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October 07, 2010

Comments

It may be that reforming corporate taxation makes sense (I'm open to the idea). That doesn't mean that it would be useful for addressing unemployment.

It seems pretty obvious that the problem is low demand.

Buybacks make no sense whatsoever to me. The company has no real interest in its own nominal stock price, and if it wants to distribute profits to shareholders it can do so with a dividend. Buying stock resembles a pump-and-dump scheme designed to benefit insiders - execs with substantial stock holdings who can dump some while the stock price is temporarily inflated.

There isn't any money to do any of these things. Green technology (ethanol anyone?) sounds great, but it's tons more expensive than fossil fuels. Building a bunch of nuke plants might make sense, but windmills? Infrastructure? That's done by private contractors using skilled, semi-skilled and unskilled labor. It's local. Unless a particular area's unemployed have construction skills or are physically fit and willing to do shovel work, this offers very little. Finally, hiring people doesn't produce consumer demand, it simply puts money in more people's pockets. Maybe this is what you meant, which is really that the economy needs more disposable income. Well, we've beat that horse to death. A two year FICA holiday fixes that problem overnight.

"Unless a particular area's unemployed have construction skills..."

August unemployment: 9.6%
http://www.bls.gov/news.release/empsit.nr0.htm

August unemployment in the construction sector: 17%
http://www.bls.gov/iag/tgs/iag23.htm

Seems like a pretty good bet.

And, of course, a FICA holiday only puts money in the pockets of those currently employed.

The rationale for stock buybacks (at one time, anyway) was "tax efficiency". If the stockholders pay a lower tax rate on capital gains than on dividends, they prefer to sell back stock. In any case, there's also the tax timing issue: the dividend comes when it comes, but it's the stockholder's choice when to realize a gain by selling back stock.

I know it's not possible for a corporation to buy back ALL its stock -- every last share, including from the insiders -- but now that corporations are people, I'm starting to wonder :)

More seriously, I also wonder: what happens to the cash, once the stockholders get it? I mean, suppose XYZ Corp is sitting on $1B of idle cash -- meaning it has that $1B on deposit in the banking system. It pays out that $1B to stockholders willing to sell back their stock. The stockholders deposit the $1B back into the banking system. What does that accomplish?

--TP

One very solid reason for corporations to NOT buy materials or make new investments in capital equipment is that the drop in valuation that hit all of us also hit them. As a result, the asset/debit ratio dropped and, in many cases became negative. It is irresponsible for a corporation to make new investments when its assets are less than its debts. Cash is only one asset. Property, equipment, and other values are assets.

If only our government would consider not spending beyond the value of its assets. On the other hand, how does one value the government's assets?

No... the problem is that the blogs are the ones talking about this and not Washington. Crickets. At what point do we start calling their silence and feature and not a bug?

What a hilariously moronic post.

The reason companies are spending $ on buybacks instead of investing it is because the return on that investment is insufficiently high. And the return on investment is *post tax*. Reduce the tax levels and the ROI increases.

duh.

What's with the Emma bots everywhere?

I was able to delete the ones on threads by Eric and myself, but I can't do a thing about all the others, I'm afraid; only Eric and Slarti hold the master passwords, and otherwise posters need to monitor their own threads.

I'd be happy to clean up the other spam if I could.

I hate spam.

I hate spam.
You, sir, are no Viking!

The US is now, by definition, not in a recession. Economic growth is well below levels Americans are accustomed to and well below the level needed to reduce unemployment significantly. Large businesses, like those covered by this post and cites, are contributing most of this growth. The economic growth that is absent is that historically generated by American small businesses. That's where the jobs needed will come from.


Tax and regulatory policies have created this and it's like a freeze or a gridlock and it will take policy changes to break it open. Just as the large companies are buying back their stock instead of investing in new growth opportunities because the ROI is unattractive, large banks don't need to take the risks of lending to small business in order to get a satisfactory return and small banks are slow to lend to small businesses because of new regulatory oversight. Even if this lending pattern changes, small businesses face too many uncertainties about taxes, possible new requirements related to employees' healthcare costs, energy costs, and who knows what other regulatory requirements.

