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Elites agree: it’s time for you and your kids to pay for their failures

Today’s POLITICO has one of those only-in-the-Beltway kinds of stories that make you wonder if there’s any signs of life there at all.  Reported by Jim VandeHei and Mike Allen, it’s a synthesis of elite opinion (lawmakers and staffers from both sides of the aisle, as well as business executives) about what needs to be done to get our economy back on track once and for all.  Now certainly, there’s some good stuff in there — expanding immigration for high-skilled workers, for instance, is something that is long overdue.  But let’s be clear here.  The elite agenda for “fixing” our economy calls for significant doses of sacrifice from the middle class and working poor and precious little sacrifice from them.

Let’s start off with the sacrifice that the elites are willing to make — an increase in taxes for those making over $250,000 a year.  This would raise the top marginal tax rate (on income over $250,000) from 35% to the Clinton-era rate of 39.6%.  That’s certainly something, although one could fairly argue that returning to the tax rates that coincided with the best period of economic growth this country has had in the last 20 years might not be the worst thing in the world.  But let’s look at what isn’t on the table.

Changes to capital gains taxes?  Nope.  They’ll continue to get their much lower rate, meaning that folks like Mitt Romney or Paris Hilton who live off of investment income will continue to pay tax rates in the 15% range — lower than many middle-class and working poor families.  Not only that, but hedge fund and private equity investors will still get to treat their regular earnings as investment income instead of wage income, saving some individuals millions in tax liability every year.

Taxes on financial transactions or financial speculation?  Nope.  In the wake of the financial market meltdown in 2008, some suggested using a transaction tax on stock or bond transactions or higher rates on short-term capital gains as a means to both discourage speculative activity that makes the markets more volatile as well as creating a fund to deal with the damage created by current (and future) market failures.  These are still not on the table.

Breakup of the largest financial institutions?  Nope.  The 2008 market meltdown required government intervention to prevent the collapse of institutions deemed “too big to fail”.  What largely happened in these cases is that other large banks ended up buying the failing banks.  So an industry that was already unduly concentrated and prone to risk has become even more concentrated and even more prone to risk (despite some of good provisions in Dodd-Frank).

All of these items would represent real sacrifice for the elites in our society, but they’re not on the table.  What are they asking of the middle class and the working poor?  Oh, not much, except the gutting of perhaps the two most effective government programs at providing income security and health care to Americans.  Banks and financial institutions get bailouts when they make bad decisions.  Now the government is poised to give you insecurity when you retire after decades of hard work.

Sacrifice for thee, not for me

Medicare is the largest contributor to the future deficit problem due the explosion in both the number of seniors citizens and the continuing rise in health care costs (at a rate much faster than inflation in the rest of the economy, which means it will have to be part of the solution.  But there’s smart ways to reform Medicare and stupid ways to reform Medicare.  As befits our current political dialogue, the ones that are being debated are the stupid ones.

One of most likely changes to Medicare is an increase in the age of eligibility from 65 to 67.  At a base level, this doesn’t sound like that big of a deal.  Well, the problem is that in trying to save the federal government a little money, we’re going to end up spending a lot more overall.  Increasing the age to 67 would save the federal government about $5.7 billion a year, but would raise individual out-of-pocket expenses by $3.7 billion, and increase the insurance premium expense for employers by $4.5 billion.  Already, we’ve made the overall system less efficient by $2.5 billion, but we’re not done yet.  Adding 65- and 66-year-olds to the general health insurance pool is going to make everyone else’s health insurance more expensive (because the overall population will be sicker) — that’s another $2.5 billion.  Finally, states are going to have additional health expense on some of these seniors totaling about $0.7 billion.  If you total it up, the financial cost to society of changing the Medicare eligibility age is twice as large the savings we would see in the deficit.  That’s not a good trade-off.  (And that’s before we look at some of the non-financial impacts.)

There are smart ways to save money — significant money — in Medicare going forward.  We can end fee-for-service payment policies and replace them with paying providers for results.  We can give Medicare enhanced power to negotiate prices with suppliers — particularly for prescription drugs.    We can research the statistically most effective and cost-efficient ways to treat conditions and encourage providers to use those guidelines.  These are the types of reforms that we should be pursuing.

