read more about the hearing, click here.

Posted by Becky Lewis, 02:57:40 PM

Tuesday, March 08, 2005

Tax Cuts in Reconciliation; Medicare Estimates Up

Three items of importance:

Last friday the Congressional Budget Office released an updated analysis of the President’s budget for fiscal year 2006, which includes an update of their baseline projections for the 2006-2015 period. In preparing this updated projection, they revised their estimates for Medicare spending. See this document, "Updated Estimates of Spending for Medicare," for details. The CBO's new spending estimate is an increase of almost 50 percent since their last estimate.

Also of importance is today's news that the Senate will set a budget reconciliation tax figure of roughly $71 billion, which is down from the approximately $100 billion Bush proposed spending on tax cuts in his FY 06 budget proposal. See this OMB Watcher article for more information. Senate Republican budget writers are now saying this amount should be sufficient to cover the cost of extending expiring tax provisions through the five-year budget window; however this cost does not address the potential high costs of alternative minimum tax reform. These tax cuts, because they will be completed in reconciliation, will be given as instructions to the Finance Committee to undertake. Reconciliation bills are considered under expedited procedures in the Senate and cannot be filibustered.

Finally, yesterday Senator Hegel (R-NE) introduced a Social Security bill that is based on the creation of private investment accounts. Like the White House, Hegel supports diverting four percentage points of payroll taxes to fund these accounts. Hegel's plan would allow workers under the age of 45 to divert part of their payroll tax contributions for these accounts. Read a transcript of Hegel's speech on his Social Security proposal here. Senate Minority Whip Durbin (D-IL) reiterated the Democratic leadership's stance on Social Security reform by calling any plan with privatization accounts "non-starters" on Meet the Press the other day. Click here for more information.

Posted by Becky Lewis, 12:59:08 PM

Friday, March 04, 2005

Greenspan's Testimony Garners Some Harsh Criticism
After testifying before the President's Panel on Tax Reform yesterday, Alan Greenspan received harsh crticism from one prominent Democratic Senator, Paul Krugman, and the New York Times editorial board.

First off, Senate Minority Leader Harry Reid (D-NV) said yesterday on CNN's "Inside Politics" that has never been a big fan of Greenspan and criticized his testimony for giving the current administration a pass on deficits while promoting Bush's Social Security Policies. In typical Harry Reid fashion, he flings a zinger at Greenspan, calling him, "one of the biggest political hacks in Washington"
read more

Then today, op-ed columnist Paul Krugman writes, "In 2001, President Bush and Mr. Greenspan justified tax cuts with sunny predictions that the budget would remain comfortably in surplus. But Mr. Bush's advisers knew that the tax cuts would probably cause budget problems, and welcomed the prospect."

Now that we are faced with budget problems, Krugman believes he sees Greenspan trying to provide cover. "And Mr. Greenspan has once again tried to come to the president's aid, insisting this week that we should deal with deficits 'primarily, if not wholly,' by slashing Social Security and Medicare because tax increases would 'pose significant risks to economic growth.'"
read the op-ed

And to make it three for three, the lead editorial in the New York Times suggests it is depressing it has taken Mr. Greenspan this long to suggest to Congress a tax increase to close the enormous budget deficit. They conclude "That should be a no-brainer, especially since the deficit - now at $412 billion - is largely due to tax cuts that President Bush and Congress have lavished on the most affluent over the past four years."
read the editorial

Posted by Adam Hughes, 04:21:15 PM

Thursday, March 03, 2005

Administration Steers Away From Payroll Tax Diversion

Treasury Secretary John Snow indicated yesterday that the White House would in fact accept a form of Social Security overhall that did not include diverting a portion of payroll taxes into private investment accounts. This is a major shift in the administration's position. Snow said that personal accounts would be part of any Social Security legislation, but that they were open to funding these accounts through means other than the payroll tax. Congressional Democrats have almost unanimously opposed the idea of funding personal accounts with a diversion of payroll taxes.

Bush's plan -- backed by many Congressional Republicans -- to allow individuals to put as much as 4 percentage points of their payroll tax contributions into private accounts has been one of the more controversial aspects of the discussion to overhaul Social Security. Opponents think that private accounts would would risk reducing benefits for low-income individuals, and also could result in higher interest rates because the government would need to borrow more to finance transition costs.

In other Social Security news, an article in the New York Times today reports many Americans differ from Bush in their priorities regarding Social Security. A new New York Times/CBS News report showed that 51 percent of Americans believe investing a portion of payroll taxes into private accounts is a bad idea. Sixty-nine percent believed private accounts would be a bad idea if they would result in any benefit reductions, and 45 percent believed that private accounts would actually weaken the retirement system.

Posted by Becky Lewis, 01:51:50 PM

Wednesday, March 02, 2005

Opposition to Social Security Reform Pays Off

It appears as though all of this talk about a Social Security overhaul is not working in the President's favor. The Washington Post reports today, "President Bush's bid to restructure Social Security may have to wait until next year and might not involve the individual accounts the White House has been pushing hard." Senate Majority Leader Bill Frist (R-TN) expressed these sentiments yesterday, and they are a blow to the administration's obvious efforts over the last few months to market their plans for Social Security privatization.

Many GOP Congressman have been out in the field pushing SS overhaul over the past few weeks, and many are now wary about forging ahead with a politically risky plan that doesn't have a good deal of demonstrated public support. So, it appears that Social Security reform may be put on the back burner for a while. This is due to both the fact that many Democrats have been voicing strong opposition to the private accounts supported by the administration, as well as because Republican lawmakers are extremely divided among themselves as to how to proceed with an overhaul, and whether or not our economy could sustain borrowing trillions of dollars to finance it. To read more about the current hurdles facing a Social Security overhaul, click here.

Posted by Becky Lewis, 12:14:18 PM

Tuesday, March 01, 2005

SS Benefits Keep Millions of Seniors Economically Stable

In an op-ed column in today's New York Times, Paul Krugman argues that the GOP leadership's drive to create private Social Security accounts isn't about "finding a way to strengthen Social Security; it's about finding a way to phase out a system that conservatives have always regarded as illegitimate."

Lawmakers will need to find a way to ensure that benefits aren't cut for Social Security recipients in the future, whether or not that includes some form of private accounts. They will need to do so, however, in a way that doesn't place those benefits at risk.

Social Security benefits are currently responsible for keeping 13 million elderly people from living below the poverty line. If those benefits did not exist, almost 50 percent of elderly people would live below the poverty line. If the level of those benefits were to be put at risk through the creation private accounts, some seniors would fare well; however a number of them would end up losing out on thousands of dollars per year, and many household incomes would fall below the poverty line. Click here to see a new report from the Center on Budget and Policy Priorities that outlines the effect of Social Security on poverty among senior citizens. The report provides data on a state-by-state basis.

Posted by Becky Lewis, 11:29:57 AM

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