So, if we are more concerned that someone unworthy might get a break on their taxes than we are about generating economic growth that will create new jobs to reduce unemployment, then keep doing what we have been doing the last 2 years.

From Reuters:

'"GE is playing offense, not just in energy but in financial services and in our other businesses," said John Krenicki, who also serves as chief executive of the company's energy infrastructure division. "The energy business is a vast business, we've got lots of options and our team can move quickly."

GE on Wednesday said it would pay $3 billion for Dresser Inc, a maker of big gas engines, and that it bought a $1.6 billion portfolio of retail credit card assets from Citigroup Inc (C.N).

He declined in an interview to comment further on British oilfield services company Wellstream Holdings (WSML.L) rejection of a $1.2 billion (755 million pound) takeover approach, which GE also disclosed on Wednesday.

The Fairfield, Connecticut-based company is not just allocating cash to takeovers, Krenicki noted, pointing out that the company is hiking its dividend by 20 percent and has resumed buying back its shares.

"We've also been investor-friendly with the dividend and buyback, we're thinking about our investors," Krenicki said.

GE plans to focus its deal-making on industries where the company already has a presence and is not looking to break into new sectors, Krenicki said.

"We're not branching out into things that we don't understand or don't know," Krenicki said. "We're prudent with our shareholders' money."'

Don't see many new jobs here. But that's not surprising. This is how large corporations grow their company for their stockholders.

If individuals and small groups of innovative entrepreneurs are not now creating new businesses, then these opportunities will be in shorter supply for companies like GE in the future. And the needed new jobs will not be created.

If someone here thinks they know how new jobs will be created under existing policies, I'd love to hear the story.

Buybacks make no sense whatsoever to me. The company has no real interest in its own nominal stock price, and if it wants to distribute profits to shareholders it can do so with a dividend. Buying stock resembles a pump-and-dump scheme designed to benefit insiders - execs with substantial stock holdings who can dump some while the stock price is temporarily inflated.

They make sense from a couple of points of view: if a company thinks that its stock is undervalued, and will rise, it can make money by buying now and selling later. I don't know to what extent this is driving current purchases, but it's a possibility.

Hiring new employees to produce products that there isn't sufficient demand for is, I'd think, a losing proposition from a corporate perspective. What if demand doesn't pick up? Then the company is left with inventory on its hands (that it likely will have to pay tax on) and a bunch of employees that it will ultimately have to let go again, and pay unemployment to. Maybe. I don't understand fully how unemployment works, so it might not apply to downsizing activities.

Your last couple of sentences could be another reason for companies to self-invest. It could be one of those cases in point where corporate decisions can be made by people whose financial outcomes are most affected by those decisions. But I think that corporate executive stock sale positions have to be announced months in advance, and such activity might violate some insider-trading statutes.

I'd guess that the most effective strategy for maximizing corporate executive compensation would be nearly the opposite: take actions to ensure that the stock is undervalued at the time the transaction is computed. But if this were a legal strategy, corporations would be doing it all the time, recession or no.

Don't see many new jobs here. But that's not surprising. This is how large corporations grow their company for their stockholders.

If anything, it will result in layoffs.

if a company thinks that its stock is undervalued, and will rise, it can make money by buying now and selling later.

That makes sense.

The article gives the example of MS, who floated a bond and spent some of the $$$ on stock buybacks. Rates are very low, buying back the stock immediately improves the P/E ratio, it's a win/win.

I can buy the idea that businesses are waiting to see where the tax situation lands before making any big moves, but to be honest I don't think taxes or regulation are what is putting a damper on growth. The tax changes in question are just not that big. Regs are a PITA, but they're always a PITA.

Small business growth is hampered by the fact that nobody has any money to spend. Nobody has any money to spend because (a) they're unemployed (one out of six people in the workforce) or (b) their wealth has been basically crushed over the last couple of years, so they're trying to rebuild their savings.

That's why.

If we simply don't want to spend public money to hire people and put them to work, that's one thing, but there sure as hell are lots of "shovel-ready" things to do, and there sure as hell are a lot of people who need the work.

And yes, construction specifically is one of the hardest-hit sectors, so in fact we are well positioned to address infrastructure if that's what we want to spend money on.

