Wonkbook: Social Security on the chopping block
Ezra is on vacation until November 7th.
1) Social Security is on the table for the supercommittee, report Jake Sherman and Manu Raju: "As a critical deadline for the supercommittee nears, Social Security appears to be on the negotiating table. In private conversations, and now in public, the idea of changing the social program as part of a deficit-reduction deal is gaining some traction -- a move that has been politically unthinkable for years. In a speech Monday in Louisville, Ky., House Speaker John Boehner (R-Ohio) appeared to raise the stakes on a grand bargain that would include major entitlement changes. Standing with his Senate counterpart, Minority Leader Mitch McConnell (R-Ky.), at the McConnell Center at the University of Lousiville, Boehner said such action would show markets that Congress can tackle the deficit."
2) The Fed isn't likely to change course, but it's in for some weighty talks, reports Neil Irwin: "When Federal Reserve policymakers meet to decide the nation’s monetary policy, they usually discuss where the economy is heading and how they should adjust interest rates to try to keep prices stable and Americans employed. At their meeting this week, bigger ideas will be on the table. No major policy changes are expected out of the two-day session beginning Tuesday, but the discussion will probably focus on some core questions about how the central bank communicates with the public about its goals and expectations for the economy. Should the Fed release more explicit information about what it expects to happen to the economy and its policies over the coming years? How much inflation should it tolerate as it tries to get the economy back to full employment?"
3) Obama is meeting with Merkel and Sarkozy on the Euro crisis, reports David Nakamura: "President Obama will open two days of the Group of 20 economic summit in Cannes, France, on Thursday with a pair of bilateral meetings dealing with the European debt crisis, which is likely to dominate the event. Obama is to meet with French President Nicolas Sarkozy and German Chancellor Angela Merkel, White House officials said Monday. Sarkozy and Merkel represent the continent’s two largest economies, and Obama will discuss with them the international response to the debt crisis in Europe, which has slowed global economic growth. In the weeks leading up to the summit, Obama has shared with European leaders, in a series of phone calls, the U.S. experience in confronting its own fiscal crisis two years ago, administration officials said."
4) The latest jobs bill will face Democratic defections, reports Scott Wong: "Senate Majority Leader Harry Reid declared Monday that Democrats are the only ones 'fighting to create good-paying American jobs.' But he again could face a handful of defections from his own party when he brings the next jobs bill to the floor this week. Nebraska Sen. Ben Nelson, a moderate Democrat who’s facing a tough reelection next year, said he’ll take a look at the latest jobs proposal -- a $60 billion package to help rebuild aging infrastructure -- but continues to have concerns about the fact that these bills have been funded by raising taxes on the rich...Sen. Joe Lieberman, a retiring Connecticut independent who caucuses with Democrats, has argued the government can’t keep spending more money at a time Congress is wrestling with the deficit. And he said he had no desire to complicate the task of the congressional supercommittee."
1) Republicans should run away from the flat tax, writes Ramesh Ponnuru: "If you were designing a tax code from scratch, you wouldn’t come up with anything as convoluted and inefficient as our current system. But if you were trying to improve the tax code, you wouldn’t come up with Perry’s plan, either. You’d only come up with it if you started with the imperative to propose something you could call a 'flat tax' and then modified it as you went along to protect yourself politically...A plan that simply cuts the tax rate on high earners (and on capital gains, dividends and estates) would have all the economic advantages of Perry’s proposal with none of the conceptual headaches. Were Perry to become the nominee, President Barack Obama would probably say Perry’s plan is a way to complicate everyone’s lives in order to cut taxes for the rich. And he would be right."
2) Occupy Wall Street targets the wrong type of inequality, writes David Brooks: "If you live in these big cities, you see people similar to yourself, who may have gone to the same college, who are earning much more while benefiting from low tax rates, wielding disproportionate political power, gaining in prestige and contributing seemingly little to the social good. That is the experience of Blue Inequality. Then there is what you might call Red Inequality. This is the kind experienced in Scranton, Des Moines, Naperville, Macon, Fresno, and almost everywhere else. In these places, the crucial inequality is not between the top 1 percent and the bottom 99 percent. It’s between those with a college degree and those without...Red Inequality is much more important."
