Saturday, December 29, 2012

I can do it in 30 seconds...

On the 24th, we drove from Fredonia to our daughter's home in Albany for a few days. During the 5-hour drive, we listened to satellite radio for awhile.

One talkshow host had a caller who asked why it was fair that people in his income bracket--above $250,000/year--were being "targeted" for a tax increase. The host--who I am sure makes much more than $250,000 each year--absolutely mangled the reply. It was totally incoherent, and I blew a gasket.

We're on the Thruway going around 70 and I'm yelling at the radio. "I can explain it in 30 seconds," I yelled. I don't have a radio show, but I do have a blog so here goes. Please start the timer:

Let's have a look at how those with your income have done over the last 30 years. Here's a nice little graph:

Whoa! Looks like you folks have made out pretty well while the rest of us have gone pretty much nowhere. In fact, the median middle-class household income has gone DOWN by several thousand dollars during the last ten years.

Is this a fair picture? What about after taxes?

Wow, you still made out like gangbusters! And that's why it's fair that your taxes go up before anyone else's.

Sure, when the economy gets back on its feet we will all need to kick in a bit more in taxes. But right now, you are the group who can afford to pay a little bit more. That's why it's fair.

OK, please stop the clock...

First of all, let's note that even though the graphs were published by Mother Jones Magazine, the data is from the non-partisan Congressional Budget Office.

You may hear from me another time or two before we head back to Florida next week. We're at the house we're getting ready to sell for a few days picking up and filling nailholes. It's like camping since most of our stuff has already moved to Florida.

Even the satellite TV service has been cancelled so we're reduced to watching "off the air" TV. This time of the year is particularly bad since most of the shows we would normally watch are on cable or off the air during the holidays. Last night I was reduced to watching an Anne Murray special on a Toronto station hyping her "Friends and Legends" album which was first released in 2007!

Thursday, December 13, 2012

Has democracy turned into a yacht race?

[NOTE: I'm headed north for the holidays, so this will be the last post until after the first of the year.]

Remember Wisconsin? They had an election a couple of years ago and the Republican promise of "jobs, jobs, jobs" carried the day giving that party total control of state government.

And once the election was over, do you remember what became the obsession of Wisconsin state government? Here's a hint: It wasn't "jobs, jobs, jobs." In fact it was something that nobody had bothered to mention during the election campaign: removing the collective bargaining rights of public employees--with the exception of police and firefighters, for a reason to be discussed later.

Remember Ohio? Pretty much the same story. But the citizens of Ohio made use of their ability to cancel legislation by means of a referendum. By a 2-to-1 margin, Ohioans told the Republicans in charge of state government that they were just fine with workers not needing to go by themselves to ask the CEO of a giant corporation for a raise. It seemed a much more balanced system when the union representing ALL of the workers could knock on the CEO's door.

Then there is Michigan. Last week--in a breathtaking show of raw political power--Michigan passed a "right to work" law.

What made it breathtaking was that Michigan governor Rick Snyder had said all along--including during the election--that he thought such a law was too divisive for his state. Then came the 2012 election in which Republicans lost several seats in the state house (the state senate was not up for election in 2012).

Apparently that made things less divisive because at 11 AM one day last week Snyder called a news conference and announced that he now supported a "right to work" law for Michigan. Amazingly, just such a law was introduced into the legislature early that same afternoon and was passed--without any hearings or time for public comment--by 8 PM that same evening. As you might expect, it was then signed by the governor.

Let's understand just what a "right to work" law means. New York is an example of a state that does not have such a law. So, if you take a job in a company whose employees have union representation does that mean you must join the union and pay union dues? No.

It does mean that you must pay an "agency fee" which is the portion of the union dues which actually goes toward negotiating and enforcing the contract under which everybody in that company works.

"Right to work" means that you get to say to the union, "Sure, go ahead and bargain with management on my behalf. I'll be happy to accept any benefits you negotiate, just don't ask me to pay anything to support those efforts on my behalf."

We fought a war over "taxation without representation." Right to work laws amount to representation without taxation.

It's easy to see how this benefits big corporations which make large campaign contributions, but how is this supposed to benefit the average Michigan worker?