And if we need to borrow to fund it, it's not likely to be any cheaper to borrow the money than it is right now. Not in the lifetime of anyone who's reading this, anyway.

As far as private business, they're gonna do what maximizes their ROI. They can, by law and by the logic of their reason for being, do no other.

If that doesn't result in getting the millions of people who are currently sitting around with nothing to do usefully employed, then we can either address it in the public sector, or live with it.

Those are our choices. With a pencil and the back of an envelope, you can figure out which is likely to, net/net, cost us more in the long run.

The financial shenanigans of the last few years vaporized trillions of dollars of wealth. It's going to be years -- five years, ten years, twenty years -- before the economy metabolizes that loss and gets back to square one.

The private sector is not going to provide a speedy remedy for the unemployed. It just is not.

Feh, taxes and regulation are just convenient things for businesses to blame for not hiring. They're not going to hire anyway due to the overall state of the economy from, as russell notes, the vaporization of trillions of dollars of wealth. So they might as well try to get what they otherwise want, lower taxes, less regulation.

Yet another episode of "what russell said..."

The reason companies are spending $ on buybacks instead of investing it is because the return on that investment is insufficiently high. And the return on investment is *post tax*. Reduce the tax levels and the ROI increases.

So, is it your argument that lower tax rates in the past led companies to invest, but now that tax rates are so much higher? they're not investing?

And we can cure this by lowering corporate tax rates to the prior rate of X% which was prevalent during the great boom years?

That sounds, well, hilar4iously moronic to me.

Also what Ugh said.

If someone here thinks they know how new jobs will be created under existing policies, I'd love to hear the story.

No, we need an actual stimulus bill that will add net govt spending to the mix (the last federal stimulus was canceled out by massive state level cuts), and we would do well to make the tax code more progressive so that the consumers in our consumer based economy will have more money to...well, consume.

What Russell said.

Even if this lending pattern changes, small businesses face too many uncertainties about taxes, possible new requirements related to employees' healthcare costs, energy costs, and who knows what other regulatory requirements.

got a cite for that?

i know that's the standard "conservative" line these days, but i've never seen any kind of survey of small businesses which shows that "uncertainty" exists and is doing what you say it is.

I'd echo cleek's request for data.

I know that my small business has no such concerns. We're not hiring any new employees because economic activity isn't brisk enough.

Period.

There has been a sum total of ZERO discussions of taxes, energy costs or health care or regulation in our management meetings.

Zero.

Further, there is really no changes on the horizon with respect to any of those items that would lead to discussions.

I mean, what sweeping regulatory changes are looming? Seriously?

Anyone bringing arguments concerning small businesses should also provide his/her definition of those. In GOPland Bechtel is a small business (and iirc at least one of the oil giants) due to the use of a rather misleading definition of the term.

"What sweeping regulatory changes are looming?"

Unemployment compensation, the minimum wage, the new healthcare legislation, environmental regs, OSHA regs, a good part of Social Security, much of Medicaid and a sizable portion of Medicare, corporate taxation, and the inheritance tax will be defunded, eliminated, and perhaps declared unconstitutional over the coming years of corporate republican rule.

Foreclosures will accelerate as the Republican party and the useless, pointless Democratic Party who have been bought by the financial sector, grease the skids for hundreds of thousands of homeowners who are in default, but whose paperwork can't be found by the ever-so-competent private banking system.

Add in the astronomical expenses of perpetual war.

Therefore, corporations and small businesses are uncertain about the future.

And who can blame them, considering the amount of social unrest and perhaps violence that is on the horizon.

Hunker down, build walls, and don't hire your fellow Americans who might be pissed off because they suffer from a pre-existing melanoma.

Ship jobs overseas where costs are a fraction of what they here and where any sort of organized attempt to improve pay, working conditions, and benefits will be met with armed violence from the foreign government's military.

Corporations love fascism. Return on Investment tends to soar under those regimes.

And yes, construction specifically is one of the hardest-hit sectors, so in fact we are well positioned to address infrastructure if that's what we want to spend money on.

Jesus wept.

"Green technology (ethanol anyone?) sounds great, but it's tons more expensive than fossil fuels. Building a bunch of nuke plants might make sense, but windmills?"