3) Social Security alarmism contradicts itself, writes Paul Krugman: "In legal terms, the program is funded not just by today’s payroll taxes, but by accumulated past surpluses -- the trust fund. If there’s a year when payroll receipts fall short of benefits, but there are still trillions of dollars in the trust fund, what happens is, precisely, nothing -- the program has the funds it needs to operate, without need for any Congressional action. Alternatively, you can think about Social Security as just part of the federal budget. But in that case, it’s just part of the federal budget; it doesn’t have either surpluses or deficits, no more than the defense budget...What you can’t do is insist that the trust fund is meaningless, because SS is just part of the budget, then claim that some crisis arises when receipts fall short of payments, because SS is a standalone program."
4) China isn't going to bailout Europe without strings attached, writes Yu Yongding: ". As China’s most important trade partner, a financially sound and prosperous Europe is firmly in China’s interests. Sitting as it is on $3,200bn in foreign exchange reserves, China can help, but while it is willing to do so this will not be without conditions. As Wen Jiabao, premier, pointed out at the 2011 Dalian World Economic Forum, the European Union has first to put its house in order. When countries and political parties in the eurozone squabble among themselves over how to proceed, how can China support any hastily assembled rescue packages? China’s faith in the US dollar has been proved misplaced and it cannot afford to make the same mistake again...From the perspective of domestic politics, bailing out EU countries with Chinese money is hard for the Chinese people to accept."
'90s nostalgia interlude: Semisonic plays "Closing Time" live.
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Still to come: Greeks are taking the biggest hit in their own bailout deal; the administration is moving to stop drug shortages; transportation groups want a gas tax hike; another DOE-backed energy company has failed; and an awesome iPad-based Halloween costume.
Greeks themselves would take the hardest hit in the latest bailout plan, reports Howard Schneider: "Like their colleagues throughout Europe, bankers in Greece invested heavily in their own government’s bonds, open to what they considered low-risk investments that helped their country. Now they are about to pay for it. A plan being developed to help reduce Greece’s debts -- and prevent it from becoming the first euro-zone country to default on its debts -- will fall hardest on the country’s banks and the national pension system. They would face tens of billions of dollars in losses on investments in Greek government bonds. According to data from the European Banking Authority, major Greek banks holds about $70 billion in Greek bonds, more than one-fourth of the total held by private investors worldwide. Greece’s national pension system has about $30 billion at risk, according to local bank and corporate officials."
The rich stand to gain the most from Rick Perry's tax plan, reports Catherine Rampell: "Gov. Rick Perry’s proposal for an opt-in flat tax would primarily benefit the wealthiest Americans, according to a new analysis from the Tax Policy Center, a nonpartisan research organization. Compared with current tax policy, the plan would most likely reduce federal tax revenue by $570 billion, or about 15 percent. The plan, released last week as part of Mr. Perry’s campaign for the Republican presidential nomination, allows taxpayers to calculate their personal income taxes under the existing tax code, which is progressive. But it also allows taxpayers to instead have their income taxed at a flat 20 percent rate. In this alternative system, long-term capital gains, qualified dividends and Social Security benefits would not be taxed, and only a handful of deductions would be allowed."
The European Central Bank should start acting like a central bank, writes Brad DeLong: "The ECB continues to believe that financial stability is not part of its core business...Perhaps the most astonishing thing about the ECB’s monochromatic price-stability mission and utter disregard for financial stability - much less for the welfare of the workers and businesses that make up the economy - is its radical departure from the central-banking tradition. Modern central banking got its start in the collapse of the British canal boom of the early 1820’s. During the financial crisis and recession of 1825-1826, a central bank - the Bank of England - intervened in the interest of financial stability as the irrational exuberance of the boom turned into the remorseful pessimism of the bust."
Yes, Virginia, income inequality is growing, writes Matt O'Brien: "Skyrocketing income inequality the past few decades is just a 'myth'--at least according to Jim Pethokoukis of the American Enterprise Institute...Consider the research and writing of Robert Gordon, a professor of social sciences at Northwestern University. He’s has done pioneering work questioning the extent of the aforementioned gap between productivity and median wages--work that Pethokoukis misappropriates to claim that income gains have been shared 'fairly equally.' Gordon found that the productivity gap may be about a tenth the size as what is commonly thought, but, as he told me, that doesn’t negate the story about runaway wealth at the top of the income distribution." Adorable animals and children being adorable together: A baby and dog eat cheerios together.
