If you have not read it, this is a fascinating article in the New York Times. The crux of the article is the title — even critics of the safety net increasingly depend on it.

The article profiles a number of people who take advantage of the federal social safety net and are increasingly resentful of it. The solutions on fixing it vary. The angry, for some, may or may not be misplaced. The article reads as a Rorschach test on your ideology — liberals will read it and find the people hypocritical. Conservatives will read it and find it all maddening.

The key paragraphs of the whole article comes toward the beginning:

The government safety net was created to keep Americans from abject poverty, but the poorest households no longer receive a majority of government benefits. A secondary mission has gradually become primary: maintaining the middle class from childhood through retirement. The share of benefits flowing to the least affluent households, the bottom fifth, has declined from 54 percent in 1979 to 36 percent in 2007, according to a Congressional Budget Office analysis published last year.

And as more middle-class families … land in the safety net …, anger at the government has increased alongside. Many people say they are angry because the government is wasting money and giving money to people who do not deserve it. But more than that, they say they want to reduce the role of government in their own lives. They are frustrated that they need help, feel guilty for taking it and resent the government for providing it. They say they want less help for themselves; less help in caring for relatives; less assistance when they reach old age. [Emphasis added]

In other words, the United States is increasingly taxing the middle class to subsidize the middle class. All the talk about the poor and what the safety net is designed to do for the poor overlooks that the government has taken it upon itself to keep the middle class from falling into the poorer classes of society.

It reminds me of this Robert Heinlein quote:

“Throughout history, poverty is the normal condition of man. Advances which permit this norm to be exceeded — here and there, now and then — are the work of an extremely small minority, frequently despised, often condemned, and almost always opposed by all right-thinking people. Whenever this tiny minority is kept from creating, or (as sometimes happens) is driven out of a society, the people then slip back into abject poverty. This is known as ‘bad luck.’”

We seem to be on the cusp of that in this country and the middle class realizes what is happening. The creators in the country who come up with the ideas, take the risks to capital and reputation, and possibly get ahead are more and more being labeled the bad guys. But there is more to it than that. The middle class is coming to terms with the idea that upholding its principles will put it at a competitive disadvantage and they are seething about it.

Read More →

If you have not read it, this is a fascinating article in the New York Times. The crux of the article is the title — even critics of the safety net increasingly depend on it.

The article profiles a number of people who take advantage of the federal social safety net and are increasingly resentful of it. The solutions on fixing it vary. The angry, for some, may or may not be misplaced. The article reads as a Rorschach test on your ideology — liberals will read it and find the people hypocritical. Conservatives will read it and find it all maddening.

The key paragraphs of the whole article comes toward the beginning:

The government safety net was created to keep Americans from abject poverty, but the poorest households no longer receive a majority of government benefits. A secondary mission has gradually become primary: maintaining the middle class from childhood through retirement. The share of benefits flowing to the least affluent households, the bottom fifth, has declined from 54 percent in 1979 to 36 percent in 2007, according to a Congressional Budget Office analysis published last year.

And as more middle-class families … land in the safety net …, anger at the government has increased alongside. Many people say they are angry because the government is wasting money and giving money to people who do not deserve it. But more than that, they say they want to reduce the role of government in their own lives. They are frustrated that they need help, feel guilty for taking it and resent the government for providing it. They say they want less help for themselves; less help in caring for relatives; less assistance when they reach old age. [Emphasis added]

In other words, the United States is increasingly taxing the middle class to subsidize the middle class. All the talk about the poor and what the safety net is designed to do for the poor overlooks that the government has taken it upon itself to keep the middle class from falling into the poorer classes of society.

It reminds me of this Robert Heinlein quote:

“Throughout history, poverty is the normal condition of man. Advances which permit this norm to be exceeded — here and there, now and then — are the work of an extremely small minority, frequently despised, often condemned, and almost always opposed by all right-thinking people. Whenever this tiny minority is kept from creating, or (as sometimes happens) is driven out of a society, the people then slip back into abject poverty. This is known as ‘bad luck.’”