I'm not sure how you can claim that it's "more expensive" than fossil fuels, given the huge subsidies for fossil fuel extraction ($72.5 billion as of here), plus the military subsidies to secure the oceans, plus the invested infrastructure, and so on. Plus the way that fossil fuel plants tend to run over their predicted costs (and nuke plants are far far worse at that). Also, the externialities (pollution, sicknesses, giant piles of toxic sludge that flood towns, etc) so the whole claim of "fossil fuels are cheaper!" is pretty ridiculous.

Also, in regards to the general ROI thing, one of the major reasons lots of people lost jobs was big companies coming in and buying companies (local radio & newspaper, for blatant examples) and then chopping up and outsourcing the companies even though they were profitable, because they only made 2-3% profit, and the predator companies wanted 8-10% profits, which is also where the fraud of "financial innovation" came in.

If someone here thinks they know how new jobs will be created under existing policies, I'd love to hear the story.

Well, how did new jobs get created in the 1950s, when tax rates (especially at the top) were substantially higher than they are now? We had recessions, and recovered from them. We had a growing workforce. Yet somehow, jobs still got created. So what is different (in kind, not in detail) now?

Regarding the claim that over-regulation and such got us into this mess:

No one in government forced or incentivized investment banking firms to engage in the type of behavior (one example of many) described below. Much, not all, of the malfeasance occurred in a deliberately created regulatory vacuum.

From Balloon Juice:

“Inside Job” offers a lucid and devastating history of how the crash happened, who caused it and how they got away with it. Furthermore, Ferguson argues, if we don’t stop those people—preferably by removing them from power, arresting them and sending them to prison—they will certainly do it again…

This may be forcing a parallel, but here’s what occurred to me: At the beginning of Marxism-Leninism, the leaders who believe in what they’re selling. We can assume that Lenin and Trotsky believed that they were changing the world for the better, history was on their side, and so forth. Maybe Stalin did too, at first. By the end of the Soviet state, you have a completely corrupt environment in which nobody, including the leadership, actually believes in the Communist future. I wonder if we’re seeing a speeded-up version of that same ideological decay in the world of free-market capitalism.

I think that’s an extremely accurate and perceptive analogy. And it’s also a very disturbing one. The idea that the United States is being taken over by this utterly cynical group of people who know that this is a rigged game and just kind of give it lip service. I think that there’s a lot of that. The United States has changed over the past 30 years. America has changed. And it really is time I think for the American people to unchange it…

In your film we see recent congressional testimony, from April 2010, in which Goldman Sachs executives discuss selling securities to major clients, such as pension funds, that they themselves were betting would fail. How does someone in that world justify that behavior to themselves?

In a number of conversations I’ve had with bankers, I’ve been struck that they find it surprising that somebody would raise ethical questions. They don’t find it surprising that legal questions could be raised. “Could I get in trouble?” That’s a discussion they’re very familiar with. But, “Is this right or wrong?” That’s not a discussion they have often.

The government can regulate or god*amned vigilantes will.

That last sentence is Countme?'s words, not those of Balloon Juice.

In GOPland Bechtel is a small business

Sorry, I must have missed this. Wha?

Finally, hiring people doesn't produce consumer demand, it simply puts money in more people's pockets.

I'm surprised no one responded to this already. My response is as follows:

"???????????????"

Slarti, I think this explains the Bechtel reference.

one of the major reasons lots of people lost jobs was big companies coming in and buying companies (local radio & newspaper, for blatant examples) and then chopping up and outsourcing the companies even though they were profitable, because they only made 2-3% profit, and the predator companies wanted 8-10% profits

Yes, that is an improvement in ROI. It's what corporate officers are bound, by law in fact, to consider in making whatever decisions they make.

How does someone in that world justify that behavior to themselves?

See under "ROI".

They don’t find it surprising that legal questions could be raised. “Could I get in trouble?” That’s a discussion they’re very familiar with. But, “Is this right or wrong?” That’s not a discussion they have often.

See under "ROI".

Look, nobody should be surprised by this, because the institutions and laws that govern corporations in this country *mandate* that corporate officers act in the interest of the shareholders only, and specifically that they act to maximize the return on investment to those shareholders.