Perhaps even more galling in the context of the current budget debate is the fact that Social Security is getting dragged into the mix.  Social Security contributes nothing to our nation’s current budget deficit.  In fact, Social Security ran a $69 million surplus in 2011 and is projected to run surpluses for the next decade.  We have 20 years before the Trust Fund is exhausted (under current projections), and the simple act of removing the cap on the payroll tax would resolve at least 95% of the projected deficit going forward.  And if we did nothing, the cost of filling the gap after the Trust Fund is exhausted is less than 1% of GDP — a relative pittance compared to Medicare.

Instead, we’re seeing the same shortsighted tactics on Social Security as we are on Medicare.  What’s on the table is an increase in the retirement age from 67 to 70, and changing the way inflation is calculated so that such increases would be smaller than they are today.  These changes would have severe negative impacts on future retirees, but they would only raise 1/3 of the money that removing the payroll cap on the wealthy would.  Yet, no one’s really talking seriously about major reform to the payroll tax cap.

Big bad ideas

These reform plans for Medicare and Social Security are based on two big ideas, both of which are misguided.  The first bad big idea is “People are living longer, so increasing the eligibility ages is no big deal!”.  And while that’s true, it’s not true in the same way for everybody.  Wealthy Americans have seen their life expectancies improve by six years since 1977, while folks in the lower half of the income distribution have seen only an increase of one year in that time period.  These workers are more likely to be in blue-collar industries that are more reliant on physical labor.  Working in those jobs in their upper-sixties with questionable health insurance just isn’t a winning proposition.

Source:  The Incidental Economist

Source: The Incidental Economist

The other really bad big idea in these plans is “We have to protect current seniors”.  It’s certainly true that low- and middle-income seniors shouldn’t be expected to see substantial changes to these programs.  But if this is the kind of crisis that makes one of our political parties willing to risk defaulting on our bonds, maybe rich seniors should make some sort of contribution to solving the problem?  Certainly, there are wealthy seniors (and seniors-to-be) who could afford to pay co-pays for Medicare or take some means testing on their Social Security check today.  It hardly seems fair to think that the bill for this financial mess should be borne primarily by the children and grandchildren of those who ran up the credit card in the first place.  If we’re not willing to require any sort of contribution by today’s seniors (and seniors-to-be) to solving this crisis, aren’t we in fact admitting that it isn’t a crisis and just a problem that needs to be addressed in a reasoned manner?

Passing the buck and the bill

And it gets worse yet.  Many of the elites pushing these sorts of “solutions” to the problem are simultaneously pushing for so-called tax reform that would lower corporate taxes.  David Cote, the CEO of Honeywell, has been one of the key public faces behind Fix the Debt, a business organization that has made a large effort to influence the debate.  Cote loves to talk about tax reform as a part of this process, but what he doesn’t like to talk about is that he’s really trying to eliminate the corporate income tax.  If corporate taxes are eliminated, guess who’s going to get the bill to make up the lost revenue?  (Hint:  It’s not David Cote.)

I’m not opposed to tax reform.  But tax reform shouldn’t consist of a series of handouts to one group while demanding sacrifices from another.

And guess what else isn’t on the table as part of these negotiations?  Any real attempt to focus on the unemployment problem.  Basically, at this point we’re left to hope that if the elites get their way and extract the appropriate sacrifice from everyone else that the certainty created by such maneuvers will suddenly convince business owners to start creating jobs.  Of course, that notion in and of itself is misguided.  Businesses don’t create jobs out of certainty — they create jobs because there is demand for their product and services.  To create demand for their products and services, we need to have a population that has jobs and disposable income to spend.  Cutting Medicare and Social Security while squeezing government spending through austerity does nothing to improve the employment picture or improve household income.