We seem to be on the cusp of that in this country and the middle class realizes what is happening. The creators in the country who come up with the ideas, take the risks to capital and reputation, and possibly get ahead are more and more being labeled the bad guys. But there is more to it than that. The middle class is coming to terms with the idea that upholding its principles will put it at a competitive disadvantage and they are seething about it.

Read More →

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On today’s edition of Coffee and Markets, Brad Jackson and Ben Domenech are joined by Francis Cianfrocca to discuss impending elections in Greece, American’s growing dependence on the “safety net,” and why that path is unsustainable.

We’re brought to you as always by BigGovernment and Stephen Clouse and Associates. If you’d like to email us, you can do so at coffee[at]newledger.com. We hope you enjoy the show.

Related Links:

Greece’s Laos Party Calls For Immediate Elections
Even Critics of Safety Net Increasingly Depend on It
This Time Is Different: Eight Centuries of Financial Folly
Ben: Our course remains unsustainable

Follow Brad on Twitter
Follow Ben on Twitter
Follow Francis on Twitter

Subscribe to The Transom

The hosts and guests of Coffee and Markets speak only for ourselves, not any clients or employers.

Download audio here

Download Podcast | iTunes | Podcast Feed

On today’s edition of Coffee and Markets, Brad Jackson and Ben Domenech are joined by Francis Cianfrocca to discuss impending elections in Greece, American’s growing dependence on the “safety net,” and why that path is unsustainable.

We’re brought to you as always by BigGovernment and Stephen Clouse and Associates. If you’d like to email us, you can do so at coffee[at]newledger.com. We hope you enjoy the show.

Related Links:

Greece’s Laos Party Calls For Immediate Elections
Even Critics of Safety Net Increasingly Depend on It
This Time Is Different: Eight Centuries of Financial Folly
Ben: Our course remains unsustainable

Follow Brad on Twitter
Follow Ben on Twitter
Follow Francis on Twitter

Subscribe to The Transom

The hosts and guests of Coffee and Markets speak only for ourselves, not any clients or employers.

The budget season has officially commenced today with CBO’s release of its annual budget and economic outlook.  Here are some of the major takeaways from the report:

FY 2012 Budget

The topline figure that the media will focus on is the projected $1.070 trillion budget deficit for FY 2012, down from $1.3 trillion last year.  However, as CBO notes several times throughout the report, the reduction in this year’s deficit is predicated on several assumptions.

1)      Revenues:  The entirety of this year’s deficit reduction comes from higher projected revenues, roughly $220 billion.  CBO is forced to score current law, which assumes that the payroll tax cut will expire at the end of February.  Another 10-month extension, which is almost a forgone conclusion, would cost over $100 billion.  Also, the CBO baseline does not include a likely AMT patch, and extension of many annual “tax extenders,” such as the credit for research and development.  It’s very likely that the extensions will wipe out the entire revenue gain from this year over 2011, thereby eliminating the reduction in the deficit.

2)      Outlays:  CBO is projecting $3.601 trillion in spending, up just $3 billion from last year.  Obviously, this projection does not account for a full-year extension of unemployment benefits and doc fix, which could add as much as $70 billion to this year’s spending total.

3)      Defense:  Outlays for defense will be reduced by another $20 billion.

When these factors are accounted for, it is clear that non-defense discretionary spending will not decrease significantly, while mandatory spending will continue to rise.  If you assume the alternative scenario, in which most of the temporary tax and spending measures are extended, the deficit should be about the same as last year; around $1.3 trillion.  In other words, there will be slightly more revenue this year, but increased spending as well.

Read More →

The budget season has officially commenced today with CBO’s release of its annual budget and economic outlook.  Here are some of the major takeaways from the report:

FY 2012 Budget

The topline figure that the media will focus on is the projected $1.070 trillion budget deficit for FY 2012, down from $1.3 trillion last year.  However, as CBO notes several times throughout the report, the reduction in this year’s deficit is predicated on several assumptions.