They might be total jerks, or they might be lovely wonderful people, but that's actually kind of beside the point.

Because *in their fiduciary capacity as corporate officers*, they are tasked with maximizing shareholder ROI.

Period.

There are a number of negative things that flow from that, but in a sort of bizarre way it's hard to hold operational managers of corporations responsible for that.

It's baked in.

Corporations, whether large medium or small, *are not going to address social problems*. They aren't going to be nice, they aren't going to worry about all the people who get laid off and lose their homes and health insurance. They aren't going to do a single damned thing that isn't renumerative, to them and their owners.

They are not, because they cannot.

It's not their job.

I'm starting to think that playing the drums produces great mental clarity.

Ah. I'm guessing that the Democratic solution to the pass-through corporation is to make sure those 3% are suitably nailed, and to hell with the other 97%. Sounds like a winner!

"It's not their job."

Therefore it is the government's job.

The private sector off-loads low ROIs onto society and government.

Plus, whatever Russell (who supplies the backbeat to nearly every thread) said.

I'm guessing that the Democratic solution to the pass-through corporation is to make sure those 3% are suitably nailed, and to hell with the other 97%.

slarti, I'm not following what you're saying here. Can you expand this maybe? Or explain how it is a response to other comments in the thread?

Ditto

You have to follow the links. Follow ral's link back to the source.

On one hand, a tax increase would hit giant S-corps like Bechtel and Price-Waterhouse-Cooper. On the other hand, making sure that Bechtel and PWC see a tax increase is going to ensure that about 750,000 other S-corps see a tax increase.

But it's not worth taking a deeper look to see who's in that group, because ohmigod you want to give Bechtel a tax break!

Slarti,

I'm guessing that the Democratic solution to the pass-through corporation is to make sure those 3% are suitably nailed, and to hell with the other 97%.

As I read that, the other 97% don't have enough income to trigger a tax increase, so I don't see how you get "to hell with them" from that. The point of the article was that the 3% of pass-through entities that are over the $250,000 threshold represent about half of all such income. As the AEI economist quoted says:

"How can it be that 3 percent of owners are accounting for 50 percent of small business income? Those firms they're owning can't be all that small," Viard said. "And that's true. They're very large."

But Hatch and the Republicans are trying to claim that any pass-through counts as a small business, regardless of actual size.

From the link, with emphasis added:

KKR, PricewaterhouseCoopers and the Tribune, it turns out, are organized as "pass-through" entities - companies that typically avoid corporate taxes by reporting profits on the individual tax returns of their owners, managers or shareholders.

The vast majority of "pass-through" entities are, in fact, small businesses, often with one or two employees and very small profits. Next year, the nonpartisan Joint Committee on Taxation predicts that taxpayers will report about $1 trillion in income from pass-through entities. Only about 3 percent of them - about 750,000 taxpayers - will earn more than $250,000, the threshold at which Obama would raise tax rates. Those returns will account for about half of all pass-through business income, the JCT reported, meaning the tax hikes would strike a large segment of such activity.

(...)

Politically, however, it's a very different matter to raise taxes on a Wall Street hedge fund than it is to tax your neighborhood dry cleaner. Which is why Republicans continually define pass-through entities of all sizes as small businesses, a position Viard called a "fallacy."

"How can it be that 3 percent of owners are accounting for 50 percent of small business income? Those firms they're owning can't be all that small," Viard said. "And that's true. They're very large."

I'm not sure I'm getting your point, Slarti. Are you worried about the marginal 4% or so increase for the $250k+ group?

Slarti, either you misunderstand something, or I do.

S-corps and other "pass-through" entities are called "pass-throughs" because THEY DON'T PAY TAXES. Nobody is proposing to "raise their taxes" because pass-throughs DON'T PAY TAXES in the first place.

Who pays the taxes is the INDIVIDUALS to whom the S-corps pass their profits. Those individuals pay taxes at the same personal income tax rates as individuals who have similar incomes from wages and salaries.

So tell me this: suppose I own an S-Corp, and suppose you are an employee of my S-Corp. Suppose that I pay you a $500K salary. Suppose that, after paying your salary and all the other costs of doing business, my S-Corp has a profit of $500K which it "passes through" to me. Got it? You and I both have the same $500K of personal income. Should you pay more, less, or the same tax as I do?