The administration is moving to curb drug shortages, report David Nakamura and Rob Stein: "President Obama ordered federal regulators Monday to step up efforts to prevent shortages and price fixing of life-saving prescription drugs, the latest White House initiative that does not require congressional approval. Obama’s executive order directs the Food and Drug Administration to more broadly enforce reporting requirements for manufacturers running low on drugs, expedite review of new prescription drug suppliers and work with the Justice Department to prosecute price gouging...The number of shortages of crucial drugs has increased dramatically in recent years to at least 232 this year, industry experts said. This list includes some of the most commonly used drugs in hospitals that are designed to care for cancer patients, heart attack victims and accident survivors."
Formally repealing CLASS won't save any money, reports Sam Baker: "The Congressional Budget Office confirmed Monday that formally repealing the dormant CLASS program in the healthcare reform law would not affect the deficit. Republicans are pressing hard to repeal CLASS. The program had accounted for roughly 40 percent of the healthcare law’s total deficit reduction -- about $81 billion over 10 years, according to CBO’s most recent projections. But the Health and Human Services Department announced earlier this month that it could not make the program work and would not proceed with implementation. CBO considers that announcement 'definitive new information' and will no longer assume any revenue from the CLASS program, the budget office said in a letter to Sen. John Thune (R-S.D.). For that reason, Thune’s bill to formally repeal CLASS would not affect the deficit."
Health reform is running up against departmental boundaries, reports Lester Feder: "The health care reform law gives federal health officials a new mandate to address the fact that racial and ethnic minorities tend to be sicker than the rest of the population. But there are limits to what they can actually do about the problem. The root causes, public health experts say, are social forces such as poverty, poor schools and crumbling infrastructure that are outside the control of the Department of Health and Human Services...According to the Centers for Disease Control and Prevention, African-American babies die almost 2½ times as often as white babies in the United States; poor children are 43 percent more likely to have asthma than their better-off peers; and people without a high school diploma are almost twice as likely to develop diabetes as those who have more than a high school education."
The administration is battling Catholic groups on health reform, reports Jerry Markon: "A contentious battle between Catholic groups and the Obama administration has flared in recent days, fueled by the new health-care law and ongoing divisions over access to abortion and birth control. The latest dispute centers on a decision by the Department of Health and Human Services in late September to end funding to the U.S. Conference of Catholic Bishops to help victims of human trafficking, or modern-day slavery. The church group had overseen nationwide services to victims since 2006 but was denied a new grant in favor of three other groups. The bishops organization, in line with the church’s teachings, had refused to refer trafficking victims for contraceptives or abortion."
Transportation groups want a gas tax hike, reports Adam Snider: "For the first time in two decades, major transportation groups have banded together and made a request that, in other circumstances, would be considered crazy -- 'Tax us...NOW.' But the answer from Congress and the White House has been a resounding 'No!'...The players came together in 2009, and it was a strong coalition -- the U.S. Chamber of Commerce, labor groups, cities, states and county groups banded together. Truckers also joined with the manufacturers whose goods they transport. But it wasn’t enough. Pro-business Republicans ignored the Chamber’s advice. Democrats didn’t do what unions wanted. The White House, worried about the middle class in a bad economy, didn’t want to further burden working families."
Halloween interlude: A guy uses two iPads to simulate a hole in his abdomen.
Another DOE-backed firm has gone bankrupt, report Steven Mufson and Juilet Eilperin: "In August 2010, Beacon Power became one of the first companies in the nation to get an Energy Department loan guarantee designed to jump-start innovative and clean energy projects. On Monday, it became the second one to file for bankruptcy. Beacon Power -- which uses large flywheels to store power and help grid operators smooth out dangerous electrical surges -- owes the Energy Department $39.1 million and the state of Massachusetts $3.45 million. Its technology was considered a promising way to ensure grid reliability, especially as fluctuating wind and solar energy sources come online...In a Sept. 15 presentation, Beacon chief executive Bill Capp said the facility had been 'highlighted by the White House as one of the 100 Recovery Act projects that are changing America.'"
Fred Upton has made a major right turn, reports Ned Martel: "For his quarter-century in office, Upton has embodied balance: He is a friend to House Speaker John A. Boehner (R-Ohio) and Minority Leader Steny H. Hoyer (D-Md.), he implores manufacturing chief executives and endangered-species advocates to just call him Fred...Onetime Democratic allies wonder what became of their friend Fred, who once pushed for mandates that all light bulbs be more energy-efficient but who now upbraids the Environmental Protection Agency for protecting the environment. In his job as Energy and Commerce Committee chairman, Upton has ruled more forcefully than anyone expected."
Closing credits: Dylan Matthews is a student at Harvard and a researcher at The Washington Post. Wonkbook is compiled and produced with help from Michelle Williams.