1)      Revenues:  The entirety of this year’s deficit reduction comes from higher projected revenues, roughly $220 billion.  CBO is forced to score current law, which assumes that the payroll tax cut will expire at the end of February.  Another 10-month extension, which is almost a forgone conclusion, would cost over $100 billion.  Also, the CBO baseline does not include a likely AMT patch, and extension of many annual “tax extenders,” such as the credit for research and development.  It’s very likely that the extensions will wipe out the entire revenue gain from this year over 2011, thereby eliminating the reduction in the deficit.

2)      Outlays:  CBO is projecting $3.601 trillion in spending, up just $3 billion from last year.  Obviously, this projection does not account for a full-year extension of unemployment benefits and doc fix, which could add as much as $70 billion to this year’s spending total.

3)      Defense:  Outlays for defense will be reduced by another $20 billion.

When these factors are accounted for, it is clear that non-defense discretionary spending will not decrease significantly, while mandatory spending will continue to rise.  If you assume the alternative scenario, in which most of the temporary tax and spending measures are extended, the deficit should be about the same as last year; around $1.3 trillion.  In other words, there will be slightly more revenue this year, but increased spending as well.

Read More →

1 – Should it be called a Tax Cut?

YES

If we believe the Social Security claim of the last 75 years, what Congress is talking about is reducing the amount of your paycheck that is contributed to the federal Old-Age, Survivors, and Disability Insurance (OASDI) program.  Most people see this as a ‘lock box’, where we are putting away money to be taken out when we retire.  If this were the case then it is really not a tax at all but what you might call a forced savings program.

In reality, Social Security is a pay-as-you-go system, where deductions from employees and payments by employers are used to fund all the Social Security obligations.  Any money not needed is put back into general use by the government in exchange for special government securities that are put into the Social Security Trust Fund.  By 2017 or so the amount collected will no longer cover the expenses and we will have to start ‘redeeming’ some of these securities.  So, in that respect, it is a tax cut.

2 – Will this reduce the benefits you receive when you retire?

NO

To answer this I had to figure out how Social Security benefits are calculated.  Here is the basic math.

You receive “credits” for salary that you receive.  In 2011 you receive one credit for each $1,120 of wages.  The most credits you can receive each year is 4, so by the time you have been paid $4,480 you have maxed out your credits for the year.  You must receive 40 credits to be eligible for Social Security benefits.

Once you are eligible, the Social Security Administration (SSA) looks at 35 years of your salary history.  They take the highest Taxed Social Security earnings that were reported to the IRS on your W-2 each year (which may not be the total amount of your paycheck) add it up and divide by 35.  If you have not worked 35 years then they fill in the missing years with ’0′.  This number gets divided by 12, reduced by a very complicated formula, and the result is your monthly benefit if you retire at age 67.  So the fact that the SSA takes out less money will not affect this calculation.

3 – Does the cut affect the employer’s contribution?

NO (it didn’t in 2011)

Many people don’t realize that while you ‘contribute’ up to 6.2% of your income into Social Security you employer does the same.  This means that 12.4% of your gross salary (from your employer’s point of view) is going to the SSA, with 1/2 showing up as a deduction on your paycheck and 1/2 being shouldered by your boss.  The portion taken out for Medicare (you and your employer both contribute to this as well) and the portion your employer contributes remains untouched.

4 – Will this cut affect the solvency of Social Security?

Not really

We all know that Social Security is a sinking ship, but this little hit probably won’t make it sink any faster.  The bill includes a “pay for it” provision increasing fees associated with mortgages backed by Fannie Mae and Freddie Mac – but if you read the bill the money collected “… shall be deposited directly into the United States Treasury.”  I don’t see how this helps the SSA.  What is worse, the additional fees are in place through October 1, 2021.  Hurray – Congress has found another way to tax us.

5 – Will the payroll tax cut only last two months?

Probably NO

Two reasons.  First, Congress says they want to extend it for two months so they can fix it when they come back (at the end of January) to last for all of 2012.  Second, there are huge problems for accountants and payroll companies with having a tax rate change for only two months.  All taxes (including payroll taxes) are computed quarterly, and all tax software is set up to handle this three month tax window.  Nobody really knows how to handle a tax rate that changes within the quarter.