--TP

As I read that, the other 97% don't have enough income to trigger a tax increase

Fair point; dunno how I misread that.

Are you worried about the marginal 4% or so increase for the $250k+ group?

No, someone else is saying GOP is classing Bechtel as a small corporation because some GOPers are concerned that the same tax increase that will hit some small business owners will also hit Bechtel.

Which, go scratch your head over that logic.

Should you pay more, less, or the same tax as I do?

Should, or do? Sounds like you're arguing do.

Should is kind of irrelevant, I think, unless you're arguing for a change in tax code.

I think, though, that I have misunderstood something, not you. I mean, I knew that S-corps were pass-throughs, but for some reason I wasn't thinking of that as ordinary income.

I think the real mistake of the GOP was to put forth this claim as if a tax increase was going to put some small businesses out of business, which is most likely untrue.

No, someone else is saying GOP is classing Bechtel as a small corporation because some GOPers are concerned that the same tax increase that will hit some small business owners will also hit Bechtel.

Which, go scratch your head over that logic.

I think Bechtel is just one of the worst examples of big businesses being described as small businesses. The real point is that the 750K "businesses" represent only 3% of those businesses' owners, but 50% of the total income of the entire group. And it's only that 3% that Orrin Hatch is advocating for:

The top 2 or 3 percent" of all small businesses would see their taxes go up under the Obama plan, Sen. Orrin Hatch (R-Utah) fumed this week. "That's 750,000 to 800,000 small businesses! That create most of the jobs in our society!"

So these 750k individuals create most of the jobs in our society? And, even if they do, will a small marginal tax increase make them stop?

I think the real mistake of the GOP was to put forth this claim as if a tax increase was going to put some small businesses out of business, which is most likely untrue.

I would not call it a mistake, for two reasons:
1) It's a lie, not a mistake.
2) It's an effective lie.
For some years now, the surest guide to truth has been: if the GOP says it,
it ain't so.

--TP

To get back to the question of work on infrastructure: governments have not so far set goals for fixing and upgrading infrastructure the way, say, the WPA did seventy-five years ago for a number of reasons. But I would like to bet that in many cases those reasons include this one: a real uncertainty about what infrastructure we will need in the future.

For example, triple A, UAW, and most corporations want the interstates fixed or upgraded, but given the twin prospects of peak oil and climate change, high speed electric trains and surface trams for in-city transportation would make more economic and environmental sense. The monetary and emotional investment in private cars collides with environmental and resource limits, and paralysis results.

I think the real mistake of the GOP was to put forth this claim as if a tax increase was going to put some small businesses out of business, which is most likely untrue.

Who made this claim? I recall concerns by many, within and without the GOP, that an increase in the marginal rate would impede many small businesses' ability to expand and could produce layoffs.

The tax increase presently under consideration is not large enough to make anyone I know quit working or even to produce lay-offs (it's a vanishingly rare employee who's value is so low that he/she'd be fired because the employer wanted to recoup 3.6% of taxes paid over 250K.).

The problem with increasing taxes is that Congress won't act to restrain spending. Dems and GOP's alike, they won't act. So we keep spending money, not reducing debt and not getting anything in exchange for sending in even more money.

I think the real mistake of the GOP was to put forth this claim as if a tax increase was going to put some small businesses out of business

Tony P beat me to it.

My thought is that the folks saying this know and understand the facts of the matter, and say what they say with the intent to mislead.

Further, I don't think it will do them or their agenda any harm at all.

I'd be delighted to be wrong on either count.

The problem with increasing taxes is that Congress won't act to restrain spending. Dems and GOP's alike, they won't act. So we keep spending money, not reducing debt and not getting anything in exchange for sending in even more money.

McTex: I don't disagree that this is a problem, but I don't think it's a probelm "with" not renewing expired tax cuts.

It's a separate issue. We need both spending cuts, and to allow some of the prior cuts to not be renewed, but even one of the two is better than nothing.

But discretionary spending is a small slice of the pie. Defense is the only item that we could possibly cut enough to make a difference.