In theory, eliminating those pesky unions makes Michigan a more attractive place for companies to build their plants, attracting more jobs to Michigan.

In theory, allowing corporations to dump anything they wanted anyplace they wanted for free should have the same effect. Let's all hold hands and race to the bottom. First one there "wins."

In practice, it doesn't seem to work this way. Research shows that the average wage in "right to work" states is $1500 less than in other states and that there is no "job flow" toward these states.

Even if there were a "job flow," how would that help the nation as a whole with one state stealing jobs from another?

Well, at least Michigan has a procedure allowing the public to overturn laws. Except, budget items. Would you believe that the Michigan legislature attached the "right to work" law to a budget bill? That's exactly what they did!

Which brings me to yacht races. I've been a sailor all my life. I spent summers teaching sailing at the Rochester YMCA camp on Keuka Lake.

There are 3 ways you can win a yacht race. The first is to have the fastest boat in the race. If your boat isn't the fastest, you can still win by having a skipper and crew with outstanding skills.

Failing the first two methods, many yacht races are won by using the rules against the other contestants. If you can force your opponent into a situation where they must violate a rule in order to avoid a collision you can win by having them disqualified.

It seems like government has become like a yacht race. The Constitution says not a word about the filibuster, yet the rules allow a minority to keep something from happening that a majority wants to happen.

And the people of Michigan must now live under a law they never asked for and never got to debate because the rules have been manipulated to keep them from having a say in the matter. How democratic.

Anybody with a brain can see that what happened in Michigan is all about politics not jobs. a lot of the money supporting Democratic candidates comes from union members and many of the people who man phone banks and pound the turf to get out the vote for Democratic candidates are union members.

Why were police and firefighters exempted from the anti-union bills in Wisconsin and Michigan? Simple. Members of these unions most often support Republican candidates.

Tuesday, December 11, 2012

Does this make sense?

There appears to be strong Republican pressure building in Washington to raise the Medicare eligibility age from 65 to 67. Some say that this will save the federal government $5.7 billion per year, and that's a good thing. Others see it as a needed "trophy" to keep the Republican base settled down when tax rates on income over $250,000 are raised.

But let's visit the Law of Unintended Consequences for a moment. An easy-to-understand explanation appears in a piece by Austin Frakt published in The Incidental Economist. Here are the numbers:

1) By excluding 66 and 67-year-olds from Medicare, the federal government will save $5.7 billion in 2014.

2) But, those people denied Medicare coverage don't just disappear. They will spend $3.7 billion of their own money to purchase coverage from other sources.

3) Employers will spend an additional $4.5 billion to cover workers who would have been on Medicare if the age remained at 65.

4) Premiums on the new healthcare exchanges will increase because folks at 66 or 67 tend to have higher medical costs than those who are younger.

5) If you are already on Medicare, get ready to kick in! Why? Because--by law--Medicare recipients pay 25% of the cost of the program through their premiums. Excluding the 66 and 67-year-olds from Medicare makes the average age of Medicare recipients increase, and a higher average age means a higher average expense per recipient. Plus, Medicare loses the premiums that these people would have paid. The best estimate of this is a 3% increase in premiums. The monthly Medicare premium is about $100 so a 3% increase would be almost $75/year for a typical retired couple.

6) The combination of 4 & 5 above add up to about $2.5 billion, with the states spending some additional money on 66 and 67-year-olds eligible for Medicaid.

Add everything up and it costs $11.4 billion to save the federal government $5.4 billion. If this sounds like a good deal to you, let's talk about a bridge I own in Brooklyn.

It would be much more effective to talk about allowing Medicare to use its huge weight to bargain with drug manufacturers on price--as the Veterans' Administration is already allowed to do.

Don't hold your breath on that one. Here are some additional interesting numbers:

1) We just went through the most expensive election ever. About $2 billion was spent on TV ads, etc.

2) When Obamacare was being proposed, the insurance and drug companies made it clear that they were willing to spend $10 billion to defeat the bill if it was not to their liking. Just imagine how many 30-second TV ads this would buy, and there would still be plenty of money left over to bribe--excuse me, make campaign contributions to--every politician in Washington.