Ideas don’t run for president; people do. That’s as true today as it was four years ago. So, it is understandable that much of the press and blog coverage of the 2012 GOP primary race has focused on the personalities, experience and record of the candidates rather than their ideas. In fact, until you know the candidates by their actions, you cannot meaningfully judge what their words will mean in practice. Mitt Romney is the prime example of this, having so inconsistent a record that it’s impossible to take seriously the idea that he’s guided by any sort of coherent political philosophy.

But as it happens, we do have three candidates in this race who stand for a distinctive philosophical approach to domestic policy. One of those, Ron Paul, espouses a radical constitutionalism that exists on the periphery of the conservative movement. Rick Perry, while his issue stances are more conventionally (but not always uniformly) conservative, can best be understood through the lens of his guiding principle as a Texas nationalist – a belief that a significant amount of the powers now wielded by the federal government should be returned to the states. And then there’s Newt Gingrich. Newt generates so many new ideas – he develops more firmly-held political convictions before breakfast each morning than Romney’s had his entire life – that it’s tempting to view them as essentially random. But there is a method to the madness. Setting aside for a moment Gingrich’s personal attributes, let’s look at his ideas, with particular attention to two recent interviews he did – one with Ben Domenech, Brad Jackson and Francis Cianfrocca at Coffee and Markets, the other with Glenn Beck. Both provide a keen window into how Newt views domestic policy issues. In the interests of length, I’ll pass over one of the three pillars of Newt’s worldview (his futurism and faith in new technologies), which has been written about extensively, and focus on two others: his gradualism and his revival of what I call “Reform Conservatism.”

Read More →

Ideas don’t run for president; people do. That’s as true today as it was four years ago. So, it is understandable that much of the press and blog coverage of the 2012 GOP primary race has focused on the personalities, experience and record of the candidates rather than their ideas. In fact, until you know the candidates by their actions, you cannot meaningfully judge what their words will mean in practice. Mitt Romney is the prime example of this, having so inconsistent a record that it’s impossible to take seriously the idea that he’s guided by any sort of coherent political philosophy.

But as it happens, we do have three candidates in this race who stand for a distinctive philosophical approach to domestic policy. One of those, Ron Paul, espouses a radical constitutionalism that exists on the periphery of the conservative movement. Rick Perry, while his issue stances are more conventionally (but not always uniformly) conservative, can best be understood through the lens of his guiding principle as a Texas nationalist – a belief that a significant amount of the powers now wielded by the federal government should be returned to the states. And then there’s Newt Gingrich. Newt generates so many new ideas – he develops more firmly-held political convictions before breakfast each morning than Romney’s had his entire life – that it’s tempting to view them as essentially random. But there is a method to the madness. Setting aside for a moment Gingrich’s personal attributes, let’s look at his ideas, with particular attention to two recent interviews he did – one with Ben Domenech, Brad Jackson and Francis Cianfrocca at Coffee and Markets, the other with Glenn Beck. Both provide a keen window into how Newt views domestic policy issues. In the interests of length, I’ll pass over one of the three pillars of Newt’s worldview (his futurism and faith in new technologies), which has been written about extensively, and focus on two others: his gradualism and his revival of what I call “Reform Conservatism.”

Read More →

We all know that trying the same thing over and over expecting different results is a popular definition of insanity.  And we also know that putting the paste back in the tube is a popular illustration of an impossible task.  

I tested the first truism mentioned above as a young man whose motto should have been, “I’ll never do that again – I just did it again.”  For some reason just as not going to school didn’t lead to improved job prospects attempting to spend every day at a party didn’t lead to happiness.  Over and over I valiantly kept trying to rock-n-roll all night and party every day.  I developed a patented hang-over cure. Stay drunk.  I figured it wasn’t the drinking that caused the hangover it was the getting sober, and I tried my best to avoid hangovers from the time I was fifteen until I was thirty.   Then at thirty I had my Come-to-Jesus moment, meaning I literally came to Jesus.  With His guidance I found another path which included school and working which yielded a different result including a soul mate for a wife, a son to be proud of, and a wonderful life. 