See, ie,

here

The tax increase presently under consideration ...

... is another damn GOP lie.

NOBODY is "considering" raising taxes on anybody. The sunset of Dubya's tax cuts is ALREADY LAW -- the law which the GOP rammed through, on reconciliation no less, in 2001.

If you want to assert, in the GOP's defense, that hey, they didn't really MEAN IT, that's fine. I am not concerned to refute the proposition that GOP disingenuousness dates back to the dawn of the millennium.

--TP

It's a separate issue. We need both spending cuts, and to allow some of the prior cuts to not be renewed, but even one of the two is better than nothing.

But discretionary spending is a small slice of the pie. Defense is the only item that we could possibly cut enough to make a difference.

Two points. First, it is not unreasonable for the folks being asked to pay the add'l money to have some concrete assurance that the money will be well spent. Second, we certainly can eliminate, for two years at least, add'l increases in Medicare/Medicaid/SS. Unpleasant, yes, but do-able. Also, we can raise the SS age to 68 for the under 50 cohort. Unpleasant, yes, but also do-able. We can also reallocate within a capped budget. Hard choices, perhaps, but not impossible.

McTx,

It's reasonable "for the folks being asked to pay the add'l ANY money to have some concrete assurance that the money will be well spent." It's not as if Congress does less harm by spending my first tax dollar foolishly than by spending your last tax dollar foolishly.

It is not, in fact, reasonable for us over-50s to be stipulating SS changes to the under-50 crowd. If I had the power, I'd forbid anybody over about 25 to sit on any board or commission that purports to concern itself with the long-term solvency of Social Security. Old coots like Alan Simpson talking about 75-year time horizons ought to be ashamed of their own presumption.

The long-term finances of Social Security ought to be left to the people who will actually be around for the long term.

--TP

On the topic of social security, it's a two edged sword. Older people have already paid into the system and completed their end of the bargain, so why should they have no say?

And the other edge is that those benefits are necessarily paid for by young people. We're going to lower their benefits and make them pay the same amount? If we're going to go the route of unfairly screwing people over, why not just make the Social Security tax progressive?

"Also, we can raise the SS age to 68 for the under 50 cohort. Unpleasant, yes, but also do-able."

I think it makes a significant difference if your job at age 67 involves sitting at a chair, or heaving a 75 pound load every few minutes.

Also, we can raise the SS age to 68 for the under 50 cohort.

Full retirement age -- the age at which you can collect full SS benefits -- for folks born in 1960 or later (just about precisely the under 50 cohort) is currently 67.

All you youngsters hold the short end of the SS sliding-scale stick already.

And by "already" I mean now, today.

If I'm not mistaken, that's been the law since the SS reforms in 1983, which were specifically intended to address the boomer retirement bulge.

SS per se is pretty well funded for as far out as anybody makes those kinds of plans. The issue is that so much of the trust fund is held in federal notes, which we have to pay. But if I'm not mistaken, those are currently booked as part of our current US debt.

Seriously, I'm all for not wasting public money, but SS is not where the big problems are.

For some damned reason entitlements make people see red. Some folks have never gotten over the New Deal. And that's why SS is on the block.

It's like a point of pride with them, they won't rest until it's dead and gone.

Russell, I'm not sure that you have the reason for Social Security changes to be included in the discussion. One of the reasons, very likely. But far from the only reason.

Social Security is discussed as if it were a pension scheme into which people have paid. It is not and never was. It started as a safety net for those who had not (for whatever reason) saved enough to survive in retirement. The deductions from everybody's pay check were merely the tax to fund that safety net. Granted, it has suited a lot of politicians over the years to claim that those who have been paying are "entitled" to all the benefits that their parents' generation got. But that doesn't make it so.

As for another reason why Social Security might be on the table, consider this. The three biggest parts of the Federal budget are
1) Social Security payments
2) Medicare and Medicaid
3) defense
Followed by interest on the existing debt.

You could cut everything else to zero, and the budget would still be in deficit. So, if you honestly want a balanced budget (let alone to pay down the existing debt), you are going to have to make cuts to all of those. Significant cuts -- unless you are willing to scrap one of them (probably Medicare) altogether.