We have a medium- to long-term deficit problem that needs to be addressed.  The important thing we need to remember is that it’s far more important to do the right thing for all of our citizens than to just earn political scalps by “raising taxes on the wealthy” or “cutting entitlements”.  These problems are about more than numbers on a spreadsheet — they have real world impacts that CEOs or lawmakers or writers for Washington D.C. political journals will never have to deal with.  It’s time for the voices of those who don’t attend Georgetown cocktail parties to be heard as part of this process as well.


Strib misses the point on college sports

Breaking news from the Star Tribune editorial board:  college sports are hypocritical and corrupt.  And the concept of “one-and-dones” is transparently ridiculous.

But the fingers the Star Tribune points are, in large part, pointed in the wrong direction.  The real problem here is the National Basketball Association and its stupid rule that requires players to be at least 19 years old and one year removed from high school to enter the draft. The only purpose of the rule is to protect NBA owners and GMs from themselves.  Some of them just can’t tell the difference between Kevin Garnett and Kwame Brown.  And that just won’t do.  When the rule was changed to prohibit players from coming straight out of high school in 2005, the league tried to couch it as if this was their attempt to do something good for the college game.  Fortunately, that pretense has been dropped.

For our business purposes, the longer we can get to look at young men playing against first-rate competition, that’s a good thing, because draft picks are a very valuable thing. – NBA Commissioner David Stern

There’s no real reason that a guy like Kentucky’s Anthony Davis should have been playing in Monday night’s NCAA Championship game.  He was ready to play in the NBA this season, but was forced into the kabuki dance of going to college by this pointless rule.  And now Stern wants to make things worse:  by increasing the age limit to 20, he caps the earnings of players like Davis or Garnett (or Kobe Bryant or Dwight Howard or any other of the numerous straight-out-of-high-school success stories) for no real reason at all.  Not to mention that it forces colleges to continue this charade of trying to make big-time athletics seem as if academics are truly an important priority.

Fans here in Minnesota have seen the benefits of this rule being properly implemented.  Garnett was the franchise’s cornerstone from the day he was drafted, and the team now is building around Ricky Rubio, who has been playing professionally since the age of 14 and no one seems terribly offended by that.

Yes, some kids will make bad decisions.  Some may bring up the name of Ndudi Ebi, drafted by the Timberwolves in 2003.  Well, Ebi made $2.7 million in his three unproductive years here — more than enough to finance a college education.  (Not to mention the fact that Ebi has carved out a comfortable living playing in Europe in the years after his NBA career fizzled.)

We can help to lessen the hypocrisy and corruption in college sports by making sure that pro leagues aren’t passing the buck.  Talented kids should be able to make the leap directly from high school to the NBA.  Don’t like Kentucky and how they do things?  Don’t blame John Calipari — he’s just taking advantage of the mess that David Stern has made for college basketball.

Facepalm, New York Times edition

From Arthur Brisbane, the New York Times Public Editor (or “ombudsman” to those of us who aren’t East Coast elites), on his blog today:

I’m looking for reader input on whether and when New York Times news reporters should challenge “facts” that are asserted by newsmakers they write about.

Seriously?  There’s only one reasonable response to such a ridiculous question.


Iowa Caucus: Don’t forget the media’s role in all of this

Lost in all the post-Iowa hubbub about who’s up and who’s down, who’s in and who’s out is the very real discussion of how the media has taken a confab of 120,000 largely white and rural voters and blown it up into an all-consuming every four years ritual that goes a long way in determining who the next President might be.  From Brendan Nyhan at the Columbia Journalism Review:

Unfortunately, the “meaning” of the caucus results is not always clear. These rough edges are typically sanded away in post-Iowa reporting and commentary, however, which tends to emphasize the order of the finish (even when the margins between candidates are small) as well as unexpectedly weak or strong results. Media outlets then shift energy and resources toward candidates who performed well under the prevailing interpretation, while ignoring or providing negative coverage of those who were believed to have done poorly. These shifts in coverage, which themselves become part of the information party leaders are responding to, can help create massive post-Iowa swings in a candidate’s chances (PDF).

The result is a refraction effect in which journalists help make Iowa influential and then report on its “effects” without acknowledging their role in the process or the often arbitrary nature of the distinctions that are made among the candidates. This is a recurring problem—the norms of journalism demand that reporters exclude themselves from the stories they write, creating a troubling lack of self-consciousness about their own role in the process.