If you agree with me that this is on the dumb side of stupid, make a call or send an email to your representatives in Washington.

Monday, December 3, 2012

Social Security: Little "tweaks" matter.

It's important for retirees to pay close attention to the current deficit negotiations in Washington because the "big 3" programs of most interest to retirees are chips on the table. These are Social Security, Medicare and Medicaid.

Don't think Medicaid applies to you? If you eventually need longterm care, how will you or your family handle the almost $100,000/year cost? Medicare pays for only 100 days of this type of care. Even if you have longterm care insurance, most policies cover only a set number of years at a set monthly maximum. Almost one of every two Medicaid dollars goes to pay for longterm care for the elderly or disabled, and it's quite possible it will be a program to which you or your family will turn.

Paul Krugman's column, The Big Budget Mumble, in this morning's NY Times provides some information on negotiating positions.

" As his opening bid in negotiations, Mr. Obama has proposed raising about $1.6 trillion in additional revenue over the next decade, with the majority coming from letting the high-end Bush tax cuts expire and the rest from measures to limit tax deductions. He would also cut spending by about $400 billion, through such measures as giving Medicare the ability to bargain for lower drug prices."

"So what are Republicans offering as an alternative? They say they want to rely mainly on spending cuts instead. Which spending cuts? Ah, that’s a mystery. In fact, until late last week, as far as I can tell, no leading Republican had been willing to say anything specific at all about how spending should be cut." [NOTE: I've promised to stay away from politics in these blog posts, except where politics collides with areas of fundamental interest to retirees. If this isn't such an area, I don't know what is!]

"The veil lifted a bit when Senator Mitch McConnell, in an interview with The Wall Street Journal, finally mentioned a few things — raising the Medicare eligibility age, increasing Medicare premiums for high-income beneficiaries and changing the inflation adjustment for Social Security. But it’s not clear whether these represent an official negotiating position — and in any case, the arithmetic just doesn’t work."

Krugman goes on to point out that raising the Medicare eligibility age has been looked at by the nonpartisan Congressional Budget Office which found that raising the age from 65 to 67 would save about $113 billion over the next decade. Primarily because people entering Medicare have far lower health costs than the average Medicare participant.

According to the CBO, increasing Medicare premiums for the affluent raises only $20 billion over the next 10 years, and note that they already pay higher premiums than you or I. 

And then there's the matter of Social Security. The great "fix" being floated is to reduce Social Security costs by switching from the Consumer Price Index (cpi) to the "Chained Consumer Price Index" (chained cpi) in figuring the annual cost-of-living adjustment for Social Security recipients. This would "save" about $185 billion over the next decade.

Remember, however, that no general tax revenue goes into Social Security. It is totally paid for by the FICA tax on workers and their employers. It is not responsible for a single penny of the deficit. In fact, it runs a surplus!

So why are we even talking about Social Security in terms of reducing the deficit? Welcome to the wonderful world of smoke and mirrors!

But wait, it gets better! The "chained cpi" is supposed to be a more accurate picture of the cost of living since it corrects for consumer responses to price fluctuations. When the price of beef increases, consumers buy more chicken and the chained cpi accounts for this producing a slightly lower cost-of-living figure. It's not a big difference, but here's the thing: over the course of years these small differences act like compound interest and build up. Use the chained cpi for 30 years and your monthly Social Security check will be less by almost 10% compared with using the traditional cpi.

Oh, and there's more! For several years the Bureau of Labor Statistics has been calculating a third cpi specifically designed to reflect the cost of living for those 62 and older. People of this age have greater-than-average healthcare costs which are reflected in the "CPI-E"--the "E" standing for "experimental."
Use of this measure would produce larger cost-of-living adjustments than the current CPI.

It appears, for now, that the White House understands that Social Security is not part of the problem. USA Today reports that " Treasury Secretary Timothy Geithner echoed another White House message to Republicans during a string of Sunday show interviews: no Social Security talks as part of the fiscal cliff negotiations."

"We're prepared to, in a separate process, look at how to strengthen Social Security," Geithner said on ABC'sThis Week. "But not as part of a process to reduce the other deficits the country faces."

This is an area worthy of your attention. Let your representatives in both houses of Congress know your feelings.