Granted, a lot of people who were expecting (against all reason) to have a comfortable retirement solely on Social Security are going to feel seriously ill-done-by. But Ponzi schemes do that. Doesn't make them viable in the long run.

The three biggest parts of the Federal budget are
1) Social Security payments
2) Medicare and Medicaid
3) defense
Followed by interest on the existing debt.

Yeah, I get that, and I've made the same point myself on a number of occasions.

I'll reiterate my points here.

Raising the full benefit retirement age for SS to 68 for the under-50 crowd will do damned little for the deficit, because the full retirement benefit age for the under-50 crowd is currently 67. I don't know if McK was aware of that when he made his very reasonable suggestions for how to dial back spending a bit, so I thought I'd just point it out.

Of the various programs you name, SS is on the soundest financial footing.

Some folks are trying to save a few bucks by dialing back SS benefits. Other folks would like to see SS eliminated altogether. A major, if not the major, motivation for folks in the latter camp is a desire to eliminate entitlements at the federal level altogether, on prinicple.

I don't think there are a lot of folks who anticipate having a comfortable retirement based solely on SS benefits.

The "Ponzi scheme" BS has been addressed 3,589,387 times before, here and elsewhere, so I won't bother digging into that. Folks think what they want to think, there's damned little anything I have to say is going to make a dent in that.

The fact is that we are living in the red. There are two likely solutions:

1. Spend less
2. Raise revenue

As you point out, as I have pointed out, as anybody with half a brain who looks at the federal budget can figure out for themselves, "spending less" at the level required to balance the federal budget will mean making *very significant* cuts in entitlements and defense.

SS will be tough because it's actually a pretty well run program and a lot of people benefit from it and like it.

Medicare/Medicaid will be tough somewhat for the same reason as SS, but more so because medical costs are going up rapidly.

Defense will be tough because the US is in love with the idea of being able to dominate anybody, anywhere on the face of the earth militarily beyond any shadow of a doubt, and because *a lot of people make a lot of money* off the the DoD. It's one of our most popular flavors of pork.

So, when people say the solution is to cut taxes and cut spending, I say good luck and let me know how it works out.

If the R's take Congress, we may see lower taxes but we will not see lower spending. We'll see increased capture of the legitimate regulatory function of the federal government, we'll see increase skewing of public policy in the interest of large holders of wealth, but we will not see lower spending.

My money says the R's will find a way to reduce SS benefits, if not start SS on the path to elimination, and *still* not reduce spending.

Feel free to take my bet, at least if it all goes to hell I'll get a lunch out of it.

russell: Yes, that is an improvement in ROI. It's what corporate officers are bound, by law in fact, to consider in making whatever decisions they make.

In the very short term, yes, it is an improvement in ROI. Hey, if we lay off these newscasters and reporters and DJs, and pipe in something created three states away, or switch over to parroting AP stories, or so on, yeah, you get a short-term boost since you cut your costs.

But first, there's only so far you can cut costs, before you start running into the basic costs of keeping the company running, beyond which you simply can't keep things going. And you're also hurting the company you bought, by making it less effective at the things it was actually created to do (besides line your pockets), and you're turning it into something that has no ability to be differentiated from any other newspaper/radio station/whatever anywhere nearby.

Which isn't to make a complete excuse for any local institutions, many of them stayed local because they really weren't that good. Competition from some kinds of national chains or whatever can set a floor for the minimum level of service, if they're done well. If they're done badly, well... see Wal-Mart.

The point is, in the medium and long term, the kind of slash and burn capitalism we've seen the past couple decades can't last that long. Once the places are all cut to the bone, then your income's cut too, and you're back to that same 2-3% profit margin things were at before, except now you've destroyed things that were parts of communities, and laid off lots of people who used to be customers. There's nobody left to loot.

Look, nobody should be surprised by this, because the institutions and laws that govern corporations in this country *mandate* that corporate officers act in the interest of the shareholders only, and specifically that they act to maximize the return on investment to those shareholders.

Y'know, since corporate officers are mandated by law, by the evil big government, to act only in the interest of next quarter's report, why haven't we ever heard libertarians decrying this imposition on the Freedom of the Market

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