New York University’s Jay Rosen makes a similar point as well:

The Iowa Caucuses are presented as a news event, a mini-election with an informational outcome, a winner. But what they really are is a ritual, the gathering of a tribe, which affirms itself and its place in our political system by staging this thing every four years.

The need for the media to drive the narrative is extremely strong.  In 2012, it’s been just as much the media driving the boomlets for the many non-Romney contenders as it has been the fickle nature of the Republican voters.  After all, there’s 24-hour news channels to fill — someone has to be rising, someone has to be falling, someone has to be making a gaffe, someone needs to be daring to challenge the status quo and be admired for their spunk but consistently dismissed as a real threat.

Breaking down the Chanhassen Villager’s unbalanced political coverage

It’s been clear to readers of Southwest Newspapers for a while that the political coverage of the federal and state legislators in Carver County tends to have a bit of a lean to it. 

The coverage, which is led by the Chanhassen Villager team of Richard Crawford and Forrest Adams, frequently fails to challenge political spin offered by GOP elected officials and often omits or downplays Democratic perspectives.  A couple of stories from the March 31 edition indicate these trends perfectly.

Let’s start with “Budget proposals on the table“, written by Adams.

There’s attempts in here to include Democratic perspectives.  But these attempts are frequently out of context and/or lacking in comparable detail to the Republican perspective.  Looking at a few examples will make this more clear.

Democrats disagree. A public radio report quoted DFL legislators claiming the Republicans were using “Enron-style accounting” and basing their budget plans on unproven numbers. Gov. Dayton, speaking to several different audiences, referred to the majority plans as “draconian measures” and “in some cases barbaric.”

The problem with this quote is that no effort is given to explain what underlies these criticisms of the Republican plan.  The fact of the matter is that it’s true that Republicans have not agreed to use the Minnesota Office of Management and Budget numbers which have been used in the past and have instead relied on outside parties.  Additionally, the MN GOP hasn’t provided any of the underlying analysis behind these numbers.  By omitting this context, the comments are made to appear like garden-variety political griping when they are not — they are substantive critiques of the GOP majority’s actions.

And, there’s not a lick of discussion about the cuts that Republicans Julianne Ortman, Joe Hoppe, and Ernie Leidiger put their votes behind over the past couple of weeks.  Huge cuts to higher education and major cuts to health and human services, among them.  I would think most Villager readers would find these to be important to know about.

Here’s another example:

Democrats claim the LGA funding is likely to result in property tax increases that are at a much higher rate than would be offset by any refunds.

It’s not just Democrats saying this.  The Department of Revenue’s analysis of the omnibus tax bill shows this to be true (and, keep in mind that DoR is currently headed by a Pawlenty appointee). Yet, this analysis — released on Monday — doesn’t make it in to the story.  And, Ortman is allowed to state unchallenged that the bill will “greatly improve the livelihood of individuals receiving that tax relief”, when the evidence on this point is shaky at best.

Then, Adams slips these lines in later in the story:

DFL Sen. Tom Bakk, of Virginia, the former chair of the Senate Tax Committee, called Ortman’s tax bill “a big disappointment.”

No explanation of what is disappointing about the bill or why it is disappointing.

DFL Sen. John Marty at a news conference after the tax bill passed committee also decried the proposed $105 million cut to a renters’ property tax refund program.

Again, no explanation of why Democrats think this is important.  The fact that such changes actually make the bill regressive, not progressive, is missed in the Villager’s coverage.

The second story, Crawford’s “U.S. Census: Growth will bring new Senate district to county“, has a fundamental problem:  two GOP sources quoted, no DFL sources quoted.

Just because electoral results have gone predominantly in one direction in this area does not give the local media a pass to give lip service to other perspectives, ignore needed context and not apply some basic fact-checking to what elected officials say.

Our elected officials need to be held accountable, and it’s the media’s job to help with that process. And if they’re not doing their part of the job, it’s time to hold them accountable, too.

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