Turning to the second truism mentioned above, as a person who actually tried putting toothpaste back in the tube I can attest that it deserves its symbolism as impossible.  At best you can manage to get a little back in the tube.  But the process is messy, frustrating and in the end so fruitless it’s laughable.  All of which brings me to my question for the week.  Can those of us who believe in limited government, personal liberty, and economic freedom walk America back from the cliff to which the embrace of Progressive leadership and its collectivist mindset, one hundred years of reinforcement by indoctrination, and an addiction to entitlements have led us? 

How best to describe the problem we face?  Often a good example will expose a basic problem better than any technical explanation.  Look at the debate about the payroll tax extension.   Both wings of the Party of Power continue the baseline inspired fiction that you have to pay for tax cuts when all they ever do is allow those who earn money to keep it.  The Democratic wing, always seeking to divide America into interest groups, contends the only way to pay for tax cuts on one segment of the population is to tax someone else.  Therefore they propose to pay for the extension by taxing millionaires and billionaires.   The Republican Progressives propose cutting federal salaries to pay for it.  An approach which sounds as it if should appeal to those seeking to re-limit the central government.    

Looking at the first solution, taxing the rich to give to the un-rich is merely more of the same spreading-the-wealth-around income distribution socialism that is the hallmark of the Democratic wing of the Party of Power. 

Turning to the second solution it sounds good while in reality it is more baseline thinking where cutting a proposed increase is a cut even though the budget still increases. Instead of cutting salaries why not cut some of the tens of thousands of new bureaucrats which have been added in just the last two years?   Merely cutting the salaries of the hordes of federal drones is like re-arranging the deck chairs on the Titanic.  It may look better but ultimately it really won’t help keep the ship of state afloat.  This is typical of the governance proposed by the big government Republican wing of the Party of Power.  It may look good, it may even sound good, but when you peel back the onion the deficits continue and the debt goes up. 

Peering through the fog generated by the media amplified rhetoric the entire debate is bogus because the original payroll tax cut was a trap to begin with.  It put money in the pocket of every person who receives a pay check by letting each of us keep a little more of the money we earned.  But the payroll tax is what supports the current recipients of Social Security.  There is no Trust Fund.  That is a fiction, since the money goes directly to the general funds to be replaced by IOUs that aren’t worth the paper they would be printed on if they weren’t electronic.  If this money is taken away Social Security loses even the illusion of a pay-as-you-go system and is starkly revealed for what it is: welfare for seniors.  

It is time for my generation to admit we have been ripped off for every cent ever extorted from us for Social Security, and the only way we can receive benefits is to have the government extort it from our children and give it to us.  By decreasing the plunder taken from the kids and instead taking it from the perennial enemies of the Democratic Progressives, the most productive, Social Security is revealed for what it is: just another welfare entitlement.  And merely lowering the salary of a bloated bureaucracy perpetuates the growth and legitimizes the recent exponential expansion of a centrally-planned government that has run amuck.  It also makes social security visible as the Ponzi scheme it has always been. 

Europe is exploding because the bill is coming due for countries that have played this social welfare shell game for generations.  Austerity is the word that is igniting riots and strikes from Athens to London.  Faced with the possibility that they won’t be able to retire at fifty with full pensions, generous benefits, and guaranteed vacations people are throwing fire bombs and toppling governments.   

Western Civilization was born in the Mideast, was launched as a world embracing power from Europe, and culminated in the great experiment of America.  Today Western Civilization teeters on the edge of destruction.  Our Federal Reserve is pumping out funny money faster than anyone can count trying to prop up the European launching pad as we abandon our occupation of the Middle Eastern cradle and fear for the continued vitality of its American summit.  Western Civilization burns while our Party of Power plays the fiat financial fiddle.  Will we continue the shadow dance pretending we have a limited government or will we muster up the courage to tell our media enhance perpetually re-elected puppet master that he who pays the piper calls the tune? 

Dr. Owens teaches History, Political Science, and Religion for Southside Virginia Community College.  He is the author of the History of the Future @ http://drrobertowens.com © 2011 Robert R. Owens drrobertowens@hotmail.com  Follow Dr. Robert Owens on Facebook or Twitter @ Drrobertowens